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4-Star Picks in the Energy Sector

Our top pick in Canadian energy is Cenovus Energy, and we like wide-moat Enbridge in the midstream sector.

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Joe Gemino: It's no secret that oil sands production faces challenged economics and struggles to compete with other marginal sources of supply, such as U.S. shale. Fortunately for oil sands producers, solvent-assisted technology will help oil sands production compete by meaningfully reducing both operating costs and capital costs, coupled with increases in oil quality and field recovery rates. Using this new technology, we believe break-evens for the best projects can fall to $45/bbl WTI by the end of the decade compared to average costs of $60/bbl today.

Canada's deficient pipeline infrastructure threatens the sanctioning of new projects by hindering pipeline market access and impairing project economics by the use of rail transportation. Luckily for oil sands producers and midstream companies, the U.S. political climate is right for pipeline expansion projects, highlighted by Enbridge's Line 3 replacement pipeline and TransCanada's Keystone XL.

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Joe Gemino does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.