oil prices
When investors see a day like Thursday, with a drop of more than 500 points in the Dow Jones Industrials, they can’t help but wonder if we face a replay of the 2007-2009 market plunge. However, though today’s situation could turn out badly, that’s not inevitable. It’s much different from a few years ago. The 2007-2009 drop was mostly about the collapse of the housing boom and everything that went with it. Today there is no boom that could deflate and bring down the economy. Today’s problem grows out of government attempts at ‘fixing’ the economy in recent years. These fixes, which were mostly unsuccessful, bloated government spending and created huge debts. Today’s main market worry is how the U.S. federal government will attempt to fix its budget deficit and bring its debt down to a manageable level. To top things off, the Obama administration has also brought in big changes in health care, union and environmental rules and so on. Some of these changes face court challenges and political opposition. But some are sure to survive and go into effect. Others are sure to follow....
IMPERIAL OIL $40.61 (Toronto symbol IMO; Shares outstanding: 854.2 million; Market cap: $34.6 billion; TSINetwork Rating: Average; Dividend yield: 1.1%; www.imperialoil.ca) is the largest investor in the Mackenzie pipeline project, which aims to pump natural gas from the Arctic to Alberta. The company owns 34.4% of this project. Recently, Royal Dutch Shell (New York symbol RDS.A) said it will sell its 11.4% stake in the proposed pipeline. That’s mainly because regulatory delays have doubled the project’s estimated costs, to around $16.2 billion. To put that in perspective, Imperial’s market cap is $37.6 billion. As well, new discoveries of shale gas in Canada and the U.S. have increased gas supply and depressed prices. Royal Dutch Shell aims to complete this sale by June 2012. That gives it plenty of time to find a buyer. Imperial and its remaining partners will make a final decision on the Mackenzie project in December 2013. If they decide to proceed, the new pipeline could begin operating in 2018....
CGI GROUP INC., $20.54, Toronto symbol GIB.A, is Canada’s largest provider of computer-outsourcing services. The company’s services can automate certain routine functions, such as accounting and buying supplies. That makes its clients more efficient, and lets them focus on their main businesses. In the three months ended June 30, 2011, CGI earned $118.4 million. That’s up 37.9% from $85.9 million a year earlier. The company spent $56.9 million on share buybacks in the latest quarter. Due to fewer shares outstanding, earnings per share rose 43.3%, to $0.43 from $0.30. If you exclude a tax gain and other unusual items, CGI would have earned $0.38 a share in the latest quarter. That matched the consensus earnings estimate. Revenue rose 15.1%, to $1.04 billion from $901.6 million a year earlier. If you exclude the negative impact of exchange rates, revenue would have risen 18.0%. Canadian revenue fell 6.5%, due to delays in starting up new projects. However, U.S. revenue jumped 54.1%, mainly due to last year’s acquisition of Stanley Inc., which sells computer-outsourcing services to U.S. government agencies. Revenue at CGI’s European operations rose 27.4%....
Chesapeake Energy, $29.88, symbol CHK on New York, is a recommendation of our Stock Pickers Digest newsletter. It’s a buy. A: UGI Corp., $32.15, symbol UGI on New York (Shares outstanding: 110.5 million; Market cap: $3.6 billion; www.ugicorp.com), has five main divisions: Gas Utility (which accounted for 32% of UGI’s 2010 earnings), Midstream & Marketing (26%), International Propane (22% of 2010 earnings), AmeriGas Propane (17%), and Electric Utility (3%). UGI distributes natural gas and electricity to nearly 568,000 customers in eastern Pennsylvania; 44%-owned AmeriGas is the largest U.S. propane marketer, serving about 1.3 million users in 50 states....
You may think oil is set to rise sharply, due to fast growth in India and China. Or you may think prices could be set to fall, because high oil prices could prompt users to switch to cheaper natural gas. The truth is, no one knows the future direction of oil prices. That’s why, instead of trying to predict the future direction of oil prices, we continue to recommend that you stick with well-established oil stocks with high-quality reserves and rising production. In addition, you should limit your investments in oil stocks to a portion of your portfolio’s Resource holdings.
...
Oil stocks: Imperial is looking to the oil sands for long-term growth
IMPERIAL OIL $45.38 (Toronto symbol IMO; Shares outstanding: 854.2 million; Market cap: $38.7 billion; TSINetwork Rating: Average; Dividend yield: 1.0%; www.imperialoil.ca) is a major integrated-oil company that gets most of its production from its oil-sands projects in Alberta. Imperial also has conventional oil and natural-gas operations in western Canada, and holds interests in offshore projects in Atlantic Canada. The company’s other operations include four refineries and roughly 1,900 Esso gas stations In the three months ended March 31, 2011, Imperial’s cash flow rose 33.1%, to $873 million, or $1.03 a share. A year earlier, cash flow was $656 million, or $0.77 a share. The rise came mainly from higher production, higher oil prices and improved profits at Imperial’s refineries. Revenue rose 11.4%, to $6.9 billion from $6.2 billion. The company’s production is set to rise in the long term, thanks to its new oil-sands projects, including the $10.9-billion Kearl project, which is more than 50% complete. Imperial owns 71% of Kearl. ExxonMobil Corp. (New York symbol XOM) owns the remaining 29%. Exxon also holds a 69.6% interest in Imperial....
Imperial Oil’s large oil and gas reserves will let it grow for decades. To tap into those reserves, Imperial will spend $3.5 billion to $4 billion a year over the next 10 years (for a total of $35 billion to $40 billion). Its cash flow is forecast to be over $3.8 billion this year, so it can meet its spending targets without taking on debt or issuing shares. IMPERIAL OIL $45.38 (Toronto symbol IMO; Shares outstanding: 854.2 million; Market cap: $38.7 billion; TSINetwork Rating: Average; Dividend yield: 1.0%; www.imperialoil.ca) is a major integrated-oil company that gets most of its production from its oil-sands projects in Alberta. Imperial also has conventional oil and natural-gas operations in western Canada, and holds interests in offshore projects in Atlantic Canada. The company’s other operations include four refineries and roughly 1,900 Esso gas stations In the three months ended March 31, 2011, Imperial’s cash flow rose 33.1%, to $873 million, or $1.03 a share. A year earlier, cash flow was $656 million, or $0.77 a share. The rise came mainly from higher production, higher oil prices and improved profits at Imperial’s refineries. Revenue rose 11.4%, to $6.9 billion from $6.2 billion....
CRESCENT POINT ENERGY CORP. $43.50 (Toronto symbol CPG; Shares outstanding: 238.7 million; Market cap: $12.2 billion; TSINetwork Rating: Extra Risk; Dividend yield: 6.3%; www.crescentpointenergy.com) produces oil and natural gas in western Canada. The shares yield a high 6.3%. In the three months ended March 31, 2011, Crescent Point’s cash flow per share rose 14.6%, to $1.10 from $0.96. Higher oil prices and higher production were the main reasons for the increased cash flow. Production rose 34.8%, to 75,574 barrels of oil equivalent (including natural gas) in the latest quarter, from 56,061 barrels a year earlier....
EOG Resources, $104.02, symbol EOG on New York (Shares outstanding: 254.5 million; Market cap: $27.7 billion; www.eogresources.com), is a Houston-based explorer, developer, producer and marketer of oil and gas, primarily in the U.S., Canada, and off the coast of Trinidad. EOG is well positioned to gain in the fastest-growing unconventional shale-gas and shale-oil areas in the U.S. That includes oil from the Bakken formation, the Eagle Ford Shale and the Barnett Shale, and natural gas from the Horn River region, the Marcellus Shale and the Barnett shale. (Shale gas and oil is trapped in rock formations. To extract it, companies must pump water and chemicals into the rock. This fractures the rock and releases the oil or gas.)...
Delphi Energy, symbol DEE on Toronto, explores for oil and gas in Alberta and B.C. Natural gas makes up 74% of its daily output; the remaining 26% is oil. In the three months ended March 31, 2011, the natural gas stock’s production rose 8.0%, to an average of 8,259 barrels of oil equivalent (including natural gas) per day from 7,647 barrels a year earlier. Delphi’s cash flow rose 2.0%, to $15.1 million from $14.8 million. Higher production and oil prices were the main reason for the gain. The company’s operating costs also fell. Delphi sold 3.2 million shares to raise $9.0 million in the quarter. Due to more shares outstanding, cash flow per share fell 13.3%, to $0.13 a share from $0.15....