CALGARY-Oil and gas companies are expected to turn in generally higher fourth quarter results with a few exceptions when they start to close the books on 2010 starting this week.
Although oil prices were up about 12 per cent from 2009, natural gas prices continue to lag and despite a colder winter in key consuming regions the outlook remains uncertain.
Another question mark hanging over the industry is the lingering impact of pipeline outline outages last summer that have prompted Enbridge Inc., the country's largest oil pipeline operator, to restrict space on its export pipelines to the United States for at least another month.
Canadian Oilsands, the largest owner of Syncrude Canada, will offer a glimpse into the state of the industry when it kicks off the earnings parade on Wednesday.
According to Bloomberg data, analysts are expecting the company to report fourth quarter profits of 40 cents per share compared to 44 cents in the same period of 2009. However, full-year earnings are expected to jump more than 60 per cent to $1.62 per share thanks to firm commodity prices and lower natural gas prices used to make synthetic crude oil.
Canadian Oilsands converted to a corporation from a royalty trust effective Dec. 31 and slashed its dividend payout to 20 cents a share which sent its stock tumbling by more than 15 per cent.
Despite positive quarterly profits, the combination of pipeline restrictions and facility outages could weigh on the newly-converted corporation's per unit cash costs, which were more than $40 a barrel in the third quarter, said UBS analyst Chad Friess.
The company has pledged to lower those costs into the $30-plus range, but the trend could actually be higher given the difficulties faced by producers over the past six month getting oil to market.
"I think there will be some noise from the Enbridge outages, but it'll vary by company," Friess said.
Although Canadian Oil Sands has previously insisted the outages weren't material, in situ oilsands players like MEG Energy reportedly saw production volumes cut by some 1,500 barrels per day, which will have a negative impact on cash flow per share numbers.
In addition, BMO Nesbitt Burns analyst Randy Ollenberger said the pipeline outages were responsible for widening differentials, or discounts applied to Canadian heavy oil, which will further erode cash flow numbers for the senior oil producers.
The spread between American benchmark West Texas Intermediate and Western Canadian Select jumped about 30 per cent in the fourth quarter, although it remains within historical averages. The one-two punch of higher differentials combined with a rising Canadian dollar meant that many producers were unable to enjoy the benefits of higher oil prices.
However, Ollenberger said the big integrateds such as Imperial Oil and Suncor can take solace from improved refining margins after several quarters of weak profitability that weighed on results.
Despite a positive outcome for oil-weighted producers, natural gas producers are likely in for another tough year, he added. "We expect gas prices to remain weak into 2012, so it's going to be a while yet," for a meaningful recovery.
In a research note, CIBC World Markets analyst Andrew Potter said other names to watch include Nexen Inc. which is benefiting from higher European oil prices despite continuing operational issues at the Long Lake oilsands project.
On the natural gas front, he expects companies like Encana to post lower year-over-year cash numbers as a result of lower gas prices throughout 2010.
Encana's shares have lagged the broader market but Potter remains bullish on the company which is negotiating a potentially large joint venture with China National Petroleum Company that could inject up to $5 billion in development capital, which would make it one of the biggest partnership deals with a foreign firm to date.
In addition, the company's historically low trading multiples make it an attractive takeover target given its extensive assets and role as one of North America's largest and lowest cost gas producers.
"It is arguably one of the best-positioned unconventional gas producers today, yet its valuation is near historically low levels, making it an attractive target for a bigger, longer term focused player," he said. "We believe the risk/reward is now stacked in Encana's favour - even with a weak short-term gas outlook."
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Although oil prices were up about 12 per cent from 2009, natural gas prices continue to lag and despite a colder winter in key consuming regions the outlook remains uncertain.
Another question mark hanging over the industry is the lingering impact of pipeline outline outages last summer that have prompted Enbridge Inc., the country's largest oil pipeline operator, to restrict space on its export pipelines to the United States for at least another month.
Canadian Oilsands, the largest owner of Syncrude Canada, will offer a glimpse into the state of the industry when it kicks off the earnings parade on Wednesday.
According to Bloomberg data, analysts are expecting the company to report fourth quarter profits of 40 cents per share compared to 44 cents in the same period of 2009. However, full-year earnings are expected to jump more than 60 per cent to $1.62 per share thanks to firm commodity prices and lower natural gas prices used to make synthetic crude oil.
Canadian Oilsands converted to a corporation from a royalty trust effective Dec. 31 and slashed its dividend payout to 20 cents a share which sent its stock tumbling by more than 15 per cent.
Despite positive quarterly profits, the combination of pipeline restrictions and facility outages could weigh on the newly-converted corporation's per unit cash costs, which were more than $40 a barrel in the third quarter, said UBS analyst Chad Friess.
The company has pledged to lower those costs into the $30-plus range, but the trend could actually be higher given the difficulties faced by producers over the past six month getting oil to market.
"I think there will be some noise from the Enbridge outages, but it'll vary by company," Friess said.
Although Canadian Oil Sands has previously insisted the outages weren't material, in situ oilsands players like MEG Energy reportedly saw production volumes cut by some 1,500 barrels per day, which will have a negative impact on cash flow per share numbers.
In addition, BMO Nesbitt Burns analyst Randy Ollenberger said the pipeline outages were responsible for widening differentials, or discounts applied to Canadian heavy oil, which will further erode cash flow numbers for the senior oil producers.
The spread between American benchmark West Texas Intermediate and Western Canadian Select jumped about 30 per cent in the fourth quarter, although it remains within historical averages. The one-two punch of higher differentials combined with a rising Canadian dollar meant that many producers were unable to enjoy the benefits of higher oil prices.
However, Ollenberger said the big integrateds such as Imperial Oil and Suncor can take solace from improved refining margins after several quarters of weak profitability that weighed on results.
Despite a positive outcome for oil-weighted producers, natural gas producers are likely in for another tough year, he added. "We expect gas prices to remain weak into 2012, so it's going to be a while yet," for a meaningful recovery.
In a research note, CIBC World Markets analyst Andrew Potter said other names to watch include Nexen Inc. which is benefiting from higher European oil prices despite continuing operational issues at the Long Lake oilsands project.
On the natural gas front, he expects companies like Encana to post lower year-over-year cash numbers as a result of lower gas prices throughout 2010.
Encana's shares have lagged the broader market but Potter remains bullish on the company which is negotiating a potentially large joint venture with China National Petroleum Company that could inject up to $5 billion in development capital, which would make it one of the biggest partnership deals with a foreign firm to date.
In addition, the company's historically low trading multiples make it an attractive takeover target given its extensive assets and role as one of North America's largest and lowest cost gas producers.
"It is arguably one of the best-positioned unconventional gas producers today, yet its valuation is near historically low levels, making it an attractive target for a bigger, longer term focused player," he said. "We believe the risk/reward is now stacked in Encana's favour - even with a weak short-term gas outlook."
Global Free b2b buy sell marketplace: www.bytrade.com
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