Recent improvements in commodity prices have done little to benefit the stocks of Canadian oilfield service companies, but analysts with GMP FirstEnergy see a light at the end of the tunnel.
Patience is a virtue that will be rewarded for oilfield service investors, the investment bank said in a research note on Friday.
“Weak oilfield services returns year-to-date are the result of a tepid view on the Canadian energy sector given wide Canadian crude differentials, soft AECO prices, significant regulatory constraints and macro headwinds (such as the potential for a weakening Canadian dollar, NAFTA renegotiations, et cetera),” analysts said.
While the 12-month outlook for these companies is neutral, as egress issues in both Canada and the Permian Basin are expected to keep a cap on activity and price increases, longer term the business appears to be picking up.
“A key factor in Canadian oilfield services stocks rerating is the Canadian energy industry providing demonstrable proof that it can surpass the regulatory and egress hurdles that have weighed on the industry recently. Some of these events include a positive final investment decision on LNG Canada, construction of the TransMountain Expansion, Keystone XL and Enbridge’s Line 3 Replacement,” analysts said.
“Once this occurs, we would expect to see both an increase in oilfield activity and an improvement in investment sentiment in the space as producers ramp up in anticipation of improved economics.”