Page 4 - NorthAmOil Week 38

NorthAmOil COMMENTARY NorthAmOil
Energy firms dropped from
Canadian equity index as
industry woes continue
Eight energy companies have been removed from Canada’s main equity index, illustrating the beleaguered industry’s ongoing woes in the current economic environment
CANADA
WHAT:
Eight energy companies have been removed from the S&P/TSX Composite Index.
WH Y:
The companies’ market capitalisation has dropped below the minimum required level as their stock prices have fallen.
WHAT NEXT:
Canada’s energy industry continues to wait for
new pipeline projects to start up.
EIGHT Canadian energy companies were removed from the S&P/TSX Composite Index on September 23 after their market capitalisation dropped below the minimum level required for listing. The development is the latest to illustrate the difficulties that Canada’s energy industry continues to struggle with.
Oil takeaway capacity constraints still play a major part in this, as Canadian crude strug- gles to reach overseas markets amid delays to major pipeline projects. Analysts cited by Reu- ters said the rebalancing of Canada’s flagship index underlined the challenge for energy com- panies trying to attract investment in such an environment.
The composite index is rebalanced quarterly, with companies removed if their market cap- italisation based on float-adjusted shares falls below 0.025% of the overall value of the index. Companies that are removed have to wait a year before being readmitted, which will only be done if their value is at least 0.04% of the index.
Missing out
The companies removed from the index are Birchcliff Energy, Ensign Energy Services, Kelt
Exploration, Nuvista Energy, NexGen Energy, Precision Drilling, Peyto Exploration and Devel- opment and TORC Oil and Gas.
Ensign and Precision are Canada’s two largest drilling companies and their removal illustrates a particularly difficult operating environment for oilfield services players as lower producer spending results in fewer wells being drilled.
“To raise capital for any energy company here in the last few years has been extremely difficult and this is one more nail in the coffin in their ability to access equity,” a Raymond Jams analyst, Jeremy McCrea, told Reuters. In particular, the companies affected will lose out on investment from index-tracking passive funds.
“Energy companies in Canada have taken quite a bit of a hit lately,” an S&P Global spokes- man, Ray McConville, said. “It’s simply a mat- ter of their stock prices having fallen to the point where their market capitalisation is no longer eligible.” He did not say whether this many energy companies had been removed in one go previously, but the share of energy com- panies in the index is declining. Energy now makes up 17% of the index, down from 25% four years ago.
A lack of takeaway capacity out of Canada’s oil sands continue to deter investment in the country’s energy industry.
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Week 38 24•September•2019