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Barclays: Canada’s Oil, Gas Mid-Caps To Benefit From Slower Output Growth

Canadian mid-cap oil and gas drillers could actually benefit from the slower production growth because it would boost capital efficiency and lower risks, according to research by Barclays.

Canada’s exploration and production (E&P) companies do not usually promise high growth in output, unlike U.S. oil and gas drillers, Barclays says, as reported by Reuters.

In Canada’s oil and gas industry as a whole, a slowdown in production growth could ease some of the pressure on service costs and mitigate pipeline pressures, according to Barclays.  

Three of Canada’s mid-caps that have seen their stocks drop by 40 percent or more year-to-date are poised to be the top candidates for moving to a sustainable/income model. These are Bonavista Energy, Crescent Point, and Obsidian Energy, according to Barclays.

Another three mid-caps have deep asset portfolios, and this is expected to help them to continue to grow. These firms, according to Barclays, are ARC Resources, Seven Generations, and Paramount Resources.

Canada’s oil-producing regions saw the highest increase in insolvencies over the 12 months to June 2017, according to an insolvency report by the federal government from early September. Total insolvencies in Alberta were up 11.6 percent over the 12-month period to June, with actual bankruptcies up by 4.5 percent to 5,346, and bankruptcy proposals up by 16.9 percent to 8,015.

Related: The Trillion Dollar Market That Stopped Chasing Profits

Last week, Statistics Canada said that following an eight-month streak of increases, Canada’s real gross domestic product (GDP) was essentially flat in July, driven down by a decline in oil and gas extraction.

The mining, quarrying, and oil and gas extraction sector contracted 1.2 percent in July, dragged down for the most part by a 1.8-percent drop in the oil and gas extraction industry.

“Despite what’s been a collapse in energy sector cap-ex, the prior investment spree is continuing to bear fruit today in increased output,” Nick Exarhos at CIBC World Markets said in a note, commenting on the GDP figures.  

By Tsvetana Paraskova for Oilprice.com

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