oil and gas

PASON SYSTEMS $32.79 (Toronto symbol PSI; TSINetwork Rating: Speculative) (403-301-3400; www.pason.com; Shares outstanding: 82.7 million; Market cap: $2.7 billion; Dividend yield: 2.1%) is trading near all-time highs as it continues to benefit from the boom in U.S. shale oil and gas drilling.

Pason 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 June 30, 2014, the company’s revenue rose 26.1%, to $103.8 million from $82.4 million a year earlier. Pason saw higher sales in all markets, but especially in the U.S.

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SASOL LTD. (ADR) $56.49 (New York symbol SSL; TSINetwork Rating: Extra Risk) (082-883-9697; www.sasol.com; ADRs outstanding: 650.6 million; Market cap: $38.4 billion; Dividend yield: 4.5%) has developed a technology to convert coal and natural gas into motor fuels.

The company is the world’s largest producer of fuel from coal at its Secunda, South Africa, facility. It also makes synthetic fuels from natural gas at plants in Qatar and Nigeria. As well, Sasol produces chemicals, oil and gas in Africa. It’s also South Africa’s thirdlargest coal producer.

In its 2014 fiscal year, which ended June 30, 2014, Sasol’s revenue rose 19.3%, to 202.7 billion South African rand (1 rand = $0.1039 U.S.) from 169.9 billion rand in fiscal 2013. Earnings per ADR rose 14.3%, to a record 60.16 rand from 52.62 rand.

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TIM HORTONS INC., $87.40, symbol THI on Toronto, jumped 27% this week after agreeing to a friendly takeover offer from Miami-based Burger King Worldwide (New York symbol BKW). The combined firm would be the world’s third-largest fast-food operator, after McDonald’s and Yum Brands, with annual sales of $23 billion U.S. and 18,000 restaurants in over 100 countries. Canada will supply 67% of the merged company’s revenue, followed by the U.S. (20%) and other countries (13%). The Tim Hortons and Burger King chains will operate independently but will probably share some back office and distribution networks. Tim Hortons can also use Burger King’s expertise to expand in the U.S. and other countries....

Oil prices have held steady at around $100 a barrel, even as the U.S. shale boom has increased that country’s production by 70% in the past five years. That’s mainly due to fears that unrest in the Middle East and Ukraine could threaten world oil supplies. We feel the best way to invest in the cyclical oil and gas industry is through well-established producers like these four. Their high-quality operations give them plenty of cash flow to replenish their reserves and pay for share buybacks and dividends. However, not all are buys right now. CHEVRON CORP. $129 (New York symbol CVX; Conservative Growth Portfolio, Resources sector; Shares outstanding: 1.9 billion; Market cap: $245.1 billion; Price-to-sales ratio: 1.6; Dividend yield: 3.3%; TSINetwork Rating: Above Average; www.chevron.com) is the second-largest integrated oil company in the U.S. by revenue, after ExxonMobil (New York symbol XOM)....

MCDONALD’S CORP. $95 (New York symbol MCD; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 981.9 million; Market cap: $93.3 billion; Price-to-sales ratio: 3.3; Dividend yield: 3.4%; TSINetwork Rating: Above Average; www.mcdonalds.com) reports that same-store sales at its U.S. outlets fell 3.2% in July 2014 from the same month a year earlier. That’s partly because younger diners are switching to fast-casual dining chains that offer fresher foods. In response, McDonald’s continues to upgrade its menu with healthier options, such as vegetable tortilla wraps. The company hopes these new menu items are as successful as its improved coffee lineup— since 2009, its coffee sales have jumped 70%. The company now plans to start selling its coffee in supermarkets under the McCafe brand. It will offer a variety of blends and flavours, in bags as well as single-serve pods for home brewing machines. McDonald’s is a buy....

Ingersoll-Rand plc, $61.83, symbol IR on New York (Shares outstanding: 267.5 million; Market cap: $16.5 billion; company.ingersollrand.com), has two main segments: Climate Control and Industrial Technologies. The company is based in Ireland. In the three months ended June 30, 2014, Ingersoll’s revenue rose 4.3%, to $3.54 billion from $3.40 billion a year earlier. Excluding one-time items, earnings per share gained 21.5%, to $1.13 from $0.93. Ingersoll’s climate control division (78% of total sales) saw its revenue rise 4.3%. This business makes heating, ventilation and air conditioning systems for residential and commercial markets. Its well-known brands include Trane air conditioners, Thermo King refrigeration units for trucks and trailers and American Standard heating and air conditioning equipment....

BlackPearl Resources Inc., $2.30, symbol PXX on Toronto (Shares outstanding: 335.6 million; Market cap: $772.0 million; www.blackpearlresources.ca), produces and explores for oil, mainly in Alberta and Saskatchewan. The company operates oil properties, but it aims to expand into oil sands production. BlackPearl’s main properties are Onion Lake, Mooney and Blackrod. Blackrod is a planned steam-assisted gravity drainage (SAGD) oil sands development in northern Alberta’s Athabasca region. Extracting the tar-like bitumen from oil sands is much more expensive than conventional oil wells, but new technologies like SAGD have lowered costs in the industry....

SNC-LAVALIN GROUP INC. $56 (Toronto symbol SNC; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 152.3 million; Market cap: $8.5 billion; Price-to-sales ratio: 1.1; Dividend yield: 1.7%; TSINetwork Rating: Average; www.snclavalin.com) has agreed to sell its 21% stake in Astoria I, a private partnership that operates a gas-fired power plant in New York City.

The company did not say how much it would receive. However, it recently sold most of its interest in Astoria II, which operates a second power plant on the same site, for $87.6 million. To put that in context, SNC earned $32.1 million, or $0.21 a share, in the three months ended June 30, 2014. The sale cut SNC’s stake in Astoria II from 18.5% to 6.2%.

These sales are part of SNC’s new plan to focus on engineering projects in areas with stronger growth potential, such as mining, water treatment and oil and gas.

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ISHARES FTSE/XINHUA CHINA 25 INDEX FUND $40.21 (New York symbol FXI; buy or sell through brokers) is an exchange traded fund that aims to track the FTSE/Xinhua China 25 Index, which is made up of the 25 largest, most liquid Chinese stocks. All of the stocks in the index trade on the Hong Kong exchange. Some also trade as American Depositary Receipts (ADRs) on New York.

The fund’s top holdings are Tencent Holdings, 10.2%; China Construction Bank, 8.4%; China Mobile, 8.3%; Industrial & Commercial Bank, 6.9%; Bank of China, 5.4%; China Overseas Land & Investment, 4.3%; China Life, 4.0%; Ping An Insurance, 4.0%; China Shenhua Energy, 3.9%; PetroChina, 4.2%; China Merchants Bank, 3.7%; and CNOOC Ltd., 3.7%.

The fund’s holdings give it the following industry breakdown: Financials, 54.1%; Telecommunications, 14.4%; Oil and Gas, 12.1%; Technology, 10.1%; Basic Materials, 4.0%; Industrials, 1.8%; and Consumer Goods, 1.7%. Its expense ratio is 0.73%.

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PENN WEST $8.14 (Toronto symbol PWT; Shares outstanding: 492.6 million; Market cap: $4.0 billion; TSINetwork Rating: Average; Divd. yield: 6.9%; www.pennwest.com) appointed former Suncor CEO Rick George as chairman in May 2013 to bring in much-needed measures to shore up its finances and boost its value.

The company’s shares traded at $10 when George took over, down from a peak of $47 in 2006. The shares moved up to as high as $13.50 last year, but had moved back down to $10 in mid-July 2014. That’s when they dropped a further 19%, to today’s price, after the company announced it was re-examining its
accounting practices going back several years.

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