Commodity Price Update – Impact on Integrateds, Large Cap E&P, Oilsands
28 Sep 16
3Q16e WTI prices look set to average ~US$44.50/bbl vs. our $50.00/bbl prior estimate. We have also reduced our 4Q16e WTI forecasts by US$5.00 to US$50.00/ bbl, but left our 2016e+ oil & gas price deck largely unchanged. For the second time in three months we are increasing our forecasts for Canadian refined product premiums relative to New York Harbor.
2Q16 Update – Low Cost Growth Plans Outlined
03 Aug 16
MEG outlined two potential phases of brownfield growth that could add ~30 mbbl/d for <$750 mm. Beyond the 3.3 mbbl/d of proposed additions to be funded by $30 mm later this year (2016 capex budget of $170 mm unchanged), we suspect these will only proceed if MEG can fund without growing net debt. An outright sale of its 50% stake in Access still seems unlikely to us, but perhaps. MEG considers selling a partial stake. Almost half of 2H16e production now has WTI downside protected at ~US$45/bbl. No change to $7.00/share target price. Upgrading to Outperform.
Integrateds, Oilsands & Large Caps
20 Jul 16
The Fort McMurray wildfire took more than 1.2 mmbbl/d of oilsands production offline at one point, disrupting operations of many companies within our coverage universe. We expect production estimates for many oilsands producers (HSE, IMO, SU, ATH) to be more varied than usual with more variables to account for than usual (downtime, ramp up, sales volumes). SCO prices were boosted by the wildfire, with CNQ best positioned to have taken advantage, given the upgrader at Horizon was only mildly affected by wildfires. CVE, HSE and SU likely benefited from a positive FIFO impact. We estimate a positive FIFO impact of $4-5/bbl of throughput assuming a 30 day lag, with a larger positive FIFO impact on longer lags. We are generally close to consensus for most CFPS estimates, with the exception of Suncor, where we are estimating $0.34/share versus consensus at $0.44/share. There are no target price or ranking changes with this publication.
Sustaining Capital and Implied Free Cash Flow
07 Jul 16
We have analyzed recent Company estimates of sustaining capital. Relative to our approximations of sustaining capital, post Horizon expansion, at current prices CNQ offers a far better free cash flow yield than the Canadian Integrateds, even in a high case refining margin scenario (see charts on page 2). We are upgrading our ranking on CNQ to Top Pick from Outperform, increasing our target price by $3.00 to $47.00/share, while we have reduced our target prices for both HSE and CVE by $1.00/share, to $18.00/share. In our view CNQ is clearly better value than any of the Canadian Integrateds.
1Q16 Results In Line, No Update on Access Pipeline
02 May 16
1Q16 results were in line with FirstEnergy estimates and consensus. No update given on Access Pipeline divestiture, except that multiple parties are engaged in discussions Ranking and target price maintained at Underperform and $6.00/share, respectively
SMALL FIRE AT SULPHUR TREATMENT PLANT EXTINGUISHED - NO ONE HURT
04 Mar 16
MEG issued a press release last night, reporting that a small fire at its sulphur treatment facilities occurred yesterday. The fire was extinguished, no one was injured, and the integrity of the main processing facilities was not impacted. Production has been temporarily suspended and MEG is working with the regulatory authorities towards safely resuming operations.
4Q15 Results, Access Pipeline Analysis, Downgrading to Underperform
08 Feb 16
4Q15 results in line or better than FirstEnergy and consensus expectations, while spending less than guidance in 2015. 2016e budget revised to sustaining capital of $170 mm. If necessary, MEG can halt sustaining capital, resulting in gradual decline of production without damaging reservoir. We suspect that a sale of MEG’s ownership in the Access Pipeline may not meet market expectations. Reducing ranking to Underperform (from Outperform) and target price to $4.00/share (previously $16.00/share), reflecting FirstEnergy’s updated price deck and futures strip pricing negatively impacting our RENAV estimate, and reduced growth forecasts.
Reduced Oil Price Forecasts – Impact on Integrateds, Large Cap E&P, Oilsands
08 Feb 16
With the reduction to our oil price deck (see our commodities analyst Martin King’s note), we have made significant reductions to our target prices for this group of companies. Notably, we have taken our rankings for Imperial Oil and Suncor to Underperform, as we believe the equity valuations for these two companies are implying much, much higher oil prices, AND much better refining margins, going forward, than we believe is reasonable to assume at this time. We do not believe these two stocks will participate in much of the upside if oil prices rally in the near term, and to the downside, refining margins year-to date are looking weaker, with Eastern Canada margins the only bright spot, and that may not last.
4Q15 CONFERENCE CALL NOTES
04 Feb 16
Many questions were asked with respect to the status of this process. Management acknowledged that it is fully committed to getting the right deal in place in an expedient time frame, and that it is pleased with the progress it is making, but negotiations over items such as what MEG's long term commitments would be make the process more complicated than one might assume otherwise.
4Q15 ANALYSIS, 2016E BUDGET REDUCED
04 Feb 16
Market Impact: Should be positive. MEG reduced its 2016e capex budget by 50%, while 2015e capex also came in below expectations. 4Q15 CFPS of -$0.20/share was better than our -$0.24/share forecast (price realizations, operating costs, and volumes) but slightly behind the survey average of -$0.18/share.
4Q15e Preview, Liquidity Analysis, & Bitumen Pricing Update
25 Jan 16
4Q15 results will be ugly, but 1Q16e is obviously shaping up to be much worse. We anticipate further capex budget reductions and have moved capex estimates below current guidance for several companies. Bitumen prices are single digits. If they go negative we suspect some bitumen producing projects could curtail output at least modestly. Liquidity Analysis: futures strip pricing would imply massive debt increases in 2016e-2017e for most names, but most names have sufficient liquidity arranged. We have reduced our ECA target price by US$2.00/share to more appropriately reflect commitments associated with non-core assets.
MAJOR SHAREHOLDER APPROVED TO SELL MORE SHARES
23 Dec 15
Market Impact: Negative as news of MEG's major shareholder's intent to sell more shares comes with the stock at an all-time post-IPO low. That said, this news may also signal that MEG's Board's view of what an acceptable bid price is may be lower than the market suspected.
Revised Commodity Price Forecasts – Impact on Canadian Integrated Oils, Senior E&Ps, Oilsands
14 Dec 15
FirstEnergy has reduced its 2016e WTI oil price forecast from US$57.00/bbl to US$49.75/bbl, and also reduced its natural gas price forecasts going forward. We have updated our estimates and target prices, also incorporating this past week’s guidance and news disclosures. Given no significant changes to our oil price forecasts for 2017e+, and the predominance of long life oil producing assets within this group of companies, our target prices have only been reduced modestly, while we have made no changes to rankings, which continue to be biased towards stocks that should benefit the most from a recovery in oil prices.
07 Dec 15
MEG’s $328 mm 2016 capex budget was slightly higher than our forecast, but is being partially funded by a $110 mm non-core asset sale (we suspect either Imperial/Exxon or CNRL was the buyer). We have set our 2016e production and non-energy opex estimates at the best end of the guidance ranges (83.0 mbbl/d and $6.75/bbl respectively), resulting in a 2% reduction to our 2016e EBITDAX forecast. Our 2016e cash flow estimate is down 8% as we are assuming a larger portion of interest costs are expensed instead of capitalized going forward.
3Q15 Results Analysis
29 Oct 15
MEG’s 3Q15 disclosures were highlighted by better than expected cash flow on the back of better than expected price realizations and operating costs, and reduced capex guidance. We have reduced our go-forward capex and production forecasts, now forecasting production to be flat until 2017e, after which production begins to ramp up to ~120 mbbl/d by late 2020e, once eMSAGP (infill wells and gas injection) on Phase 2B is fully implemented, and an additional ~20 mbbl/d brownfield expansion capacity is ramped up. Our capex estimates now reflect negligible capex other than for sustaining capital and these production growth projects.
3Q15 CASH FLOW BEATS - COST AND CAPEX GUIDANCE REDUCED
28 Oct 15
Market Impact: Positive. Cash flow was stronger than expected, due to lower opex, better price realizations, and sales volumes exceeding production. 2015 guidance for capex and opex has been reduced. That said, we were surprised that September production volumes were not stronger, and may have to reduce our 4Q15e production estimate, which currently sits at 86,750 bbl/d.
3Q15 Preview – Integrated Oils, Large Cap, E&P, Oilsands
22 Oct 15
This document reviews our expectations for upcoming quarterly updates for the Canadian Integrated Oils, Large Cap E&Ps, and Oilsands names. Our 3Q15 CFPS estimates are notably ahead of ‘consensus’ for IMO, and notably behind ‘consensus’ for CVE and SU. We have made no ranking or target price changes with this report, but note that earlier this week we increased our target price for Canadian Oil Sands to reflect our belief that Suncor will ultimately raise its bid to the 0.32 share exchange ratio it previously offered COS’s Board in April (current bid is a 0.25 exchange ratio).
INTEGRATEDS, OILSANDS & LARGE CAPS - Commodity Price Deck Update – Impact for Canadian Integrated Oils, Large Cap E&Ps, Oilsands
28 Sep 15
Our 3Q15e estimates have been updated to reflect quarter-to-date commodity prices (see Martin King’s notes on oil and natural gas prices), and recently available production data and company disclosures. Going forward, our commodity price forecasts are largely unchanged, other than a US$0.35/mcf reduction to our NYMEX Henry Hub forecast in 2016e, a narrower AECO discount, and a reduction to our 4Q15e and 2016e Canadian dollar forecast.
INTEGRATEDS, OILSANDS & LARGE CAPS - Reduced Oil Price Forcecasts - Impact For Canadian Integrated Oils, Large Cap E&P, Oilsands
31 Aug 15
With our firm reducing our WTI price forecasts by more than US$10/bbl for the second half of this year and 2016e, and by US$5/bbl longer term, we have reduced our target prices across the board (see FirstEnergy commodity analyst Martin King’s note on oil prices). Our target prices continue to be derived primarily in relation to our Risked NAVs (‘RENAVs’). Generally, we have looked at a weighted average of our estimated RENAVs (75% FirstEnergy price deck/25% futures strip) for the Integrateds & Large Caps, with an average target price reduction of 11% for those companies.
Strong Production (Again), Sale of Access Pipeline Being Contemplated, Brownfi eld Expansion Planning Continues
30 Jul 15
MEG’s 2Q15 production came in ahead of guidance, while operating costs were lower than expected. Recent testing of Christina Lake 2B confirms that there is significant incremental processing capacity, supporting MEG’s plans to pursue lower cost, smaller scale brownfield debottlenecking expansions. We continue to incorporate such expansions into our base case forecasts (largely unchanged).
2Q15 CFPS BEATS ON LOWER OPEX, DELEVERAGING REVIEW LAUNCHED
28 Jul 15
Market Impact: Positive. Production and cash flow for the quarter beat our estimates and consensus, while non-energy opex, even after normalizing for capitalization of turnaround costs (the first time these have been capitalized) was impressively low. The Company also initiated a review of deleveraging options during the quarter, with its ownership interest in the Access Pipeline specifically mentioned.
ADDITIONAL ESTIMATE REVISIONS
26 Jun 15
After substantially increasing our MEG estimates for 2Q15e earlier in the week, we have reduced our CFPS estimates as we believe we had been referencing the wrong heavy oil price posting in deriving our revenue forecasts, and were likely underestimating the cost of delivering diluent to Christina Lake. Our CFPS estimate for 2Q15e is now $0.28/share (dil.), down from our $0.52/share mid-week estimate, but is still a substantial increase from the $0.00/share estimate we were carrying the week prior. Bloomberg consensus is $0.15/share. Our 2015e and 2016e CFPS estimates are now $1.06/share and $3.68/share respectively, down slightly relative to our mid-week estimates, but up from our estimates of the week prior of $0.55/share and $2.86/share respectively. Our 2Q15e production estimate is 68.6 mbbl/d, while we forecast a realized bitumen price net of transportation expense of $37.55/bbl and non-energy opex of $12.50/bbl.
Commodity Price Deck Update: Impact for Canadian Integrated Oils, Senior E&Ps, Oilsands
25 Jun 15
FirstEnergy’s updated commodity price forecast has resulted in significant increase to our cash flow estimates for 2Q15e for our group, driven by strong Canadian oil prices. Beyond this quarter we are calling for heavy oil differentials to be narrower than previously forecast, and as a result our cash flow estimates beyond 2015e have increased (see Martin King’s notes on oil and gas). Estimates for names with the highest leverage to heavy oil prices (i.e. MEG, CVE, CNQ, PXX) see the largest lift, while our COS estimates have been reduced due to its negative leverage to heavy oil prices. We have upgraded MEG to Outperform and taken our target up by $3.00 to $25.00/share, and reduced our target price for COS by $1.00 to $10.00/share.
Low and Volatile Oil Prices Cause Double Whammy to MEG’s 1Q15 Financial Results
11 May 15
Despite a decent quarter operationally, MEG’s 1Q15 cash flow was well below expectations, as the timing of diluent purchases and heavy blend sales in a highly volatile price environment worked against MEG in the quarter. This volatility can just as easily work in MEG’s favour at times, so we are not fussed by the financial “miss” as it does not impact our go-forward estimates.