What are we looking for?

My team member, Allan Meyer, recently attended the Canadian Association of Petroleum Producers (CAPP) conference hosted in Toronto by Bank of Montreal. He came back impressed. As a result, we decided to analyze oil and gas producers using our investment philosophy, which focuses on safety and value, and see what the numbers say. We’d also like to remind investors that this sector can be cyclical and volatile, so we tend to target very limited to no exposure to it in our client portfolios.

The screen

We started with Canadian-listed oil and gas companies with a market capitalization of $1-billion or more, sorted from largest to smallest. This is a safety factor, as large companies tend to be more stable and liquid than small ones.

Dividend yield is the projected annual dividend per share divided by the share price. Allan and I like to get paid while we wait for capital appreciation, and dividends generally reflect safety and stability. So, we limited our search to dividend payers.

Debt/equity is our final safety measure. A smaller number is better and implies lower relative risk. It’s difficult to go bankrupt if you have little or no debt.

Price/cash flow is the share price divided by the projected annual cash flow per share. It’s a valuation metric, and the lower the number, the better the value. In the oil and gas sector, cash flow is often considered more reliable than earnings-based financial ratios because of the high costs in the sector related to non-cash items such as depreciation, amortization and deferred taxes.

Enterprise Value/EBITDA is known as the “takeover multiple.” It is a measure of the company’s total value divided by earnings before interest, taxes, depreciation and amortization (a proxy that’s like cash flow). Unlike many common valuation metrics, it accounts for the undertaking of debt by an acquirer. Smaller numbers mean a company is less expensive (i.e. better value).

We’ve also included the 52-week total return to track performance, and the average and median numbers to allow for better comparability within the group.

What we found

Oil and gas stocks with strong dividends

COMPANY	TICKER	MARKET CAP ($B)	DIV. YLD. (%)	D/E (%)	P/CF	EV/EBITDA
Canadian Natural Resources Ltd	CNQ-T	87.8	4.5	34.0	5.5	4.5
Suncor Energy Inc	SU-T	56.9	4.8	39.7	3.8	2.8
Cenovus Energy Inc	CVE-T	45.8	1.8	42.2	3.9	3.5
Imperial Oil Ltd	IMO-T	42.6	2.4	18.5	6.3	3.8
Tourmaline Oil Corp	TOU-T	19.6	1.7	4.6	4.3	2.9
ARC Resources Ltd	ARX-T	9.9	3.7	26.8	3.1	2.2
Whitecap Resources Inc	WCP-T	6.5	5.4	37.1	3.4	3.2
Crescent Point Energy Corp	CPG-T	5.6	3.9	24.1	2.3	2.4
Enerplus Corp	ERF-T	4.5	1.4	24.1	3.6	2.2
Vermilion Energy Inc	VET-T	2.9	2.3	33.9	2.0	1.6
Parex Resources Inc	PXT-T	2.8	5.7	0.4	2.5	1.6
Topaz Energy Corp	TPZ-T	2.8	6.3	34.1	8.7	9.1
Tamarack Valley Energy Ltd	TVE-T	2.3	3.6	56.5	2.5	3.9
Freehold Royalties Ltd	FRU-T	2.3	7.2	16.5	7.8	6.7
Peyto Exploration & Development Corp	PEY-T	2.2	10.6	41.9	2.5	2.5
Birchcliff Energy Ltd	BIR-T	2.2	9.9	6.0	3.7	2.6
Headwater Exploration Inc	HWX-T	1.5	6.2	0.2	4.7	4.7
Cardinal Energy Ltd (Alberta)	CJ-T	1.2	9.7	3.9	4.2	3.4
AVERAGE		16.6	5.1	24.7	4.2	3.5
MEDIAN		3.7	4.7	25.5	3.8	3.1

Source: Refinitiv Eikon & Wickham Investment Counsel Inc.

Parex Resources PXT-T +1.44%increase scores well for safety and value, and has the lowest EV/EBITDA ratio; one wonders if the company is a takeover candidate. Birchcliff Energy BIR-T +0.73%increase also looks interesting. Vermilion Energy VET-T +1.10%increase is the least expensive on both of our valuation metrics, while Peyto Exploration & Development PEY-T +1.58%increase has the highest dividend and is attractively priced. Headwater Exploration HWX-T -0.31%decrease has almost no debt and pays a nice dividend. In general, the list offers attractive valuations, light debt loads and healthy dividend yields.

The BMO Canadian Oil and Gas ETF and the iShares Energy ETF are options for investors who like the sector, but want to diversify away individual security risk.

Investors should contact an investment professional or conduct further research before buying any of the companies or ETFs listed here.

Canada is experiencing a labour boom – and it extends to just about every corner of the country. In March, eight provinces had unemployment rates below 6 per cent, which has never happened before. The national rate of 5 per cent is hovering near all-time lows, a reflection of tight labour market conditions.

Over more than two decades, the disparities between provincial unemployment rates have been shrinking, and now those differences are especially small. Despite having very different economies, Alberta and Nova Scotia enjoy jobless rates of 5.7 per cent. Quebec boasts the lowest, 4.2 per cent, although B.C. isn’t far behind at 4.5 per cent.

“Canada often sees stark variation in job-market conditions across different regions of the country, but that is not the case today,” wrote Robert Kavcic, senior economist at Bank of Montreal, in a recent client note.

“This can be seen as a good thing. We’ve often vouched for policy measures that improve the mobility of labour in this country (to help counter regional imbalances). It can also be seen as evidence that the economy is very broadly hot, not powered by any particular region or industry.”

It’s possible for unemployment rates to fall if jobless people leave the labour force by no longer actively looking for work. At that point, they would not meet Statistics Canada’s definition of unemployed.

But that’s not what’s happening here. The labour participation rate – the proportion of the country that is working or searching for a job – was 65.6 per cent in March, about the same as five years earlier.

“We’re seeing very low discouraged [job] searchers right now,” Andrew Fields, a senior analyst at Statscan, recently told The Globe and Mail.

• Personal banking revenue rose 18% year over year, reflecting higher interest rates.
• Fixed income markets revenue climbed 4% year over year, though that was offset by declines in investment banking and equity market revenue.

Citigroup (C) earnings Q1 2023 (cnbc.com)

• Here’s how the bank did: Adjusted earnings of $4.32 per share vs. $3.41 estimate
• Revenue of $39.34 billion vs. $36.19 billion estimate
• The bank also boosted a key piece of guidance: Net interest income will be about $81 billion this year, about $7 billion more than their previous forecast.

JPMorgan Chase (JPM) earnings 1Q 2023 (cnbc.com)

U.S. applications for jobless benefits rose to their highest level in more than a year, but remain at relatively low levels despite efforts by the Federal Reserve to cool the economy and job market in its battle against inflation.

Jobless claims in the U.S. for the week ending April 8 rose by 11,000 to 239,000 from the previous week, the Labor Department said Thursday. That’s the most since January of 2022 when 251,000 people filed for unemployment benefits.

The four-week moving average of claims, which evens out some of the week-to-week fluctuations, rose by 2,250 to 240,000. That’s the most since November of 2021.

Last week, the Labor Department unveiled revised estimates of the number of weekly applications for jobless benefits under a new formula it is using to reflect seasonal adjustments. The new formula, which led to an increase in its weekly tally, is intended to more accurately capture seasonal patterns in job losses.

Applications for unemployment benefits are broadly seen as reflective of the number of layoffs in the U.S.

The job market seems to be finally showing some signs of softening, more than a year after the Federal Reserve began an aggressive campaign to cool inflation by raising its benchmark borrowing rate nine times in about a year.

America’s employers added a solid 236,000 jobs in March, suggesting that the economy remains on solid footing despite the nine interest rate hikes the Federal Reserve has imposed over the past year in its drive to tame inflation. The unemployment rate fell to 3.5%, just above the 53-year low of 3.4% set in January.

In its latest quarterly projections, the Fed predicts that the unemployment rate will rise to 4.5% by year’s end, a sizable increase historically associated with recessions.

Also last week, the Labor Department reported that U.S. job openings slipped to 9.9 million in February, the fewest since May 2021.

Some details from Friday’s Labor Department report raised the possibility that inflationary pressures might be easing and that the Fed might soon decide to pause its rate hikes. Average hourly wages were up 4.2% from 12 months earlier, down sharply from a 4.6% year-over-year increase in February.

Also Thursday, the government reported that wholesale prices fell sharply in March. One day earlier, the government said consumer prices rose just 0.1% from February to March, down from 0.4% from January to February and the smallest increase since December. However, prices are still rising fast enough to keep the Federal Reserve on track to raise interest rates at least once more, beginning in May.

Layoffs have been mounting in the technology sector, where many companies hired aggressively during the pandemic. IBM, Microsoft, Salesforce, Twitter and DoorDash have all announced layoffs in recent months. Amazon and Facebook have each announced two sets of job cuts since November.

About 1.81 million people were receiving jobless aid the week that ended April 1, a decrease of 13,000 from the week before. That number is close to pre-pandemic levels.

• Dominion Voting System’s defamation lawsuit against Fox Corp. and its cable TV networks will go to trial on Monday.
• Industry analysts and experts watching the case say the biggest consequence to the company will likely be financial, as viewership and advertising remain steady.
• But the outcome of the case is far from clear, and neither side appears interested in settling.

Dominion Voting System’s defamation lawsuit against Fox Corp. and its cable TV networks will go to trial in the coming days, but it remains to be seen what, exactly, the lawsuit means for Fox and its business.

Dominion brought its lawsuit against Fox and its TV networks, Fox News and Fox Business, in March 2021, arguing their hosts pushed false claims that Dominion’s voting machines were rigged in the 2020 presidential election that saw Joe Biden triumph over Donald Trump. The trial begins on Monday.

IAC Chairman Barry Diller, who was chairman and CEO of parent-company Fox from 1984 to 1992, said at a media conference hosted by startup Semafor earlier this week that although he thought Fox should lose the case, handing Dominion “a very big reward,” that the company will just pay the damages and move on.

“What’s it going to do? Worsen [Fox Corp. Chair] Rupert Murdoch’s reputation?” Diller joked.

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Fox News sanctioned for withholding evidence in Dominion lawsuit

On its face, the biggest potential consequence for Fox would be a financial hit: The company will have to pay to defend itself against the claims and, if it loses, possible damages to Dominion, upwards of $1.6 billion. No matter the outcome, an appeal is likely.

Fox, which has denied the claims made by Dominion and said it is protected by the First Amendment, has opposed the amount of the damages that the voting machine maker is seeking. The Delaware judge overseeing the case — who ruled a trial was necessary — recently said it would be up to a jury to decide the matter. 

Business risk

Neither side has shown signs of a wanting to settle the case, and the two parties have met once at a court-ordered meeting. But even if they did come to a settlement, Fox would still be on the hook for a steep payment, experts say.  

“There could be a lot of implications depending on how it plays out,” said Imraan Farukhi, an assistant professor at Syracuse University’s S.I. Newhouse School of Public Communications. Besides the financial impact, Farukhi added, “The other question is what will they do with their talent if they lose? The majority of the stars at Fox are implicated. Any other news organization would have probably seen their hosts losing their jobs for improper reporting.”

Lou Dobbs, who is slated to be a witness, saw his weekday program on the Fox Business network canceled the day after he was named a defendant in the defamation lawsuit of a second voting machine company, Smartmatic. At the time, Fox said his show’s cancellation was in the works prior to the lawsuit.

Shows helmed by Tucker Carlson, Maria Bartiromo, Sean Hannity, Laura Ingraham and Jeanine Pirro have been listed as evidence by Dominion. Those hosts also are slated to testify in Dominion’s case.

On Wednesday, the Delaware judge overseeing the case sanctioned Fox for withholding evidence and reportedly said if depositions or anything else needed to be redone, it would come at a cost to the company.

But the most likely immediate effect on Fox and its bottom line could come in the form of libel training classes for talent and others in the newsroom, as well as an increase in production insurance policies that cover defamatory statements, Farukhi said. Those policies could also help cover the costs related to the lawsuit for Fox.

Still, a near-term financial impact is unlikely to spell disaster for the network.

As thousands of documents have been unveiled in recent months, revealing skepticism from Fox’s top TV hosts and executives about the election-fraud claims that were made on air, Fox News’ ratings have remained stable, according to Nielsen. Similarly, so has the parent company’s stock price. 

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Fox Corp.’s stock has remained stable in recent months as evidence implicating its TV hosts and executives have come to light in Dominion’s defamation lawsuit.

Fox News’ steady audience has also ensured that advertisers stick around, too. Oftentimes, companies will pull their ads when TV networks are embroiled in controversy. For Fox, that hasn’t been an issue in its lawsuit battle with Dominion. 

“I am hesitant to say how this could implicate their business when it comes to viewership and sponsors,” Farukhi said. “Their audience and sponsors seem to not really care what the network is being accused of in this case. They only stop viewing Fox when it provides information that is not congruent with their predetermined conclusions.”

Fox Corp. CEO Lachlan Murdoch sounded confident about the network’s future when asked during a March investor conference if he could share anything about the case.

“I think fundamentally what I’ll just say about it is that a news organization has an obligation and it is an obligation to report news fulsomely, and without fear or favor,” Murdoch said at the time. “That’s what Fox News has always done and that’s what Fox News will always do.” 

He added that “the noise that you hear about this case is actually not about the law and it’s not about journalism and it’s really about politics.”  

No other questions were asked during the conference. 

Amendment protections

Fox has continuously denied the claims made against its network and hosts, arguing the case is about First Amendment protections “of the media’s absolute right to cover the news.” Attorneys have argued that covering the allegations being made by Trump and his attorneys was newsworthy and protected by the First Amendment. 

For that reason, the case has been closely watched by First Amendment experts. While it’s difficult to prove a defamation case in the U.S., many believe there’s enough evidence this time that it could happen. 

“The fact that the lawsuit hasn’t settled yet, and Dominion likely doesn’t want to settle, shows they have a good likelihood of prevailing,” said Gautam Hans, an associate law professor and First Amendment expert at Cornell University. “There’s been a lot of embarrassing, contradictory statements that have come out from the discovery process that even if Dominion loses there will have been pain inflicted on Fox along the way.” 

The evidence gathered for the case — which includes text messages, emails and other internal communications between Fox’s executives, TV hosts, producers and others tied to the newsroom — shows those at the network and parent company were skeptical of what was being reported.

The elder Murdoch, the Fox Corp. chair, suggested the TV hosts “went too far,” and said during his deposition that some of the network’s commentators “endorsed” the claims. 

Paul Ryan, the former Republican speaker of the House and a Fox board member, told Rupert and Lachlan Murdoch “that Fox News should not be spreading conspiracy theories,” according to court papers. 

Fox News host Carlson said in a text message to his producer that pro-Trump attorney Sidney Powell was lying, according to court papers. In other texts, Carlson said, “It’s unbelievably offensive to me. Our viewers are good people and they believe it.” 

• Amazon Web Services is launching the Bedrock service for generative artificial intelligence in limited preview.
• Through Bedrock, clients can use language models from Amazon and startups AI21 and Anthropic, as well as Stability AI’s model for turning text into images.
• Amazon said Pegasystems, Deloitte and Accenture and are among the companies looking forward to using Bedrock

AWS launches Bedrock generative AI service, Titan LLMs (cnbc.com)

Brookfield Infrastructure Partners LP BIP-UN-T -0.32%decrease is acquiring the world’s largest freight container player, Triton International Ltd., for US$4.7-billion in cash and shares, as the industry seeks to rebound from an inventory overhang in some areas that is weighing on demand.

Brookfield is paying US$85 a share for Triton, US$68.50 of which will be paid in cash and the rest in class A exchangeable shares. The deal is a 35-per-cent premium to Triton’s closing price on Tuesday.

Shares of Triton jumped 32 per cent Wednesday on the New York Stock Exchange, closing at US$83.34. Including debt, the transaction is valued at about US$13.3-billion.

Triton is the world’s largest owner and lessor of freight containers, with a container fleet that encompasses more than seven million 20-foot equivalent units. “Triton is an attractive business with highly contracted and stable cash flows, strong margins and a track record of value creation,” Sam Pollock, chief executive of Brookfield, said in a news release.

“Brookfield Infrastructure’s significant resources and long-term investment horizon will support Triton’s franchise, underpin our commitment to providing unrivalled service, and support continued investment in our growing business,” said Brian Sondey, CEO of Triton.

Pending approval by Triton’s shareholders and required regulatory approvals, the transaction is expected to close in the fourth quarter.

More than 80 per cent of the world’s goods are transported by shipping containers sailing across the seas, according to the International Monetary Fund.

The COVID-19 pandemic led to widespread problems in global supply chains, but many of the issues are now being resolved. Still, shifts in consumer demand have led to some imbalances in the market. According to market forecaster Container xChange, the shipping industry is experiencing a freight recession as retailers who overstocked use up their excess stock.

The latest Drewry World Container Index, at US$1,710 a 40-foot container, is 36 per cent lower than its 10-year average of US$2,689 and down 79 per cent from a year ago, but 20 per cent higher than average prepandemic rates in 2019.

A survey conducted in April by Container xChange indicates that 48 per cent of supply chain professionals expect the shipping industry to strengthen this year and surpass last year’s peak.

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The Pierre Elliott Trudeau Foundation is planning an outside review of a controversial Beijing-linked donation, after concerns were raised internally about possible wrongdoing.

Conversations with four key people associated with the Trudeau Foundation show an organization bitterly divided over how to handle the 2016 gift, which The Globe and Mail reported in late February came from the government of China as part of an influence operation to curry favour with Prime Minister Justin Trudeau. The Globe is not identifying the sources, because they were not authorized to discuss internal foundation matters.

Since The Globe report, senior staff and board members who joined the foundation after 2016 have discovered that the donor of record was Millennium Golden Eagle International, a Chinese state-affiliated company run by billionaire Zhang Bin. They have also learned that associated tax receipts may not be accurate. Mr. Zhang is a political adviser to the government in Beijing and a senior official in China’s network of state promoters around the world.

One source familiar with the matter said the China Cultural Industry Association – a state-backed group in Beijing that aims to build “the soft power of Chinese culture” globally – contacted the Trudeau Foundation at the outset to dictate what name and address should be put on the tax receipt for the gift.

Officials with the association asked the Trudeau Foundation to refrain from using the names of Mr. Zhang and fellow billionaire Niu Gensheng, the men whom the foundation publicly identified as the donors. Instead, the officials asked the foundation to attribute the donation to Millennium Golden Eagle International’s Canadian subsidiary, the source said. And they asked that the tax receipt be linked to an address in Hong Kong rather than the company’s Canadian address – which is a large house, with a pool and basketball court, in the Montreal suburb of Dorval.

A copy of the receipt for the first instalment of the donation, obtained by The Globe and Mail under access-to-information law, confirms the name and address on the receipt: it does not bear the names of Mr. Zhang and Mr. Niu. Instead it names Millennium Golden Eagle International (Canada) as the donor and lists an address in Hong Kong.

The same trove of documents obtained under access to information also shows that the Chinese cultural group later asked that the tax receipt be reissued to its address in Beijing, not the address in Hong Kong.

A Globe reporter visited the address in Hong Kong, which now appears to be occupied by a different company. An employee who answered the door had never heard of Millennium Golden Eagle. The company does not appear to ever have been registered in Hong Kong.

Clark: Too many lines converge at the intersection of Trudeau and foundation

At a contentious Trudeau Foundation board meeting on March 31, the sources said, the board passed a resolution to hold an independent forensic audit of the donation, including examination of all related e-mails and interviews with anyone involved with the gift. It also asked directors who were board members at the time of the donation to avoid interfering in the investigation.

On April 6, Ted Johnson, a former top aide to the late former prime minister Pierre Trudeau, sent an e-mail saying the foundation would proceed with what should be “described as an independent review.” The letter, which was obtained by The Globe, did not mention a forensic audit, and said the terms of reference would have to be approved by the board. Two sources told The Globe the outside review will include a forensic audit.

Once the terms of reference are approved, an independent committee will oversee the investigation, two sources said.

The sources also confirmed that the taxpayer-funded Trudeau Foundation has been unable to return $140,000 to Mr. Zhang, who, along with Mr. Niu, had promised it $200,000 but only delivered 70 per cent of the money.

The two men also pledged $750,000 to the University of Montreal law school, where Pierre Trudeau once studied and later taught law. Another $50,000 was pledged to commission a statue of the former prime minister that was never built.

Two sources said the Trudeau Foundation tried in March to send a refund cheque by Canada Post to the Dorval address of Millennium Golden Eagle International (Canada), but that there was no one at the residence to accept the money.

A foundation document, first obtained by La Presse, says that one of the foundation’s members (members appoint the foundation’s board and auditor) later phoned a senior staff member to say the “real donor” was not the same as the donor “on the tax receipt issued by the foundation in 2016 and 2017.″

The member, who was a director of the foundation in 2016, urged the staff member to hand-deliver the $140,000 cheque to the real donor “as the only way to protect the Foundation and turn the page,” according to the document, which was sent to the foundation’s board on March 29. It is unclear who the member believed the real donor to be.

The document says the staff member, who never learned the identity of the alleged real donor, refused to do so, saying it would not “only be unethical but illegal as this is a third party” with which the foundation has no relationship.

The agreement with the two Chinese businessmen who initially took credit for the donation was signed by Alexandre Trudeau, brother of Prime Minister Justin Trudeau and a foundation board member at the time. The other signatories were then-University of Montreal rector Guy Breton and then-law school dean Jean-Francois Gaudreault-DesBiens, university spokesperson Genevieve O’Meara said.

Foundation policy in 2016 required acceptances of gifts under $1-million to be signed by the organization’s president and chief executive, who at the time was Morris Rosenberg, a former senior civil servant. (Mr. Rosenberg was recently tapped by the Prime Minister to investigate Chinese interference in the 2021 federal election.) Gifts over $1-million needed to be signed by the board. The foundation was set up with a $125-million endowment from the Jean Chrétien government in 2002.

On Monday, the foundation’s board of directors and its president and chief executive, Pascale Fournier, resigned, citing political backlash from the donation. One source said the resignations had happened because of a “corrosive atmosphere” where people had become “suspicious of each other.”

After the resignations on Monday, one source told The Globe they had expressed concern to the foundation’s leadership that Mr. Johnson and Trudeau family friends Bruce McNiven and Peter Sahlas should not be involved in any aspect of the outside review. The three men remain on the foundation’s board on an interim basis until new directors are selected by the foundation’s members, who met Wednesday to discuss the turmoil.

In February, The Globe first reported that the Canadian Security Intelligence Service had captured a conversation in 2014 between an unnamed commercial attaché at one of China’s consulates in Canada and Mr. Zhang.

The pair discussed the federal election that was expected to take place in 2015, and the possibility that the Liberals would defeat Stephen Harper’s Conservatives and form the next government, according to a national-security source. The source said the diplomat instructed Mr. Zhang to donate $1-million to the Trudeau Foundation, and told him the Chinese government would reimburse him for the entire amount.

The Globe is not identifying the source, who risks prosecution under the Security of Information Act.

With a report from James Griffiths in Hong Kong