reaction to Alberta’s proposed royalty over done

QWE321

Look for buying opportunity in Suncor and Canadian Natural, Citigroup says
The negative after-market reaction to Alberta’s proposed royalty changes for the energy sector appears overdone and may present an opportunity to buy some names in the sector, says Citigroup analyst Doug Leggate.

& I" w: O+ L- G  q( rHe recommends keeping an eye on preferred names in the sector like Suncor Energy Inc. (SU/TSX) and Canadian Natural Resources Ltd. (CNQ/TSX), but admits there will likely be a strong response to any change from the industry.

This view is partly a result of oil prices. Citigroup has a long-term oil price assumption of US$60 per barrel, which means the changes are not considered material enough to warrant any alterations to its earnings or target prices.

: c4 W) v% r1 X% q  ?At first glance, the proposed regime looks significantly less onerous than feared, Mr. Leggate said in a research note, adding that with US$55 oil, there would be no changes to his assumptions.

9 X+ M: ^" D- C* ~There would be an impact with prices at US$100 and the royalty rate increases on a sliding scale with a cap at US$120 for WTI crude, he said, adding that the sector is discounting prices below US$60.

“...Versus the level of oil prices we estimate are currently being discounted in the major Canadian oil sands players, the impact on valuations looks benign,” Mr. Leggate wrote.
, e: c( F4 ]1 Z! i0 i+ b
/ ?3 w8 |( w' c( q( {" x) e" u9 eSo while he acknowledged that the new regime gives away some upside, the analyst thinks plenty of core value remains with investors.