Mason Granger.
Mason Granger is portfolio manager at Sentry Investments. His focus is on Canadian energy stocks.
Top picks:
Surge Energy Inc.
We see compelling upside for Surge Energy shares following the recent announcement that chairman Paul Colborne would be stepping into the role of CEO. We anticipate Surge to unveil a revised capital budget in the coming weeks and the plan will be to leverage the high-quality asset base to pay investors a sustainable dividend. The company trades at a significant discount, particularly given the pedigree of management and the quality; we believe the valuation is poised to re-rate as the market becomes more comfortable with the strategy.
Crescent Point Energy Corp.
Crescent Point continues to be a core holding for us. We like the company because of the relative safety of the dividend, which is underpinned by an active hedge program and an improvement sustainability with ongoing success at water-flooding its core assets. The company has modest financial leverage and has assembled an impressive inventory of light oil-weighted drilling locations.
Canyon Services Group Inc.
Canyon is the fourth-largest pressure pumper in Canada and plays a central role in the development of unconventional reservoirs in Western Canada. We believe that current softness in the industry has stabilized. Canyon's high-quality fleet and pristine balance sheet should see it well-positioned to capitalize on accelerating Montney and Duvernay development by super-majors, which should result in high and increasing return on capital employed.
Past picks: June 25, 2012
ARC Resources Ltd.
Then: $19.69
Now: $27.88
Total return: +48.13 per cent
Vermillion Energy Inc.
Then: $41.76
Now: $52.96
Total return: +32.45 per cent
Bellatrix Exploration Ltd.
Then: $2.70
Now: $6.17
Total return: +128.33 per cent
Total return average: +69.64 per cent
Market outlook:
We believe that share prices will rise through to the end of 2013 as uncertainty in infrastructure constraints and differentials recedes.
North America has become a victim of its own success and the result has been deep crude oil discounts that reflect limited pipeline capacity; Keystone XL approval is very important but there are a large number of alternatives (including more rail transit) and refineries have been adding heavy oil capacity as well. We believe – if global oil prices remain at current levels in the medium term – narrowing North American crude oil differentials into next year will drive a significantly improving cash flow profile for North American producers, particularly those in Western Canada. As the infrastructure constraints are addressed, we believe discounted share prices will provide an excellent opportunity in the energy sector. Natural gas has also staged a significant recovery off 2012 lows of under $2, although we anticipate some softening in prices as power generation continues to switch back to cheaper coal.