The beaten-down Canadian oil sector is the latest target for oil hedge funds following the success in shorting U.S. shale companies back in the previous year.
As per sources closely following the matter, following a 40% percent gain back in the previous week, Energy Hedge Fund, Westbeck Capital Management is ready to bank on Canadian firms as they have to spend relatively less in comparison to their U.S. counterparts, in turn leaving them with a higher level of free cash flow.
Additionally, in comparison to firms operating in American shale fields, oil fields in Canada are not affected by the rapid rate of decline in production.
In the past 3 years, foreign companies coming into Canada have reportedly ditched more than $30billion of assets which has caused a serious blow to Canada’s energy industry.
Several analysts have concluded that a lack of pipeline availability has affected any or all growth prospects in Canada.
Why should Canada expect a turnaround soon
In a statement, chief executive officer at Westbeck based out of London, Jean-Louis Le Mee said, “At current oil prices, Canadian oil names are generating gigantic amounts of free cash flows as they aren’t spending money to grow their product, they are just spending to maintain it, Lee Mee further added, “It’s just a little bit odd to have energy valuations at all-time lows when S&P valuations are at all-time highs. It’s truly unprecedented.”
According to the formed co-founder of BlueGold Capital Management, Le Mee, he said that he would fully support Canadian mid-cap names like Baytex Energy, MEG Energy, Parex Resources, Crescent Point Energy, and Torc Oil & Gas.
On Monday, While downgrading U.S. exploration and production firms, TD Securities maintained an overweight stance on the Canadian energy sector as Canadian companies also silently have been outperforming their U.S. equivalent as seen on the S&P/TSX Composite Energy Index.
THus showing positive signs that energy hedge funds in Canada are regaining its footing.
Along with Will Smith, the former head of natural resources at Michael Hintze’s CQS and Tudor, Holt & Co. Jon Mellberg and Pickering, Westbeck was launched by Le Mee back in 2016. After two successive years of losing, in 2019 the energy hedge fund managed to beat the market along with many of its peers by wagering against 12 U.S. shale companies.
On average Hedge funds are currently left short of the 29% gain of the S&P 500 Index.