Energy firms put on the spot
Posted by mhudema on June 17, 2008
Oil and gas companies swimming in cash. Protesters handing out bottles of Athabasca River water.
Both await 350 of the top institutional investors in the Canadian oilpatch as the Canadian Association of Petroleum Producers (CAPP) investment symposium begins Monday in Calgary.
The annual CAPP event opens with a different backdrop to a year ago, when drilling activity in Western Canada was in a rut and capital markets were dry as dust, particularly for scores of Canada’s junior and intermediate explorers.
Oil prices are fluttering towards $140 US a barrel and natural gas prices are up roughly 70 per cent since January — an almost immeasurable difference, although one that investors in equities have still not taken completely to heart. Some Canadian oil and gas stocks are up but the group as a whole has lagged behind growth in surging oil and natural gas.
Meanwhile, the world’s focus on Alberta’s oilsands has recently intensified amid global supply constraints and growing concern about the massive play’s environmental footprint.
But even as investor interest returns and while some Canadian companies have been handed a new lease on life by the surprising commodity rise, it is quite likely the environment will emerge as a major theme over the next three days — starting today at 11 a.m.
That’s when four environmental groups and members of northeastern Alberta’s Athabasca Chipewyan First Nation will being handing out bottles of water tapped from the Athabasca River, downstream of oilsands developers. They’ll be daring the institutional investors, expected from across Canada, the U.S. and Europe, to take a drink.
“Investors should know that if they are investing in a project such as the tarsands, then they are investing in tremendous environmental destruction and associated human rights abuses,” said Mike Hudema, who is protesting as a member of Greenpeace Canada.
The Aboriginal community based around Fort Chipewyan on the northeastern edge of Lake Athabasca has for years raised concerns about high rates of rare cancers.
Greg Stringham, CAPP’s vice-president, agrees the environmental implications of resource development are front-and-centre but he noted that changing expectations among investors means companies are engaged in the dialogue more than ever.
In all, 78 oil and gas explorers — from trusts to large-caps like EnCana Corp., Petro-Canada and Canadian Natural Resources Ltd. to juniors — are due to present over the next three days and many will detail their plans to tap reserves in ways that meet new environmental expectations.
“Environment will be the buzz word but it will also be the discriminating thing between companies that analysts will be looking at,” Stringham said. “Companies will be talking about what progress they are making and what challenges they still have to overcome.”
The symposium is occurring during an important week for those who are paid to read the tea leaves around the Canadian oil and gas sector.
Sunday, analysts were flown to Fort McMurray for a look at Canadian Natural’s Horizon Project, the province’s next major integrated mining and upgrading oilsands venture where first oil production is expected in a matter of weeks.
Thursday, EnCana will hosts its own investor day in Calgary.
The EnCana event takes place on the same day a major two-day petroleum services industry investment symposium starts.
Robert Plexman, a large-cap analyst for CIBC World Markets based in Toronto, has attended the last 16 out of a total of 19 CAPP investor symposiums.
He will be looking for insight on which companies can cash in the most from sky-high oil and gas prices despite rising costs that will surely follow in lock step.
“I’ll be looking for some indication of production growth and for those who won’t get stuck chasing costs higher,” said Plexman. “Then be aware of others where reserve addition costs are escalating as fast, or faster, than oil prices. Those kinds of stocks can end up being value traps.”
Martin Molyneaux, who follows large-cap names at FirstEnergy Capital Corp., said he expects most companies across the sector have just seen their May financial statements, which likely show record monthly revenues and cash flows.
He expects that will set the tone for presentations.
“Six months ago, probably half the junior presenters at this conference were wondering if they were going to survive 2008,” said Molyneaux.
“Now, everyone has the wind at their backs — it is an absolute metamorphosis of their attitudes and everyone wants to see where their mind sets are at,” he added.
“Are you thinking more wells, looking at this or that? The audience wants to see how they go about creating value from here.”
© The Calgary Herald 2008