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Wednesday, May 16, 2012

Bloomberg on Attractive Canadian Oil Producer Valuations


Below Replacement

“You’d be crazy right now to build a new oil sands mine, drill for oil or acquire land when you can buy companies that are trading, in my opinion, below replacement value,” Schwartz said in a telephone interview.
Suncor, Canadian Natural Resources Ltd. (CNQ) and Talisman Energy Inc. (TLM) are potential takeover targets because of their low valuation relative to cash flow, Schwartz said.
Suncor, the country’s largest energy company, has an enterprise value 3.98 times its earnings before interest, taxes, depreciation and amortization. That’s lower than 53 of the 64 other companies in the S&P/TSX energy index. Enterprise value is measured by subtracting cash from market capitalization plus debt.
Canadian Natural Resources, the country’s third-biggest energy company, has an enterprise value 5.43 times Ebitda, 22 percent below the benchmark median of 6.98 times. Talisman, the 10th largest, is the third-lowest valued energy company at 2.72 times.

‘More Consolidation’

Suncor didn’t respond to a phone call and e-mail to its media relations department requesting comment. Mark Stainthorpe, a spokesman for Canadian Natural Resources, didn’t respond to an e-mail requesting comment. Berta Gomez, a spokeswoman for Talisman Energy, said the company doesn’t comment on market rumors.
“There’s going to be more consolidation because to access capital and exploit the plays that are out there, you basically need a bigger company,” said Geoff Ready, an analyst at Haywood Securities LLC in Toronto. Larger companies trading at better valuations could buy cash-strapped “juniors,” which would aid capital funding to meet rising costs of wells while adding to the acquirers’ earnings, Ready said.
Arcan Resources Ltd. (ARN), which explores for oil and gas in AlbertaBellatrix Exploration Ltd. (BXE), a western Canadian oil producer and Fairborne Energy Ltd. (FEL), an oil and natural gas trust, are potential takeover targets, according to Ready.

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