oil and gas

TRILOGY ENERGY CORP. $28.59 (Toronto symbol TET; TSINetwork Rating: Speculative) (403-290-2900; www.trilogyenergy.com; Shares outstanding: 99.5 million; Market cap: $3.6 billion; Dividend yield: 1.5%) owns oil and gas properties in central Alberta’s Kaybob and Grande Prairie areas....

PASON SYSTEMS $30.37 (Toronto symbol PSI; TSINetwork Rating: Speculative) (403-301-3400; www.pason.com; Shares outstanding: 82.4 million; Market cap: $2.5 billion; Dividend yield: 2.0%) is trading near all-time highs as it continues to gain 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 throughout Canada, the U.S., Mexico, Argentina and Australia. In the three months ended March 31, 2014, the company’s revenue rose 12.7%, to $123.2 million from $109.3 million a year earlier. Higher sales in the U.S., Australia and Canada offset slower drilling activity in Mexico and a significant devaluation of the Argentine currency....

RUSSEL METALS $33.17 (Toronto symbol RUS; TSINetwork Rating: Speculative) (905-819-7777; www.russelmetals.com; Shares outstanding: 61.0 million; Market cap: $2.0 billion; Dividend yield: 4.2%) reports that its revenue rose 12.4% in the quarter ended March 31, 2014, to $924.0 million from $821.8 million a year earlier. Earnings gained 33.6%, to $29.0 million, or $0.47 a share. A year earlier, the company earned $21.7 million, or $0.36. Russel holds cash of $86.3 million, or $1.41 a share. Its long-term debt of $458.3 million is a reasonable 22.0% of its market cap. The stock yields 4.2%. The company gets about 35% of its revenue from customers in the oil and gas drilling industry. That, plus its exposure to fluctuating steel prices, adds risk. However, Russel’s long-term outlook remains positive, and it is well-positioned to gain as the economy recovers....

Williams Cos., $44.04, symbol WMB on New York (Shares outstanding: 685.4 million; Market cap: $30.2 billion; co.williams.com), gathers, processes and transports natural gas throughout the U.S. It also provides gas-marketing services. The long-term outlook for energy transporters like Williams is positive, due to rising demand for infrastructure to transport oil and gas from U.S. shale regions. As well, two activist hedge funds have taken positions in the company. These investors are pressing for seats on the board of directors and other changes, including the possibility of Williams participating in partnerships with other firms and looking for other ways to increase shareholder value....

We think most conservative investors could hold up to 10% of their portfolios in foreign stocks. One way to do that is to buy carefully chosen exchange traded funds (ETFs) that have an overseas focus. The best ETFs offer very low management fees and well-diversified, tax-efficient portfolios of high-quality stocks. Today we examine two international ETFs covered regularly in Canadian Wealth Advisor....

BANK OF NOVA SCOTIA, $66.78, Toronto symbol BNS, has agreed to buy 20% of the credit card division of CANADIAN TIRE CORP., $111.29, Toronto symbol CTC.A. This business is Canada’s eighth-largest largest credit card issuer, with 1.8 million clients and $4.4 billion in outstanding loans. Its cardholders spend $1.2 billion annually. Bank of Nova Scotia will pay $500 million for this stake, and Canadian Tire has an option to sell an additional 29% to the bank over the next 10 years....

SHERRITT INTERNATIONAL CORP., $4.60, symbol S on Toronto, has fended off an attempt by activist investor George Armoyan and his firm, Clarke Inc. (symbol CKI on Toronto), to place three of its nominees on Sherritt’s board of directors. Together, they would have held a third of Sherritt’s nine board seats. Shareholders voted against the new directors at the company’s annual meeting on May 6. Meanwhile, Armoyan has put forward a number of proposals for Sherritt to cut costs, reduce its debt and better align what he sees as the interests of shareholders, management and the board directors....

SNC-LAVALIN GROUP INC. $52 (Toronto symbol SNC; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 152.1 million; Market cap: $7.9 billion; Price-to-sales ratio: 1.0; Dividend yield: 1,8%; TSINetwork Rating: Average; www.snclavalin.com) has agreed to sell AltaLink to Berkshire Hathaway (New York symbol BRK.B), the holding company controlled by billionaire investor Warren Buffett.

Wholly owned AltaLink provides electricity to 85% of Alberta’s population through 12,000 kilometres of power lines and 280 substations.

The company will receive $3.2 billion (or $2.9 billion after taxes)....

In addition to producers like Suncor (earlier in this issue), you can profit from rising oil and gas prices through service providers like Precision Drilling, ShawCor and Finning (also in this issue). All are leaders in their niche markets and trade at reasonable multiples to their earnings.

PRECISION DRILLING CORP....

DEVON ENERGY CORP. (New York symbol DVN; www.dvn.com) is one of the largest U.S.-based oil and natural gas explorers and producers. Its production mix is 57% gas and 43% oil. In 2011, Devon sold all of its international and Gulf of Mexico properties, which it saw as risky and expensive to develop. The company aimed to focus on its North American projects, which include conventional production, Texas shale oil and Alberta oil sands....