With the rise of ESG investment mandates, a lack of political support for dirty energy, and a dearth of other headwinds such as pipeline constraints continuing to hamper the sector, it can certainly be hard to justify investing in this space. That said, I think there are actually two key reasons investors ought to put some Canadian energy players back onto their watch lists right now.
Both of these reasons I think could lead to legitimately higher valuation multiples across the sector, and a wave of investment the likes of which the Canadian energy sector hasn’t seen in some time.
The first key catalyst I see as a short-term boost for this sector is the refinancing of large debt loads I see taking place right now. Many of Canada’s biggest oil and gas producers are refinancing their debt, with many anticipating debt raises could actually be on the horizon.
Such a scenario has not played out in some time, due to the deteriorating credit ratings of many companies in this sector. Dirt-cheap lending rates have supported a positive lending environment for energy companies, something we haven’t seen in some time.
Over the medium- to longer-term, I think we could see a bull market in commodities develop. As more stimulus comes into play on the fiscal and monetary side, I think a depressed U.S. dollar could raise commodity prices substantially, leading to a scenario where Canadian energy producers are once again put on the map for investors, unlike what we’re seeing play out right now.
Invest wisely, my friends.
