oil and gas

ENBRIDGE INC. $62 (Toronto symbol ENB; Conservative Growth and Income Portfolios, Utilities sector; Shares outstanding: 851.6 million; Market cap: $52.8 billion; Price-to-sales ratio: 1.4; Dividend yield: 3.0%; TSINetwork Rating: Above Average; www.enbridge.com) gets 90% of its revenue from pipelines that pump oil and natural gas from Western Canada to Eastern Canada and the U.S. The remaining 10% mainly comes from distributing gas to 2.1 million consumers in Ontario, Quebec, New Brunswick and New York State.

New projects boost revenue

Since 2008, Enbridge has spent $20 billion on 39 new pipelines and other projects. Thanks to these investments, the company’s revenue soared 164.1%, from $12.5 billion in 2009 to $32.9 billion in 2013. Its revenue probably increased to $37.7 billion in 2014....

BUCKEYE PARTNERS L.P. $77 (New York symbol BPL; Income Portfolio, Utilities sector; Units outstanding: 127.0 million; Market cap: $9.8 billion; Price-to-sales ratio: 1.5; Dividend yield: 5.9%; TSINetwork Rating: Average; www.buckeye.com) operates over 9,600 kilometres of pipelines in the northeastern and midwestern U.S. Its network pumps gasoline, jet fuel and other petroleum products. The partnership also owns oil and gas storage terminals.

Buckeye continues to expand by acquisition. In December 2013, it paid Hess Corp. (New York symbol HES) $850 million for 19 oil-storage terminals on the U.S. east coast and one on the Caribbean island of St. Lucia. It now has over 120 terminals.

In September 2014, it paid $860 million for 80% of a new firm that operates several oil-processing plants on the U.S. Gulf Coast. The deal included a deepwater oil-transfer terminal in Corpus Christi, Texas, as well as storage tanks and pipelines.

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Akita Drilling, $10.76, symbol AKT.A on Toronto (Shares outstanding: 18.0 million; Market cap: $194.9 million; www.akita-drilling.com), is an oil and gas drilling contractor with 36 rigs operating throughout Western Canada and the northern territories. The company operates 10 of its rigs through joint ventures it co-owns with its 22 aboriginal partners. In the three months ended September 30, 2014, Akita’s revenue rose 5.3%, to $36.6 million from $33.1 million a year earlier. Earnings per share gained 5.0%, to $0.21 from $0.20. Akita has no debt....

The iShares S&P/TSX 60 Index ETF, $22.14, symbol XIU on Toronto, has about 21% of its assets in what are classified as “energy stocks.” However, the S&P/TSX 60 Index’s energy component includes a number of companies we would classify as utilities, such as Enbridge, TransCanada Corp. and Pembina Pipeline. The “energy” component also includes uranium miner Cameco. Removing those utility and resource stocks takes the index’s oil and gas component down to 13% or so. That’s a reasonable amount to hold as part of the oil and gas segment in a well-balanced portfolio’s Resources component.

Pennsylvania-based Vanguard Group is one of the world’s largest investment-management companies. The group administers over $2 trillion U.S. in 170 mutual funds. Vanguard, which went into business in 1975, offers low-fee index mutual funds. Generally speaking, Canadians can’t buy units of mutual funds that are registered in the U.S., because they aren’t registered with provincial securities commissions. For that matter, some Canadian funds aren’t available in all provinces. Canadians can, however, buy Vanguard exchange traded funds (ETFs) that trade on stock exchanges. We don’t recommend all of Vanguard’s ETFs, but here are two we do see as low-fee buys....

CenterPoint Energy, $22.81, symbol CNP on New York (Shares outstanding: 429.8 million; Market cap: $9.8 billion; www.centerpointenergy.com), is a Houston-based company that distributes electricity and natural gas. It serves more than five million customers, mainly in Arkansas, Louisiana, Minnesota, Mississippi, Oklahoma and Texas. CenterPoint also owns 55.4% of Enable Midstream Partners, a publicly traded master limited partnership that it jointly controls with OGE Energy. Enable collects gas from wells through a network of 11,000 miles of gathering pipe and processes it at 12 plants before feeding it into its 7,900 miles of interstate pipelines. In addition, the company operates 86.5 billion cubic feet of natural gas storage....

BELLATRIX EXPLORATION $3.50 (Toronto symbol BXE; TSINetwork Rating: Speculative) (403-266-8670; www.bellatrixexploration.com; Shares outstanding: 191.5 million; Market cap: $735.5 million; No dividends paid) will cut its 2015 exploration and development spending by 33.3%, to $200 million from $300 million in 2014, in response to low oil and gas prices.

However, Bellatrix can still draw on $85 million from its joint venture partners, bringing total spending to $285 million this year.

As a result of the spending cut, the company now expects to produce an average of 43,000 to 44,000 barrels of oil equivalent a day in 2015. That’s down from its original forecast of 47,000 to 48,000 but about 14% higher than its 2014 average production of 38,100 barrels a day.

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PASON SYSTEMS $18.47 (Toronto symbol PSI; TSINetwork Rating: Speculative)(403-301-3400; www.pason.com; Shares outstanding: 83.4 million; Market cap: $1.5 billion; Dividend yield: 3.7%) rents equipment for monitoring and managing oil and gas rigs. It also sells communication technology, such as its satellite system, which companies use to remotely collect data from their drilling operations. Pason serves oil and gas producers and drilling contractors in Canada, the U.S., Mexico, Argentina and Australia.

In the three months ended September 30, 2014, the company’s revenue rose 28.9%, to $134.0 million from $104.0 million a year earlier. Pason saw higher sales of its technology in all of its major markets, but especially in the U.S.

The company earned $26.5 million, or $0.32 a share, in the latest quarter, up from $9.1 million, or $0.11. Earnings rose on the higher revenue and an increased contribution from Pason’s U.S. profits because of the stronger U.S. dollar.

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COMPUTER MODELLING GROUP $12.73 (Toronto symbol CMG; TSINetwork Rating: Speculative) (403-531-1300; www.cmgl.ca; Shares outstanding: 78.6 million; Market cap: $1.0 billion; Dividend yield: 3.1%) sells software and consulting services that help conventional oil and gas producers create complex 3D models of reservoirs. That lets them squeeze more out of those reservoirs using advanced recovery techniques such as injecting steam or chemicals. Typically, only 25% to 30% of oil and gas is recovered during primary production.

Unconventional producers, using hydraulic fracturing, or fracking, of oil and gas-bearing shale, can also use Computer Modelling’s software to determine optimal drilling locations and depths.

In the three months ended December 31, 2014, Computer Modelling’s revenue rose 31.1%, to $25.2 million from $19.2 million a year earlier. Software licensing revenue (92% of the total) rose 34.8%, and consulting and professional services revenue (8%) was virtually unchanged.

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STANTEC INC. $30.05 (Toronto symbol STN; TSINetwork Rating: Extra Risk) (780-917-7288; www.stantec.com; Shares outstanding: 93.8 million; Market cap: $2.8 billion; Dividend yield: 1.2%) (all figures adjusted for a 2-for-1 share split in November 2014) sells a range of consulting, project-delivery, design and technology services. The company’s clients operate in a variety of industries, including oil and gas, transportation and construction.

In the quarter ended September 30, 2014, Stantec’s revenue rose 12.2%, to $544.2 million from $484.8 million a year earlier. Earnings gained 5.7%, to $48.6 million, or $1.04 a share, from $46.0 million, or $0.99.

Stantec continues to grow by acquisition. It has now completed its purchase of Montreal-based Dessau, a distressed firm that’s one of a number of companies caught up in a Quebec government inquiry into corruption in the construction industry. Under the deal, Stantec won’t be responsible for any of the millions of dollars in fines or penalties Dessau may have to pay.

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