oil prices

SUNCOR ENERGY INC., $36.80, Toronto symbol SU, announced this week that it will develop its Fort Hill oil sands property north of Fort McMurray, Alberta. Suncor owns 40.8% of Fort Hills, and will operate the project. Total S.A. of France owns 39.2%, while Teck Resources (see below) holds the remaining 20.0%. Fort Hills’ reserves should last 50 years. The company will contribute $5.5 billion to Fort Hills’ $13.5-billion cost. The project should begin operating in the fourth quarter of 2017. It should ultimately produce 180,000 barrels a day; Suncor’s share is 73,440 barrels. To put that in context, Suncor’s average daily production in the third quarter of 2013 rose 11.2%, to 595,000 barrels of oil equivalent from 535,300 barrels a year earlier....

ENERPLUS CORP. $17.05 (Toronto symbol ERF; Shares outstanding: 200.3 million; Market cap: $3.4 billion; TSINetwork Rating: Extra Risk; Dividend yield: 6.3%) produces an average of 90,037 barrels of oil equivalent a day (54% gas and 46% oil).

The company’s properties are mainly in Alberta, Saskatchewan, B.C., North Dakota and Montana, as well as the Marcellus Shale, which passes through Pennsylvania, New York, Ohio and West Virginia.

In the three months ended June 30, 2013 Enerplus’s cash flow per share rose 37.8%, to $1.02 from $0.74 a year earlier. Production increased 9.6%, oil prices gained 11.6% and gas prices jumped 79.6%.
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Natural gas prices are now at $3.58 U.S. per thousand cubic feet. That’s down from their high of almost $4.40 in April 2013 but well above the low of $1.82 in April 2012. Here are two high-yielding producers that we follow on behalf of the readers of Canadian Wealth Advisor....

Pat McKeough responds to many requests from members of his Inner Circle for specific advice on stocks as well as questions on investment strategy and the economy. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle members. And each week, we offer you one of the highlights from these Q&A sessions. While we reserve our buy-hold-sell advice for Inner Circle members, these excerpts provide a great deal of information and analysis on stocks we’ve covered for members of Pat’s Inner Circle....

Natural gas prices are now at $3.61 U.S. per thousand cubic feet. That’s down from their high of almost $4.40 in April 2013 but well above the low of $1.82 in April 2012.

The long-term outlook for gas demand and prices is positive. Here are two producers with strong growth prospects and attractive yields.

ARC RESOURCES $26.49 (Toronto symbol ARX; Shares outstanding: 312.4 million; Market cap: $8.2 billion; TSINetwork Rating: Speculative; Dividend yield: 4.5%; www.arcresources.com) produces oil and natural gas in Western Canada....

SeaDrill Ltd., $45.98, symbol SDRL on Nasdaq (Shares outstanding: 467.1 million; Market cap: $21.1 billion; www.seadrill.com), is a leading offshore drilling company. The Norway-based firm has a fleet of 64 drilling rigs that can operate in shallow to very deep water. It has 27 more rigs under construction, most of which will be ready within two years. SeaDrill only started up in 2005, so it owns modern, high-quality drilling rigs that are in great demand. As a result, the company’s utilization rates are high, in the 93% to 97% range. In the three months ended June 30, 2013, SeaDrill’s revenue rose 13.0%, to $1.26 billion from $1.12 billion a year earlier. Rising oil prices continue to push up demand for the company’s rigs....

CENOVUS ENERGY INC. $31 (Toronto symbol CVE; Conservative Growth Portfolio, Resources sector; Shares outstanding: 755.8 million; Market cap: $23.4 billion; Priceto- sales ratio: 1.3; Dividend yield: 3.1%; TSINetwork Rating: Average; www.cenovus.com) operates three heavy oil projects in Alberta and one in Saskatchewan. It gets about half of its output from the oil sands. Conventional oil and natural gas wells supply the other half. The company’s reserves should last 23 years.

U.S.-based ConocoPhillips (New York symbol COP) owns 50% of Cenovus’s main Foster Creek and Christina Lake oil sands projects in Alberta. These properties produce heavy bitumen, which Cenovus ships to its 50%-owned refineries in Illinois and Texas. Phillips 66 (New York symbol PSX) owns the other 50% of these refineries.

Owning refineries helps cut Cenovus’s risk, because they earn higher profits when crude oil prices fall, which offsets lower profits from its main oil production businesses. In 2012, refining accounted for 67% of Cenovus’s revenue and 46% of its earnings.
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Here’s the text of the quarterly letter I recently sent to our Portfolio Management clients: “In current media discussions of market trends, here are a couple of issues that often come up:

1. The outlook for corporate earnings, and how that affects the market’s P/E ratio (the ratio of stock prices to earnings).

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MAJOR DRILLING GROUP INTERNATIONAL INC., $7.28, symbol MDI on Toronto, is a large contract drilling firm that mainly serves the mining industry. In the three months ended July 31, 2013, Major’s revenue fell 54.4%, to $108.2 million from a record $237.6 million a year earlier. Earnings also declined sharply, to $1.5 million, or $0.02 a share, from $31.9 million, or $0.40. The latest earnings included $2.0 million of one-time pre-tax restructuring charges, such as costs related to layoffs. The company has cut its staff by 45%, or 2,300 workers, over the past year. Many of Major’s large- and medium-sized mining customers slowed their drilling activity in the latest quarter, and orders from junior miners dropped sharply. That’s because juniors are having a lot of difficulty raising funds in today’s uncertain resource markets....

Cenovus Energy took its present form on December 1, 2009, after the old EnCana Corp. split itself into two new companies: Cenovus, which specializes in oil sands, and the new Encana (see box at right), which focuses on natural gas. Lower gas prices have pushed Encana’s shares down by about 68% since the split, but Cenovus’s stock is up about 12%.

The stock trades at higher multiples to earnings and cash flow than larger oil sands operations like Suncor and Imperial Oil....