29 September 2005

Comparing companies making $$ in Fort McMoney - Part Two (Crunchin' Numbers)

Before I get underway with the numbers, I just found an article from 2002 on Suncor. Here are some excerpts:

Suncor Energy squeezes profit from Canadian sands
Global Finance, Sep 2002 by Platt, Gordon

"We are a very unusual energy company because we have such huge reserves," says Rick George, president and CEO. The company's oil-sands leases contain more than 12 billion barrels of recoverable resources.

"We have no exploration costs, which makes us more like a manufacturing company," he says. "On our leases you can find oil with the toe of your boot in many places."
The Athabasca oil-sands deposit, created millions of years ago when the area was an inland sea, is the world's largest known petroleum resource. The Canadian government estimates there are at least 300 billion barrels of recoverable bitumen, a tar-like substance that can be upgraded to high-quality oil, within 250 miles of Fort McMurray.This is comparable to all of the proven oil reserves of Saudi Arabia, George points out. It is enough oil to supply all of Canada's consumption needs and all of the United States' import needs for the next 75 years.
Since he joined the company in 1991, George says, Suncor has reduced cash operating costs of oil production from about C$20 a barrel (US$15) to C$12 a barrel (US$8).

"Our goal is to cut the cost per barrel in US dollars to about $6 or $6.50, which is certainly competitive with anybody," he adds.
Analysts praise Suncor for its well-planned growth strategy and say the company is likely to continue to grow despite uncertain economic conditions in the United States, Canada and other markets around the world. However, some analysts point out that the oil-sands business is beginning to get more crowded, particularly with Shell Canada expected to start up a C$5 billion entry by the end of this year.

The Syncrude Project, a joint venture of AEC Oil Sands, Canadian Oil Sands Investments, Conoco Canada, Imperial Oil Resources, Mocal Energy, Murphy Oil, Nexen, and Petro-Canada Oil & Gas, is the largest oilsands producer, with a slight lead over Suncor.

Paul Cheng, analyst at Lehman Brothers in New York, says oil-sands production costs have begun to rise rapidly in the past several years.

Cheng notes that Suncor's Project Millennium, a four-year expansion program completed at the end of 2001, was plagued by cost overruns. The C$3.4 billion capital cost was about C$1.4 billion more than the original 1997 estimate of C$2 billion.

Labor costs in the Alberta area are rising, Cheng says, and as more companies pursue the oilsands business, there could be limits on the availability of well-trained workers.

"I don't mean to sound negative on Suncor," Cheng says. "They have a good management team that has been doing this for some time. They have more technical know-how than the others."

So Suncor is sitting atop oil, but competitors have noticed, and are joining in on the festivities. Labor and production costs were in question back in 2002, but that was back when oil was bargain-priced.

Now that we have some basic background on these companies, let's look at some numbers:

Ticker/Share Price(as of 9/28/05)/PEG/ROIC/Enterprise Value/CNBC Stock Scouter Score/% Ownership of Syncrude

SU - $60.52 - na - 11.16% - $63.85 - 7/10 - na
ENB - $31.78 - 3.54 - 5.21% - $52.54 - 6/10 - na
IMO - $115.35 - 3.06 - 30.18% - $113.83 - 10/10 - 25%
PCZ - $42.60 - na - 11.77% - $46.07 - 10/10 - 12%
NXY - $47.94 - 3.12 - 7.78% - $61.49 - 10/10 - 7.23%
MUR - $50.50 - .65 - 20.55% - $48.96 - 7/10 - 5%

ECA - $57.28 - 2.15 - 11.13% - $61.48 - 10/10 - na

HAL - $69.36 - 1.86 - 15.88% - $72.26 - 7/10 - na

COS.UN - C$125.00 - 3.40 - na - na - na - 31.74%

Part of me just wants to buy shares of the Canadian Oil Sands Trust. It's a pure play on the Albertan oil sands, like Suncor, but then I have to go through the hassle of buying a security that trades on the TSX. COS.UN is also not as easily tracked as the other above-listed stocks. That's why I left out another oil sands participant, Shell Canada, SHC, as it trades on the TSX.

So do I want to invest in a pure play, or do I want shares in a company with exposure beyond the Canuck version of Texas?

A quick look at the above numbers shows IMO and MUR with the highest ROIC. MUR has a suspiciously low PEG, while ECA has a PEG lower than expected considering how much its stock price has rocketed over the last few months. ENB has the biggest differential between its enterprise value and its share price, but it also has the lowest ROIC, Stock Scouter score, and does not have ownership in the Syncrude partnership.

Also, all of these companies' share price has boomed over the summer. We could be in store for a short-term correction.

What to do? Anyone have any opinions on these companies? Do any stand out, positively or negatively, from the others?

For now, I'm going to group these stocks together in the newly-reorganized WershovenistPig Stock Watch List.

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