Canadian energy stocks have dragged down the value of the TSX in recent weeks, as domestic crude prices have suffered compared to prices south of the border. Western Canadian Select currently sells at $25.96, which is less than half of West Texas Intermediate (WTI) light oil — currently priced at $74.68 as of this writing. This represents the widest differential in history.
Industry experts have predicted consolidation as Canadian oil prices remain under pressure. Smaller producers have put pressure on the broader Canadian industry but have managed to make sales by turning to U.S. refineries, who in turn get a discount.
Canada has attempted to balance its commitment to fighting climate change while also moving to prop up a struggling energy sector. A new UN report on climate change has put increasing pressure on governments to move way from fossil fuels. The report called for “rapid, far-reaching, and unprecedented changes in all aspects of society.”
Today, we are going to look at three energy stocks that have struggled over the past several months. Should investors bet on a late rally?
Baytex Energy stock has plunged 16.1% over a three-month period as of close on October 9. Shares have dropped 0.5% in 2018 so far. The company is expected to release its third-quarter results on November 2.
In the second quarter, Baytex reported a net loss of $58.7 million compared to a net loss of $62.7 million in the prior year. On an adjusted basis, the company posted funds flow of $106.6 million over $84.2 million in Q2 2017. Daily production of heavy and light oil moved up in the second quarter of 2018 on an average WCS price of $48.61. U.S. prices pushed above $70 in this same time frame.
Canadian Natural Resources stock has dropped 16.4% over the past three months. Shares are down 10.2% in 2018 so far. The company is expected to post its Q3 2018 results on November 1.
In the second quarter, the company reported net earnings of $983 million over $583 million in Q2 2017. Earnings per share rose to $0.80 compared to $0.48, while total net capital expenditures shrank to $974 million over $1.1 billion in the prior year. The company has been disciplined in the first six months of 2018, only reporting a total of $2.07 billion in capital expenditures compared to the $13.8 billion reported at the same time last year.
Encana stock has dropped 4.1% over the past three months. Shares are down 2.6% in 2018 as of close on October 9. The company is expected to release its third-quarter results in early November.
In Q2 2018, Encana reported that cash from operating activities surged 120% year over year to $475 million. It posted non-GAAP cash flow of $586 million, which was up 67% from Q2 2017. Encana’s liquids production rose 24% year over year to 155,300 barrels per day. Its market diversification strategy paid off in the second quarter, as it reported Permian realized oil price of $70.15 per barrel. This represented 103% of WTI at the time of the report.
Should investors expect a rally?
Investors should opt for the sidelines in the energy sector as we await third-quarter results from many of the top Canadian energy companies. The industry is facing several headwinds, including a lack of pipeline infrastructure and an unfriendly political environment.
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Fool contributor Ambrose O'Callaghan has no position in any of the stocks mentioned.