oil and gas

CIMAREX ENERGY $81.59 (New York symbol XEC; TSINetwork Rating: Extra Risk) (303-295-3995; www.cimarex.com; Shares outstanding: 85.7 million; Market cap: $7.0 billion; Dividend yield: 0.5%) produces and explores for oil and natural gas. Gas makes up 56% of its output. Cimarex’s properties are in the Mid-Continent region of the U.S., which includes Oklahoma, Kansas and Texas; the Permian Basin of western Texas and southeastern New Mexico; and the Texas Gulf Coast. In the three months ended December 31, 2011, Cimarex’s production averaged 601.4 million cubic feet of natural gas equivalent per day (including oil). That’s down slightly from 604.5 million cubic feet a year earlier. The company did not offset natural declines at its Gulf Coast wells with new production....

Desalination is the process of removing excess salt and other minerals from seawater. It’s also used where saltwater has entered underground freshwater aquifers. Right now, there are more than 14,500 desalination plants operating in over 120 countries. In all, these plants produce more than 45.4 billion litres of fresh water a day. About three-quarters of these plants are in the Middle East. That’s because desalination plants are very expensive to build, so they’re only really cost-effective where there is no fresh water. When fresh water is available, it can be pumped up to 1,600 kilometres and still cost less per litre than water from a desalination plant. The world’s largest desalination plant is the Jebel Ali Desalination Plant in the United Arab Emirates. This plant can produce 829 million litres of water per day. By comparison, the largest desalination plant in the U.S. is in Tampa Bay, Florida. That plant can produce 94.6 million litres of water per day....

Poseidon Concepts rents its fluid-handling tanks to over 100 customers in the oil and gas industry. Poseidon has just issued 6.3 million new shares.

DEVON ENERGY CORP. $71.70 (New York symbol DVN; TSINetwork Rating: Speculative) (405-235-3611; www.dvn.com; Shares outstanding: 403.9 million; Market cap: $29.0 billion; Dividend yield: 1.0%) 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.

In all, the company received over $8 billion in after-tax proceeds from these sales. It’s using these funds to buy back shares, purchase properties and pay down debt. So far, it has bought back $3.5 billion of its shares. Its long-term debt is $6.0 billion, but that’s just 20.7% of its $29.0-billion market cap. The company holds cash of $7.1 billion, or $17.27 a share. As well, Devon recently sold a one-third interest in five shale oil and gas fields to giant Chinese state-owned petroleum and chemical company Sinopec (symbol SNP on New York) for $900 million. In addition, Sinopec will pay up to 70% of Devon’s share of the development costs at the five fields, up to $1.6 billion

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Poseidon Concepts, $15.53, symbol PSN on Toronto (Shares outstanding: 72.0 million; Market cap: $1.1 billion; www.poseidonconcepts.com), rents its fluid-handling tanks to over 100 customers in the oil and gas industry. In November 2011, Open Range Energy changed its name to Poseidon Concepts after it handed out shares of its oil and gas production interests to its shareholders in November 2011. This new company retained the Open Range Energy name and Toronto symbol ONR. Poseidon kept the tank rental business and began trading on Toronto under the symbol PSN....

Twin Disc, $32.71, symbol TWIN on Nasdaq (Shares outstanding: 11.6 million; Market cap: $379.4 million; www.twindisc.com), designs, makes and sells transmission equipment for boats, off-highway vehicles such as military trucks, mining trucks, firefighting and rescue vehicles, and heavy-duty equipment such as rock crushers, oil rigs and wood chippers. The company’s products include marine transmissions, propellers and boat controls, as well as power-shift transmissions, hydraulic torque converters and industrial clutches. Twin Disc sells its products to pleasure boat makers, as well as manufacturers of boats and equipment for commercial and military use. Energy firms, government agencies and manufacturers also use Twin Disc’s parts in their equipment....

Question: I would like your opinion on Africa Oil and Cabo Drilling. As always, your pearls of wisdom are very insightful and greatly appreciated.

Ottawa’s tax on income trust distributions took effect over a year ago, on January 1, 2011. Most trusts have already converted to corporations in response. Real estate investment trusts (REITs) are exempt, however, so they will remain as trusts. All but one of our trust recommendations have converted. We still like the long-term outlook for all these picks, and we see them as buys. All of our REIT recommendations remain buys, as well....

Africa Oil, $1.68, symbol AOI on Toronto (Shares outstanding: 212.0 million; Market cap: $356.2 million; www.africaoilcorp.com), is a Canadian oil and gas exploration company with interests in properties in Kenya, Ethiopia, Somalia and Mali. Africa Oil plans to drill seven to 10 wells over the next 18 months. The company holds cash of $118.0 million, or $0.53 a share, so it will have no trouble funding this exploration. Africa Oil’s east African properties are in the same geological formation as the Albertine Graben, where two U.K.-based firms, Heritage Oil and Tullow Oil, made major discoveries in neighbouring Uganda....

Tuscany Energy, $0.17, symbol TUS on Toronto (Shares outstanding: 125.2 million; Market cap: $21.3 million, www.tuscanyenergy.com), is a junior oil and gas exploration and development company that operates in western Canada. Right now, it gets most of its revenue by producing oil in Saskatchewan. In the three months ended September 30, 2011, Tuscany’s cash flow was $1.4 million, or $0.02 a share. That’s up sharply from $340,000 or $0.01 a share, a year earlier. That’s because the company raised its production (89% oil, 11% gas) by 53.1%, to 219 barrels of oil equivalent per day from 143 barrels. Tuscany holds cash of $3.5 million, or $0.03 a share, and has no debt. The shares trade at just 1.4 times the company’s cash flow per share, based on the latest quarter, but it needs to keep successfully drilling new wells to maintain or increase that cash flow. However, Tuscany has identified over 170 drilling locations on its properties....