Originally published to BNNBloomberg.ca on Oct. 25, 2019

Could Canada’s lack of new pipeline capacity be a good thing?

According to Bornite Capital founder and chief executive officer Dan Dreyfus, jumping on Canadian energy stocks is a smart value play right now, even if the nation’s pipeline struggles persist and the price of oil were to continues to weaken.

“I actually like the fact that we’re pipeline-constrained because it forces these companies to give you your money back,” Dreyfus told BNN Bloomberg in a Friday interview.

The nature of how these companies spend is at the heart of Dreyfus’ theory. He summarized it to BNNBloomberg.ca via email as such:

Even pipeline-constrained Canadian energy companies have become attractive due to a severe reduction in capital expenditures freeing up significant extra cash-flow. With that surplus, these companies are effectively forced to return the money to shareholders, either via share buybacks, paying down debt or dividends.

What’s more, a lower oil price can save Canadian energy producers from potentially-destructive growth spending.

In the case of Canadian Natural Resources – which Dreyfus invested in during the Canadian energy sector’s 2015 downturn – the company would still cover its five per cent dividend even if the price of WTI dipped to US$45, offering a more attractive and consistent return when compared to the current U.S. market.

“I look at it and I saw: Even if the share price doesn’t go up a single penny from here, ever, (and) it just holds its value, I’m [collecting] five per cent a year,” Dreyfus said.

“That’s not great, but I know that’s a good case to underwrite on the downside.”

Dreyfus acknowledged that his view of the Canadian energy sector is contrarian, but added that tends to be where he’s made his biggest returns.

“I’ve made the most money in my career zigging where everyone’s been zagging,” he said. “When foreign investors are fleeing, that – to me – is a sign to dust off the files and come in.”

“If you do your work and just look at the cash-flow streams, I think – over time – that’s how you get paid.”