Pipeline Uncertainty and the Market Returns of Canadian Energy Firms

Abstract

This study uses Event Study Analysis (ESA) to examine whether uncertainty over getting Alberta oil to market has affected the market valuation of Canadian energy firms. In recent years there have been a number of discrete news events pertaining to regulatory decisions that impact whether bitumen products from Alberta can get to market. The main examples are: the 2012 US Presidential election; the BC provincial election; the US administration decision on the Keystone pipeline; and the Canadian government decision on the Northern Gateway pipeline. In this study, we use weekly equity prices for Canadian energy firms, both energy services and oil producers, for the period January 2011 to March 2015 and assess the impact of seven recent events/ and or announcements on the equity returns of the energy firms. We employ the seemingly unrelated regression (SUR) model and analyze different hypotheses regarding the abnormal returns through joint tests. Our results show insignificant abnormal returns in all cases, which implies that there was no market reaction (on average) to any of the news events. Therefore, our empirical results would imply two plausible scenarios. First, the market fully anticipated the events and these events did not contain any significant new information. Second, even though these events/and or announcements contained new information, they did not change the investors’ expectations regarding future profitability and cash flow of Canadian energy firms.