A newly released ranking of the Toronto Stock Exchange’s top performers shows just how dominant Canadian oil and gas stocks have been in 2022 thanks to surging global energy demand and sky-high commodity prices.
The TSX 30 is an annual list of the top-performing stocks on the TSX over a three-year period, based on dividend-adjusted share price performance.
The 2022 edition of the list, released Thursday, reflects the recent resurgence of Canadian energy stocks on equity markets, with 14 of the 30 top spots this year going to oil and gas companies. Fifty per cent of this year’s TSX 30 companies are headquartered in Alberta, the heart of Canada’s energy industry.
“From our perspective, it’s actually quite exciting,” said Loui Anastasopoulos, president of capital formation and enterprise marketing officer with the TSX.
“This is definitely a breakthrough year for Canada’s energy sector. It signals the global importance of the energy sector and the strong fundamentals we’re seeing from Canadian energy companies.”
The second most represented sector on the TSX 30 this year is the mining sector, with eight companies on the list.
When the TSX 30 program started in 2019 — and then again in 2020 and 2021 — oil and gas companies were virtually non-existent among the inductees. Prior to the COVID-19 pandemic, share prices within the sector had been hammered by nearly a decade of low oil prices, lack of industry market access, and an uncertain investment environment driven by regulatory uncertainty and the arrival of ESG (environmental, social, governance) investing philosophies. Oil prices then collapsed in early 2020 as the arrival of the pandemic reduced demand, driving share prices even lower.
But this year, oil prices roared back (to as high as US$120 per barrel in June) as the war in Ukraine combined with the lifting of COVID-19 restrictions drove demand. Investors too returned to the sector, lured by Canadian oil and gas companies that are flush with cash and taking advantage of record profits to offer hefty returns to shareholders.
Birchcliff Energy Ltd., for example, an intermediate oil and natural gas producer which ranks 13th on this year’s TSX 30, has promised to reward shareholders as soon as it pays off the entirety of its debt, something it expects to do by the fourth quarter of 2022.
“What we’ve said is after we hit zero debt, we‘re going to pay a minimum of 80 cents per share annually (to shareholders) in 2023,” said Chris Carlsen, Birchcliff’s president and chief operating officer, in an interview.
“Currently we pay about eight cents per year, so that’s a big increase.”
Birchcliff’s share price was up 262 per cent from three years ago, and all of the oil and gas companies on the this year’s TSX 30 list saw triple-digit share price appreciation in the same period.
NuVista Energy president and CEO Jonathan Wright said he expects the stock rally to continue in the year ahead, adding NuVista — which ranks 12th on the TSX 30 list — saw its share price increase 295 per cent in the past three years but is only really back to pre-pandemic levels.
“Certainly part of it is because (our share price) came under so much pressure during the down time. But since then we’ve continued to reduce our greenhouse gas intensity, we’ve increased our production by 30 per cent, we’ve continued to reduce our costs, and we have really strong commodity prices,” Wright said in an interview.
“Stock prices are very mis-priced right now compared to this strong commodity price environment we find ourselves in.”
Crude prices have fallen slightly since June and energy stocks with them, but oil prices remain at high levels from a historical perspective and many industry watchers expect them to stay that way in the near future.
A Scotiabank equity research report dated Aug. 22 said Canadian oil-weighted stocks have generated a median return of 40 per cent year-to-date. For comparison, the return on the S&P 500 and S&P/TSX indexes has been -10 per cent and -4 per cent, respectively.
“Free cash flow profiles remain healthy even at lower oil prices and, in our view, there is significant value in the energy space,” the Scotiabank report said.