oil prices

PETRO-CANADA $52 (Toronto symbol PCA; Conservative Growth Portfolio, Resources sector; Shares outstanding: 485.2 million; Market cap: $25.2 billion; SI Rating: Average) is Canada’s secondlargest integrated oil company after Imperial Oil. Main production areas include Western Canada, offshore platforms near Newfoundland, the North Sea, Libya and Trinidad and Tobago. The company also operates over 1,300 retail gas stations. Petro-Canada is investing heavily in long-term projects that should pay off for decades. For example, it owns 60% of the Fort Hills oil sands project, whose reserves should last up to 40 years. Production should begin in late 2011. Petro-Canada estimates its share of Fort Hill’s costs at $8.5 billion. To put that in context, the company earned $1.29 a share (total $630 million) before special items in the three months ended September 30, 2007, up 14.2% from $1.13 a share ($564 million) a year earlier. Revenue rose 5.8%, to $5.5 billion from $5.2 billion....

Energy prices are inherently volatile. So it’s a good idea to focus on well-established oil and gas stocks that can withstand the inevitable price setbacks — and prosper anew when prices rebound. Here is our analysis of three of our long-term favourites. IMPERIAL OIL LTD. $52 (Toronto symbol IMO; Conservative Growth Portfolio, Resources sector; Shares outstanding: 914.2 million; Market cap: $47.5 billion; SI Rating: Average) is Canada’s largest integrated oil company. Imperial also operates 2,000 retail gas stations under the “Esso” banner. ExxonMobil Corp. owns 69.6% of Imperial’s stock. Imperial continues to invest heavily in new oil and gas projects. For example, it recently received regulatory approval to proceed with its Kearl Lake oil sands project, which contains roughly 4.6 billion barrels. That’s equal to 34% of Imperial proved and non-proved reserves of 13.5 billion barrels. Imperial owns 70% of Kearl Lake, while ExxonMobil owns the remaining 30%....

PENGROWTH ENERGY TRUST $18 (Toronto symbol PGF.UN; Aggressive Growth Portfolio, Resources sector; Units outstanding: 246.1 million; Market cap: $4.4 billion; SI Rating: Average) produces oil and natural gas from properties in Alberta and British Columbia. It also owns 8.4% of the Sable Offshore Energy Project, which extracts natural gas from several fields south of Nova Scotia. Oil accounts for 49% of Pengrowth’s production, while natural gas supplies the remaining 51%. Pengrowth focuses on high quality, mature properties that generate plenty of steady cash flows. It also prefers to replenish its reserves with acquisitions instead of exploration. Growing by acquisition adds risk. But Pengrowth would rather replace its reserves with proven properties that immediately add to its cash flow, instead of investing in uncertain exploration projects....

Pengrowth is down from its highs lately along with most other oil and gas trusts. However, we feel it has dropped enough to reflect today’s lower natural gas prices, ongoing volatility in crude oil markets and investor worries about further distribution cuts. Pengrowth is an attractive buy for the Resources component of your portfolio. PENGROWTH ENERGY TRUST $18 (Toronto symbol PGF.UN; Aggressive Growth Portfolio, Resources sector; Units outstanding: 246.1 million; Market cap: $4.4 billion; SI Rating: Average) produces oil and natural gas from properties in Alberta and British Columbia. It also owns 8.4% of the Sable Offshore Energy Project, which extracts natural gas from several fields south of Nova Scotia. Oil accounts for 49% of Pengrowth’s production, while natural gas supplies the remaining 51%. Pengrowth focuses on high quality, mature properties that generate plenty of steady cash flows. It also prefers to replenish its reserves with acquisitions instead of exploration....

BELL ALIANT REGIONAL COMMUNICATIONS INCOME FUND $28.75 (Toronto symbol BA.UN: SI Rating: Above average) is the main provider of telephone services in Atlantic Canada. It also serves rural parts of Ontario and Quebec. As part of the deal that created Bell Aliant, the fund transferred the bulk of its wireless business to BCE. Without these operations, the fund now aims to spur growth by expanding the availability and capacity of its high-speed Internet service. Just 20% of Bell Aliant’s customers use its high-speed Internet service, so there’s plenty of room to grow. In the three months ended September 30, 2007, Bell Aliant earned $0.48 a unit from continuing operations in its second quarter. The fund took its present form on July 7, 2006, so it did not report earnings for the year-earlier quarter. But revenue on a pro forma basis, which assumes Bell Aliant began operations at the start of 2006, grew 1.6%, to $837.9 million from $825.1 million....

TUCOWS INC. $0.70 (Toronto symbol TC; SI Rating: Speculative) (1-800-371-6992; www.tucowsinc.com; Shares outstanding: 73.8 million; Market cap: $51.6 million) provides domain name registrations and other services to over 9,000 Web-hosting companies and Internet service providers. It provides registration for such top domains as .com, .net, and .org, as well as 17 countrycode domains, including .ca, .us and .uk. It manages over 8 million domain registrations. In the three months ended September 30, 2007, Tucows’ revenues rose 5.6%, to $17.8 million from $16.9 million a year earlier. (All figures except share price in U.S. dollars.) However, the company reported a loss of $310,592 or nil per share compared to a profit of $1.9 million or $.03 a share. Cash flow per share fell 50%, to $0.02 from $0.04. Tucows holds $5.9 million or $0.08 a share in cash. Tucows’ August, 2007 price reductions for domain registrations hurt earnings and cash flow. However, the new pricing structure should improve its long-term growth prospects....

CANADIAN TIRE CORP. $74 (Toronto symbol CTC.A; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 81.6 million; Market cap: $6.0 billion; SI Rating: Above average) earned $1.30 a share before unusual items in the third quarter of 2007, up 12.1% from $1.16 a year earlier. The gains came mainly from cost savings, as same-store sales at its core Canadian Tire stores fell 2.7%. Warmer-than-usual weather in central Canada hurt demand for fall and winter goods. However, overall revenue rose 1.5%, to $2.05 billion from $2.02 billion. The stock has moved down from its recent peak of $87 on fears of softening retail conditions in Ontario and Quebec, which account for 65% of the company’s total revenue. However, higher oil prices will improve profits at Canadian Tire’s gas stations. Earnings are also growing strongly at its financial operations. Canadian Tire should earn $4.75 a share in 2007, which implies a p/e of 15.6. The $0.74 dividend yields 1.0%....

The Alberta government is studying proposals to raise royalties on oil and gas developments. That could slow the expansion of the oil sands. However, at current production rates, oil sands reserves should last 200 years, so it’s unlikely higher royalties will scare off developers. As well, further increases in oil prices may more than offset higher royalties. Finning and SNC-Lavalin should continue to profit from various oil sands projects. But only one is a buy right now. FINNING INTERNATIONAL INC. $32 (Toronto symbol FTT; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 179.6 million; Market cap: $5.7 billion; SI Rating: Above average) sells and rents Caterpillar brand tractors, bulldozers and trucks....

The Alberta government is reviewing proposals aimed at raising royalties on oil and gas production. Some producers are outraged. But oil prices and revenues have expanded well above consensus forecasts, and the province wants its share. The increased royalties would represent a new cost for oil and gas trusts. But it’s just one element in their future profitability and cash flow. As well, any increases may be more than offset by further rises in oil and gas prices. ARC ENERGY TRUST $20.75 (Toronto symbol AET.UN; SI Rating: Speculative) produces oil and gas in western Canada....

IMPERIAL OIL $48 (Toronto symbol IMO; SI Rating: Average) is Canada’s largest integrated oil company, with operations in all phases of the petroleum industry. In the three months ended June 30, 2007, Imperial’s earnings fell 14.9%, to $712 million or $0.76 a share, from $837 million or $0.85 a share. The decline came from the absence of tax rate reductions reported a year earlier and lower oil prices. Revenues fell 5.2%, to $6.3 billion from $6.7 billion. Imperial’s cash flow rose 1.7%, to $882 million from $867 million. Cash flow per share rose 5.6%, to $0.94 from $0.89. The higher per-share figure reflects continued aggressive stock buybacks. The company bought back $622 million of its stock in the latest quarter. Imperial still holds cash of $2 billion....