The oil market has been routed in 2014 causing oil stocks to really sell off. Top Canadian oil stocks like Cenvous Energy Inc. (TSX: CVE)(NYSE: CVE) and EnCana Corporation (TSX: ECA)(NYSE: ECA) are both down more than 30% so far this year. However, if oil prices stabilize both companies, along with Canadian Natural Resources Ltd. (TSX: CNQ)(NYSE: CNQ), could thrive in 2015 as all three can deliver strong cash flow even at lower oil prices.
EnCana has achieved shale scale
EnCana is actually looking forward to 2015 as it’s planning to accelerate growth. The company spent this past year transitioning its business and loading up on oil-rich U.S. shale assets, especially in the Eagle Ford Shale and Permian Basin. The repositioning enabled the company to add assets that produce margins that are nearly three times better than those that were replaced. Because the company’s new assets produce much higher margins, it’s not as worried about falling energy prices as EnCana’s drilling program can still deliver fairly solid margins even at lower oil prices.
EnCana also is likely to continue to acquire additional shale assets in 2015 as its balance sheet is exceptionally strong right now. The company has the potential to scoop up shale assets from rival drillers that need to sell in order to pay down debt. Further, the company could also acquire weaker drillers as it has the scale needed to pull off a large deal.
Cash is flowing out of the oil sands
It’s a slightly different story at Cenovus Energy and Canadian Natural Resources as both companies could have a strong 2015 due to strong cash flows from the oil sands. Cenovus Energy, for example, has some of the lowest cost oil sands assets in Canada, enabling it to make money even if oil prices fell to $35 per barrel.
Currently, the company is taking a conservative approach that will deliver solid cash flow next year despite a market in turmoil. That approach will allow the company can fully fund a multibillion-dollar growth plan that will push its production 4% higher, while also keeping its dividend secure.
Meanwhile, Canadian Natural Resources isn’t worried at all about falling oil prices as the company is expecting its cash flow to surge in the years ahead as its low-cost oil projects come online. Once the company’s Horizon project fully comes online the company will be able to produce $3.5-$4 billion every year in cash flow for decades to come at a $70 oil price. That’s more than enough cash flow to sustain the company for years even if oil prices stay weak.
Investor takeaway
Oil companies with low-cost production could thrive in 2015 if oil prices stabilize and three with the best in Canada are Cenovus, EnCana, and Canadian Natural Resources. Because of that, these companies should still be able to print cash even at lower oil prices. Once the market realizes this it should send their stock prices higher even if oil prices don’t budge.
