oil prices

Connacher Oil and Gas, $0.76, symbol CLL on Toronto, (Shares outstanding: 211.2 million; Market cap: $160.5 million) is a Calgary-based oil and gas exploration, development, production and refining company. Its principal asset is a 100% interest in 98,000 acres of oil sands leases near Fort McMurray Alberta. These leases contain Pod One, the company’s first 10,000-barrels-per-day oil sands plant. Algar, the company’s second 10,000-barrels-per-day oil sands project, is under construction. Connacher has conventional oil and gas production at Marten Creek and Three Hills, Alberta and at Battrum, Saskatchewan. Connacher also owns and operates a 9,500-barrels-per-day heavy oil refinery in Great Falls, Montana. Connacher also owns 24% of Petrolifera Petroleum, symbol PDP on Toronto, which has interests in Argentina, Peru and Colombia. In December, 2008, Connacher announced that it would temporarily cut bitumen production at its Great Divide Pod One plant due to the recent decline in bitumen prices. The plant began production in March, 2008, and had recently raised production to 9,000 barrels per day. Initially, production will be cut to about 5,000 barrels per day. Lower oil prices, widening heavy oil differentials (the price difference between light and heavy oil) and some technical difficulties make current production levels uneconomic....

PRECISION DRILLING TRUST $8.81, Toronto symbol PD.UN, has completed its acquisition of U.S.-based contract driller Grey Wolf Inc. The trust paid roughly $1.15 billion in cash and $250 million in new units for Grey Wolf. Precision finalized the terms of the Grey Wolf takeover in August, 2008. Since then, the price of Precision’s units has dropped 60%, mostly due to a 70% drop in oil prices, from $120 U.S. a barrel to $40 U.S. The drop in oil and natural gas prices prompted many producers to cut spending on new exploration in 2009, which hurts Precision’s profit outlook. Precision’s market cap is now just $1.1 billion, which is 21% below the $1.4 billion that it paid for Grey Wolf. Precision also needed to arrange $1.6 billion U.S. in new credit facilities to buy Grey Wolf. That greatly increased its long-term debt, which was $231.8 million (Canadian) at September 30, 2008. To help free up cash for debt repayments, Precision has now cut its monthly cash distributions by 69.2%, from $0.13 a unit to $0.04. The new annual rate of $0.48 yields 5.4%....

Bankers Petroleum, $0.95, symbol BNK on Toronto, (Shares outstanding: 182.5 million; Market cap: $175.2 million) is focused on oil and gas production in Albania. That continues to entail political, economic and currency risk. However, it’s OK to hold for highly aggressive investors. A: UTS Energy Corp., $1.00, symbol UTS on Toronto, (Shares outstanding: 474.2 million; Market cap: $474.2 million) holds 20% of the Fort Hills oil sands project which plans to develop, mine, extract and sell the recoverable clean bitumen from certain oil sands deposits in Alberta’s Athabasca oil sands region, around 90 kilometres north of Fort McMurray. Petro-Canada, as operator of Fort Hills, is now reassessing the project’s scope, budget and schedule as it negotiates a lease extension agreement with the Alberta government. Lower oil prices add to the risk of delays in the project. UTS is OK to hold, but only for aggressive investors. A: Silver Standard, $19.85, symbol SSO on Toronto, (Shares outstanding: 62.7 million; Market cap: $1.2 billion) has dropped along with most resources stocks, as well as the price of silver. However, the company has a number of projects under development, including its Pirquitas project in northern Argentina where it hopes to start production next year. Silver Standard is OK to hold for aggressive investors....

IMPERIAL OIL $40.18 (Toronto symbol IMO; Shares outstanding: 869.7 million; Market cap: $34.9 billion; SI Rating: Average) is Canada’s largest integrated oil company. Imperial’s 2,000 retail gas stations under the “Esso” banner provide diversification. ExxonMobil owns 69.6% of Imperial’s stock. Imperial’s production is set to rise in the long term, thanks to its new oil sands projects. This includes the 70%-owned Kearl Lake project. Imperial had hoped Kearl Lake would begin production by 2011. Now, however, it will probably delay work on the project until oil prices improve. The outlook for Imperial’s refining business is strong, partly due to a shortage of competition. Imperial’s refining profits could also keep expanding, since gasoline takes longer to fall than oil....

Our oil and gas trust recommendations hit record highs in 2007 and 2008, mainly in line with soaring oil and gas prices. In mid-2008, oil hit a record peak of $147 U.S. a barrel. Natural gas prices reached as high as $14 U.S. per thousand cubic feet. Oil and gas stocks have fallen since those highs. Oil is currently trading at just $43 U.S. a barrel. Natural gas prices are now at around $5.87 U.S. per thousand cubic feet. We still advise against over-indulging in oil and gas trusts or stocks, and we’d continue to confine investments to well-established companies or trusts that can survive during the inevitable price setbacks....

CANADIAN PACIFIC RAILWAY LTD. $44 (Toronto symbol CP; Shares outstanding: 153.8 million; Market cap: $6.8 billion; SI Rating: Average) transports freight over a rail network between Montreal and Vancouver. In the United States, subsidiaries connect CP Rail’s Canadian lines to major hubs in the Midwest and Northeast. Alliances with other railways extend its reach to Mexico. In the three months ended September 30, 2008, CP Rail’s earnings per share excluding one-time items fell 2.4%, to $1.20 from $1.23. Like most railways, CP Rail uses surcharges to offset higher fuel costs. This pushed up revenue by 6.5%, to $1.3 billion from $1.2 billion. CP Rail’s fuel costs rose 49% in the third quarter. Consequently, its operating ratio (regular operating costs divided by revenue — the lower, the better) weakened to 76.0% from 72.9% a year earlier. However, falling oil prices and a new productivity improvement plan should help CP Rail cut its costs. The rising U.S. dollar is a plus for the company, as it pushes up the contribution of its U.S. operations....

CP Rail is down over 50% from the high of $90 it reached in 2007. Earnings were $4.32 a share that year and the stock yielded just 1.2%. The stock was probably overpriced at $90 and 20.8 times earnings, but it now trades at less than 10 times this year’s forecast earnings and has a yield of 2.3%. The stock could go lower, but we think the company will undoubtedly survive the economic downturn. Eventually CP will go on back to $90 and beyond. CANADIAN PACIFIC RAILWAY LTD. $44 (Toronto symbol CP; Shares outstanding: 153.8 million; Market cap: $6.8 billion; SI Rating: Average) transports freight over a rail network between Montreal and Vancouver. In the United States, subsidiaries connect CP Rail’s Canadian lines to major hubs in the Midwest and Northeast. Alliances with other railways extend its reach to Mexico. In the three months ended September 30, 2008, CP Rail’s earnings per share excluding one-time items fell 2.4%, to $1.20 from $1.23. Like most railways, CP Rail uses surcharges to offset higher fuel costs. This pushed up revenue by 6.5%, to $1.3 billion from $1.2 billion....

APACHE CORP. $74 (New York symbol APA; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 334.7 million; Market cap: $24.8 billion; WSSF Rating: Average) has significant offshore operations in the Gulf of Mexico. These platforms cost more to operate than land-based wells. Lost production due to hurricanes also adds risk. Still, Apache’s per-share earnings before one-time items rose 47.0% in the third quarter of 2008, to $3.19 from $2.17 a year earlier, thanks to higher oil and natural gas prices. Revenue grew 34.3%, to $3.4 billion from $2.5 billion. Apache uses acquisitions to replenish its reserves. It holds cash of $1.6 billion or $4.90 a share, and lower oil prices should make purchases more affordable. As well, long-term debt of $3.9 billion is equal to about six months’ cash flow. However, falling energy prices could offset the benefits of any extra production. Apache is still a hold.

IMPERIAL OIL LTD. $42 (Toronto symbol IMO; Conservative Growth Portfolio, Resources sector; Shares outstanding: 869.7 million; Market cap: $33.0 billion; SI Rating: Average) is Canada’s largest integrated oil company. It also operates over 1,900 retail gas stations under the “Esso” banner. ExxonMobil owns 69.6% of Imperial’s stock. Imperial gets about 90% of its daily crude oil production from its oil sands properties, mainly its 100% interest in the Cold Lake development and its 25% stake in the Syncrude partnership. Cold Lake’s reserves should last 13 more years, while Syncrude should continue for 28 more years. The company is now developing a new oil sands project at Kearl Lake. Imperial owns 70% of this project and will operate it; ExxonMobil owns the remaining 30%. Kearl Lake’s reserves should last 40 years....

Oil prices have dropped from $148 U.S. a barrel in July, 2008 to its current price of around $44 U.S. That has prompted oil companies to delay big investments in Alberta’s oil sands until conditions improve. Still, oil sands projects have huge long-term potential, and will provide decades of growth for Imperial Oil, EnCana and Petro-Canada. Companies such as Finning International that supply equipment and services to oil sands operators should also see huge gains. All four of these companies have moved down lately, but we still see them as buys for long-term gains....