Mar 10, 2017
Canada’s energy sector: 'Out of vogue' or buying opportunity?
Investors are eager to abandon Canadian oil and gas companies, according to one of the most prominent money managers in the sector.
“Canada is out of vogue,” Rafi Tahmazian, senior portfolio manager at Calgary-based Canoe Financial, told BNN on Thursday following a decision from Royal Dutch Shell to almost entirely divest its oil sands position. The US$8.5-billion asset sale to Canadian Natural Resources was among the largest in the history of Canadian oil and gas, and Tahmazian believes it is the continuation of a dubious trend.
“International investment in Canada is not something that anybody wants to do,” he said. “They want to leave. The companies want to leave. The investment community wants to leave. And that’s a problem.”
Tahmazian has been selling his positions in Canadian energy companies since early January, he explained in a subsequent telephone conversation Friday morning. While normally he does not invest in energy companies based in the United States at all, Tahmazian argued current Canadian federal government policy pushed him to invest fully 20 per cent of his entire portfolio in oil and gas companies south of the border.
“Since 1981 with the National Energy Program, we have never been in a situation where Canadian energy policy could work against us on a potential global energy rally,” he explained, specifically referencing Prime Minister Justin Trudeau’s preference for environmental initiatives and renewable energy investment over more support for the fossil fuel sector.
“For the first time ever in my career I’ve had to be fearful of Canadian energy policy as a Canadian energy investor,” Tahmazian said.
Shell is far from the first major global energy player to pull up its oil sands stakes and Tahmazian is not alone in his growing pessimism. Rob Tétrault, portfolio manager at National Bank Financial, told BNN on Friday morning he had “tons of respect” for Tahmazian and, on the issue of investors souring on the Canadian oil sands, “he is probably right.”
Even Eric Nuttall, energy portfolio manager at Sprott Asset Management who is very well known for his optimism around Canadian energy, acknowledged the negative environment.
“It is obvious that there has been capital flight out of Canada, we were part of that” he told BNN via telephone, noting his fund has recently moved some investment out of Canadian oil and gas and into oilfield service providers in the United States.
“But the opportunity is where the risk is,” Nuttall said.
John Brussa, former chairman of Penn West Exploration and longtime friend of Canadian Natural Resources chairman Murray Edwards, told BNN on Thursday that Edwards’ support of the Shell transaction should give investors some optimism about the oil sands’ long-term prospects.
“If you’re a bit of a contrarian, you’d say this is quite a vote of confidence for the Canadian oil sands and the Canadian oil patch generally,” Brussa said. “To have a guy this smart doubling down rather than investing in a shale play in the U.S. or an international play, [Edwards] is saying there’s still life in the sector.”
Himalaya Jain took that position a step further. In an interview with BNN on Friday morning, the Rosedale Group portfolio manager at Scotia Wealth Management said any weakness in the Canadian energy sector represents a substantial buying opportunity.
“I don’t think you really have to go to foreign markets necessarily to look for bargains,” Jain said. “I think right here in Canada we have the energy sector, which us unloved, a lot of negative sentiment there, so that is a sector that we like and are actually overweight on.”
Then there is the issue of whether the positions of Prime Minister Trudeau will truly be as bad for the Canadian oil sands business as Canoe’s Tahmazian believes. While there is certainly no shortage of energy executives who agree with Tahmazian, some are changing their minds.
“When [Prime Minister Trudeau] first came into office he was all about climate policy,” Sue Riddell Rose, CEO of Perpetual Energy, told BNN on Friday morning. “[But] I think he is starting to see both sides of the equation. He is starting to understand energy is a big part of the Canadian economy and I am hopeful he is going to learn more about our industry, how important it is to Canadians and to be more supportive.”
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