Eight Canadian energy companies were booted out of the S&P/TSX Composite Index on Monday because their market capitalization has dropped below minimum requirements, the latest sign of difficulties facing the country's oil and gas sector.
Analysts said the rebalancing of Canada's flagship index underlined the challenge to energy companies in attracting investment amid concerns about lack of new oil pipeline capacity and a glut of inexpensive North American natural gas.
Canada holds the world's third-largest crude reserves but the country's capital investment and energy stocks have plummeted over the last five years.
The companies affected are Birchcliff Energy Ltd , Ensign Energy Services Inc , Kelt Exploration Ltd , NuVista Energy Ltd , NexGen Energy Ltd , Precision Drilling Corp , Peyto Exploration and Development Corp and TORC Oil & Gas Ltd .
Their exclusion means they will miss out on investment from index-tracking passive funds, said Jeremy McCrea, an analyst with Raymond James.
"To raise capital for any energy company here in the last few years has been extremely difficult and this is one more nail in the coffin in their ability to access equity," he added.
The composite index is rebalanced quarterly. Companies are removed if their float-adjusted market capitalization falls below 0.025% of the overall value of the index.
Firms have to wait a year to get back in and will be admitted only if their value is at least 0.04% of the index. McCrea said that would be equivalent to just under C$1 billion ($754.26 million).
"Energy companies in Canada have taken quite a bit of a hit lately," said S&P Global spokesman Ray McConville. "It's simply a matter of their stock prices having fallen to the point where their market capitalization is no longer eligible."
Energy makes up 17% of the index, down from 25% in 2014. McConville could not say whether so many energy firms had ever been removed in one hit before.
"We do not believe that inclusion or exclusion from the index impacts the ability to raise capital, however, ETF (exchange-traded) funds that tracked the TSX Composite Index will no longer hold these energy names now that they are no longer part of the index," Kelt Exploration spokeswomen Sara Stark said in an email.
Travis McPherson, vice president of corporate development at NexGen Energy, said being removed from the index did not affect its business at all "other than the unfortunate short-term impact to the share price as a result of short-term investors pre-positioning ahead of any action."
Birchcliff Energy and NuVista Energy said there would be no impact.
The other companies did not immediately respond to requests for comment.
(Reporting by Nia Williams in Calgary, Alberta Editing by Alistair Bell and Matthew Lewis)
Eight energy firms dropped from Canada’s main equity index
Eight Canadian energy companies were booted out of the S&P/TSX Composite Index on Monday because their market capitalization has dropped below minimum requirements, the latest sign of difficulties facing the country's oil and gas sector.
Analysts said the rebalancing of Canada's flagship index underlined the challenge to energy companies in attracting investment amid concerns about lack of new oil pipeline capacity and a glut of inexpensive North American natural gas.
Canada holds the world's third-largest crude reserves but the country's capital investment and energy stocks have plummeted over the last five years.
The companies affected are Birchcliff Energy Ltd , Ensign Energy Services Inc , Kelt Exploration Ltd , NuVista Energy Ltd , NexGen Energy Ltd , Precision Drilling Corp , Peyto Exploration and Development Corp and TORC Oil & Gas Ltd .
Their exclusion means they will miss out on investment from index-tracking passive funds, said Jeremy McCrea, an analyst with Raymond James.
"To raise capital for any energy company here in the last few years has been extremely difficult and this is one more nail in the coffin in their ability to access equity," he added.
The composite index is rebalanced quarterly. Companies are removed if their float-adjusted market capitalization falls below 0.025% of the overall value of the index.
Firms have to wait a year to get back in and will be admitted only if their value is at least 0.04% of the index. McCrea said that would be equivalent to just under C$1 billion ($754.26 million).
"Energy companies in Canada have taken quite a bit of a hit lately," said S&P Global spokesman Ray McConville. "It's simply a matter of their stock prices having fallen to the point where their market capitalization is no longer eligible."
Energy makes up 17% of the index, down from 25% in 2014. McConville could not say whether so many energy firms had ever been removed in one hit before.
"We do not believe that inclusion or exclusion from the index impacts the ability to raise capital, however, ETF (exchange-traded) funds that tracked the TSX Composite Index will no longer hold these energy names now that they are no longer part of the index," Kelt Exploration spokeswomen Sara Stark said in an email.
Travis McPherson, vice president of corporate development at NexGen Energy, said being removed from the index did not affect its business at all "other than the unfortunate short-term impact to the share price as a result of short-term investors pre-positioning ahead of any action."
Birchcliff Energy and NuVista Energy said there would be no impact.
The other companies did not immediately respond to requests for comment.
(Reporting by Nia Williams in Calgary, Alberta Editing by Alistair Bell and Matthew Lewis)