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

To: Dennis Roth who wrote (23)	12/18/2007 8:40:40 AM
From: Dennis Roth	Respond to of 24

Petro-Canada (PCA.TO): Updating EPS estimates following several developments - Goldman Sachs - 12/17/07 What's changed We are updating our EPS estimates for Petro-Canada following several major announcements over the past week, including the release of its 2008 capital budget, a new EPSA agreement with Libya, and the unwinding of its Buzzard hedges. The combination of the three results in increased capital spending and slightly lower E&P production, offset by higher profitability on the company’s international production which leads to a modest changes to our 2008-12 EPS estimates. We maintain our Neutral rating and C$53, 12-month price target for (US$53 for PCZ). Implications Our key takeaways from these announcements are: (1) 2008 capital budget of C$5.3 billion came in above our C$4.9 billion estimate though was essentially in-line after adjusting for a bonus payment related to the new Libya agreement; (2) production guidance of flat to slightly down was also largely in-line with our expectations; and (3) unwinding of Buzzard hedges and new Libya production sharing contract are modest positives. After incorporating the effects of these announcements, Petro-Canada shares appear marginally less inexpensive relative to those of its North American Integrated peers than was previously the case, at 2008E EV/DACF of 4.7X versus the group at 5.9X. Given what is still a wide 21% discount, however, we continue to see limited downside on the basis of relative valuation despite Petro-Canada’s lackluster E&P production outlook and ongoing questions regarding profitability of its Fort Hills project, while we believe the company’s significant downstream exposure and strong oil sands position provides sufficient upside potential to balance the risk/reward. Valuation Petro-Canada shares are trading near our C$53, 12-month price target, which is based on cash flow, P/E and asset valuation analyses. Key risks Key risk is sustained lower commodity prices.