What does a 10% tariff mean for CDN energy stocks?
🛢️assuming tariffs last a full year, average cashflow falls by 7% and free cashflow falls by 20% (includes hedging)
🛢️Base case $70WTI FCF yields = 13.9%. With full tariff this falls to 11.2%, so we would argue that stocks are fully discounting the tariff - no need for panic!
🛢️we believe we are being conservative ($17WCS differential vs. spot $15 and estimates of ~$16)
🛢️a rising oil price falling currency will buffer much of the tariff impact
🛢️we believe most of the tariff on CDN oil will be a complete cost passthrough to the US consumer, yet are not modelling this (would mean lower WCS diff)
🛢️given modest CF impact we do not see production volumes being impacted, though flows on TMX to Asia (and less to US refineries) could ~0.3MM Bbl/d.
🛢️at this point modelling integrated names involved too many unknown variables = low confidence in #'s
🛢️we can never, ever allow ourselves to be treated like this again. More pipelines are the answer, and I'll have more on that soon.