Canadian energy seeing decade-high profit growth

The rally in energy shares halted in May after three months of rising returns. It’s back on pace for the month month, with Canadian producers up 6.8 percent as a group as oil prices gain amid violence in Iraq that threatens to splinter OPEC’s second- largest oil producer.

“This Iraqi thing has come right out of the blue,” Cockfield said. “It’s going to be messy for a while, and the thing that’s most likely to happen is there is going to be curtailment of oil shipments.”

Deal activity

Speculation around mergers and acquisitions is boosting stock prices too. The deal market is roaring back compared with the first half of 2013 which saw the lowest number of North American energy acquisitions since 2004.

There have been $15 billion in acquisitions of Canadian energy companies announced so far this year, compared with just under $5 billion for the same period in 2013. Deals include Glencore Plc’s $1.35 billion bid for Caracal Energy Inc. and Canadian Natural’s purchase of assets from Devon Energy Corp. for $2.82 billion.

Investors would be wise to step back from energy stocks, said Martin Pelletier, a fund manager at TriVest Wealth Counsel Ltd. in Calgary.

“These stocks turn hard and fast in either direction,” he said by phone on June 16. “They’ve had a hell of a run and who knows if there’s continued momentum.”

Developments in horizontal drilling and the advent of fracking means the U.S. is expected to surpass Saudi Arabia and Russia in crude production next year, according to the International Energy Agency.

Playing catch-up

“It’s worthwhile taking some money off the table,” Pelletier said. “Will people talk about Iraq in two or three months? Probably not.”

Still, as the world economy continues to recover, demand for oil will support the energy industry, said Craig Fehr, Canadian market strategist at Edward Jones in St. Louis, which manages about $750 billion globally.

Canadian energy producers rose almost 10 percent as a group last year to match the return of the broader index, after trailing the benchmark gauge for three straight years. The group trades at 29 times earnings, approaching a five-year high.

“Energy has been an underperformer in the past couple of years,” Fehr said by phone. “We’re still playing catch-up.”

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