There go those differentials again
That's bad news for most producers. But not all of them. Which stand to gain the most - or, perhaps, suffer the least?
When he was younger, Max Fawcett wanted to make a mint in the markets. Now as the managing editor of Alberta Venture he gets to write about them. Close enough, right? He can be reached at firstname.lastname@example.org
by Max Fawcett
Once again, the differential between WTI and Edmonton Par (and heavy oil and the WCS differential, too) is blowing out. As AltaCorp details in its daily note today, after trading near parity in early Q3 the differential has widened substantially, to approximately $8 per barrel in September for October deliveries and now nearly $16 a barrel for November deliveries. That’s despite the fact that the number of carloads of crude being shipped by rail has increased on a month-over-month basis, from 5,506 in July to 6,605 in September. “Pipeline apportionments may have contributed to both the increase in rail volumes as well as widening differentials,” AltaCorp says, “but wide differentials have undoubtedly encouraged more transportation by rail, given the appeal of accessing higher price markets, like the Gulf Coast.”
That’s bad news for most producers – except, of course, the ones with significant rail capabilities that can move their product to more favourable pricing markets. AltaCorp singles out Crescent Point Energy (TSE:CPG), Baytex Energy (TSE:BTE), Twin Butte Energy (TSE:TBE) and Rock Energy (TSE:RE), the latter of which is up particularly strongly today. But AltaCorp’s Don Rawson thinks Crescent Point might be the best bet of the bunch at this juncture, given the relative safety it offers investors thanks to its dividend, its active hedging program and its comparatively low degree of balance sheet leverage. And with the market not yet cottoning on to the upward revisions that have been made to forward estimates by the street, he thinks it’s a compelling buy at this level. “With Canadian oil differentials widening again, the company’s proactive rail strategy should help support its realized prices in Q4/13,” he writes. “We continue to believe that a price under $40 represents a solid buying opportunity for this quality.”