imperial oil

IMPERIAL OIL LTD. $44 (Toronto symbol IMO; Shares outstanding: 847.6 million; Market cap: $37.3 billion; Price-to-sales ratio: 1.2; Dividend yield: 1.1%; TSINetwork Rating: Average; www.imperialoil.ca) is Canada’s second-largest publicly traded oil company, after Suncor. U.S.-based ExxonMobil Corp. (New York symbol XOM) owns 69.6% of Imperial.

The company is making a number of big investments to boost its oil sands production. Right now, it gets most of its oil from its Cold Lake oil sands project in Alberta. Imperial recently announced that it would spend $2 billion to add 40,000 barrels a day to Cold Lake’s current daily output of around 152,000 barrels. It expects to complete these upgrades in 2014.

Meanwhile, Imperial continues to make progress with its Kearl oil sands project. Imperial owns 71% of Kearl. ExxonMobil owns the remaining 29%.

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These three leading oil producers are aggressively expanding their oil sands operations. These projects are more expensive to develop than conventional deposits, and the recent drop in oil prices could hurt their profitability. However, their reserves should last for decades, and their operating costs tend to fall after they start up. Moreover, these companies’ refineries, which convert oil into gasoline and other fuels, help shield them from volatile oil and gas prices. That’s because refineries pay less for crude when oil prices decline; this enhances their profits. SUNCOR ENERGY INC. $32 (Toronto symbol SU; Conservative Growth Portfolio, Resources sector; Shares outstanding: 1.5 billion; Market cap: $48.0 billion; Price-to-sales ratio: 1.2; Dividend yield: 1.6%; TSINetwork Rating: Average; www.suncor.com) became Canada’s largest integrated oil company in 2009, when it merged with Petro- Canada....

PRECISION DRILLING CORP. $6.85 (Toronto symbol PD; Aggressive Growth Portfolio, Resource sector; Shares outstanding: 276.3 million; Market cap: $1.9 billion; Price-to-sales ratio: 0.9; No dividends paid since February 2009; TSINetwork Rating: Extra Risk; www.precisiondrilling.com) provides contract-drilling services to land-based oil and gas producers in Canada, the U.S. and Mexico. It had 344 rigs in service as of March 31, 2012.

The stock is down 45.6% from its recent peak of $12.60 in March 2012. That’s due to fears that falling oil and natural gas prices will hurt demand for Precision’s rigs. However, the company operates under long-term contracts that help shield it from volatile oil and gas prices. It has 122 rigs under contract in 2012 and 79 in 2013.

Precision can also conserve cash by putting off building new rigs if demand weakens. That’s why it recently cut its 2012 capital expenditures to $975 million from its earlier forecast of $1.1 billion.

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Natural gas prices recently dropped below $2 U.S. per million British thermal units (BTUs), a 10-year low. Prices have since moved up somewhat, to $2.87. Shale gas discoveries continue to increase supply. At the same time, demand is slowing due to the weak global economy. Shale gas is trapped in rock formations. To extract it, producers pump water and chemicals into the rock. This fractures the rock and releases the natural gas. Gas production is also growing as a by-product of drilling for more profitable crude oil and natural gas liquids, such as propane and butane....

PRECISION DRILLING CORP. $6.85 (Toronto symbol PD; Aggressive Growth Portfolio, Resource sector; Shares outstanding: 276.3 million; Market cap: $1.9 billion; Price-to-sales ratio: 0.9; No dividends paid since February 2009; TSINetwork Rating: Extra Risk; www.precisiondrilling.com) provides contract-drilling services to land-based oil and gas producers in Canada, the U.S. and Mexico. It had 344 rigs in service as of March 31, 2012. The stock is down 45.6% from its recent peak of $12.60 in March 2012. That’s due to fears that falling oil and natural gas prices will hurt demand for Precision’s rigs. However, the company operates under long-term contracts that help shield it from volatile oil and gas prices. It has 122 rigs under contract in 2012 and 79 in 2013. Precision can also conserve cash by putting off building new rigs if demand weakens. That’s why it recently cut its 2012 capital expenditures to $975 million from its earlier forecast of $1.1 billion....

Pat McKeough responds to many personal questions on specific stocks and other investment topics from the members of his Inner Circle. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle members. And each week, we offer you one of the highlights from these Q&A sessions. This past week, an Inner Circle member asked about one of the Canadian dividend stocks that was an income fund before the trust tax of 2011. This company raises revenue in a variety of ways, including the franchising of its company-owned gas stations, which allows it to collect commissions without high overhead. ...

Parkland Fuel Corp., $13.88, symbol PKI on Toronto (Shares outstanding: 65.7 million; Market cap: $911.9 million, www.parkland.ca), operates gas stations, convenience stores and a fuel distribution business, mostly in western Canada and Ontario. The company was called Parkland Income Fund prior to its conversion to a dividend-paying corporation on December 31, 2010. Parkland owns 163 rural gas stations and convenience stores. Its brands include Fas Gas Plus, Race Trac Gas and Short Stop (convenience stores). Many stations sell propane in addition to gasoline and diesel fuel. The company also operates Esso gas stations in western Canada and Ontario under a licensing deal with Imperial Oil Ltd. (symbol IMO on Toronto)....

ENBRIDGE INC. $39.40 (Toronto symbol ENB; Shares outstanding: 784.9 million; Market cap: $30.9 billion; TSINetwork Rating: Above Average; Dividend yield: 2.9%; www.enbridge.com) has announced several upgrades to its oil pipelines. One of these improvements is a plan to reverse the flow of its pipeline between Montreal and Sarnia, Ontario. Right now, the line pumps oil from Montreal to Sarnia. Reversing the flow will let Enbridge supply more oil from western Canada to refineries in Ontario and Quebec. That will improve demand from refiners, because it will let them cut their reliance on higher-priced imported oil. Enbridge also plans to expand other pipelines to take better advantage of rising production of shale oil in the Bakken area, which covers parts of Montana, North Dakota and Saskatchewan....

IMPERIAL OIL $45.93 (Toronto symbol IMO; Shares outstanding: 847.6 million; Market cap: $38.9 billion; TSINetwork Rating: Average; Dividend yield: 1.1%; www.imperialoil.ca) has slowed work on its proposed Mackenzie pipeline project, which would pump natural gas from the Arctic to Alberta. (Imperial owns 34.4% of this project, which has already received regulatory approval.)

That’s because rising production of natural gas from shale rock has depressed gas prices in the past few years. As well, higher raw material prices would add to the project’s estimated cost of $16.2 billion.

If Imperial decides to proceed, the new line could start up in 2018. The company feels that gas prices will be higher by then, as more coal-fired power plants switch to this cleaner burning fuel. Proposed shipments of liquefied natural gas (LNG) to Asian markets could also push up prices.

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TELUS CORP., Toronto symbols T $59.83 and T.A $58.10, has dropped its plan to merge its common shares and its non-voting class A shares into a single class. The company had proposed to convert each non-voting share into one common share. However, the plan had little chance of succeeding, because U.S.-based hedge fund Mason Capital, which now owns around 19% of Telus’s common shares and a small portion of the non-voting shares, said it would vote against the proposal. Mason is using a complex stock-trading strategy that would let it lock in a profit if shareholders reject the plan. Telus still wants to eliminate the dual-class structure, and will probably reintroduce the proposal sometime in the next few months. One step it could take to help ensure the plan’s approval would be to have less time between the reintroduction of the plan and the vote. That way, Mason and other big investors who oppose the proposal would have less time to buy shares and block it....