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.
Four-star rated best idea Cenovus Energy remains our top pick in the Canadian energy sector with over 60% upside in the stock. We think the market is too narrowly focused on the company's temporary increase in debt and is overlooking the immense growth potential that can be brought online with its industry-leading solvent-assisted technology.
Turning to the midstream sector, wide-moat and 4-star rated Enbridge is our top pick, where we see over 40% upside. We think that the market is placing too much emphasis on future dividend growth and is overlooking the long-term potential associated with the Line 3 replacement project.