oil and gas

MAJOR DRILLING GROUP INTERNATIONAL INC., $7.28, symbol MDI on Toronto, is a large contract drilling firm that mainly serves the mining industry. In the three months ended July 31, 2013, Major’s revenue fell 54.4%, to $108.2 million from a record $237.6 million a year earlier. Earnings also declined sharply, to $1.5 million, or $0.02 a share, from $31.9 million, or $0.40. The latest earnings included $2.0 million of one-time pre-tax restructuring charges, such as costs related to layoffs. The company has cut its staff by 45%, or 2,300 workers, over the past year. Many of Major’s large- and medium-sized mining customers slowed their drilling activity in the latest quarter, and orders from junior miners dropped sharply. That’s because juniors are having a lot of difficulty raising funds in today’s uncertain resource markets....

We include these three manufacturing companies in our Aggressive Growth Portfolio, mainly because they operate in industries that are particularly vulnerable to swings in the overall economy. Even so, all three are market leaders with strong growth prospects. They also trade at attractive multiples to earnings.

BOMBARDIER INC....

GREAT-WEST LIFECO INC. $30 (Toronto symbol GWO; Conservative Growth Portfolio, Finance sector; Shares outstanding: 1.1 billion; Market cap: $33.0 billion; Price-to-sales ratio: 1.1; Dividend yield: 4.1%; TSINetwork Rating: Above Average; www.greatwestlifeco.com) earned $521 million in the three months ended June 30, 2013, up 6.8% from $488 million a year earlier....

Lightstream Resources, $7.32, symbol LTS on Toronto (Shares outstanding: 195.6 million; Market cap: $1.4 billion; www.petrobakken.com), is a Canadian firm that produces, develops and explores for oil and gas. It’s focused on the Bakken area of southeastern Saskatchewan and Alberta’s Cardium region. Lightstream changed its name from PetroBakken Energy on May 22, 2013. The shares continue to fall, as the company is having difficulty increasing its production. A big reason for that is a lack of financial flexibility—its long-term debt of $2.1 billion is an already very high 150% of its $1.4-billion market cap. That makes it difficult to borrow money to fund exploration and development over and above its cash flow. The stock has a high 13.1% dividend yield, but its current payout is likely not sustainable....

Pinecrest Energy, $0.41, symbol PRY on Toronto (Shares outstanding: 209.6 million; Market cap: $86.0 million; www.pinecrestenergy.com), is a junior oil and gas explorer focused on light oil properties in the Slave Point area, in the greater Red Earth, Alberta, region. Pinecrest uses waterflooding to extract oil. This method involves injecting water into the reservoir to remove oil that is left over after normal pumping operations. The company’s costs are rising as it continues to truck in water and use rented diesel generators to supply power at its waterflood projects. Longer term, it hopes to install water pipelines and power lines to cut costs. But meanwhile, its long-term debt of $115.1 million is a very high 134% of its $86-million market cap. Pinecrest has now likely drawn all of its bank credit facility, and this lack of funds will hurt its production and cash flow....

Pat McKeough responds to many requests from members of his Inner Circle for specific advice on specific stocks and other investments as well as questions on investment strategy and the economy. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle members. And each week, we offer you one of the highlights from these Q&A sessions. While we reserve our buy-hold-sell advice for Inner Circle members, these excerpts provide a great deal of information and analysis on stocks we’ve covered for members of Pat’s Inner Circle....

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....

PEYTO EXPLORATION & DEVELOPMENT CORP. $28.10 (Toronto symbol PEY; Shares outstanding: 148.5 million; Market cap: $4.2 billion; TSINetwork Rating: Extra Risk; Dividend yield: 3.4%; www.peyto.com) produces and explores for oil and natural gas in Alberta....

Surge Energy, $6.03, symbol SGY on Toronto (Shares outstanding: 121.4 million; Market cap: $722.4 million; www.surgeenergy.ca), produces oil and gas in western and eastern Alberta and southwestern Saskatchewan. Its output is 74% oil and 26% gas. In the three months ended June 30, 2013, Surge produced 9,373 barrels of oil equivalent per day, up 1.1% from 9,275 barrels a year earlier. The rise came despite the fact that the company sold some of its less important properties, which produced 680 barrels a day, for $42.8 million U.S. on May 9, 2013. Despite the small increase in production, Surge’s cash flow per share rose 11.8% in the latest quarter, to $0.38 from $0.34 a year earlier, on higher oil and gas prices....

MART RESOURCES $1.19 (Toronto symbol MMT; TSINetwork Rating: Speculative) (403-270-1841; www.martresources.com; Shares outstanding: 356.6 million; Market cap: $449.3 million; Dividend yield: 16.8%) produces oil at its 50%-held Umusadege field in the Niger Delta region of southern Nigeria.

The company recently completed construction of a new central processing facility at the Umusadege field. This plant can process 35,000 barrels of oil a day, enough to handle the field’s current output of 10,140 barrels a day, in addition to all future production increases.

Meanwhile, the company is reporting steady cash flow and continues to pay quarterly dividends of $0.05 a share. The stock yields 16.8%.
...