Oil Investors: Here Are 3 Companies Less Affected by the Western Canadian Select Discount

Why Tourmaline Oil Corp. (TSX:TOU), Vermilion Energy Inc. (TSX:VET)(NYSE:VET), and another company are great long-term plays for Canadian oil investors worried about the steepening Western Canadian Select discount.

With the discount that many Canadian oil producers are currently stuck with (Western Canadian Select vs. WTI Crude or Brent Crude) growing substantially in recent months, many investors are rushing to the doors, exiting oil companies with significant exposure to Canada’s oil sands.

While Western Canadian Select, the oil produced from Canada’s oil sands — much heavier and more difficult and expensive to transport than the light-sweet crude produced from fracking operations generally centered in the U.S. — has traditionally held a discount to WTI Crude (the U.S. benchmark price) and Brent Crude (the global benchmark price), the gap has more than doubled over the past nine months due to changing fundamentals in the oil market.

I’ve highlighted the WCS-WTI discount as a key risk for oil companies with significant exposure to Canada’s oil sands, such as Cenovus Energy Inc. (TSX:CVE)(NYSE:CVE), in the past — let’s just say 2017 was not a favourable year for Cenovus shareholders. Other companies, such as MEG Energy Corp. (TSX:MEG), with complete exposure to Canada’s oil sands, have dropped nearly 90% in the past 18 months as a direct reflection of the changing low-price commodity environment combined with a widening discount Canadian oil sands producers are now receiving.

Here are three companies that may be a Canadian oil investor’s best options.

Suncor

Canada’s largest and most prominent oil company, Suncor Energy Inc. (TSX:SU)(NYSE:SU), has been one of my top picks for some time now due to the company’s diversified portfolio of oil and gas operations. The extremely low correlation between Suncor’s stock price and the price of oil speaks to the ability of Suncor to be an effective oil hedge against other oil and gas companies that may be highly leveraged or tethered to benchmark prices.

Suncor is up 10% since the beginning of 2017, and I expect 2018 to be another solid year for the major player.

Tourmaline Oil

Moving almost entirely away from the Canadian oil sands, Tourmaline Oil Corp. (TSX:TOU) has the vast majority of its operations centered in the Deep Basin formation in western Canada — oil which trades very near the WTI benchmark, giving Tourmaline a huge advantage over its major peers.

Given the relative lack of a discount provided by Tourmaline, this is an excellent company to be viewed as a hedge against a growing discount gap in 2018.

Vermilion Energy

A global pick for investors looking to get out of Dodge is Vermilion Energy Inc. (TSX:VET)(NYSE:VET). The company has the majority of its operations located outside Canada, making Vermilion an excellent way to play global growth and Brent/WTI prices to offset Canadian oil sands exposure.

Stay Foolish, my friends.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Chris MacDonald holds no positions in any stocks mentioned in this article.

More on Dividend Stocks

Middle aged man drinks coffee
Dividend Stocks

Here’s the Average TFSA Balance at Age 35 in Canada

At age 35, it might not seem like you need to be thinking about your future cash flow. But ideally,…

Read more »

ETF stands for Exchange Traded Fund
Dividend Stocks

How to Invest Your $7,000 TFSA Contribution in 2024

Here's how I would prioritize a $7,000 TFSA contribution for growth and income.

Read more »

a man relaxes with his feet on a pile of books
Dividend Stocks

CPP Pensioners: Watch for These Important Updates

The CPP is an excellent tool for retirees, but be sure to stay on top of important updates like these.

Read more »

Technology
Dividend Stocks

TFSA Investors: 3 Dividend Stocks I’d Buy and Hold Forever

These TSX dividend stocks are likely to help TFSA investors earn steady and growing passive income for decades.

Read more »

four people hold happy emoji masks
Dividend Stocks

Love Dividend Growth? Check Out These 2 Income-Boosting Stocks

National Bank of Canada (TSX:NA) and another Canadian dividend-growth stock are looking like a bargain going into December 2024.

Read more »

An investor uses a tablet
Dividend Stocks

A Dividend Giant I’d Buy Over Enbridge Stock Right Now

Enbridge stock may seem like the best of the best in terms of dividends, but honestly this one is far…

Read more »

how to save money
Dividend Stocks

Got $1,000? The 3 Best Canadian Stocks to Buy Right Now

If you're looking for some cash flow from your $1,000 investment, these are the ideal investments to make.

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

A Dividend Giant I’d Buy Over BCE Stock Right Now

Don't get sucked in by BCE's 10% dividend -- the stock is a total yield trap. Buy this instead.

Read more »