First Energy's top picks for 2013
BNN.ca staff
2:16 PM, E.T. | January 7, 2013
Energy & Resources, Investing
Tags: ARC Resources, Athabasca Oil Sands, Canadian Natural Resources, Crescent Point Energy, Enerplus, Peyto Exploration
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If 2013 proves to be a better year for the oil and gas sector, First Energy Capital is picking the companies it expects will benefit the most.
In the small cap category, First Energy names Painted Pony Petroleum Ltd. ( PPY-X 10.43 0.05 0.48%) as its top pick with a $17-per-share price target. The Calgary-based brokerage says Painted Pony could benefit from Ottawa's recent approval of the Progress/Petronas deal as it could pave the way for more M&A activity involving foreign buyers.
For suitors looking for small cap players with "prolific Montney gas resources" and a "favourable royalty" regime in northeastern British Columbia, Painted Pony is a company that "fits this bill best," First Energy says.
Ranging River Exploration Inc. and RMP Energy Inc. ( RMP-T 3.03 0.05 1.68%) are other top picks in the small cap category, with Strategic Oil and Gas Ltd. (SOG-X) and Yoho Resources Inc. (YO-X) both rated "outperform."
In oil sands, First Energy names Athabasca Oil Corp. ( ATH-T 10.93 0.08 0.74%) as its top pick with a $17-per-share price target due to its acreage in the Duvernay shale region. The brokerage cites the recent Duvernay joint venture between Encana and PetroChina, saying it could imply a similar value of $8.55 a share on Athabasca's Duvernay holdings.
"…We see the upside potential on this stock as significantly higher than the current share price," First Energy says.
The brokerage also likes BlackPearl Resources Inc. ( PXX-T 3.13 -0.05 -1.57%) in the oil sands category, rating it "outperform."
Canadian Natural Resources Ltd. ( CNQ-T 29.78 -0.37 -1.23%) is First Energy's only pick in the large cap category, as the brokerage sees CNQ's share price increasing in the next 12 to 18 months as Canadian heavy crude price discounts narrow versus global crude prices into 2014.
Peyto Exploration and Development Corp. ( PEY-T 22.52 -0.04 -0.18%) is one of First Energy's three top picks in the intermediate producer category, calling it "one of our best ideas in the space." First Energy cites Peyto's "comparatively strong returns…even at low prices" as its reason for the choice.
Tourmaline Oil Corp. ( TOU-T 30.4 -0.18 -0.59%) was another top pick in the Intermediate category, with ARC Resources Ltd. ( ARX-T 23.42 -0.06 -0.26%), Enerplus Corporation ( ERF-T 13.37 -0.18 -1.33%), and Crescent Point Energy Corp. ( CPG-T 37.26 0.09 0.24%) receiving an "outperform" rating.
First Energy chose Legacy Oil and Gas Inc. ( LEG-T 7.28 -0.45 -5.82%) as its top mid cap pick. The brokerage expects to see "marked improvement" in the company's year-end reserves versus the year prior. That combined with what the brokerage considers a "relatively inexpensive valuation" and "ample financial flexibility," will make it a good buy in 2013, according to First Energy.
Celtic Exploration Ltd. ( CLT-T 26.32 0.09 0.34%) and Long Run Exploration Ltd. ( LRE-T 4.82 0.03 0.63%) were rated "outperform" in the mid cap category.
The brokerage also predicts natural gas prices, which have been hit by a warmer-than-expected winter, could recover in the second half of the year as U.S. supply is seen remaining flat and large reductions in Canadian supply could be felt.
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