oil and gas

PASON SYSTEMS $15.76 (Toronto symbol PSI; TSINetwork Rating: Speculative) (403-301-3400; www.pason.com; Shares outstanding: 82.0 million; Market cap: $1.3 billion; Dividend yield: 2.8%) rents equipment for monitoring and managing oil and gas rigs. It also sells communication systems, 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 June 30, 2012, Pason’s revenue rose 29.8%, to $81.1 million from $62.4 million a year earlier. Cash flow rose 31.5%, to $30.1 million, or $0.37 a share, from $22.9 million, or $0.28.

Even with declining oil prices and continued low gas prices, drilling activity rose 6% in Canada and the U.S. in the latest quarter, with a combined 188,291 active days and a rig count of 2,069, compared to 177,791 days and 1,954 rigs a year earlier.

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Imperial Oil’s Cold Lake oil sands project in Alberta supplied about two-thirds of the 231,000 barrels of oil equivalent that the company produced in its latest quarter. Oil sands will play an even bigger role when the first phase of its Kearl Lake project starts up later this year and adds 78,100 barrels to its output. Phase two will add another 78,100 barrels in 2015. Oil sands projects are expensive to develop, but their reserves last for decades, and their operating costs tend to fall after they start up. IMPERIAL OIL $46.36 (Toronto symbol IMO; Shares outstanding: 847.6 million; Market cap: $39.3 billion; TSINetwork Rating: Average; Dividend yield: 1.0%; www.imperialoil.ca) is a major integrated oil company with oil sands projects in Alberta, and conventional oil and gas operations in Western Canada. It also owns four refineries and operates 1,850 Esso gas stations. In the three months ended June 30, 2012, Imperial’s earnings fell 12.5%, to $635 million, or $0.75 a share, on lower oil and gas prices. A year earlier, it earned $726 million, or $0.85 a share. Revenue fell 3.3%, to $7.5 billion from $7.8 billion. However, cash flow per share rose 0.9%, to $1.09 from $1.08....

Pennsylvania-based Vanguard Group is one of the world’s largest investment management companies. The group manages over $1.7 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....

ISHARES FTSE/XINHUA CHINA 25 INDEX FUND $32.17 (New York symbol FXI; buy or sell through brokers) is an ETF that aims to track the FTSE/Xinhua China 25 Index, which is made up of the 25 largest and 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 the New York exchange. The fund’s top holdings are China Mobile, 10.3%; China Construction Bank, 8.4%; Industrial & Commercial Bank, 7.6%; CNOOC, 7.0%; Bank of China, 5.9%; China Telecom, 4.8%; China Unicom (Hong Kong), 4.6%; China Life Insurance, 4.6%; China Shenhua, 4.3%; and China Petroleum and Chemical, 4.0%. The fund’s holdings give it the following industry breakdown: Financials, 53.1%; Telecommunications, 19.7%; Oil and Gas, 14.6%; Basic Materials, 9.8%; and Industrials, 1.9%. Its expense ratio is 0.72%....

CAMECO CORP., $21.48, symbol CCO on Toronto, has agreed to buy the Yeelirrie uranium project in Western Australia from BHP Billiton, symbol BHP on New York. BHP is a recommendation of Wall Street Stock Forecaster, our newsletter that focuses on U.S. stocks. Cameco is the world’s largest uranium producer. It supplies over 25% of global production and has large, high-grade reserves, low-cost operations, significant market share and a number of uranium mines. Cameco will pay $430 million U.S. for Yeelirrie when the deal closes by the end of 2012. The company held cash and investments of $894.9 million (Canadian) on June 30, 2012, so it can comfortably afford this purchase....

ISHARES MSCI EMERGING MARKETS EASTERN EUROPE INDEX FUND $23.74 (New York symbol ESR; buy or sell through brokers), is an ETF that aims to track the MSCI Emerging Markets Eastern Europe Index. The fund’s geographic breakdown is as follows: Russia, 72.3%; Poland, 17.1%; Czech Republic, 3.7%; and Hungary, 3.5%.

The fund’s top holdings are Gazprom (Russia: gas utility), 18.1%; Lukoil (Russia: oil), 10.2%; Sberbank (Russia: bank), 8.6%; Novatek (Russia: natural gas), 3.8%; Mobile TeleSystems (Russia: wireless), 3.5%; Tafneft (Russia: oil and gas), 3.1%; Magnit OJSC (Russia: retailing), 3.0%; Rosneft Oil Company (Russia: oil and gas), 2.8%; MMC Norilsk Nickel (Russia: mining), 2.7%; and PKO Bank Polski SA (Poland: banking), 2.2%.

iShares MSCI Emerging Markets Eastern Europe Index Fund’s expense ratio is 0.68%.

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PENN WEST PETROLEUM $13.81 (Toronto symbol PWT; Shares outstanding: 472.9 million; Market cap: $6.5 billion; TSINetwork Rating: Average; Dividend yield: 7.8%) is one of North America’s largest oil and gas producers. Its average daily output of 167,420 barrels of oil equivalent is weighted 64% to oil and 36% to natural gas.

In the three months ended March 31, 2012, Penn West’s cash flow per share fell 7.8%, to $0.71 from $0.77, mostly due to lower gas prices.

The company’s shares yield a high 7.8%, but it paid out just 38% of its cash flow as dividends in the latest quarter. That gives it the funds to keep dividends high and yet keep increasing production.

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CRESCENT POINT ENERGY CORP. $39.62 (Toronto symbol CPG; Shares outstanding: 329.1 million; Market cap: $13.0 billion; TSINetwork Rating: Extra Risk; Dividend yield: 7.0%; www.crescentpointenergy.com) produces oil and natural gas in western Canada. Its production is weighted 91% toward oil and 9% to gas.

The company continues to focus on its Bakken light-oil development in southeastern Saskatchewan.

In the three months ended March 31, 2012, Crescent Point’s cash flow per share rose 21.8%, to $1.34 from $1.10. The company’s shares yield a high 6.8%. Crescent Point paid out just 53% of its cash flow as dividends in the latest quarter, so its current dividend rate looks sustainable.

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SPDR S&P CHINA ETF $63.27 (New York Exchange symbol GXC; buy or sell through brokers; www.spdrs.com) is an exchange traded fund that aims to track the S&P China BMI Index, which is made up of all the publicly traded Chinese stocks that are available to foreign investors. Right now, SPDR S&P China ETF holds 184 stocks.

The $783.8-million fund’s top holdings are China Mobile, 9.1%; China Construction Bank, 6.9%; Baidu, 5.1%; CNOOC, 4.8%; Industrial & Commercial Bank, 4.7%; Tencent Holdings, 4.5%; Petro- China, 4.0%; Bank of China, 3.6%; China Life Insurance, 3.2%; and China Petroleum & Chemical, 2.3%.

The fund’s breakdown by industry is as follows: Financials, 31.7%; Oil and Gas, 15.2%; Information Technology, 13.2%; Telecommunication Services, 10.1%; Industrials, 10.4%; Consumer Staples, 5.0%; Consumer Discretionary, 4.3%; Basic Materials, 4.0%; Utilities, 2.8%; and Health Care, 1.7%.

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Argent Energy Trust, $10.00, symbol AET.UN on Toronto (Units outstanding: 21.8 million; Market cap: $218.0 million; www.argentenergytrust.ca), aims to acquire and develop oil and natural gas properties, mainly in the U.S. The trust began trading on the Toronto exchange on August 10, 2012, at $10 per unit. Argent’s public offering raised $212.3 million, which was scaled back from its original $325-million proposal. Due to low oil prices, investor interest in the trust’s offering was not as strong as originally anticipated....