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Toronto Stock Exchange May Dump Seven Canadian Fossils Over Low Share Prices

Plummeting share values may soon drive up to seven small Canadian fossil companies out of the Standard & Poors/Toronto Stock Exchange Composite Index, a key listing that brings businesses to the attention of investors who might consider buying their stocks, according to a list of potential deletions published by analysts at AltaCorp Capital.

The list “includes Kelt Exploration Ltd., Peyto Exploration and Development Corporation, NuVista Energy Ltd., Torc Oil and Gas Ltd., Birchcliff Energy Ltd. and drilling companies Precision Drilling Corporation and Ensign Energy Services Inc., as their depressed market capitalizations have fallen to the point where they no longer meet the threshold required for the 239-member composite index,” the Financial Post reports. “Their deletion would exacerbate the damage already inflicted on the sector because it would preclude major passive funds, that track major indices, from buying the stocks.”

An announcement is expected in the next few days, and would take effect September 30. The Post says the proportion of fossil companies in the index has fallen from 34% in 2008 to 16% today.

“The fact is, right now, there’s such a lack of investor interest in Canadian [fossil] energy equities that the stock valuations have gone soft and we’re going to fall off the index,” said Precision Drilling President and CEO Kevin Neveu. 

“I mean, it’s inevitable based on the numbers,” he added. “When investors can’t see any potential for production growth or enterprise growth, they’ll look for other sectors.”

“All you can really do is get out in front of the investors and tell your story,” Kelt President and CEO David Wilson told the Post. “The problem is the market has just been so beat up through the summer that there just isn’t anybody listening right now to the oil and gas story.”

Peyto Exploration President and CEO Darren Gee said the impending cut represented a marked change from 2002, when his company was brought into the index with output of just 7,800 barrels of oil per day. “Here we just announced Q2 results and we’re over 10 times that size. It’s a bit amazing that we’re so much bigger in terms of the size of the company’s production, cash flow, reserves, everything, and having delivered incredible profitability over the last 17 years, and yet we’re not big enough to be on the composite index anymore,” he told the Post. 

“It’s indicative of the direction the market has taken with respect to oil and gas investing.”

AltaCorp isn’t alone in predicting the deletions, which would lead to higher interest rates on the money the companies try to borrow to keep their operations going. An analyst survey by Bloomberg “also flagged Peyto, NuVista, Torc, Birchcliff, Precision, and Ensign as highly likely to be deleted from the index,” the Post writes.

Canoe Financial senior portfolio manager Rafi Tahmazian said many investment fund managers are treating oil like tobacco stocks and steering clear, even though they’re currently “making gobs of money”. The difference, in Tahmazian’s view, is that “oil and gas are necessity goods,” the Post states.

But Wilson of Kelt Exploration held out the hope of a turnaround. “I think it gets to a point where capitulation sets in. Everybody says, ‘why invest in oil and gas?’” he said. “Then all of a sudden, these companies are trading at such low multiples that it becomes a great investing opportunity and guys jumps back in.”