oil and gas

We recommended Canadian Pacific Ltd. in our very first issue in January 1995. At that time, CP held a variety of businesses beyond railways, such as hotels, coal, and oil and gas. We saw these as undervalued assets. In 2001, CP unlocked some of this hidden value by spinning off these businesses as separate firms. As a stand-alone railway, we still felt CP had plenty of room to improve. A prominent American hedge firm shared our opinion, and in 2012, it installed former CN Rail chief executive Hunter Harrison as CP’s new CEO. Thanks to a major costcutting plan, CP hit a record high of $248 in October 2014. The stock has moved down lately on slowing volumes of grain, oil, coal and other commodities. However, CP’s improving efficiency sets it up for more gains as the economy rebounds....

PRECISION DRILLING CORP. $5.43 (Toronto symbol PD; Aggressive Growth Portfolio, Resource sector; Shares outstanding: 292.9 million; Market cap: $1.6 billion; Price-to-sales ratio: 0.8; Dividend yield: 5.2%; TSINetwork Rating: Extra Risk; www.precisiondrilling.com) provides contract drilling services to land-based oil and gas producers, mainly in North America, through 329 rigs. Even though low oil and gas prices have slowed drilling activity, demand for Precision’s Super Series rigs remains strong. That’s because these rigs can reach deeper pockets of oil than regular rigs. The company recently received a order for a new Super Series rig. As a result, it now plans to spend $546 million on new rigs and other upgrades in 2015, up 7.9% from its previous estimate of $506 million....

GENERAL ELECTRIC CO. $25 (New York symbol GE; Conservative Growth and Income Portfolios, Manufacturing & Industry sector; Shares outstanding: 10.1 billion; Market cap: $252.5 billion; Price-to-sales ratio: 1.7; Dividend yield: 3.7%; TSINetwork Rating: Above Average; www.ge.com) has received approval from U.S. and European regulators for its alliance with France’s Alstom SA, a leading maker of parts for power plants and transmission gear.

Under the deal, GE will form three 50/50 joint ventures with Alstom: one will combine their electrical grid operations, while a second will focus on products for renewable energy projects. The third will hold Alstom’s nuclear power equipment division.

To win approval, GE agreed to sell some of Alstom’s operations. If you adjust for these sales and other changes, GE will now contribute $9.5 billion, down from the original cost of $13 billion. The company expects to complete the deal by the end of 2015.

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ALIMENTATION COUCHE-TARD INC., $59.94, symbol ATD.B on Toronto, hit a new all-time high this week after reporting improved profits in the latest quarter. Couche-Tard operates 7,987 convenience stores throughout North America. The Canadian outlets operate under the Couche-Tard and Mac’s banners, while the U.S. stores mainly use the Circle K brand. In Europe, the company operates 2,229 stores across Scandinavia (Norway, Sweden and Denmark), Poland, the Baltic states (Estonia, Latvia and Lithuania) and Russia....

PENGROWTH ENERGY CORP., $1.58, Toronto symbol PGF, continues to cut costs as low oil and natural gas prices hurt its earnings and cash flow. This week, the company said it would pay its final monthly dividend of $0.02 a share on September 15, 2015. It will then shift to a quarterly payout of $0.01 a share starting in December 2015. The new annual rate of $0.04 a share, down 83.3% from $0.24, yields 2.5%. Pengrowth will also suspend its dividend reinvestment plan with the December 2015 payment. Participants will then receive their dividends in cash until the company reinstates the plan....

ENBRIDGE INC. $52.76 (Toronto symbol ENB; Shares outstanding: 856.7 million; Market cap: $45.4 billion; TSINetwork Rating: Above Average; Div. yield: 3.5%; www.enbridge. com) continues to move ahead with the major reorganization it announced in December 2014. The company plans to transfer some of its pipelines and wind farms to 19.9%-owned affiliate Enbridge Income Fund Holdings Inc. (Toronto symbol ENF). This company owns 42% of Enbridge Income Fund (Enbridge Inc. owns the remaining 58%), which holds a variety of businesses, including oil and gas pipelines and solar and wind farms. Asset transfers like this, called drop-downs, free up cash the parent company can use for new projects. The affiliate also benefits because the new assets’ cash flow helps it maintain or raise its distributions to investors....

We have changed our recommendations on these four ETFs from buy to hold: ISHARES MSCI BRAZIL INDEX FUND $23.94 (New York symbol EWZ) is an ETF that’s designed to track the Brazilian stock market. ISHARES CHINA LARGE-CAP ETF $34.67 (New York symbol FXI) is an exchange traded fund that aims to track the Financial Times Stock Exchange (FTSE) China 50 Index, which is made up of the 50 largest, most liquid Chinese stocks....

PENGROWTH ENERGY $1.64 (Toronto symbol PGF; Shares o/s: 539.7 million; Market cap: $892.2 million; TSINetwork Rating: Average; Dividend yield: 2.4%; www.pengrowth.com) now plans to spend $190 million to $210 million on its oil and gas properties in 2015, down from its earlier forecast of $220 million to $240 million. The company also wants to sell $600 million worth of less important assets. It will use the cash to pay down its debt of $1.9 billion, which is a high 1.9 times its market cap. Pengrowth continues to benefit from its hedging program, which locks in selling prices above today’s low oil and gas prices. However, to conserve cash, it’s cutting its dividend to $0.01 per quarter from $0.02 per month. The new annual rate of $0.04 yields 2.4%....

DELPHI ENERGY $0.74 (Toronto symbol DEE; TSINetwork Rating: Speculative)(403- 265-6171; www.delphienergy.ca; Shares outstanding: 155.5 million; Market cap: $115.1 million; No dividends paid) develops, produces and explores for oil and natural gas. About 70% of its output is gas; the remaining 30% is oil.

In the three months ended June 30, 2015, Delphi’s production fell 1.7%, to 10,210 barrels of oil equivalent a day from 10,397 a year earlier. The lower output and a 31.4% average decline in oil and gas prices cut cash flow per share to $0.06 from $0.09. The company will need improved oil and gas prices to move significantly higher, but its long-term outlook is positive.

Delphi Energy is a buy for aggressive investors.

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PASON SYSTEMS $19.73 (Toronto symbol PSI; TSINetwork Rating: Speculative)(403-301-3400; www.pason.com; Shares outstanding: 83.7 million; Market cap: $1.6 billion; Dividend yield: 3.5%) rents equipment for monitoring and managing land-based oil rigs. It also provides communication systems clients use to remotely collect data from their drilling operations. Pason serves oil and gas firms and drilling contractors throughout Canada, the U.S., Mexico and Argentina.

In the three months ended June 30, 2015, the company’s revenue fell 44.7%, to $57.4 million from $103.9 million a year earlier. A rise in the U.S. dollar only partly offset an industry-wide slowdown in oil and gas drilling.

The company lost $9.4 million, or $0.11 a share, compared to a profit of $17.6 million, or $0.21, a year ago. The lower revenue was the main reason for the decline, and the latest quarter also included $2.6 million of restructuring costs. Cash flow per share was positive, though it was down sharply, to $0.11 from $0.53.

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