oil prices

Encana took its present form on December 1,2009, after the old EnCana Corp. split itself into twonew companies: the new Encana, which focuses onnatural gas, and Cenovus Energy, which specializesin oil sands. Falling gas prices have pushedEncana’s shares down by about 34% since the split.Oil prices have weakened lately, but Cenovus’s stockis still up about 22%.

ENCANA CORP....

Dear client,

The best way for conservative investors to profit from cyclical oil and natural gas prices is with well-established leaders like Chevron. That’s partly because its large international presence cuts its exposure to any one region.

Chevron also offers investors a growth element....

APACHE CORP. $80 (New York symbol APA; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 391.3 million; Market cap: $31.3 billion; Price-to-sales ratio: 1.9; Dividend yield: 0.9%; TSINetwork Rating: Average; www.apachecorp.com) had to write down some of its Canadian properties by $539 million due to low natural gas prices in the quarter ended September 30, 2012....

CHEVRON CORP. $110 (New York symbol CVX; Conservative Growth Portfolio, Resources sector; Shares outstanding: 2.0 billion; Market cap: $220.0 billion; Price-to-sales ratio: 0.9; Dividend yield: 3.3%; TSINetwork Rating: Above Average; www.chevron.com) is the second-largest integrated oil company in the U.S., after ExxonMobil Corp. (New York symbol XOM).

Chevron gets 90% of its earnings by producing oil (70% of production) and natural gas (30%). The remaining 10% comes from its refineries, petrochemical operations and its 17,800 gas stations, which operate under the Chevron, Texaco and Caltex banners.

At the end of 2011, the company’s reserves consisted of 8.5 billion barrels of oil equivalent (51% oil and 49% natural gas), plus an additional 2.7 billion barrels through joint ventures and affiliated businesses. The company produces about 1 billion barrels a year.

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APACHE CORP. $80 (New York symbol APA; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 391.3 million; Market cap: $31.3 billion; Price-to-sales ratio: 1.9; Dividend yield: 0.9%; TSINetwork Rating: Average; www.apachecorp.com) had to write down some of its Canadian properties by $539 million due to low natural gas prices in the quarter ended September 30, 2012. If you disregard that and other unusual items, Apache would have earned $861 million, or $2.16 a share. That’s down 25.8% from $1.2 billion, or $2.95 a share, a year earlier. Revenue declined 3.4%, to $4.2 billion from $4.3 billion. Half of Apache’s production is gas, and gas prices fell 15.3% from a year earlier. Oil prices rose 0.9%.

The company is now producing more higher-priced oil and natural gas liquids, which cuts its exposure to low gas prices. As well, it produces half of its oil and gas in international markets, where prices are generally higher than in North America.

Apache is a buy.

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Bankers Petroleum, $2.83, symbol BNK on Toronto (Shares outstanding: 252.9 million; Market cap: $715.7 million; www.bankerspetroleum.com), is a Canadian company with heavy-oil assets in Albania. Bankers produces over 16,100 barrels per day from its Patos Marinza heavy-oil field. It also holds 100% of the nearby Kucova field. The company has a deal with state-owned Albpetrol to take over and reactivate 120 to 130 wells each year at the two fields. The company’s shares have moved down lately, along with those of most producers, on lower oil prices. Still, the company will likely continue to increase its production and cash flow....

PRECISION DRILLING CORP. (Toronto symbol PD; www.precisiondrilling.com) provides contract-drilling services to land-based oil and gas producers, mainly in North America. It had 363 rigs in service as of September 30, 2012. The company is slowly expanding its international operations: it now has a total of eight rigs in Mexico and Saudi Arabia. Precision’s overseas business now accounts for 5% of its revenue, up from just 1% a year ago....

Too much investor attention tends to be focused on economic forecasts. The fact is, forecasts provide little, if any, advantage when it comes to helpful stock market advice. That’s especially true today in light of the uncertainty over America’s looming “fiscal cliff” and the bitter political debate over how to tackle that country’s federal budget deficit and exploding debt....

SASOL LTD. (ADR), $42.53, symbol SSL on New York, has developed a technology to convert coal and natural gas into motor fuels. The company is now the world’s largest producer of fuel from coal at its facility in Secunda, South Africa. It also makes synthetic fuels from natural gas at plants in Qatar and Nigeria. In addition, the company has substantial chemical production interests and produces oil and gas in Africa. It’s also South Africa’s third-largest coal producer. Sasol is now considering spending up to $21 billion to build a complex in Louisiana to turn natural gas into chemicals, diesel and other fuels. The company expects to spend $5 billion to $7 billion on a chemical plant. It would later add an $11-billion to $14-billion gas-to-liquids facility. Sasol will make a final decision on the project in 2014....

SUNCOR ENERGY INC. $34 (Toronto symbol SU; Conservative Growth Portfolio, Resources sector; Shares outstanding: 1.5 billion; Market cap: $51.0 billion; Price-to-sales ratio: 1.3; Dividend yield: 1.5%; TSINetwork Rating: Average; www.suncor.com) will spend $6.65 billion to upgrade its operations in 2012, down 11.3% from its earlier forecast of $7.5 billion. That’s mainly due to lowerthan- expected costs to expand its Firebag oil sands project in Alberta. The new addition should begin operating by the end of 2012—three months ahead of schedule.

The recent drop in oil prices has also prompted Suncor to slow the development of three other big oil sands projects. However, lower oil prices are boosting profits at Suncor’s refineries. As a result, cash flow per share rose 2.9% in the three months ended September 30, 2012, to $1.78 from $1.73 a year earlier.

Suncor is a buy.

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