At a time when U.S. oil companies continue to post vastly improved operating and financial results, the situation across the border is less upbeat. In fact, Canadian oil companies have been at the lower end of the market lately.
Canadian crude oil prices have been suffering from transportation infrastructure bottlenecks and declining import requirements from the U.S., which has been the biggest customer of Canadian oil. As a result, Canadian oil stocks such as Canadian Natural Resource Ltd (USA) (NYSE:CNQ), Suncor Energy Inc. (NYSE:SU), and Cenovus Energy Inc (NYSE:CVE) have all lost more than 10 percent over the last 12 months.
However, it may be a blessing in disguise for value investors. Here is how:
Canadian Natural Resource Ltd (USA) (NYSE:CNQ), the country’s largest oil producer, recently announced plans to divest or find partners for parts of its vast Montney Shale holdings in the Northeast of the Canadian province of British Columbia.
Though this may not be such an important development for many, it is something of a watershed as the company has traditionally avoided partnerships in order to maintain a high level of control. This offer of sale or joint venture comes on the heels of the company reporting a 12.3 percent decline in revenue in the latest quarter ended December. The drop in revenue came despite higher production and led to more than a 57 percent erosion in quarterly profits.
This dismal financial performance demonstrates how much pressure the company has come under. However, it is not that the company is devoid of merit. Despite all the shortcomings regarding the infrastructure, the Montney Shale is an attractive target for foreign and North American investors alike. This was highlighted by Exxon Mobil Corporation (NYSE:XOM)‘s $1.6 billion acquisition of Celtic Exploration last month.
Suncor Energy Inc. (USA) (NYSE:SU) has also been affected by the factors that are credited for grounding Canadian Natural Resources. The effect of these factors has been pronounced in the case of Suncor Energy Inc. (USA) (NYSE:SU), as the company swung to a massive loss of $562 million in the latest quarter, compared to a profit of $1.4 billion a year ago.
While results in the latest quarter were adversely impacted by a writedown on its Voyaguer project, there is no doubt the company is suffering from transportation bottlenecks. The stock may continue its sideways movement into the future, but one needs to ask if the transportation situation will continue as it is today–and the answer is no.