oil prices

TRANSCANADA CORP., $34.78, Toronto symbol TRP, has set aside $22 billion for new growth projects. The company already spent $10 billion of these funds. It will spend the remaining $12 billion over the next four years. TransCanada will invest some of these funds in the Keystone pipeline, which will pump crude oil from Alberta to refineries in Illinois. Keystone should begin operating later this year. The company will also build new natural-gas-fired power plants in Ontario and Arizona. As well, it plans to refurbish reactors at the Bruce nuclear-power station in Ontario (TransCanada owns 48.8% of these reactors), and build new wind farms in eastern Canada....

APACHE CORP. $102 (New York symbol APA; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 336.4 million; Market cap: $34.3 billion; Price-to-sales ratio: 4.0; Dividend yield: 0.6%; WSSF Rating: Average) raised its daily production by 9.2% in 2009. Even so, its earnings fell 50.2%, to $5.59 a share from $11.22 in 2008. Cash flow per share fell 32.5%, to $14.76 from $21.88. The lower results were mainly caused by a 31.8% drop in oil prices and a 44.9% decline in natural-gas prices. Apache’s production should rise again this year. That’s because new wells will begin operating in Australia, Canada and Egypt. The company’s strong balance sheet also gives it the flexibility to buy other related firms. Its $5.0 billion of long-term debt is a low 15% of its market cap. It holds cash of $2.05 billion, or $6.09 a share. Apache is a buy.

CANADIAN TIRE CORP., $52.29, Toronto symbol CTC.A, fell 3% this week after the company reported lower-than-expected 2009 earnings. During the year, Canadian Tire earned $348.0 million, or $4.26 a share. That’s down 12.2% from $396.4 million, or $4.86 a share, in the prior year. These figures exclude several one-time items, including gains and losses on sales of securities by Canadian Tire’s finance division. The company also paid a penalty for redeeming debentures before their expiry date. That will let it take advantage of the improvement in the credit markets to issue new bonds at lower interest rates. Without these one-time items, analysts were expecting Canadian Tire to earn $4.34 a share. Revenue fell 4.8%, to $8.7 billion from $9.1 billion. Overall sales at the company’s main retail division, which consists of its Canadian Tire stores and the PartSource auto-parts chain, fell 2.8%, while same-store sales were 4.2% lower. Weak sales of electronics offset stronger sales of household-cleaning, kitchen and pet-care goods. As well, a lack of snow in Ontario and Quebec hurt sales of winter merchandise, such as snow shovels....

BCE INC., $28.60, Toronto symbol BCE, is starting to see the benefits of its restructuring plan, which began in July 2008. The plan included cutting jobs, relocating employees and selling extra real estate. The restructuring should save the company $400 million a year by the end of this year. In 2009, BCE’s earnings rose 6.5%, to $1.9 billion from $1.8 billion in the prior year. Per-share earnings rose 11.1%, to $2.50 from $2.25, on fewer shares outstanding. These figures exclude restructuring costs and other unusual items. The latest earnings beat the $2.49 a share that analysts were expecting. Revenue rose 0.4%, to $17.74 billion from $17.66 billion. BCE continues to lose residential phone customers to cable and wireless providers. The company now has 6.9 million local telephone subscribers, down 6.1% from the previous year. However, some of these customers are switching to the company’s own wireless service. BCE had 6.8 million wireless subscribers at the end of 2009. That’s a gain of 5.2% over the previous year....

Connacher Oil and Gas, $1.26, symbol CLL on Toronto (Shares outstanding: 427.4 million; Market cap: $538.5 million), is a Calgary-based oil and natural gas exploration, development, production and refining company. Connacher’s main asset is a 100% interest in 98,000 acres of oil-sands leases near Fort McMurray, Alberta. These leases include the land occupied by Pod One, the company’s first 10,000-barrel-per-day oil-sands project. Algar, the company’s second 10,000-barrel-per-day oil-sands project, is now under construction. It’s expected to start up later this year. Extracting oil from oil sands is hugely expensive. That cuts these projects’ profitability and adds to their risk when oil prices are low. Moreover, Connacher has built up significant long-term debt by investing in oil-sands projects. Long-term debt of $889.1 million represents 167% of its market cap....

CANADIAN NATIONAL RAILWAY CO., $53.52, Toronto symbol CNR, earned $1.5 billion in 2009. That’s down 13.8% from $1.8 billion in the prior year. Earnings per share fell 12.7%, to $3.24 from $3.71, on fewer shares outstanding. These figures exclude unusual items, including income-tax refunds and gains on sales of two small railway lines. Despite the drop, the latest earnings beat the $3.22 a share that analysts were expecting. Revenue fell 13.2%, to $7.4 billion from $8.5 billion. The recession hurt revenue at all of CN’s freight groups: The automotive group’s revenue fell 24%, followed by metals and minerals (down 23%), forest products (down 20%), consumer and industrial goods (down 15%), petroleum and chemicals (down 6%), coal (down 3%), and grain and fertilizers (down 3%)....

Natural-gas prices are up 22.2%, to $5.50 U.S. per thousand cubic feet from $4.50 in early December 2009. Colder weather in the U.S. is the main reason for the rise. As well, producers cut back on drilling in response to lower prices in 2009. That cut inventories. An improving economy is also lifting demand. Gas-weighted Cimarex and Devon trade at reasonable multiples to their forecast cash flows, based on today’s prices. As well, both have low debt and steady development spending. That puts them in a good position to prosper, even if natural-gas prices falter. CIMAREX ENERGY $54.13 (New York symbol XEC; SI Rating: Extra Risk) (303-295-3995; www.cimarex.com; Shares outstanding: 83.5 million; Market cap: $4.5 billion; Dividend yield: 0.4%) is an oil and gas explorer and producer that mainly operates in the U.S. Natural gas makes up 70% of its production....

Lower oil and natural gas prices weighed on the cash flow and stock prices of these two resource trusts in 2009. However, recent announcements should improve their prospects in 2010. PENGROWTH ENERGY TRUST $11 (Toronto symbol PGF.UN; Aggressive Growth Portfolio, Resources sector; Units outstanding: 289.5 million; Market cap: $3.2 billion; Price-to-sales ratio: 1.9; Dividend yield: 7.6%; SI Rating: Average) produces oil and natural gas, mainly from properties in western Canada. Natural gas accounts of 60% of its production; oil supplies the remaining 40%. The extra exposure to gas has hurt the trust lately, as gas prices are down more than oil prices. In 2010, Pengrowth will spend $285 million on exploration, developing its current properties, and buying new properties. That’s up 29.5% from $220 million in 2009. About 70% of this spending will go to oil projects, including $15 million for its Lindbergh oil-sands project. Lindbergh could account for 40% of Pengrowth’s reserves when it begins producing crude oil in six years. The trust will also spend $12 million on its the promising Horn River shale-gas discovery in B.C....

UTS Energy Corp., $2.65, symbol UTS on Toronto (Shares outstanding: 474.5 million; Market cap: $1.3 billion), owns 20% of the Fort Hills oil-sands project. Suncor Energy holds a 60% interest, and Teck Resources owns the remaining 20%. The project consists of certain oil-sands deposits in Alberta’s Athabasca oil-sands region, around 90 kilometres north of Fort McMurray. The partners plan to develop, mine, extract and sell the recoverable clean bitumen from these deposits. Suncor Energy operates Fort Hills. The company continues to assess the project’s scope, budget and schedule. It expects to announce its intentions by the end of 2010....

OPTI Canada Inc., $2.10, symbol OPC on Toronto (Shares outstanding: 281.8 million; Market cap: $591.7 million), owns 35% of the Long Lake oil-sands project in Alberta. Long Lake has more than 2 billion barrels of recoverable reserves. That gives the project a life of over 40 years. Long Lake began operating in 2008. It uses steam-assisted gravity drainage (SAGD) to bring tar-like bitumen to the surface. In January 2009, Nexen increased its stake in Long Lake from 50% to 65%. It paid OPTI $757 million for the additional 15%. Nexen’s majority share makes it the operator of the project....