oil and gas

IMPERIAL OIL $39.57 (Toronto symbol IMO; Shares outstanding: 847.6 million; Market cap: $34.2 billion; TSINetwork Rating: Average; Dividend yield: 1.2%; www.imperialoil.ca) is a major integrated oil company with oil sands projects in Alberta and conventional oil and gas operations across Western Canada. Imperial also owns four refineries and operates 1,850 Esso gas stations.

Imperial produced 284,000 barrels of oil equivalent per day in the latest quarter, down 1.7% from 289,000 barrels a year earlier. The decline was mainly the result of planned maintenance at the Syncrude oil sands project, in which Imperial owns a 25.0% stake.

In the three months ended March 31, 2013, Imperial’s earnings fell 21.4%, to $798 million, or $0.94 a share, due to an 8% drop in the company’s selling price for oil. A year earlier, it earned $1.0 billion, or $1.19 a share. Cash flow per share fell 17.4%, to $1.19 from $1.44. However, revenue rose 3.3%, to $8.0 billion from $7.5 billion, largely because downstream sales (refineries and gas stations) rose 10.0%.
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U.S. oil production is up 40% since 2008. That’slargely because of new technologies like hydraulicfracturing, or fracking. This involves injecting water,sand and chemicals to break up shale and other tightrock formations and allow access to the oil and gas.

The global economy continues to recover from therecession, so rising demand from industry and consumersshould help stabilize oil and gas prices, even asoutput from shale increases.

The best way to profit from this volatile industry isthrough companies with high-quality reserves and diverseoperations, such as these four....

We think 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. Here are two international ETFs that we follow regularly. ISHARES MSCI CHILE INVESTABLE MARKET INDEX FUND (New York Exchange symbol ECH; us.ishares.com; buy or sell through brokers) is an ETF that aims to track the MSCI Chile Investable Market Index, which consists of stocks that are mainly traded on the Santiago Stock Exchange....

For decades, I’ve felt it was a good idea to devote at least part of your portfolio to U.S. stocks, regardless of how you feel about the outlook for the exchange rate for the two currencies. The U.S. simply offers a much better selection of the world’s top multi-national companies. It also offers much better choice among the five main economic sectors. In the past six years, the exchange rate hasn’t been much of an issue. The U.S. and Canadian dollars have generally traded within five cents of parity with each other, apart from a period in the depths of the recession when the U.S. dollar shot up to a temporary 30% premium. Historically, the Canadian dollar has more often stayed below the U.S. dollar. But when comparing the Obama and Harper governments, many investors felt that Canada offered a friendlier attitude toward business and investors. In addition, Canada’s real estate market escaped the plunge in real estate prices that much of the U.S. suffered in the recession. To top it off, Canada enjoyed the effects of booming commodity prices. All these factors spurred buying of Canadian dollars in the foreign exchange market. This lent strength to our dollar in relation to the U.S. dollar....

ALARMFORCE INDUSTRIES, $10.41, symbol AF on Toronto, reports that its sales rose 9.1% in the three months ended April 30, 2013, to $11.9 million from $10.9 million a year earlier. The company earned $1.3 million, or $0.11 a share, compared to a loss of $238,021, or $0.02 a share. AlarmForce’s revenue rose along with its subscriber base: the company ended the quarter with 31,200 U.S. customers, up 22.8% from 25,400 a year ago. In Canada, it now has 106,500 subscribers, up 1.8%. The company’s earnings rose because it spent a lot less on marketing than in the year-earlier quarter, when it increased its advertising spending as it launched its VideoRelay system. This service lets subscribers watch their homes through computers and smartphones....

DEVON ENERGY CORP. $54.13 (New York symbol DVN; TSINetwork Rating: Speculative) (405-235- 3611; www.dvn.com; Shares outstanding: 406.0 million; Market cap: $22.5 billion; Dividend yield: 1.6%) is one of the largest U.S.-based oil and natural gas explorers and producers....

WAJAX CORP. $32.54 (Toronto symbol WJX; TSINetwork Rating: Extra Risk) (905-212- 3300; www.wajax.ca; Shares outstanding:16.7 million; Market cap: $528.7 million; Dividend yield: 7.4%) sells and services cranes, forklifts and other heavy equipment. It also sells related parts (such as bearings, motors, hoses and fittings) and power systems (including diesel engines and transmissions).

In the quarter ended March 31, 2013, Wajax’s revenue fell 6.1%, to $336.3 million from $358.1 million a year earlier....

Arcan Resources, $0.50, symbol ARN on Toronto (Shares outstanding: 97.9 million; Market cap: $51.7 million; www.arcanres.com), develops, and produces oil and natural gas in western Canada. It also acquires properties that contain oil and gas reserves. The company is mainly focused on light oil prospects in central Alberta’s Swan Hills area. Arcan continues to cut its costs. It needs to keep its expenses low to maximize its production and cash flow, especially in light of its large debt, which is forcing it to reduce its exploration and development spending. The company’s long-term debt now stands at $295.4 million, or a very high 5.7 times its $51.7-million market cap. That adds considerable risk, and sharply limits Arcan’s growth prospects....

ENCANA CORP. $17 (New York symbol ECA;Conservative Growth Portfolio, Resources sector;Shares outstanding: 735.5 million; Market cap: $12.5billion; Price-to-sales ratio: 2.9; Dividend yield: 4.7%;TSINetwork Rating: Average; www.encana.com) is amajor North American natural gas producer that isincreasing its oil output.

In the quarter ended March 31, 2013, Encana’s oilproduction rose 48.5%, to 43,500 barrels a day from29,300 a year earlier. Encana expects to increase its oilproduction to 70,000 to 75,000 barrels a day by theend of 2013. It sold some of its U.S. gas properties in2012, so gas production fell 12.1% in the quarter. Gasstill accounted for 92% of Encana’s output.

Due to lower oil and gas prices, Encana’s earningsfell 25.4%, to $179 million from $240 million a yearearlier. Earnings per share declined 27.3%, to $0.24from $0.33, on slightly fewer shares outstanding.These figures exclude several unusual items, particularlygains related to hedging. Cash flow per share fell43.2%, to $0.79 from $1.39. Revenue declined 41.1%,to $1.1 billion from $1.8 billion.
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CENOVUS ENERGY INC.$28 (New York symbol CVE;Conservative Growth Portfolio,Resources sector; Sharesoutstanding: 755.6 million;Market cap: $21.2 billion; Price-to-sales ratio: 1.3; Dividend yield: 3.3%; TSINetworkRating: Average; www.cenovus.com) gets half itsoutput from the western Canadian oil sands.Conventional oil and gas wells supply the other half.

U.S.-based Phillips 66 (New York symbol PSX)owns 50% of Cenovus’s main Foster Creek and ChristinaLake oil sands projects in Alberta. These assetsproduce heavy bitumen, which Cenovus ships to its50%-owned refineries in Illinois and Texas. Phillips 66owns the other 50% of these operations.

In the first three months of 2013, Cenovus produced271,100 barrels of oil equivalent a day (66% oil and34% gas), up 3.1% from 262,900 barrels a year earlier.However, lower oil prices cut Cenovus’s revenueby 5.4%, to $4.3 billion from $4.6 billion a year earlier(all amounts except share price and market cap inCanadian dollars).
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