Cenovus Energy Inc.

CENOVUS ENERGY INC., $28.74, Toronto symbol CVE, has received regulatory approval to expand its Foster Creek oil-sands project in northern Alberta. Cenovus owns 50% of this project; U.S.-based oil company ConocoPhillips (New York symbol COP) owns the other 50%. The company will expand Foster Creek in three phases over the next seven years. When the expansion is finished, Foster Creek’s average daily production will rise to 210,000 barrels from the current 120,000 barrels. Cenovus has also asked for approval for a fourth phase, which would bring Foster Creek’s average daily production up to 235,000 barrels, starting in 2019. Cenovus’ share is 117,500 barrels. To put these figures in context, Cenovus’ average daily production, including natural gas, was 253,733 barrels in its latest quarter....

CENOVUS ENERGY INC. $29 (Toronto symbol CVE; Conservative Growth Portfolio, Resources sector; Shares outstanding: 751.8 million; Market cap: $21.8 billion; Price-to-sales ratio: 1.7; Dividend yield: 2.8%; SI Rating: Extra Risk) operates three oil-sands properties in Alberta, and one in Saskatchewan. Cenovus ships the heavy bitumen from these projects to refineries in Illinois and Texas. ConocoPhillips (New York symbol COP) owns 50% of these refineries, as well as 50% of Cenovus’ two main oil-sands projects. Cenovus also owns conventional oil and natural-gas properties. Cenovus’ proved oil and gas reserves will last 14.7 years. These large reserves mean that Cenovus does not need to spend heavily on exploration. That cuts its risk. Moreover, its steam-assisted gravity draining drilling technology should spur its long-term earnings. That’s because this process makes it easier to extract more heavy oil.

Focus on proven properties cuts risk

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It’s been nearly a year since the old EnCana Corp. split itself into two separate companies: one that focuses on unconventional natural gas (Encana), and one that specializes in oil-sands projects (Cenvous Energy). Shareholders received one share in each of the two new firms for every old EnCana share they held. The new Encana has suffered, mostly because of a recent drop in natural gas prices. As well, Cenovus has faced pressure from environmentalists who are opposed to oil-sands development. But the breakup helped unlock hidden value. As a result, both stocks should produce above-average results in the next few years. ENCANA CORP. $30 (Toronto symbol ECA; Conservative Growth Portfolio, Resources sector; Shares outstanding: 736.2 million; Market cap: $22.1 billion; Price-to-sales ratio: 1.8; Dividend yield: 2.8%; SI Rating: Average) is one of North America’s largest natural-gas producers....

ENCANA CORP $32.07 (Toronto symbol ECA; Shares outstanding: 735.3 million; Market cap: $23.6 billion; SI Rating: Average; Dividend yield: 2.5%) earned $81 million, or $0.11 a share, in the three months ended June 30, 2010 (all amounts except share price in U.S. dollars). The latest earnings were down 82.8% from the company’s year-earlier earnings of $472 million, or $0.63 a share. Cash flow per share fell 13.2%, to $1.65 from $1.90. Revenue rose 10.2%, to $1.5 billion from $1.3 billion. Depressed natural gas prices were the main reason for the lower earnings and cash flow. That decline offset a 7.9% rise in the company’s total production....

Energy ETFs (exchange-traded funds) can be a good, low-cost way to hold energy stocks. In our newsletters, we recommend a number of energy stocks that would be good additions to a stock portfolio. If you want to hold an energy ETF, here’s one that invests in the biggest Canadian energy firms: iShares S&P/TSX Capped Energy Index Fund, $17.99, symbol XEG on Toronto (Shares outstanding: 45.2 million; Market cap: $813.1 million) aims to mirror the performance of the S&P/TSX Capped Energy Index, which is made up of the largest-capitalization energy stocks on the Toronto exchange. The weight of any one company is capped at 25% of the index’s market capitalization. The fund’s MER is 0.55%. It yields 2.5%. iShares S&P/TSX Capped Energy Index Fund’s top-10 holdings are Suncor Energy, 18.0%; Canadian Natural Resources, 13.8%; Encana Corp., 8.1%; Cenovus Energy, 7.9%; Talisman Energy, 6.2%; Canadian Oil Sands Trust, 4.8%; Nexen, 3.9%; Imperial Oil, 3.6%; Penn West Energy Trust, 3.2% and Crescent Point Energy, 3.2%....

CGI GROUP INC., $14.70, Toronto symbol GIB.A, is Canada’s largest provider of computer-outsourcing services. The company’s services help its customers automate certain routine functions, such as accounting and buying supplies. That makes its clients more efficient, and lets them focus on their main businesses. This week, the company reported earnings that matched the consensus estimate. But an unexpected revenue drop caused stock to fall 10%. In its third quarter, which ended June 30, 2010, CGI earned $85.9 million. That’s up 12.0% from $76.7 million a year earlier. Earnings per share rose 20.0%, to $0.30 from $0.25, on fewer shares outstanding....

ENCANA CORP., $32.22, Toronto symbol ECA, fell 4% after the company reported lower-than-expected earnings. In the three months ended June 30, 2010, Encana earned $81 million, or $0.11 a share (all amounts except share price in U.S. dollars). These figures exclude a $340-million loss on hedging contracts that the company uses to lock in selling prices for its natural gas, and a $246-million foreign-exchange loss. On this basis, the latest earnings fell well short of the consensus estimate of $0.22 a share. They were also down 82.8% from the company’s year-earlier earnings of $472 million, or $0.63 a share. Cash flow per share fell 13.2%, to $1.65 from $1.90. Revenue rose 10.2%, to $1.5 billion from $1.3 billion. (Note: The year-earlier figures assume that the break-up of the old EnCana Corp. into the new Encana and Cenovus Energy Inc. took place at the start of 2009 instead of December 1, 2009.)...

ENCANA CORP. $33 (New York symbol ECA; Conservative Growth Portfolio, Resources sector; Shares outstanding: 741.7 million; Market cap: $24.5 billion; Price-to-sales ratio: 2.3; Dividend yield: 2.4%; WSSF Rating: Average) is a leading North American natural-gas producer. The company focuses on unconventional reserves, such as shale gas deposits. (Shale gas is natural gas that is trapped in rock formations. To extract it, companies must pump water and chemicals into the rock. This fractures the rock and releases the natural gas.) The company took its present form on December 1, 2009. That’s when the old EnCana Corp. split itself into two separate companies: the new Encana and Cenovus Energy. If you assume the split occurred at the start of 2009, Encana’s earnings per share fell 22.2% in the three months ended March 31, 2010, to $0.56 from $0.72 a year earlier. These figures exclude several unusual items, such as gains on hedging contracts that Encana uses to lock in its selling price for natural gas. Cash flow per share fell 15.1%, to $1.57 from $1.85. Revenue fell 3.7%, to $3.5 billion from $3.7 billion....

CENOVUS ENERGY INC. $28 (New York symbol CVE; Conservative Growth Portfolio, Resources sector; Shares outstanding: 751.7 million; Market cap: $21.0 billion; Price-to-sales ratio: 1.8; Dividend yield: 2.7%; WSSF Rating: Extra Risk) operates three oil-sands properties in Alberta and one in Saskatchewan. It ships the tar-like oil (called bitumen) from these projects to refineries in Illinois and Texas. ConocoPhillips (New York symbol COP) owns 50% of these refineries, as well as 50% of the company’s two main oil-sands projects. Cenovus also owns conventional oil and gas properties. Cenovus believes its oil and natural-gas reserves will last 14.7 years. These large reserves mean that the company does not need to spend heavily on exploration. That cuts its risk. In the three months ended March 31, 2010, Cenovus earned $353 million, or $0.47 a share (all amounts except share price and market cap in Canadian dollars). That’s down 14.7% from $414 million, or $0.55 a share, a year earlier. Cash flow per share fell 3.0%, to $0.96 from $0.99. Lower natural gas prices and a drop in earnings at its refining operations were the main reasons for the declines....

In response to the BP oil spill in the Gulf of Mexico, regulators will probably require offshore drillers to install more equipment aimed at preventing future spills. These extra costs would hurt the profits of companies that are active in the Gulf, including Chevron and Apache. However, any new costs would have little impact on their long-term prospects. As well, the spill should make less-risky onshore producers more attractive. That would favour Encana, with its growing unconventional natural-gas reserves, and Cenovus, which focuses on the oil sands. CHEVRON CORP. $72 (New York symbol CVX; Conservative Growth Portfolio, Resources sector; Shares outstanding: 2.0 billion; Market cap: $144.0 billion; Price-to-sales ratio: 0.8; Dividend yield: 4.0%; WSSF Rating: Above Average) is the second-largest integrated oil company in the U.S., after ExxonMobil. Chevron gets 95% of its earnings by producing oil and natural-gas. The remaining 5% comes from its refineries, petrochemical operations and gas stations....