Canadian Oil and Gas Companies See Impressive Earnings
31st January 2011
Canadian oil companies have seen a boost in earnings for the fourth quarter of 2010, due to an increase in oil prices and refining profits surging. Continued natural gas woes and pipeline issues have weakened gains. Investor confidence in the industry raised a bit, due to a recovering global economy and higher oil prices.
Michael Dunn, a FirstEnergy Capital analyst, discussed the impact higher oil prices has on the outlook in general, saying, "The oil price is quite healthy so it's going to be a reasonably good quarter."
Fourth quarter numbers of Canadian Oil Sands Ltd were noticeably strong due to higher oil prices. The company saw profit more than triple to $311 million, almost double the earnings per share profit which was expected.
In addition to higher oil affecting overall numbers for the Canadian behemoths, refining profits improved for the first time in more than 12 months. Integrated companies like Imperial Oil and Husky Energy saw significant benefits to their bottom lines.
Andrew Potter, CIBC World Markets analyst, commented on the impact of positive refining numbers, saying, "Refining margins are finally working in favor of integrated companies. They've been a big drag on stocks for the last five quarters."
The overall financial picture is polluted a bit based on the recent trouble experienced by Enbridge’s oil pipeline during the last quarter of 2010. Crude was trapped in Alberta which hurt crude prices within the province. There is no way of monetizing the trouble had by the network, but certain analysts believe it could be impactful to big oil producers, like Canadian Natural Resources Ltd or possibly Cenovus Energy Inc.
Phil Skolnick, Canaccord Genuity analyst, commented on the ability to see the true impact of the trouble with the pipeline, saying, "It obviously is going to play a role on the bitumen side for companies that are bitumen producers. That’s where you’ll see the impact of Enbridge."
Higher prices for oil are being viewed as a catalyst to positively effect profits, although the weaker natural gas market will continue to act like an anchor on any balance sheet. Natural gas Btu’s are trading at a price which is about 20% lower than at the same time last year. This is primarily due to supply far outpacing demand. Even though winter months create higher demand for natural gas as a heating source compared to the summer months, increased supply continues to keep a market unbalanced.
Canada’s biggest natural gas producer, Encana, maintains an aggressive hedging campaign to resist the low prices of natural gas. This program will continue even though earnings for Encana will be affected.
Higher profit has been apparent to investors which has caused an increase in stock prices. More fourth quarter reports will be made available in the coming weeks. CIBC’s Potter believes the biggest oil companies, who have yet to all report, will display an impressive rise in cash flow per share. This could possibly translate into even higher stock value. But this gain could already be apparent in stock value.
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