Buy Canadian Heavy Oil Producers

We strongly believe that Canadian heavy oil producers will be the best-performing subsector of the energy sector this year. The thesis is primarily driven by the following:

1. Incoming Transmountain pipeline expansion by end of 2023.

2. ~2 million b/d of refinery additions by year-end (focused primarily on sour crude).

3. Years of underinvestment in non-OPEC ex-US production.

4. Potential Russian crude export loss.

There are clear and obvious catalysts this year, and when these catalysts materialize and result in compression in the differentials we see in WCS-WTI, the market will rerate the heavy oil producers, and investors will be rewarded.

We believe the main driver of the thesis this year, however, will be centered around the incoming refinery additions. Now keep in mind that refinery start-up dates can often have delays, which will delay the thesis, but investors will start to buy heavy oil names in an effort to front-run the events.