Oil sands stocks got battered a good one on Friday on news that yet another big international investor, the Norwegian sovereign wealth fund, has begun to throw in the towel on big oil and gas names with billions of dollars being divested from 26 Canadian energy giants including the likes of Canadian Natural Resources (TSX:CNQ)(NYSE:CNQ) and Cenovus Energy, two popular oil sands operators that have taken a massive hit to the chin of late.
Fortunately for Warren Buffett, his latest holding Suncor Energy (TSX:SU)(NYSE:SU) was left off the list of Canadian energy firms that’ll be poised to experience major investment outflows, but nonetheless Suncor stock sold-off violently in the ensuing trading session with shares plunging 2.6% for the day.
The affected Canadian Natural and Cenovus nosedived by 2.5% and 3.2%, respectively. Despite experiencing greater downward movements than Suncor over the last few years, neither Canadian Natural nor Cenovus appeared to be spared as both names were right in the crosshairs of international oil sands skeptics once again.
You’re probably sick of hearing of international funds throwing in the towel on Alberta’s ailing oil patch. And while Norway’s recent decision may be just another drop in the bucket, it’s important to note that Norway’s $1 trillion wealth fund is seen as a huge influencer in the institutional investing world. So, you can bet that the recent decision could cause a chain reaction of selling activity, not only in the affected energy companies, but across the sector as a whole in the coming months.
Norway’s Finance Minister, Siv Jensen recently spoke with The Associated Press, shedding some light on Norway’s recent souring of the big oil and gas sector: “The objective is to reduce the aggregate oil price risk on the whole Norwegian economy,” said Jensen. “The Norwegian state is highly exposed to oil.”
While it definitely appears that the light has been permanently turned out in Alberta’s oil fields, I don’t think the situation is as bleak as it sounds. Sure, Norway’s wealth fund could trigger a massive round of selling activity that could cause oil’s top dogs like Canadian Natural Resources to bleed further, but that doesn’t mean everybody is ready to abandon Canadian energy. I believe there are two reasons why Canadians may want to be buyers on the big dip that’ll undoubtedly be on the horizon.
First, Warren Buffett’s recent big bet in Suncor shows that there is still deep value to be had from Alberta’s oil patch for those with long enough horizons to enjoy the potential longer-term gains. While there are no visible near-term catalysts for heavy crude, stocks like Canadian Natural and Suncor are still able to protect their investors with consistent, growing dividends through their integrated operations.
Sure, there may be little to no capital gains to be had over the near-term, income investors have to be licking their chops at the opportunity to lock-in a 4.5% yield, which may swell to 5% should the energy selling activities exacerbate moving forward (I think they will).
Second, Norway has a strong bias toward sustainable energy. They’re an electric car hub with charging stations on many blocks, and sustainable development programs ingrained within their government, so Norway is seen as the prime example of the sustainable city of the future. And while the country’s reliance on fossil fuels is undoubtedly less than most other countries, it’s important to remember that not every country has the means to reach the level of sustainability that Norway has been able to obtain anytime soon.
Norway is head and shoulders above most other countries when it comes to sustainability. And while Canada and the U.S. could learn a great deal from Norway, I think there’s no way that we’ll be able to reach the Norwegian standard of sustainability until at least a decade out.
That means Norway’s selling activities are not “the end” of big oil, but a multi-month bout of pressure that will affect everything oil and gas-related. I’d be a buyer of the imminent dip, especially if you could nab my two favourites in Canadian Natural Resources or Suncor if their shares fall enough such that they yield north of the 5% mark.
Stay hungry. Stay Foolish.
