oil and gas

TRILOGY ENERGY CORP. $27.33 (Toronto symbol TET; TSINetwork Rating: Speculative) (403-290-2900; www.trilogy.com; Shares outstanding: 90.5 million; Market cap: $2.5 billion; Dividend yield: 1.5%) owns oil and gas properties in the Kaybob and Grande Prairie areas of central Alberta. About 64% of Trilogy’s production is natural gas. The remaining 36% is oil.

In the three months ended December 31, 2011, Trilogy produced 28,288 barrels of oil equivalent per day (including natural gas), up 31.3% from 21,544 barrels a year earlier. The higher production pushed up the company’s cash flow per share by 75.9%, to $0.51 from $0.29.

Trilogy drilled 68 wells in 2011, with a 98.5% success rate. That pushed up the company’s production and boosted its reserves by 13%, to 88.6 million barrels from 78.2 million. That’s enough for over 11 years of production.

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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.

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Canexus Corp., $7.73, symbol CUS on Toronto (Shares outstanding: 119.3 million; Market cap: $922.2 million; www.canexus.ca), produces sodium-chlorate and chlor-alkali products, largely for the pulp and paper and water-treatment industries. The company’s five plants—four in Canada and one in Brazil—aim to use nearby low-cost electricity and transportation facilities to cut their production and delivery costs. Canexus also provides “transloading” services (transfers of oil and gas by-products, such as butane, from railcars to trucks) to the oil and gas industry from its terminal at Bruderheim, Alberta. Canexus was formerly a division of Nexen Inc. (symbol NXY on Toronto). It began trading as a separate entity, and as an income trust, on August 18, 2005, at $10 per unit. Canexus converted to a conventional corporation in July 2011....

STANTEC INC., $29.83, symbol STN on Toronto, sells a range of consulting, project delivery, design/build and technology services. The company’s clients operate in a variety of industries, including transportation, construction and oil and gas. Stantec has over 11,000 employees in 170 locations throughout North America. It also has four international offices. In the three months ended December 31, 2011, the company’s revenue rose 12.6%, to $432.0 million from $383.7 million a year earlier. Acquisitions were part of the reason for the gains. Stantec is also working on a number of new projects. Before one-time items, earnings rose 4.3%, to $24.3 million, or $0.53 a share, from $23.3 million, or $0.51....

PENN WEST PETROLEUM $21.63 (Toronto symbol PWT; Shares outstanding: 469.4 million; Market cap: $10.2 billion; TSINetwork Rating: Average; Dividend yield: 5.0%; www.pennwest.com) has raised its production by over 56% over the last five years. It is now one of North America’s largest oil and gas producers.

The company has made big investments in its operations in order to boost its production. Even so, its $2.9 billion of long-term debt is a reasonable 28.4% of its market cap. It has also lowered its debt from $3.5 billion at the start of 2010.

Penn West converted from a trust to a corporation on January 1, 2011. However, it has $7.0 billion of tax pools that it is using to offset the new tax. That’s letting it maintain its $1.08-a-share annual payout, which yields 5.0%. As well, the payout (like all dividends paid by converted trusts) is now eligible for the dividend tax credit if you hold your shares outside an RRSP.

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McCoy Corp., $3.92, symbol MCB on Toronto (Shares outstanding: 26.5 million; Market cap: $103.9 million; www.mccoyglobal.com), operates through two main divisions: Energy Products and Services and Mobile Solutions. The company dates back to 1914, when Henry McCoy opened a blacksmith shop in Edmonton. Energy Products and Services includes four subsidiaries: Farr Canada, Inotec Coatings and Hydraulics (both based in Edmonton), Superior Manufacturing and Hydraulics, and Precision Die Technologies (both based in Lafayette, Louisiana). This division supplies hydraulic equipment, including power tongs, for offshore and land-based drilling rigs. Power tongs are large hydraulic wrench-like tools that tighten and loosen the pipe in the drill hole....

DUNDEE REIT, $34.63, symbol D.UN on Toronto, owns and manages 18.9 million square feet of office, industrial and retail space. The real estate investment trust’s occupancy rate is 95.6%. In the three months ended December 31, 2011, Dundee’s revenue jumped 73.2%, to $136.3 million from $78.7 million a year earlier. Most of the increase came from properties the trust recently purchased. The best way to assess a real estate investment trust’s operating performance is to look at its cash flow, and Dundee’s cash flow rose 62.6% in the latest quarter, to $41.0 million from $25.2 million. Cash flow per unit rose 12.7%, to $0.62 from $0.55, due to more units outstanding (the trust issued new units to pay for the acquired properties)....

The Galileo High Income Plus Fund is a mutual fund that mainly holds stocks (28 in all), with an emphasis on high-yielding companies. This has led the fund to invest in a lot of former oil and gas trusts that have converted to dividend paying stocks. In fact, shares of energy companies make up 53.3% of the fund’s total assets. Galileo High Income Plus Fund has an MER of 2.56%. The Galileo High Income Plus Fund’s top holdings are Badger Daylighting, Baytex Energy, Black Diamond Group, Canadian Energy Services & Technology Group, Canadian Helicopters Group, Cervus Equipment, Gibson Energy, Noranda Income Fund, Pure Energy Services and Student Transportation Inc. The fund yields about 5.8%, based on its current net asset value and its latest monthly dividend payment. That high yield has a lot of appeal for a conservative, income-seeking investor. That definition traditionally applied to investors who want income to live on. Now, more and more, it also includes conservative, risk-averse investors who interpret steady income as the mark of a secure, low-risk investment. Despite the current high yield, however, the Galileo High Income Plus Fund comes with more risk than we advise for either type of income-seeker....

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 65% gas and 35% oil. In May 2011, Devon completed the sale of its Brazilian operations for $3.2 billion. It has now sold all of its international and Gulf of Mexico properties, which it saw as risky and expensive to develop....

GOODYEAR TIRE & RUBBER, $13.42, symbol GT on New York, reported record sales in the latest quarter. In the three months ended December 31, 2011, the company’s sales rose 12.0%, to a record $5.7 billion from $5.1 billion a year earlier. North American sales climbed 17.5%, to a record $2.6 billion from $2.2 billion. Sales rose 10.7% in Europe, the Middle East and Africa; 2.4% in Latin America; and 5.1% in the Asia-Pacific region....