While a resolution in the Middle East could trigger a swift drop in oil prices, Canada’s energy sector is poised to gain from the supply shock. Menno Hulshof, Managing Director for Equity Research with TD Cowen says today’s surge is fueling outsized cash flow, accelerating growth plans, and giving Canadian producers more flexibility on capital returns.

Transcript

Greg Bonnell: Elevated energy prices have provided a boost to the Canadian oil and gas sector. But will this be a longer-term trend, even after the Middle East conflict ends? Joining us now to discuss is Menno Hulshof, managing director for equity research with TD Cowen.

Menno, great to have you on the program. We've just come through an earnings season. We've seen elevated energy prices. How did that play through? How big of a theme was that for the Canadian energy patch?

Menno Hulshof: Yeah, thanks for having me on, Greg. To your point, WTI oil prices are now north of $100. And the volatility is at a level I certainly have never seen before. And I think the implications of that are threefold.

First off, the obvious one, we're seeing much higher free cash flow. Second, companies seem to be getting more comfortable talking up growth. And then we are-- and this is more nuanced-- but we are seeing more companies suggesting that they're about to get more flexible in terms of shareholder capital return framework.

So, just touching on free cash flow-- the upside is very significant, since many companies had only budgeted $60 WTI for this year, and also because cost structures are much lower than they were before COVID. And market access is much better, meaning tighter heavy oil differentials and better pricing.

On the growth side of things, we've seen several companies highlight expansion potential through reporting. I think