Prospects for oil players look good

CALGARY — Results set to be unveiled by Canada’s top oil producers over the coming weeks are expected to show a marked improvement from the first three dismal months of 2009, oilpatch observers say.

CALGARY — Results set to be unveiled by Canada’s top oil producers over the coming weeks are expected to show a marked improvement from the first three dismal months of 2009, oilpatch observers say.

“It’s an improving story and the principle reason is the commodity price is up very substantially from the previous quarter,” said John Stephenson, portfolio manager with First Asset Investment Management.

But even though crude oil prices rose close to 40 per cent between the first and second quarters, they’re still less than half of what they were in the heady summer of 2008, Stephenson cautioned.

And companies geared toward natural gas are in for a lot more pain, since that commodity, unlike oil, has been diminishing in value, dwindling well below US$4 per 1,000 cubic feet for several months.

“Things that are oil-weighted — Suncor Energy Inc. (TSX:SU), Canadian Natural Resources Ltd. (TSX:CNQ) — are going to do better than the EnCana Corp.’s (TSX:ECA) of the world on a relative basis,” Stephenson said.

Oil prices may have fallen about $10 over the past month to trade below US$60 per barrel on the New York Mercantile Exchange Tuesday, but that’s still a strong price historically speaking, said Les Stelmach, vice-president of Bissett Income Fund in Calgary.

“Those companies that are geared more to oil in general, and heavier oil even more so, should actually show some reasonably good numbers for the quarter,” he said.

“Those companies which are heavily weighted to natural gas, and are not the low-cost operators and if they don’t have any significant hedging positions, they’ll be at the bottom of the barrel in terms of performance.”

A number of oilsands companies have been observing a decrease in project costs over the past few months — a welcome bit of good news after a spate of cancellations and delays late last year.

“Oilsands economics continue to show signs of improvement, which will help sentiment towards oil sands names,” wrote UBS Investment Research analyst Andrew Potter in a recent note to clients.

The outlook is a lot more bleak for oilfield service firms and drilling companies, whose fortunes largely ride on natural gas drilling in Western Canada.

“I think it’s going to be very dismal. I don’t see any real light at the end of the tunnel. And if it is, it’s probably a freight train,” Stephenson said.

Nexen Inc. (TSX:NXY) — majority partner in the Long Lake oilsands project in Northern Alberta — kicks of earnings season on Thursday. Oilsands heavyweight Suncor and natural gas giant EnCana report their second-quarter results the following week.

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