oil and gas

Vietnam’s economy is growing quickly, largely due to the country’s rising exports and low wages: its labour and production costs are as little as one-third of similar costs in China. Vietnam also has a large future labour pool: over 50% of its population of 85 million is under 25 years of age. The country’s high inflation rate is slowing, and could fall below 10% by the end of 2012. That should let the central bank cut interest rates, which could spur the economy to grow by more than 6% this year. MARKET VECTORS VIETNAM ETF $19.18 (New York symbol VNM; buy or sell through brokers; www.vaneck.com) holds shares of Vietnamese companies or foreign firms that get a significant amount of their revenue from Vietnam....

Canyon Services Group, $12.82, symbol FRC on Toronto (Shares outstanding: 61.0 million; Market cap: $782.0 million; www.canyontech.ca), provides specialized oil and gas fracturing and well services. Hydraulic fracturing, or fracking, involves pumping water and chemicals into rock formations that contain oil or natural gas. This fractures the rock and releases the oil and gas. The company operates exclusively in Canada, and has some of the most modern equipment in the industry. In the three months ended December 31, 2011, Canyon’s revenue jumped 70.2%, to $145.0 million from $85.2 million a year earlier. Earnings rose 66.3%, to $40.9 million, or $0.67 a share, from $24.6 million, or $0.41 a share. The company saw continued strong demand for its services in the quarter. It also took on larger jobs that required deeper drilling....

VITERRA INC., $15.91, symbol VT on Toronto, has agreed to a friendly takeover offer from Switzerland-based commodity trader Glencore International plc. The purchase price is $6.1 billion, or $16.25 per Viterra share. As part of the deal, Glencore will sell a number of Viterra’s assets, including about 90% of its Canadian fertilizer retail stores and all of its Australian outlets, along with Viterra’s 34% stake in a fertilizer plant in Medicine Hat, Alberta. Agrium (symbol AGU on Toronto) has agreed to buy all of these assets. Agrium is a recommendation of our Successful Investor newsletter....

Vietnam has a fast-growing economy, largely thanks to its low wages and rising exports. The country’s labour and production costs are as little as one-third of similar costs in China. Plus, over 50% of Vietnam’s population of 85 million is under 25 years of age, so it has a large future labour pool. The country is steadily integrating itself into the global economy. Vietnam hosted the 2006 Asia-Pacific Economic Cooperation (APEC) summit in Hanoi. While there, President Bush visited the Vietnam stock exchange in Ho Chi Minh City (formerly Saigon) and rang a gong to open trading. Vietnam became a member of the World Trade Organization (WTO) in 2007. This gave the country’s businesses improved access to more markets and investment capital worldwide. Vietnam is a major producer of agricultural products—it’s currently the world’s biggest exporter of cashew nuts and the second-largest exporter of coffee and rice. However, the country is quickly adding manufacturing to its export base—and it’s doing that by attracting more foreign investment....

Pat McKeough responds to many personal questions on specific stocks and other investment topics from the members of his Inner Circle. Every week, his comments and recommendations on a selection of 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. Last week, one member asked about one of Canada’s more intriguing commodity investments—a high-yielding stock that supplies chemicals to the pulp and paper industry and shipping services to the oil and gas industry....

ZARGON OIL & GAS $14.04 (Toronto symbol ZAR; TSINetwork Rating: Speculative) (403-264-9992; www.zargon.ca; Shares outstanding: 29.4 million; Market cap: $412.8 million; Dividend yield: 8.6%) produces natural gas and oil in Alberta, Manitoba, Saskatchewan and North Dakota. The company’s production is 61% oil and 39% natural gas. In the three months ended December 31, 2011, Zargon produced 9,278 barrels of oil equivalent per day. That’s down slightly from 9.317 barrels a year earlier. However, that was mainly because the company sold some less important properties. Higher oil prices pushed up Zargon’s cash flow per share by 7.4%, to $0.58 from $0.54 a year earlier. The company continues to successfully drill horizontal wells in the Alberta Plains North area. Horizontal drilling involves drilling development wells sideways or at an angle to reach isolated pockets of gas or to follow a reservoir spread out in a narrow layer. This method works well in places where conventional drilling is impossible or too expensive....

PASON SYSTEMS $13.55 (Toronto symbol PSI; TSINetwork Rating: Speculative) (403-301-3400; www.pason.com; Shares outstanding: 81.9 million; Market cap: $1.1 billion; Dividend yield: 3.0%) 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 December 31, 2011, Pason’s revenue rose 32.8%, to $97.6 million from $73.5 million a year earlier. Many of the company’s clients increased their drilling, especially for shale gas and oil. Earnings jumped 201.2%, to $31.7 million, or $0.39 a share, from $10.5 million, or $0.13 a share. The increased drilling pushed up Pason’s earnings. It also let the company raise its prices....

CANADIAN PACIFIC RAILWAY LTD., $75.25, Toronto symbol CP, continues to expand its rail network in the Bakken area, which could contain more than 500 billion barrels of oil. This region covers parts of Montana, North Dakota and Saskatchewan. Oil was first discovered at Bakken in 1951, but it has always been hard to extract from the shale rock. However, modern techniques, such as horizontal (or slant) drilling, have made this oil much easier to access. Texas-based U.S. Development Group LLC is currently building a new hub in North Dakota to handle Bakken’s rising production. This hub, which should begin operating in mid-2012, will transfer oil from trucks to trains, which will then ship it to market....

COMPUTER MODELLING GROUP $16.07 (Toronto symbol CMG; TSINetwork Rating: Speculative) (403-531-1300; www.cmgroup.com; Shares outstanding: 37.1 million; Market cap: $596.2 million; Dividend yield: 3.2%) sells consulting services and software that help oil and gas producers use advanced recovery techniques to get more out of their existing wells. The company has customers in over 50 countries.

In the three months ended December 31, 2011, Computer Modelling’s revenue rose 31.8%, to $15.9 million from $12.1 million a year earlier. Software licence sales rose 39.1%, while consulting and professional services revenue declined 12.1%, mainly because Computer Modelling consulted on some large one-time projects in the year-earlier quarter.

Earnings jumped 62.5%, to $5.8 million, or $0.16 a share, from $3.6 million, or $0.10 a share.

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PASON SYSTEMS $13.55 (Toronto symbol PSI; TSINetwork Rating: Speculative) (403-301-3400; www.pason.com; Shares outstanding: 81.9 million; Market cap: $1.1 billion; Dividend yield: 3.0%) 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 December 31, 2011, Pason’s revenue rose 32.8%, to $97.6 million from $73.5 million a year earlier. Many of the company’s clients increased their drilling, especially for shale gas and oil.

Earnings jumped 201.2%, to $31.7 million, or $0.39 a share, from $10.5 million, or $0.13 a share. The increased drilling pushed up Pason’s earnings. It also let the company raise its prices.

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