oil and gas

We continue to like two energy service stocks whose efficient technology helps them profit in spite of current oil prices.

CENOVUS ENERGY $18.66 (Toronto symbol CVE; Shares outstanding: 828.5 million; Market cap: $15.9 billion; TSINetwork Rating: Average; Dividend yield: 5.7%; www.cenovus.com) gets 35% of its revenue from its oil sands projects and conventional oil and gas wells in Western Canada. Refining supplies the remaining 65% of Cenovus’s revenue. The company ships oil to its 50%-owned refineries in Illinois and Texas. Phillips 66 (New York symbol PSX) owns the other 50% of these operations. Cenovus has now agreed to sell its royalty lands to the Ontario Teachers’ Pension Plan for $3.3 billion. The company collects royalties from firms that drill for oil and gas on these properties, which total 4.8 million acres in Alberta, Saskatchewan and Manitoba....

ARC RESOURCES $21.14 (Toronto symbol ARX; Shares outstanding: 340.0 million; Market cap: $7.4 billion; TSINetwork Rating: Speculative; Dividend yield: 5.7%; www.arcresources.com) produces oil and natural gas in Western Canada. Its average daily output of 120,354 barrels of oil equivalent is 64% gas and 36% oil. In the quarter ended March 31, 2015, ARC’s cash flow per share fell 38.7%, to $0.57 from $0.93 a year earlier. Production gained 13.9%, but its realized oil price fell 49.0% and its gas price declined 45.5%. Like many oil and gas producers, ARC is cutting back on exploration and development spending. This year, it will devote $550.0 million to this purpose, down sharply from $945.5 million in 2014....

Tourmaline Oil, $37.01, symbol TOU on Toronto (Shares outstanding: 216.3 million; Market cap: $8.2 billion; www.tourmalineoil.com), has identified over 9,500 oil and natural gas drilling locations in Western Canada, and it has the funds for exploration. That should let it keep raising its production. In the three months ended March 31, 2015, Tourmaline’s daily output averaged a record 143,725 barrels of oil equivalent (87% gas and 13% oil), up 40.1% from 102,563 a year earlier. Cash flow per share fell 21.1%, to $1.01 from $1.29, as sharply lower oil and gas prices offset the higher production. The company just raised $195.4 million by selling 4.9 million shares at $39.50 each. This will let it spend $1.35 billion on exploration and development this year, up 11.3% from its previous estimate of $1.2 billion. It will now operate 18 drilling rigs, up from 16....

CENOVUS ENERGY INC., $19.44, Toronto symbol CVE, has agreed to sell its royalty lands to the Ontario Teachers’ Pension Plan. The company collects royalties from firms that drill for oil and gas on these properties, which total 4.8 million acres in Alberta, Saskatchewan and Manitoba. It also gets some of the oil these drillers recover: in the first quarter of 2015, these wells supplied 7,800 barrels a day, or 3.6% of the Cenovus’s daily oil production of 218,020 barrels. Cenovus will receive $3.3 billion when it completes the sale, probably before July 31, 2015. To put that in context, its market cap (or the value of all of its outstanding shares) is $16.1 billion....

MCCOY GLOBAL $4.53 (Toronto symbol MCB; TSINetwork Rating: Speculative)(780-453-8451; www.mccoyglobal.com; Shares outstanding: 27.7 million; Market cap: $128.2 million; Dividend yield: 4.4%) sold its heavy-duty truck-trailer unit last year and is now focused on its Energy Products and Services segment, which sells hydraulic gear, including power tongs, for drilling rigs. (Power tongs are large wrench-like tools that tighten and loosen the pipe in the drill hole.)

McCoy has international sales and service centres in Singapore, Dubai and Aberdeen, Scotland.

Profits up despite tough markets

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p>WAJAX CORP. $20.60 (Toronto symbol WJX; TSINetwork Rating: Extra Risk) (905-212-3300; www.wajax.ca; Shares outstanding:20.0 million; Market cap: $414.1 million; Dividend yield: 4.9%) sells and services cranes, forklifts and other heavy equipment. It also provides related parts (such as bearings, motors, hoses and fittings) and power systems (including diesel engines and transmissions). The company’s customers are in the natural resource, construction, manufacturing and transportation industries.

In the three months ended March 31, 2015, Wajax’s revenue fell 4.3%, to $317.2 million from $331.4 million a year earlier, as mining, oil and gas and oil sands firms made fewer purchases.

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STUART OLSON INC. $6.11 (Toronto symbol SOX; TSINetwork Rating: Speculative) (780-454-3667; www.stuartolson.com; Shares outstanding: 26.2 million; Market cap: $161.9 million; Dividend yield: 7.9%) provides building construction, commercial and industrial electrical contracting, earth moving and industrial insulation services to government and private sector clients. It mainly operates in Western Canada.

An increase in construction work in Western Canada pushed up the company’s revenue by 5.4% in the three months ended March 31, 2015, to $282.9 million from $268.5 million a year earlier. Stuart Olson earned $1.0 million, or $0.04 a share, compared to $1.3 million, or $0.05.

The company ended the quarter with a backlog of $2.1 billion, up 5.4% from $2.0 billion a year earlier. Stuart Olson has now worked through most of the lowprofit- margin contracts it took on through acquisitions or agreed to when its markets were more competitive in 2009 and 2010.

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RUSSEL METALS $21.58 (Toronto symbol RUS; TSINetwork Rating: Speculative) (905-819-7777; www.russelmetals.com; Shares outstanding: 61.7 million; Market cap: $1.3 billion; Dividend yield: 7.0%) is one of North America’s largest metal distributors, serving 39,000 clients at 53 locations in Canada and 12 in the U.S.

In the three months ended March 31, 2015, Russel’s revenue fell 2.2%, to $903.9 million from $924.0 million a year earlier. The company’s metal-services business saw its sales rise slightly, but the energyproducts division, which supplies pipes for oil and gas drillers, reported a 14% sales decline.

Earnings fell 36.2%, to $18.5 million, or $0.30 a share, from $29.0 million, or $0.47. Russel’s earnings fell faster than revenue because steel prices declined in the latest quarter. That cuts the company’s profit margins and causes it to suffer losses on its inventory.

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SHERRITT INTERNATIONAL $1.62 (Toronto symbol S; TSINetwork Rating: Speculative) (1-800-704- 6698; www.sherritt.com; Shares outstanding: 293.6 million; Market cap: $472.6 million; Dividend yield: 2.5%) sold all of its coal interests for $793 million in cash in April 2014.

The company is now focused on nickel production, with operations in Cuba and Canada. As well, it has a 40% interest in the Ambatovy nickel mine on the island nation of Madagascar, off Africa’s east coast. Sherritt also produces oil and gas in Cuba, Spain and Pakistan and manages 506 megawatts of power generation capacity in Cuba.

In the three months ended March 31, 2015, the company’s revenue fell 31.4%, to $82.9 million from $120.9 million a year earlier, mostly due to lower oil and gas prices. Cash flow per share declined 32.0%, to $0.17 from $0.25.

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