cenovus energy

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....

CANADIAN IMPERIAL BANK OF COMMERCE, $74.75, Toronto symbol CM, is buying the Canadian MasterCard credit-card business of U.S.-based Citigroup Inc. (New York symbol C). Right now, CIBC only issues Visa cards, so this purchase will diversify its credit-card business. The bank did not reveal the purchase price. However, the Canadian MasterCard business has $2.1 billion of outstanding credit-card loans. As of April 30, 2010, CIBC had $12.4 billion of credit-card loans outstanding. The bank expects to complete this purchase by October 31, 2010. It should add to CIBC’s earnings in the first year....

ENCANA CORP $32.40 (Toronto symbol ECA; Shares outstanding: 741.7 million; Market cap: $24.0 billion; SI Rating: Average; Dividend yield: 2.5%) took its present form on December 1, 2009. That’s when the old EnCana Corp. split itself into two separate companies. One is now called “Encana Corp.,” and focuses on unconventional natural gas. The other, Cenovus Energy Inc. (see below), specializes in oil-sands projects, oil refineries and conventional natural gas. 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. (All amounts except share price in U.S. dollars.) 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 declined 15.1%, to $1.57 from $1.85. Revenue fell 3.7%, to $3.5 billion from $3.7 billion....

TECK RESOURCES LTD., $43.77, Toronto symbol TCK.B, earned a record $908 million in the three months ended March 31, 2010. That’s up 276.8% from $241 million a year earlier. Earnings per share rose 206.0%, to $1.53 from $0.50, on more shares outstanding. One-time items, including the sale of two gold mines in Turkey and a one-third interest in a B.C. hydroelectric dam, boosted the company’s earnings in the latest quarter. Without one-time items, Teck’s earnings would have fallen 4.2%, to $205 million from $214 million. Teck’s cash flow per share fell 42.5%, to $0.70 from $1.22. However, its revenue rose 13.8%, to $1.9 billion from $1.7 billion, largely because of rising copper prices....

CENOVUS ENERGY INC., $29.16, Toronto symbol CVE, took its present form on December 1, 2009. That’s when EnCana Corp. split itself into two separate companies. One kept the EnCana name and “ECA” trading symbol, and focuses on unconventional natural gas. The other, Cenovus, specializes in oil-sands projects, oil refineries and conventional natural gas. Cenovus rose 2% this week. The gain was mainly in response to a big purchase in the Alberta oil patch: Chinese state-owned oil company Sinopec bought a 9.03% stake in the massive Syncrude oil-sands project for $4.65 billion U.S. The purchase price was roughly 20% higher than the consensus estimate. That helped draw investor attention to all oil-sands stocks, including Cenovus....

EnCana gets most of its natural gas from unconventional reserves. Accessing these reserves is complicated, but they have long lives and stable output. The company already has proven reserves to last 12 years or more. But its reserves will expand as it develops its 15.6 million acres of landholdings. EnCana’s cash flow depends on gas prices, which have been depressed due to higher gas production and the weak economy. However, the long-term outlook is positive. ENCANA CORP $35.13 (Toronto symbol ECA; Shares outstanding: 750.4 million; Market cap: $26.4 billion; SI Rating: Average; Dividend yield: 2.3%) owns natural-gas properties in Alberta, B.C., Colorado, Wyoming and Texas that account for 4% of North America’s daily production. These holdings include promising shale-gas properties in the Haynesville region in the U.S. southeast and B.C.’s Horn River area. Lower gas prices pushed down EnCana’s 2009 earnings by 32.2%, to $1.8 billion, or $2.35 a share. In 2008, it earned $2.6 billion, or $3.47 a share. (All amounts except share price in U.S. dollars.) Cash flow per share fell 20.9%, to $6.68 from $8.45....

CENOVUS ENERGY $26.16 (Toronto symbol CVE; Shares outstanding: 751.3 million; Market cap: $19.7 billion; SI Rating: Extra Risk; Dividend yield: 3.1%) holds the more aggressive assets from the EnCana split on December 1, 2009. Cenovus’ oil-sands projects, oil refineries and conventional natural gas remain profitable. But extracting oil from oil sands is a hugely capital-intensive enterprise. Oil sands projects can become unprofitable if oil prices fall. Cenovus earned $1.3 billion, or $1.74 a share, in 2009 (all amounts except share price in U.S. dollars). That’s down 19.5% from $1.6 billion, or $2.17 a share, in 2008. These figures exclude unusual items. Cash flow per share fell 20.0%, to $3.29 from $4.11....

CANADIAN TIRE CORP., $52.29, Toronto symbol CTC.A, fell 3% this week after the company reported lower-than-expected 2009 earnings. During the year, Canadian Tire earned $348.0 million, or $4.26 a share. That’s down 12.2% from $396.4 million, or $4.86 a share, in the prior year. These figures exclude several one-time items, including gains and losses on sales of securities by Canadian Tire’s finance division. The company also paid a penalty for redeeming debentures before their expiry date. That will let it take advantage of the improvement in the credit markets to issue new bonds at lower interest rates. Without these one-time items, analysts were expecting Canadian Tire to earn $4.34 a share. Revenue fell 4.8%, to $8.7 billion from $9.1 billion. Overall sales at the company’s main retail division, which consists of its Canadian Tire stores and the PartSource auto-parts chain, fell 2.8%, while same-store sales were 4.2% lower. Weak sales of electronics offset stronger sales of household-cleaning, kitchen and pet-care goods. As well, a lack of snow in Ontario and Quebec hurt sales of winter merchandise, such as snow shovels....

ENCANA CORP $36.15 (Toronto symbol ECA; Shares outstanding: 750.3 million; Market cap: $27.1 billion; SI Rating: Average; Dividend yield: 2.2%) focuses on unconventional natural gas. Its shares have moved up lately, along with higher gas prices spurred on by cold weather. CENOVUS ENERGY $27 (Toronto symbol CVE; Shares outstanding: 751.3 million; Market cap: $20.3 billion; SI Rating: Extra Risk; Dividend yield: 3.1%) specializes in oil-sands projects, oil refineries and conventional natural gas. Oil sands will need much higher oil prices to attract a lot of investor interest. Cenovus shares have moved sideways since the split from EnCana. EnCana is the more conservative of the two, with an SI Rating of Average. We see both as buys.