Weak loonie expected to boost energy sector earnings reports

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Suncor Energy Inc. kicks off a week loaded with oil and gas-company first-quarter earnings in a sector buoyed by strong commodity prices and the lower value of the Canadian dollar.

The energy industry still faces challenges in transporting its bitumen to key markets, but the picture is decidedly more sunny than last year at this time, when all talk was of the differential, or the heavy discount on Canadian heavy oil, and congested pipelines. With the lower dollar boosting the value of Canadian sales in U.S. currency, most predictions point to strong first-quarter cash flows.

TD Securities reports that Edmonton light oil and Western Canada Select prices are both up in the first quarter of 2014 compared with 2013. The frigid winter and dwindling storage levels has also helped long-languishing natural gas prices. According to the same report, AECO, the Alberta gas trading price, was an average of $5.52 a gigajoule in the first quarter of this year, compared with $3.20 in 2013.

"We've gone from headwinds to tailwinds," said Greg Pardy, the co-head of global energy research at RBC Capital Markets.

For Suncor, the first out of the gate with earnings late Monday, Mr. Pardy's take is mostly positive, with his earnings note pointing to first-quarter results likely to show a higher proportion of sweet synthetic crude in the oil sands mix, and "solid reliability" in downstream operations.

He also wrote Encana Corp. is expected to report strong natural gas pricing at its Panuke project off shore in Nova Scotia, which had previously been beset by multiple startup delays and technical problems, but fortuitously reached full production in December 2013, just as natural gas prices started to move upwards.

Analyst Phil Skolnick at Canaccord Genuity has a buy rating on Canadian Natural Resources Ltd., which will report on May 8. Earlier this month, the Alberta Energy Regulator said the company would be able to continue steaming wells at two of its thermal oil Primrose projects despite year-long slow bitumen leaks in the nearby area, and the continued objections of environmentalists.

But Mr. Skolnick's recommendation is that investors "be long as we see shares rallying on a positive Primrose update."

He also noted that the highlight of Husky Energy Inc. earnings on May 7 is likely to be the Liwan gas project, the company's large deepwater undertaking in the South China Sea, which began production in late March.

Room on pipelines headed for key markets in the U.S. is still tight, but new projects will come on line this year as differentials – or the price discounts on heavy, hard-to-transport Western Canadian oil are not expected to be as big an issue in the coming year. Rail continues to pick up much the slack at a rapid pace. In fact, investment dealer Peters and Co. Ltd. estimates of the projects it can track, rail loading capacity is now in the range of 550,000 barrels of oil a day and is likely to reach one million barrels a day by the end of this year.

TransCanada Corp., hit by the news earlier this month that a decision on the Keystone XL pipeline approval is likely delayed until at least after the U.S. midterm election, will also report on Friday.