oil and gas

HRT Participacoes em Petroleo S.A., $2.84, symbol HRP on Toronto (Shares outstanding: 4.6 million; Market cap: $13.1 million; www.hrt.com.br), is a Brazilian oil and gas exploration holding company that owns properties in Brazil’s Amazon region and off the coast of the southern African country of Namibia. HRT Participacoes was formed by a group of senior geoscientists and engineers who previously held positions at Petroleo Brasileiro SA. Its main listing is on the Brazilian stock exchange. The company chose its drilling targets offshore Namibia with a geological theory in mind. This is the theory that present-day continents once formed a single land mass or super-continent known as Pangea. This super-continent is thought to have broken up into pieces that became today’s existing continents. After the breakup, the pieces moved to their present locations, in a gradual process known as continental drift that began about 250 million years ago....

Mullen Group, $19.50, symbol MTL on Toronto (Shares outstanding: 80.4 million; Market cap: $1.6 billion; www.mullen-group.com), is a trucking company that mainly serves firms in the Canadian oil business. Mullen continues to benefit from increasing oil and gas drilling. Before one-time items, the company earned $0.47 a share in the three months ended September 30, 2011, up from $0.23 a year earlier. The latest earnings also beat the consensus estimate of $0.37 a share. The shares are trading in a range around $20. However, oil and gas drilling may increase at a slower rate in the coming months, given the sharp increase recently. That means Mullen shares may have trouble moving higher than their current level. Still, Mullen trades at 11.3 times its forecast 2012 earnings of $1.72 a share. As well, the stock yields 5.1%....

A: Vanoil Energy, $0.35, symbol VEL on Toronto (Shares outstanding: 30.9 million; Market cap: $10.8 million; www.vanoil.ca), holds oil and gas assets in Kenya and Rwanda. Blocks 3A and 3B, which cover 29,412 square kilometres, are in Kenya. Vanoil also has an exclusive licence to 1,631 square kilometres of oil and gas properties in the East Kivu Graben in Rwanda. This area is at the southern extension of the Albertine Graben, where Heritage and Tullow Oil made major discoveries in neighbouring Uganda. Simba Energy, $0.08, symbol SMB on Toronto (Shares outstanding: 110.1 million; Market cap: $8.8 million; www.simbaenergy.ca), is exploring for oil on what it sees as overlooked properties in Africa, including parts of Liberia, Mali, Ghana, Guinea, Kenya and others....

CHEVRON CORP. $100 (New York symbol CVX; Conservative Growth Portfolio, Resources sector; Shares outstanding: 2.0 billion; Market cap: $200.0 billion; Price-to-sales ratio: 0.8; Dividend yield: 3.2%; TSINetwork Rating: Above Average; www.chevron.com) plans to spend $32.7 billion on capital upgrades in 2012. That’s up 25.8% from the $26.0 billion it will probably spend in 2011.

About 87% of the 2012 spending will go toward oil and gas exploration and upgrades of existing projects and new developments. For example, Chevron’s new liquefied natural gas plants in Australia will increase its daily production by 13% by 2016.

Chevron is a buy.

...

PASON SYSTEMS $11.74 (Toronto symbol PSI; TSINetwork Rating: Speculative) (403-301-3400; www.pason.com; Shares outstanding: 82.3 million; Market cap: $966.2 million; Dividend yield: 3.4%) 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 and Argentina. In the three months ended September 30, 2011, Pason’s revenue rose 29.2%, to $88.7 million from $68.7 million a year earlier. Many of the company’s clients increased their drilling, especially for shale gas and oil. Earnings jumped 140.0%, to $28.5 million, or $0.35 a share, from $11.9 million, or $0.15 a share. The increased drilling pushed up Pason’s earnings. Strong demand also let the company raise its prices....

COMPUTER MODELLING GROUP $15.32 (Toronto symbol CMG; TSINetwork Rating: Speculative) (403- 531-1300; www.cmgroup.com; Shares outstanding: 37.8 million; Market cap: $579.1 million; Dividend yield: 2.9%) reports that its revenue fell 10.1% in the three months ended September 30, 2011, to $12.0 million from $13.3 million a year earlier. Licence revenue rose to $10.9 million from $10.8 million, but that was offset by a 57.0% drop in consulting and professional-services revenue, to $1.1 million from $2.5 million. The company consulted on a few large, one-time projects a year ago. Earnings per share fell 7.7%, to $0.12 from $0.13. Already a leader in complex heavy-oil and oil-sands simulations, Computer Modelling should profit as oil and gas producers continue to develop other unconventional sources, such as shale gas....

BIRCHCLIFF ENERGY $13.24 (Toronto symbol BIR; TSINetwork Rating: Speculative) (403-261-6401; www.birchcliffenergy.com; Units outstanding: 131.4 million; Market cap: $1.7 billion; No dividends paid) develops, produces and explores for oil and natural gas, mainly in the Peace River Arch area near the Alberta/B.C. border. About 75% of Birchcliff’s production is natural gas. The remaining 25% is oil. In the three months ended September 30, 2011, Birchcliff’s production jumped 34.6%, to 17,648 barrels of oil equivalent per day (including natural gas) from 13,109 barrels a year earlier. Cash flow per share rose 50.0%, to $0.27 from $0.18. The production increase and higher oil prices were the main reasons for the gain....

TOROMONT INDUSTRIES LTD. $20.01 (Toronto symbol TIH; TSINetwork Rating: Extra Risk) (416-667-5511; www.toromont.com; Shares outstanding: 77.2 million; Market cap: $1.5 billion; Dividend yield: 2.2%) distributes a broad range of industrial equipment, including machinery made by Caterpillar Inc. Toromont also makes refrigeration systems through its CIMCO division. In July 2011, Toromont completed the spinoff of Enerflex Ltd.. Shareholders received shares of the new Toromont and shares of Enerflex. That company leases and sells equipment and services for natural gas production, including field production plants and compression and processing plants. In the three months ended September 30, 2011, higher equipment sales and rentals pushed up Toromont’s revenue by 9.3%, to $367.3 million from $336.0 million a year earlier. Without one-time items, earnings per share rose 33.3% to $0.40 from $0.30, on the higher revenue and improved profit margins....

Here’s the text of the quarterly letter I sent to our Portfolio Management clients in mid-November: “Our investment approach relies on three key rules: 1. Invest mainly in well-established companies. These companies have an above-average chance of surviving an economic or market downturn, and thriving again when conditions improve....

RUSSEL METALS $22.09 (Toronto symbol RUS; TSINetwork Rating: Speculative) (905-819-7777; www.russelmetals.com; Shares outstanding: 67.0 million; Market cap: $1.5 billion; Dividend yield: 5.4%) is one of North America’s largest metal distributors. The company serves its roughly 30,000 customers through a network of 50 locations in Canada and 12 in the U.S.

In the three months ended June 30, 2011, Russel’s earnings per share rose sharply, to $0.43 from $0.14 a year earlier. Revenue rose 21.1%, to $705.4 million from $582.5 million.

Revenue rose at all three of Russel’s divisions: The steel distribution division’s revenue rose 19% due to higher sales volumes and steel prices. Metal services revenue rose 24%, also on higher sales volumes and prices. The energy tubular products division, which supplies pipes for oil and gas companies, saw its revenue rise 19% on higher drilling activity.

...