Canadian Energy companies starting to feel the plunge

POSTED ON December 04, 2014 BY James Fraser
CATEGORY Canadian Energy, Stories,

With the price of oil down ~40% from June highs and no rebound in sight oil companies are being forced to make some quick moves heading into 2015. The energy sector has a major weighting in the TSX and TSX Venture and has pulled both indexes down considerably in the last week.

Companies have begun to reduce capital spending plans in 2015 and some have already cut dividends.

Some tough choices have to be made especially for the high yielding dividend companies. Dividend yields on several names have jumped to around the 10% level which likely indicates that more dividend cuts are coming.

Here are how some bigger energy companies have already reacted:

Canadian Oil Sands (COS.T) has announced they will be cutting the quarterly dividend by 42% to 20 cents per share. Canadian Oil Sands does not hedge so expect volatility in the name.

Petronas (Malaysian oil giant) announced a delay in the decision for the Pacific Northwest LNG project near Prince Rupert, British Columbia. A reduction in oil prices and high construction costs are weighing on management's decision.

Enbridge (ENB.T) announced that they will undergo a $17 billion dollar restructuring. The stock was up 10% today after the company reaffirmed its earnings guidance, raised its dividend, and increased its payout ratio.

Analysts are busy stress testing the space to see if companies can sustain 2015 capital spending estimates and current dividend payouts. Many companies are unsustainable at current levels and some tough decisions will have to be made by managment.

Some names are off over 40% and although they look like a bargain, that is not necessarily the case as sentiment continues to sour on the energy sector.

More pain could be coming in the sector and it will be interesting to watch as companies announce plans for 2015 over the next several weeks.

Energy investors would be wise to remain patient and see what happens with the oil price.

Smart investors are looking for:

1. Low cost producers

2. Companies with manageable debt levels

3. Companies with hedges at higher oil prices in 2015

Investors should also try to find companies with high insider buying. Some of the Canadian energy companies showing increased insider buying activity include Tamarack Valley Energy (TVE.V), Bellatrix Exploration (BXE.T), and DeeThree Exploration (DTX.T).

I have no position in any of the stocks mentioned. This is not investment advice. As always please do your own due diligence.

James Fraser

Mr. Fraser joined CEO.ca in October 2014. He is passionate about the mining industry. His passion led to co-authoring the e-book "Mining Stocks Investor Guide: A Guide to Investing in Mining Companies." He has a finance background and has completed his Canadian Securities Course (CSC) and Conduct and Practices Handbook (CPH). When Fraser is not "digging" up the latest mining stock, he can be found enjoying a wide variety of sports or travelling the world. More →

Twitter: @miningstocks

james@miningstocksguide.com

James Fraser

Twitter: @miningstocks

james@miningstocksguide.com

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