Dividend increases predicted as energy companies prepare 4th-quarter reports amid oil price rebound

A rally in oil prices that started late last year and shows no signs of stopping in 2018 is expected to pave the way for bigger payouts for long-suffering Canadian energy investors as fourth-quarter reporting season gets underway in the next month.

Researchers at both AltaCorp Capital Inc. and BMO Capital Markets predicted in reports this week that Calgary-based Husky Energy Inc. will reinstate a modest cash dividend to replace the one it cancelled in late 2015 because of low commodity prices.

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Husky CEO Rob Peabody said the board has yet to make a final decision on the dividend but he agreed that the financial conditions are right to allow it to be reinstated.

"My view is we should put in a dividend that is compatible with our peers but, if anything, a little to the low side ... (so) it can grow over time, because that's what investors seem to value the most," he said during a presentation at a CIBC conference webcast from Whistler, B.C., on Wednesday.

The BMO report predicted Husky's shareholder payouts would be set at around 30 cents per share per year. Husky is expected to report on March 1.

AltaCorp analyst Nick Lupick said dividend increases could also be in the cards for Calgary-based oilsands producers Suncor Energy Inc., Imperial Oil Ltd. and Canadian Natural Resources Ltd. Suncor is expected to report on Feb. 7.

Both BMO and AltaCorp are also predicting dividend increases at Freehold Royalties Ltd. and PrairieSky Royalty Ltd., Calgary companies that partner with exploration companies who drill on properties where they hold the mineral rights.

On Wednesday, New York-traded benchmark West Texas Intermediate rose US$1.50 to close at a new three-year high of US$65.97 a barrel.

CIBC World Markets in a report earlier this week updated its 2018 average price forecast for WTI to US$62.50 per barrel from US$55 and adjusted its longer term WTI and London-traded Brent forecasts US$5 higher to US$65 and US$68.50, respectively.

"Although 2017 was certainly a challenging year for the sector, we expect it to end on a high note," the researchers said, predicting strong fourth-quarter results from oil producers.

Transport blockages should ease

The discount paid for Western Canadian Select, an oilsands blend, widened from a steady US$11 per barrel compared with WTI in the third quarter to as much as US$26.80 per barrel in the fourth. The bigger discount was blamed on transport blockages after the Keystone pipeline from Alberta to the U.S. Gulf Coast was shut down for 12 days following a leak.

Lupick said the gradual activation of idle crude-by-rail capacity will help clear transport channels and result in a 30-per-cent tightening of differentials by May, to the benefit of bitumen producers like Cenovus Energy Inc.

The low WCS price, he added, is expected to result in record fourth-quarter downstream profits for Canadian companies with refineries, as gasoline and diesel prices remained high despite the lower cost of feedstock.

The analysts didn't see much hope for natural gas producers in the fourth quarter or in 2018. In the U.S., benchmark prices were flat at about US$2.91 per thousand cubic feet in the last three months of 2017, while in Alberta prices averaged C$1.72 per mcf, up marginally from the previous quarter but down 44 per cent from C$3.09 a year earlier.

BMO said in its report that Canadian companies that can sell their gas in the U.S. will have much better results than those forced to sell in Alberta.

CIBC said demand for North American drilling and well completions services are expected to rebound in 2018 from the lows of the past two years but demand will be stronger in the U.S., allowing it to outperform Canada.

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