Canada oil patch poised for profit gusher - analysts
By Jeffrey Jones
CALGARY, June 23 (Reuters) - Surging oil and natural gas prices are setting the stage for the richest financial results from Canadian oil companies in at least a decade, analysts' reports said on Friday.
The trick seems to be getting investors excited about it.
In its newest report on the industry's exploration, development and acquisition costs, FirstEnergy Capital Corp. predicted earnings, cash flow and return on equity in 2000 would beat 1999's results by ``a country mile.''
The Calgary-based brokerage said it expected earnings to average more than C$5 a barrel of oil equivalent, triple the figure in 1999; cash flow to be over C$13.50 a barrel, up 57 percent; and return on average book equity to top 12 percent, up 140 percent from last year.
The calculations were based on a mix of actual oil and gas prices plus the futures-market forward strips, which were higher than FirstEnergy's own price forecasts.
``That's has never happened, not simultaneously,'' said analyst Martin Molyneaux, who co-wrote the report. ``I've been there regularly with one or the other, but never both.''
Despite this week's deal among OPEC members to lift oil supplies, West Texas intermediate crude closed closer to decade highs again Friday, up 6 cents a barrel to $32.25.
Canadian spot natural gas, meanwhile, traded at C$5.04 per thousand cubic feet, off as much as 75 Canadian cents on the day but still up 70 percent from a year ago. Gas prices have soared in recent months due to rising demand, especially in the U.S., and fears of tight supplies this winter.
This week, brokerage Peters & Co. Ltd. raised its price forecasts for 2000 to $26 a barrel for U.S. oil and C$4.25 per thousand cubic feet for Canadian gas.
Peter Linder, an analyst with Harris partners, said in a report on Friday he raised his expectations for average corporate gas prices by C$4.50 per thousand cubic feet this year and C$5 next year, and said he believed the Toronto Stock Exchange's oil and gas subindex would keep rising between now and September 2001.
The index of exploration and production companies, led by such firms as Alberta Energy Co. Ltd. (Toronto:AEC.TO - news) and Anderson Exploration Ltd. (Toronto:AXL.TO - news), has climbed 37 percent this year, reaching 6638.38 points on Friday. But it is still 10 percent below its high in October 1997 when the commodities were not as dear.
Before the boom in technology stocks that started last year, the oils made up a larger portion of the TSE's stocks, so big institutional investors were convinced they needed a similar weighting in their portfolios, Molyneaux said.
Such is not the case today, he said.
The lower stock prices, based on multiples of expected cash flow per share, have fuelled the recent round of takeovers, such as Canadian Natural Resources Ltd.'s (Toronto:CNQ.TO - news) purchase of Ranger Oil Ltd. (Toronto:RGO.TO - news) and the just-announced acquisition of Renaissance Energy Ltd. (Toronto:RES.TO - news) by Husky Oil Ltd., analysts have said.
Molyneaux said he expected the embarrassment of oil riches to carry with it higher corporate taxes and costs for oil field services as well as the prospect of too much capital chasing too few exploration and production projects in Canada.
``The debt levels as we churned through these companies when we were revising our forecast just cratered,'' he said. ``And I can't think of very many companies who will have spent their cash flow in the second quarter, and a lot of companies didn't in the first quarter.''
Surprisingly, few if any firms at this week's key Canadian Association of Petroleum Producers investment symposium announced they were upping capital spending.
That could mean more consolidation, as well as stock buybacks, could be in the offing, Molyneaux said.
($1 equals $1.48 Canadian)
biz.yahoo.com |
