oil prices

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.

From time to time, we are asked about ethical investing (or “socially responsible investing”). I’d say it works as a marketing angle for a handful of small investment companies, and it may make you feel better about your investments. But it won’t do much to improve your investment results, or cut down on what you see as unethical corporate behaviour. If you refuse to invest in an ethically questionable company, you don’t hurt the company. But you do help others who are willing to invest in the company, because they get to buy it a little cheaper....

HollyFrontier, $38.03, symbol HFC on New York (Shares outstanding: 203.6 million; Market cap: $7.7 billion; www.hollyfrontier.com), is one of the largest independent petroleum refiners in the U.S. The company was formed when Holly Corporation bought Frontier Oil for $2.9 billion in July 2011. HollyFrontier produces and markets gasoline, diesel, jet fuel, asphalt and specialty lubricants. It operates five refineries that can process 443,000 barrels of crude oil per day. These facilities are located in Wyoming, Kansas, New Mexico, Oklahoma and Utah. HollyFrontier also owns 42% of Holly Energy Partners. In the three months ended June 30, 2012, HollyFrontier’s revenue rose 62.0%, to $4.8 billion from $3.9 billion, a year earlier. Earnings per share rose 33.3%, to $2.40 from $1.80....

Stream Oil & Gas, $0.90, symbol SKO on Toronto (Shares outstanding: 66.6 million; Market cap: $59.9 million; www.streamoilandgas.com), is currently focused on redeveloping and reactivating three oilfields and a natural gas/condensate field in Albania. In the three months ended May 31, 2012, Stream’s average daily output rose 26.5%, to 1,141 barrels of oil equivalent (including gas) from 902 barrels a year earlier. The production rise and higher oil prices pushed up the company’s cash flow to $0.09 a share from $0.02. Stream’s total debt of $16.7 million is a reasonable 27.9% of its $59.9-million market cap. The stock trades at just 2.5 times Stream’s annualized cash flow, based on the latest quarter....

Pat McKeough responds to many personal questions on investing in stocks and other investment topics from the members of his Inner Circle. 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 the Inner Circle. This week, one Inner Circle member asked about one of the more recent energy stocks on the scene. This specialist in deep-sea drilling has only been in business for seven years, which gives it the advantage of having modern high-quality rigs that are in demand. Pat assesses the company’s ability to keep adding to its record backlog and maintain its high dividend yield....

SeaDrill Ltd., $39.82, symbol SDRL on Nasdaq (Shares outstanding: 467.1 million; Market cap: $18.6 billion; www.seadrill.com), is a leading offshore drilling company. Norway-based SeaDrill has a fleet of 66 drilling rigs that can operate in shallow to very deep water. 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, 2012, SeaDrill’s revenue rose 12.8%, to $1.1 billion from $995 million a year earlier. That’s mainly because higher oil prices pushed up demand for the company’s rigs....

CENOVUS ENERGY $31.99 (Toronto symbol CVE; Shares outstanding: 754.7 million; Market cap: $24.1 billion; TSINetwork Rating: Extra Risk; Dividend yield: 2.8%; www.cenovus.com) operates three oil sands projects in Alberta and one in Saskatchewan. The company ships the heavy bitumen from these assets to refineries in Illinois and Texas. ConocoPhillips (New York symbol COP) owns 50% of these refineries and 50% of Cenovus’s two main oil sands projects. Cenovus also owns conventional oil and natural gas properties.

In the three months ended June 30, 2012, Cenovus’s cash flow per share fell 1.6%, to $1.22 from $1.24 a year earlier. Lower oil prices offset a 27.8% increase in production, to 155,566 barrels of oil per day from 121,762 barrels.

Cenovus has started producing oil at the fourth phase of its Christina Lake oil sands project in Alberta. The startup is three months ahead of schedule and within budget. ConocoPhillips owns 50% of Christina Lake.

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The Bakken oil formation was discovered in 1953 on Henry Bakken’s farm in the state of Montana, but it was abandoned because it was too difficult to access the oil with the technology of the time. The formation is a 350-million-year-old layer of rock that’s 300 metres below the surface and spread out over 200,000 square miles, with sections underlying Montana and North Dakota, as well as Saskatchewan and a small portion of Manitoba. The Bakken formation could contain as much as 503 billion barrels of oil. Saskatchewan and Manitoba could be holding a quarter of that total. By way of comparison, the massive Ghawar oil field, the largest in Saudi Arabia, is estimated to contain 125 billion barrels and produces half of that country’s oil output....

This summer, natural gas prices dropped below $2 U.S.per thousand cubic feet, a 10-year low. That’s mainly because of new shale gas discoveries. Prices are now around $2.84, still well below last year’s high of almost $5. Oil prices have weakened, as well. They are now down 16%, from $109 a barrel in February to $92 today. Oil prices will continue to vary, while gas prices will likely recover. The key for this tech stock that serves the energy industry is that prices remain high enough to generate increased drilling for both oil and gas....

PASON SYSTEMS $15.76 (Toronto symbol PSI; TSINetwork Rating: Speculative) (403-301-3400; www.pason.com; Shares outstanding: 82.0 million; Market cap: $1.3 billion; Dividend yield: 2.8%) rents equipment for monitoring and managing oil and gas rigs. It also sells communication systems, such as its satellite system, which companies use to remotely collect data from their drilling operations. Pason serves oil and gas producers and drilling contractors throughout Canada, the U.S., Mexico, Argentina and Australia. In the three months ended June 30, 2012, Pason’s revenue rose 29.8%, to $81.1 million from $62.4 million a year earlier. Cash flow rose 31.5%, to $30.1 million, or $0.37 a share, from $22.9 million, or $0.28. Even with declining oil prices and continued low gas prices, drilling activity rose 6% in Canada and the U.S. in the latest quarter, with a combined 188,291 active days and a rig count of 2,069, compared to 177,791 days and 1,954 rigs a year earlier....