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Nexen and Progress gone – who’s next?

FirstEnergy summarizes the fallout from last Friday's big announcement

Dec 10, 2012

by Max Fawcett

The big news of the day is, of course, the ongoing fallout from last Friday’s decision by the federal government to approve both Petronas’s takeover of Progress Energy (TSE:PRQ) and CNOOC’s takeover of Nexen (TSE:NXY). The fact that the decision was scheduled for a Friday after the markets closed spooked a few traders, who sent Nexen shares tumbling down more than 14 per cent at one point. But whoever pressed the buy button when that happened has already profited handsomely for a few seconds of work: Nexen shares are up 14 per cent today, and over 20 per cent since its panic-induced intra-day low on Friday.

FirstEnergy came out today with a report summarizing its view of the decision and the knock-on effects it will have for other companies in the energy sector. The biggest winner is clearly the natural gas space in general, and those companies operating in the Montney shale in particular. “With the door not necessarily closed on further LNG-focused acquisitions of Canadian assets by state-owned enterprises,” it said, “this should keep deal tension intact with a solid argument for higher valuations. We believe that stocks of com­panies with large natural gas resources such as Painted Pony (proximity to Progress’ assets), and Encana (large resources, currently seeking joint-venture partners) will be particu­larly strong.” Talisman Energy shares also look better in light of the decision, it said, given the fact that it does not hold oil sands assets and has considerable holdings in the Montney play.

One potential loser is Athabasca Oil (TSE:ATH), which had been discussing partnering with the Kuwaiti National Oil Company in order to develop its oil sands assets, but FirstEnergy said that a sell-off was unlikely. “We think any negative reaction to the share price will be fairly muted, as the announce­ment does not impact the Dover put/call, and while the announcement may or may not impact the counter-party’s motivations to complete the anticipated Birch/Hangingstone JV agreement, we believe the market was already assuming that deal was at risk. We also believe that the market was already considering that the government may restrict future SOE investments, so perhaps Friday’s announcements were not as restrictive as some feared, as the opportunity for non-controlling interests in JVs remains available.”

PetroBakken (TSE:PBN), meanwhile, reported a 13 per cent increase in monthly production volumes, pushing it near its 52,000 to 56,000 boe/d 2012 exit guidance. “Our focus will continue to be the sustainable nature of this volume growth,” says FirstEnergy analyst Cody Kwong. “However, this step-change has been a long awaited catalyst, and should have the stock moving higher.”

FirstEnergy also bumped its price target for Enbridge (TSE:ENB) shares up from $45 to $48 on the heels of yet another project announcement from the company. Since September, the company has moved $8 billion from its “highly probable unsecured” designation to “commercially secured,” including a $6.2 billion spend on a light oil market access program that it announced last week. In the same announcement the company noted that it will be increasing its dividend by 12 per cent in 2013, and expects to see earnings come in at between $1.74 and $1.90 per share.

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