Which Companies Would Benefit Most From Keystone’s Approval?

Hint: TransCanada isn’t one of them.

| More on:
The Motley Fool

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

question marks written reminders tickets
Stocks for Beginners

Where Will Aritzia Stock Be in 3 Years?

Aritzia (TSX:ATZ) stock may have come down from all-time highs, but a new CEO and renewed U.S. focus makes it…

Read more »

edit Sale sign, value, discount
Investing

The Market Is Being Too Hard on These Growth Stocks Going for a Discount

These three growth stocks look like excellent buys, given their higher growth prospects and discounted stock prices.

Read more »

Retirement plan
Investing

3 Stocks I’m Adding to my Retirement Account in March

Well Health Technologies, Cineplex, and Fortis each have their own strengths that make them good buys for retirement planning.

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Investing

Worried About a Market Collapse? Here Are 2 Stocks That Could Beat a Bear Market

Stocks have risen at a fast rate in 2024. Are you worried about a sudden market collapse? Here are two…

Read more »

stock research, analyze data
Dividend Stocks

Is it Too Late to Buy Dollarama Stock?

Dollarama (TSX:DOL) stock is up almost 200% from its 2020 lows. Is it still a buy?

Read more »

data analytics, chart and graph icons with female hands typing on laptop in background
Dividend Stocks

Down by 25%: Is Canadian Tire Stock a Buy in February 2024?

Take a closer look at this Canadian retail stock if you are looking for low-cost additions to your self-directed portfolio…

Read more »

Golden crown on a red velvet background
Dividend Stocks

Cash Kings: The Top 2 Canadian Stocks That Pay Monthly

Two Canadian stocks are cash kings to income investors for their generous dividends and monthly payouts.

Read more »

Dice engraved with the words buy and sell
Bank Stocks

Royal Bank of Canada: Buy, Sell, or Hold After Solid Q1 2024 Earnings?

Royal Bank is up more than 20% from the 12-month low. Are more gains on the way?

Read more »