J.P. Morgan aims at Canadian oil sands
Broker initiates coverage of names from the Great White North
Oct. 25, 2010,
By Steve Gelsi, MarketWatch
NEW YORK (MarketWatch) — J.P. Morgan on Monday launched coverage of six Canadian oil stocks as it took aim at the vast oil sands of Alberta as oil prices stabilize at or above $80-a-barrel.
J.P. Morgan analyst Katherine Lucas Minyard said the move reflects the conclusion that the oil sands will provide in increasingly important source of oil.
“We believe depth of resource base, production growth visibility and exposure to an increasingly important source of global oil supply make for an attractive value proposition in oil sands-rich Canadian oils,” Minyard said in a note to clients.
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Her top picks are: Talisman Energy /quotes/comstock/13*!tlm/quotes/nls/tlm (TLM 18.17, +0.04, +0.22%) , Cenovus Energy /quotes/comstock/13*!cve/quotes/nls/cve (CVE 28.62, +0.40, +1.42%) and Nexen Inc. /quotes/comstock/13*!nxy/quotes/nls/nxy (NXY 22.03, +0.17, +0.76%) . All three of the stocks drew an overweight rating.
Canadian Natural Resources Ltd. /quotes/comstock/13*!cnq/quotes/nls/cnq (CNQ 36.22, +0.29, +0.81%) and Suncor Energy Inc. /quotes/comstock/13*!su/quotes/nls/su (SU 32.78, -0.04, -0.12%) drew neutral ratings.
Huskey Energy /quotes/comstock/11t!e:hse (CA:HSE 25.24, +0.01, +0.04%) drew an underweight rating.
Collectively, the group’s stocks will rise an average of 19% by the end of 2011, based on J.P. Morgan’s price targets.
Talisman, Cenovus and Nexen’s share prices could rise an average of 25%, Minyard said.
Key investment points in the group include long-term resources availability in Canadian oil sands; technological advances in extracting and producing oil; and an upside to valuation.
While Canadian oil sands contain huge reserves, it’s relatively expensive to extract oil in a process that resembles strip mining. But with oil now expected to trade close to $81 a barrel, oil sands are now more economically viable.
J.P. Morgan acknowledged that one possible risk to the group is lower oil prices.
“Although our near- and long-term oil price modeling assumptions do not call for prices to differ significantly from the current $81/barrel, significant or sustained weakness in the oil price would likely pressure share prices,” Minyard said.
Steve Gelsi is a reporter for MarketWatch in New York.
http://www.marketwatch.com/story/jp-morgan-aims-at-canadian-oil-sands-20...
