In the summer of 2018, I’d discussed how the Ontario provincial election would impact key sectors and potentially some major stocks. On Tuesday, April 16, Alberta will hold its provincial election. Recent polls indicate that the United Conservative Party (UCP) enjoys a strong lead. Jason Kenny and the UCP appear poised to unseat Rachel Notley and the NDP in a landslide.
The crisis for the Canadian oil patch has added urgency in this election. The Notley government enacted a production cut in late 2018 in order to shore up the price of Western Canadian Select (WCS), as the price differential with West Texas Intermediate (WTI) had expanded to dangerous levels. The cut worked to dramatically shrink the differential, but it was a controversial move in Alberta that many top companies opposed.
Suncor Energy (TSX:SU)(NYSE:SU) was one of those companies. In fact, it called for a quick end to the production cut in February. Suncor’s operating earnings slipped to $580 million in Q4 2018 compared to $1.31 billion in the prior year primarily due to unfavourable western Canadian crude oil differentials.
Leadership at Suncor has criticized the production cut as it has led to a dramatic reduction in shipping crude by rail due to financial concerns. Suncor has also cited the loss of investor confidence in Canada following the cut.
Imperial Oil (TSX:IMO)(NYSE:IMO) is one of the largest integrated oil companies in Canada. Shares have climbed 11.7% in 2019 as of close on April 10. The stock was up 8% from the prior year.
Imperial Oil has also been vocal in its opposition to the production cut. CEO Rich Kruger said that Imperial Oil would be forced to cut crude-by-rail shipments from its Edmonton-area terminal to nearly zero in February. The company had a very strong fourth quarter 2018, as net income rose to $853 million, or $1.08 per share, compared to a net loss of $137 million, or $0.16 per share, in the prior year.
The UCP is already branding itself as the pro-energy option in the provincial election. UCP leader Jason Kenney has vowed that his party will seek to slash corporate income taxes, scrap the carbon tax, cut regulations, and fight for new export pipelines. A UCP victory would reflect a general shift in Canadian politics stretching back to the victory of the federal Liberals in 2015.
The Ontario Progressive Conservative party won a majority in Ontario for the first time since 1999. Current federal election polls suggest a steady but slim lead for the Andrew Scheer-led Conservative party. This shift could be bullish for the energy sector. Some experts, like Mark Jaccard, an energy economist at B.C.’s Simon Fraser University, have warned that no policy will change the trajectory of oil sands output.
Oil prices have experienced positive momentum in 2019 so far, and a UCP election win should boost sentiment in the energy sector even if policy changes will have a limited impact on material conditions. For this reason, I still like Suncor and Imperial Oil at the price both offer ahead of the election.
