Investors Could Be Looking to Canada over the U.S. in 2020

Investors Could Be Looking to Canada over the U.S. in 2020

  • Generalist investors have shunned the Canadian oil and gas sector for five long years, but experts say that could change because of a slowdown in the United States shale sector.
  • Investors in recent months have become increasingly concerned that wells drilled in the top U.S. shale oil and gas formations have been less productive than advertised and that companies are spending too much capital on drilling programs. As a result, less capital is becoming available to U.S. exploration and production companies.
  • The situation is somewhat reminiscent of the Canadian oil patch, where large and small producers in recent years have been forced to slash spending, cut jobs, scale back drilling plans, and prove to investors that they can be profitable even when oil prices are low and new export pipelines are delayed.

Some fund managers and investment managers now believe that Canadian oil and gas companies are better suited than their U.S. competitors to attract investor funds next year.

“Money is starting to come back,” Matco Investments Ltd. vice-chairman Michael Tims said, cautioning it has not yet led to massive quantities of new money flowing into Canada. “It’s not a flood.”

Tims said he’s “cautiously optimistic” about the outlook for Canadian oil and gas stocks over the course of next year because the top companies in the sector have been able to return money to shareholders in a difficult environment.

“The relative standing of Canada, which has been low in recent years, has been rising,” he said.

If generalist investors and long-only funds, such as mutual funds, return in larger numbers to the Canadian oil patch, it would represent a dramatic change in fortunes, especially after Encana Corp. decamped from Calgary to Denver in 2019.