Suncor Energy (SU.TO)(SU), Cenovus Energy (CVE.TO)(CVE), and Imperial Oil (IMO.TO)(IMO) are the Canadian oilsands producers best positioned to weather falling crude prices, according to Scotiabank Global Equity Research.
U.S. benchmark West Texas Intermediate (WTI) (CL=F) has fallen about 20 per cent since its peak in early April. Prices advanced around two per cent on Monday as storms in the U.S. Gulf region shut in production, and investors raise bets for a larger rate cut from the Federal Reserve this week.
In response to falling crude prices, Scotiabank analyst Jason Bouvier reassessed the breakeven price for producers to maintain their capital spending and returns to shareholders.
“Breakevens continue to be robust with many companies able to fund their sustaining capital requirements with WTI at US$40 to US$45 per barrel, and dividends at US$45 to US$50 per barrel,” he wrote in a research note.
“[The] industry continues to be very healthy (maybe best we have seen in 25+ years), but falling commodity prices are clearly eating into free cash flow and ultimately shareholder returns.”
Bouvier says companies in Canada’s oil patch have meaningfully improved their balance sheets in recent years, with management teams increasingly focused on lowering debt and raising operational efficiency.
He cites “cost wins” at Suncor from autonomous heavy hauler trucks at its Base Plant site north of Fort McMurray as an example. Stock analysts have praised CEO Rich Kruger’s push for more streamlined work and fewer employees in his first year as Suncor’s top executive.
At Cenovus, Bouvier sees benefits from rising production, improved downstream reliability, and falling costs. At Imperial, he predicts gains from higher production at its Cold Lake thermal in situ site, where heat is used to bring oil to the surface, as well as the company’s “digitalization initiatives.”
Scotiabank predicts the breakeven oil price for companies to sustain their spending and dividends will fall by about five per cent between 2025 and 2026, led by Suncor, Cenovus, and Imperial. On the other hand, companies with the “highest sensitivity” to falling WTI include International Petroleum Corporation (IPCO.TO), MEG Energy (MEG.TO), and Baytex Energy (BTE.TO)(BTE), according to Scotiabank.
While capital spending and base dividends are expected to remain largely unchanged, Bouvier says share buybacks and special dividends could be impacted by lower oil prices.
“The biggest move will likely come from a lower level of [share buybacks], and much lower special/variable dividends – although many companies were not paying these,” he wrote.
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.
Download the Yahoo Finance app, available for Apple and Android.