Which Companies Would Benefit Most From Keystone’s Approval?

Hint: TransCanada isn’t one of them.

| More on:
The Motley Fool
You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

The U.S. State Department’s inspector general recently issued a report that dealt another blow to those fighting against the Keystone XL pipeline. The report concluded that there were no violations of conflict of interest rules when Environmental Resources Management was brought on to conduct the environmental assessment.

Many people believe this will help pave the way to an approval from President Obama. But what’s the best way to bet on that happening? Oddly enough, it’s probably not buying TransCanada (TSX:TRP)(NYSE:TRP) shares. The $5.3 billion pipeline represents only 14% of the company’s commercially secured projects. Even if the company earns a 25% return on investment from Keystone, that adds less than $2 per share in value (the shares currently trade at about $50).

It’s actually the Canadian energy companies that would benefit most from an approval, and three are worth highlighting.

Canadian Natural Resources

Whenever Canadian Natural Resources (TSX:CNQ)(NYSE:CNQ) presents to analysts & investors, it seems like a majority of the time is spent talking about heavy oil differentials. The company produces nearly 94% of its oil from Canada, and has already committed to moving 120,000 barrels per day of crude on Keystone. Canadian National does not own any oil refineries or gas stations, and thus is not hedged against long-term price differentials.

One analyst predicted that the stock price would jump 5% if Keystone is approved and drop 3% if it is rejected.

MEG Energy

MEG Energy (TSX:MEG) has been referred to as the “go-to, pure play, oil sands stock”. And it’s easy to see why. The company’s entire production comes from heavy oil operations in Alberta, and like Canadian National, MEG has no refining or retailing operations.

Perhaps more than any other oil sands producer, MEG has hedged its bets with regards to Keystone. The company has invested heavily in rail-loading facilities and should be able to transport oil to the gulf coast for only $15 per barrel by using both rail and barge.

But MEG still stands to benefit immensely from Keystone’s approval. The current shortage of pipeline capacity has also caused a shortage of rail capacity, a trend that will likely get worse as oil sands output soars over the next decade. Keystone’s approval would help to mitigate that.

Blackpearl Resources

Blackpearl Resources (TSX:PXX) may be more reliant on the Keystone decision than any of its larger peers. Like MEG, 100% of Blackpearl’s production comes from Western Canada. But unlike MEG, Blackpearl is short of funding for most of its expansion projects. The company had to split one of its projects (Onion Lake thermal) into two phases, and has deferred its larger project (Blackrod) until a joint-venture partner can be found. But given today’s operating environment, joint-venture partners can be hard to find.

So not only would Keystone’s approval allow Blackpearl to get better pricing for its product, it may give the JV market a boost as well, making it easier for Blackpearl to fund its ambitious growth plans.

Foolish bottom line

Keystone’s approval is still far from a foregone conclusion, so making an especially large bet would be very risky. But anyone who’s confident in Keystone’s fate may want to consider one of the names above.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Benjamin Sinclair holds a position in MEG Energy and Blackpearl Resources.

More on Investing

Doctor talking to a patient in the corridor of a hospital.
Dividend Stocks

1 U.S. Stock to Buy That Could Make You a Millionaire

Even though tech stocks are usually the go-to growth picks in the US stock markets, there are quite a few…

Read more »

Increasing yield
Dividend Stocks

My 3 Favourite TSX Dividend Stocks Right Now

These dividend stocks have been a favourite for a while, but even more so now that they trade at such…

Read more »

funds, money, nest egg
Dividend Stocks

New Investors: The 2 Best Options To Earn Regular Passive Income!

You can earn high passive income with dividend stocks like the Toronto-Dominion Bank (TSX:TD)(NYSE:TD).

Read more »

Dividend Stocks

This Canadian 6%-Yielder’s On Sale, But Not for Long!

SmartCentres REIT (TSX:SRU.UN) is a wonderful high-yielding REIT that has a higher yield and lower valuation than most its peers.

Read more »

A cannabis plant grows.
Cannabis Stocks

Why I’m Considering Canopy Growth Stock For My RRSP

As the cannabis industry grows, adding Canopy Growth stock to my RRSP will give me access to massive upside.

Read more »


Monthly Passive Income: Is RioCan a Buy for the 4.75% Yield?

RioCan raised the monthly distribution this year after cutting the payout during the pandemic. Should investors seeking monthly passive income…

Read more »

warning or alert

ALERT: 3 Cheap Stocks That Have Sent Off a Buy Signal

Canadians on the hunt for cheap stocks should snatch up CAE Inc. (TSX:CAE)(NYSE:CAE) and others that are technically undervalued right…

Read more »

grow money, wealth build
Top TSX Stocks

3 Canadian Growth Stocks for Your TFSA

Given their healthy growth prospects, these three stocks would be a good addition to your TFSA.

Read more »