Petro-Canada $52 - Toronto symbol PCA

PETRO-CANADA $52 (Toronto symbol PCA; Conservative Growth Portfolio, Resources sector; Shares outstanding: 485.2 million; Market cap: $25.2 billion; SI Rating: Average) is Canada’s secondlargest integrated oil company after Imperial Oil. Main production areas include Western Canada, offshore platforms near Newfoundland, the North Sea, Libya and Trinidad and Tobago. The company also operates over 1,300 retail gas stations. Petro-Canada is investing heavily in long-term projects that should pay off for decades. For example, it owns 60% of the Fort Hills oil sands project, whose reserves should last up to 40 years. Production should begin in late 2011. Petro-Canada estimates its share of Fort Hill’s costs at $8.5 billion. To put that in context, the company earned $1.29 a share (total $630 million) before special items in the three months ended September 30, 2007, up 14.2% from $1.13 a share ($564 million) a year earlier. Revenue rose 5.8%, to $5.5 billion from $5.2 billion. The company is also upgrading its refineries in Edmonton and Montreal to handle more heavy oil. This will cost Petro-Canada a further $3 billion. Despite recent problems at its 34%-owned Terra Nova offshore platform near Newfoundland, Petro- Canada should meet its goal of increasing its 2007 output by 15%. That, along will higher oil prices, should raise its 2007 profit to $5.40 a share. The stock trades at just 9.6 times that figure. It’s also cheap at 7.7 times its forecast cash flow of $6.75 a share. The $0.52 dividend yields 1.0%. Petro-Canada is a buy.

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