Recession fears and concerns about COVID-19 in China saw Canadian energy stocks stumble in late-2022 as oil prices weakened. According to Scotiabank Global Equity Research, the price of North American benchmark West Texas Intermediate (WTI) crude averaged about US$82.69 per barrel in the final three months of last year. That's down 10 per cent from the previous quarter, and about US$2 per barrel above today's price (CL=F).
Fourth-quarter financial results for Canada's energy sector are set to begin rolling out later this month, with Imperial Oil (IMO.TO)(IMO) scheduled to report on Jan. 31. Suncor Energy (SU.TO)(SU), Cenovus, and Canadian Natural Resources will follow on Feb. 14, Feb. 16, and March 2, respectively.
Scotiabank analyst Jason Bouvier says while commodity prices remained relatively robust in Q4, margins for non-diesel refined products fell in the quarter. In a note to clients on Wednesday, he says Suncor and Cenovus were also impacted by unplanned downtime for their downstream operations.
"Based on our estimates, we expect strength from MEG Energy (MEG.TO) and Vermilion Energy (VET.TO)(VET) and weakness from Cenovus," Bouvier wrote, noting MEG and Vermilion's stronger-than-expected production in the quarter.
That said, he names Cenovus as his top pick for 2023 among Canada's large-cap, oil-weighted companies. Among small to mid-sized players, Bouvier says he prefers Crescent Point Energy (CPG.TO)(CPG) and Ovintiv (OVV.TO)(OVV).
Cenovus ranks among the top energy investment ideas this year from CIBC Capital Markets, alongside ARC Resources (ARX.TO), Canadian Natural Resources, Enerplus (ERF.TO)(ERF), Precision Drilling (PD.TO)(PDS), and Tourmaline Oil (TOU.TO).
CIBC analysts led by Dennis Fong see cleaner balance sheets this year, prompting many companies to channel 100 per cent of 2023 free cash flow in the hands of shareholders as they hit net debt targets. Fong expects Cenovus to reach its $4 billion net debt floor by mid-year.
RBC Capital Markets analyst Greg Pardy named Canadian Natural Resources his favourite pick among major Canadian producers on Tuesday. He points to the company's uninterrupted 23-year dividend growth streak, and shareholder-aligned management team, among the factors behind his call.
"[Canadian Natural's] long-life, low-decline portfolio — anchored by low sustaining capital — affords the company with superior free cash flow generation throughout the cycle," he wrote in a report published Tuesday. "CNQ's management committee structure and shareholder alignment are unique factors that distinguish the company globally."
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.