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Gold/Mining/Energy : Petro Canada -- Ignore unavailable to you. Want to Upgrade?

To: Dennis Roth who wrote (17)	10/28/2005 10:58:18 AM
From: Dennis Roth	Read Replies (1) \| Respond to of 24

Petro-Canada (U/A): Up-tick in E&P performance, though see better opportunities elsewhere - Goldman Sachs - October 28, 2005 We believe Petro-Canada is executing on the assets it has acquired, demonstrated by a better-than-expected up-tick in production during 3Q 2005. While the company's growth projects are moving closer to fruition, we see better opportunities from other domestic oils that are more attractively valued and/or have a greater track record of organic growth - specifically Amerada Hess (OP/A), Murphy Oil (OP/A) and Suncor Energy (OP/A). We continue to believe that Petro-Canada will have to make acquisitions going forward for future resource, barring material exploration success in multiple areas. We believe there is greater burden that expansion opportunities in Syria, Algeria, Tunisia, Venezuela and Russia show sizeable return accretion to offset political risk. We rate Petro-Canada Underperform relative to an Attractive coverage view. EXPLORATION ABROAD, ACQUISITIONS AT HOME We believe that the company will pursue a strategy of pursuing international exploratory opportunities while looking for ways of expanding its position in North America natural gas via acquisition. Petro-Canada plans 4-5 exploration wells in the North Sea in 2006, in addition to ramping up exploration in Trinidad, Syria, Algeria and Tunisia. The company continues to work towards leveraging its LNG site in Canada into an upstream position in Russia. We believe credit for this project will come over time. In Canada, we believe the company is set in its oil sands position, following its partnership in the Fort Hills project and the coming expansion at Syncrude. The remaining piece of the company's pie is North American natural gas. The company showed good success in 3Q 2005 towards raising US Rockies natural gas production, a positive sign. We believe that the company will increasingly look towards consolidation among US and Canadian Rockies natural gas assets to further stem declines from its existing legacy portfolio. 3Q 2005 EARNINGS IN-LINE WITH EXPECTATIONS WITH BETTER-THAN-EXPECTED PRODUCTION Petro-Canada's earnings was in-line with our expectations. Adjusted earnings were US$0.97 versus our $0.99 estimate, and operating cash flow of $873 million was slightly below our $909 million estimate. However, the in-line bottom line numbers masked positive operational performance from Petro-Canada's E&P assets. Net production rose quarter over quarter to 329,000 barrels of oil equivalent (BOE) per day versus our estimate of 317,000 BOE/d. Commodity prices were mixed relative to our expectations, and costs were generally in-line. A higher tax rate and lower deferred taxes, combined with slightly weaker refining volumes offset the strong E&P results. Petro-Canada's net debt/tangible capital is at 24%. UPDATED ESTIMATES We are updating our 2005 full-year EPS estimate to incorporate the 3Q 2005 results. Our 2005 EPS estimate is now $3.60 ($3.62 previously). There are no changes to our 4Q 2005 or 2006-2010 EPS estimates. Each of the analysts named below hereby certifies that, with respect to each subject company and its securities for which the analyst is responsible in this report, (1) all of the views expressed in this report accurately reflect his or her personal views about the subject companies and securities, and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report: Brian Singer, Arjun Murti.