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reaction to Alberta’s proposed royalty over done

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发表于 2007-10-26 07:47 | 显示全部楼层 |阅读模式
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Look for buying opportunity in Suncor and Canadian Natural, Citigroup says
4 Q+ _2 _1 z3 C* PThe 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. 9 K3 k% t) m" b; e: p9 U

3 H9 ?- G+ D$ j) A* `0 `- wHe 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.6 E# E! f( {' M" B6 H; n

2 G! t/ h4 m  }& N2 mThis 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.6 U" w" P1 ^& C, M! _
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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.
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6 s! ]5 G0 ~) G0 V% K1 q1 oThere 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. 2 w* p5 y7 o/ v6 U' s' m! q
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“...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.5 _6 C6 ?9 Y: X
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So while he acknowledged that the new regime gives away some upside, the analyst thinks plenty of core value remains with investors.
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