reaction to Alberta’s proposed royalty over done

QWE321

Look for buying opportunity in Suncor and Canadian Natural, Citigroup says
The negative after-market reaction to Alberta’s proposed royalty changes for the energy sector appears overdone and may present an opportunity to buy some names in the sector, says Citigroup analyst Doug Leggate.

3 Y- U8 }8 F0 M0 A4 sHe recommends keeping an eye on preferred names in the sector like Suncor Energy Inc. (SU/TSX) and Canadian Natural Resources Ltd. (CNQ/TSX), but admits there will likely be a strong response to any change from the industry.

  ?! I5 Q& Y) J1 s. LThis view is partly a result of oil prices. Citigroup has a long-term oil price assumption of US$60 per barrel, which means the changes are not considered material enough to warrant any alterations to its earnings or target prices.

! O" r+ Y" v! Q% y% ?* M' N* }: LAt first glance, the proposed regime looks significantly less onerous than feared, Mr. Leggate said in a research note, adding that with US$55 oil, there would be no changes to his assumptions.

; H+ C. [! \' uThere would be an impact with prices at US$100 and the royalty rate increases on a sliding scale with a cap at US$120 for WTI crude, he said, adding that the sector is discounting prices below US$60.

0 M5 q) t, b; [  E% y8 [“...Versus the level of oil prices we estimate are currently being discounted in the major Canadian oil sands players, the impact on valuations looks benign,” Mr. Leggate wrote.

* |/ {( A. Q; Q6 Z+ z5 fSo while he acknowledged that the new regime gives away some upside, the analyst thinks plenty of core value remains with investors.