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Msg  293025 of 306507  at  10/16/2020 4:43:36 PM  by

Hombre77

The following message was updated on 10/16/2020 4:45:12 PM.

 In response to msg 292710 by  Hombre77
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Re: Could the sector turn around?

  
My initial post (the one I'm replying to here) looked at the performance of XLE, XOP & XEG.TO relative to WTI.  I thought it would be useful to expand the scope to look at the relative performance of a number of Canadian companies that are often discussed here. 
 
For dual-listed equities I used $US prices, but for companies that only trade in Canada I've converted $Cdn stock prices to $US equivalents to remove the currency effect.  I realize some of these companies sell their crude based on WCS, and that the natural gas weightings vary.  In spite of that, I think the charts below are still a good indicator of relative performance. 
 
My original post described the primary components of XOP and XEG.TO.  As shown below, XEG.TO underperformed XOP until 2014.  Since then there have been periods of slight outperformance, and the recent trend is up.  This could accelerate as TMX nears completion, if shale woes continue, and if a Biden victory makes Canadian E&Ps relatively more attractive.   
 
 
 
 
 
 
Oil-focused SU & IMO are Canada's largest integrated oil companies, while CNQ, which is more gas-focused, is the largest producer on a BOE basis.  IMO is 70% owned by XOM.  The few analysts on BNN who admit to owning oil & gas seldom mention names other than SU and CNQ.  Yahoo lists current market caps ($Cdn) as:  CNQ: $28B;  SU $24B;  IMO $12B. 
 
The following graph shows share price performance relative to WTI.  I have also included CVE, which has a $6B market cap.  SU & IMO have tracked each other relatively closely since 2000, though IMO was the superior performer until 2016.  CNQ lagged SU & IMO until 2009, but has tracked them fairly closely ever since.  CVE has significantly underperformed the other three since late 2014, likely due its exposure to WCS pricing and its higher relative debt level. 
 
Between 2000 & mid-2007 SU & IMO nearly tripled relative to WTI, increasing from 20-25% of WTI to 65% of WTI.  By 2014 they had fallen back to roughly 40% of WTI before running back up to the 75-90% level by early 2016.  It's been all downhill since then, with SU, IMO & CNQ declining to 30-50% of WTI.  IMO experienced the worst performance of the three over that period.  CVE has fared even worse, declining from 40% of WTI in 2014 to just 10% -  a 75% downdraft. 
 
 
 
  
 
Here's a chart for CPG, BTE, MEG, FRU, WCP, KEL & CR.  Looking at the post-2011 timeframe, BTE has distinguished itself as the worst performer, followed by CPG and then MEG.  BTE, which traded at 60% of WTI in 2011, is now at just 1%, a stunning loss of relative valuation.  CPG has gone from 58% to just 5%, while MEG has moved down from 50% to 5%.  Those plummeting relative values tell you everything you need to know about sentiment changes. 
 
 
 
 
 
 
It's quite interesting to note that FRU, a royalty play whose revenue depends largely on oil prices and that traded at roughly 20% of WTI from 2006 to 2017, has fallen to just 7% of WTI. 
 
 
Here's an expanded view of the post-2015 timeframe, with CPG having the dubious honour of being the biggest loser over that period:
 
 
 
 
 
 
 
 
 
Although we may never return to the glory days of 2011, there appears to be incredible potential for outsized returns if sentiment eventually turns -  at least for companies that don't go BK, or get bought out at cents on the dollar before then.  For example if WTI returns to $60, and CPG can recover to even a measly 10% of WTI, it would be a $6 stock vs. the $1.24 that it closed at today.  Similarly, if CR could return to the 10% of WTI that it traded at in the 2014-16 timeframe, it would be a 20-bagger from current levels. 
 
Risky?  Sure.  But could we see those types of returns over the coming years?  I think 'yes', given a sentiment change and smart management by E&P companies.     
 


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Msg # Subject Author Recs Date Posted
293189 Re: Could the sector turn around? spaddy 0 10/18/2020 7:57:15 AM








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