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Redford on Keystone XL: “I’m very optimistic”

Also: FirstEnergy gets optimistic about the long-term prospects of Canadian Natural Resources shares

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 mfawcett@albertaventure.com

Nov 19, 2013

by Max Fawcett

Alberta Venture was at an event featuring Premier Alison Redford in conversation last night at the Glenbow Museum in Calgary, and while there was plenty of the usual messages coming from the premier – along with some not-so-subtle jabs at B.C. Premier Christy Clark – she did say something interesting about the state of the Keystone XL pipeline. She was, she said, “very optimistic” about the ongoing negotiations, noting that the tone of her meetings during her most recent trip to Washington was noticeably improved. And she said Gary Doer, Canada’s ambassador to the U.S., made the same observation. Whether that will lead to the U.S. actually approving the project remains to be seen, but Redford seemed encouraged by the result of her latest trip.

FirstEnergy, meanwhile, is encouraged by Canadian Natural Resources (TSE:CNQ)’s third quarter results and estimated budget for 2014, which “were highlighted by a 60 per cent dividend increase, continued strong production results and expansion execution at Horizon.” That dividend hike might not be the last one investors see, either. “With the company once again guiding to annual free cash flow of $5.5 – $6.5 billion post completion of the Horizon Phase 2/3 expansion (2018e+),” analyst Michael Dunn wrote in a note, “we view the 60 per cent dividend increase as only the start of further material dividend increases.” Based on its increased cash flow, Dunn thinks its shares could trade as high as $70 by 2017, provided it trades at a seven-times DACF multiple (it has historically traded between six and seven times) and WTI stays around $95 per barrel. Its 12-month price target is a more modest $40 per share, but Dunn gave it a top pick ranking.

Of interest in Dunn’s note about CNQ is the fact that he says the recent deal that saw Petronas scoop up some of Talisman’s north Montney assets at $5,600 per acre puts a floor under prices in the region. That means the assets CNQ is trying to unload are worth approximately $1.5 – no small chunk of change, but not enough to materially move the stock. Smaller companies with significant landholdings in the area, on the other hand, could stand to benefit more substantially. A few possible names: Birchcliff Energy (TSE:BIR), Crew Energy (TSE:CR), Arc Energy (TSE:ARX), Painted Pony Petroleum (TSE:PPY) and Questerre Energy (TSE:QEC).

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