"Talisman is easily beating my numbers. Easily. That is going to be a trend that goes right through Q1"
Oil stocks enjoy reversal of fortune. TSE subindex up more than 16% since late February,
and further upsurge expected
The Globe & Mail, Tuesday April 11
STEVEN CHASE, Alberta Bureau
Calgary -- Oil patch stocks -- a sector that can't seem to get much investor respect despite strong crude and gas prices -- appear to be on the mend.
"There's no question," says Martin Molyneaux, analyst with FirstEnergy Capital Corp. in Calgary.
The Toronto Stock Exchange's oil and gas subindex -- a basket of producers and drillers -- has climbed more than 16 per cent since late February.
It's a reversal of fortune that some analysts predict could turn into a rally of as much as 25 per cent for the oil patch stock sector within one year.
"It looks like we are in for a 15 . . . and maybe as much as a 25 per cent, northward correction in the oil and gas subindexes," Mr. Molyneaux says. The revival of interest in energy stocks stems from growing investor confidence in oil prices after cartel producers cut a deal last month in Vienna that promises to stabilize crude prices.
Crude prices are still jittery as the Northern hemisphere enters the season when heating demand softens and summer demand for gasoline and air conditioning fuel picks up. But crude prices are expected to settle in the $25 (U.S.)-a-barrel range over time.
A rash of merger-and-acquisition activity is heightening investor interest in oil and gas companies, as well as the prices that buyers are willing to pay for them.
The offers being made for oil patch companies have the effect of prompting other energy players and investors to value other companies more highly, analysts say. (Petroleum companies are still trading at historically-low multiples of annual cash flow these days.)
"Every time a deal gets announced it has a spillover effect on other targets," says analyst Wilf Gobert at Peters & Co. Ltd. in Calgary.
Analysts say a possible updraft in energy stock prices would finally recognize the value that's been ignored in oil patch companies for months.
"We've got phenomenal oil and gas prices, balance sheets to die for, and cash flow coming in on wheelbarrows. It's my belief that will eventually get reflected in the marketplace," says analyst Duncan Mathieson with Scotia Capital Inc. in Toronto.
Mr. Molyneaux at FirstEnergy says investor bullishness in oil and gas stocks is likely to get a boost starting this week, as companies begin reporting first-quarter results that exceed expectations after profiting from red-hot gas and crude prices so far this year.
He says his own current forecasts for Talisman Energy Inc. were surpassed by estimates put out by the Calgary senior and published by Dow Jones Service last week.
"Talisman is easily beating my numbers. Easily. That is going to be a trend that goes right through the first quarter," he says.
Mr. Gobert says Peters & Co. predicts the TSE's benchmark oil and gas subindex could trade at an all-time high within 12 months. It last hit a record high of more than 8,000 in October, 1997.
Merger and acquisition activity is expected to keep oil patch stocks busy this year as impatient investors force laggards up for sale, and cash-rich predators scoop up weaker companies.
Players rumoured as takeover targets include any company seen to be stumbling, or whose shares are lagging. These include: Beau Canada Exploration Ltd., Berkley Petroleum Corp., Renaissance Energy Ltd. -- or even Talisman, whose stock is still suffering as a result of its controversial Sudan operations.
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