The Canadian oil sands is one sector I‘ve generally avoided in recent years, for a variety of reasons. Headwinds related to ESG-oriented investing mandates, which have led to massive capital outflows from this sector have resulted in a large-scale reduction in investor interest in energy investments in general. As pipeline capacity continues to be a hot button issue for Canada’s oil patch, getting this commodity class out of the country has been increasingly difficult and has an negative impact on the stock prices of oil and gas producers, accordingly.
All that said, oil sand operator Cenovus Energy Inc. (TSX:CVE) is indeed one of the best in its sector, in terms of value at its current stock price level, in my view. The company is one of the lowest cost producers in its oil sands processing, having already invested billions in improving operational efficiency. The company has achieved a breakeven price per barrel below WTI U.S.$30/barrel. This is an impressive feat.
As one of the largest producers in this sector, Cenovus is able to benefit from economies of scale and excellent working relationships with downstream companies. This makes Cenovus an interesting value pick. More headwinds for Canadian oil producers such as Cenovus could be on the horizon, should the price of oil drop below U.S.$30 WTI or oil production cuts do not materialize as many expect over the medium term.
Cenovus stock is cheap but cheap for a reason. So do your homework before jumping in, even at these current levels.
Invest wisely, my friends.
