Petro-Canada (PCZ)

Petro Canada is one of the best run gas companies in Canada. They have significant exploration initiatives underway around the world. Their actual stations are state-of-the-art, with partnerships with many companies such as Krispy Kreme Doughnuts, A&W, Tim Hortons & PC Financial.

They offer one of the best loyalty program for consumers with their “Petro Points” program.

YTD their stock is up 28%, which is higher than most oil companies despite the huge jump in the price of oil. This is due to their discoveries and their aggressive stance on increasing profitability.

Petro-Canada has interests in oil sands projects that offer sizable, long-lived resources. In high oil price environments, these projects can generate significant free cash flows.

Big Oil is hungry for Canadian Oil sand. But it is an environmentally ethical decision? When it comes to easing the energy crisis, most politicians and many Big Oil companies have the same mantra: the more oil from sources other than the Middle East and other unstable regions, the better. And "the next big thing" in Big Oil could be the oil sands in Canada's province of Alberta. The Economist reports on why Canadian oil sand is suddenly looking better to Big Oil:

Analysts at Citibank reckon the oil price needs to remain above $40 a barrel to make the development of the oil sands worthwhile. ...There is no exploration risk: the oil is definitely there. Once up and running, oil-sands mines produce a steady flow of oil for 30 years or more, whereas the output of more conventional fields is much less predictable. Best of all, the oil sands are in Canada, a hearteningly moderate and stable country.

Indeed, oil is unlikely to fall below $60 a barrel in the near future, and this has Big Oil companies, including Exxon (XOM), Chevron (CVX), Shell (RDS-B) increasing their investments into this region. Big Oil is hoping that the investment will ultimately result in a regular supply of oil from a stable source, reducing energy dependence on the Middle East.

This stock has taken a beating due to some temporary negative news and is trading at a ridiculously low price for its fundamentals.

Petro-Canada is trading at nearly half its 52 week high, at a multiyear low. The only explanation why this has happened is perhaps investors are worried that cheaper oil will make oil sands exploration less attractive and profitable. This is bogus!! Many countries have already reached "peak oil," including the US, and despite the recent push to renewable energy sources, oil will remain in very high and constant demand for decades to come. One day the world will be itching to get their hands on these types of oil reserves that are harder to bring to the market. I would argue that day was yesterday and PCZ will continue to grow its revenues and earnings handily as it taps into these massive reserves, especially as the technology to do so advances and becomes cheaper.

Trading at a minuscule 3.6 times 08 projected earnings and with a 1.21 price/book ratio (compared to 6 for the industry), this stock should see a significant recovery when oil rebounds and/or the current crisis of confidence in the market subsides.

Petro-Canada reported record quarter results that beat street estimates for both earnings and cash flow.

Operating EPS (fd) of $2.04, up 73% from both the year-ago quarter and Q4/07. Operating CFPS (fd) of $3.79 compared to $2.32, an increase of over 60%.

A combination of higher energy prices, higher production volumes and the elimination of the hedge at the Buzzard field were prime drivers of the improved results.

Forecasts look for higher returns:

A) Operating CFPS (fd) for 2008 and 2009 is now forecast to be $11.97
 B) 2008 operating EPS (fd) $6.53 from $6.73, 
C)  2009 EPS (fd) forecast to $6.57 

Petro-Canada shares represent excellent value, trading at a multiple of approximately 7.5x forecast earnings.

The conversion of its Edmonton refinery to take on oil sands feedstocks will improve the profitability of the downstream segment^[1].

Demand for Petro-Canada's products and the firm's margins are increasing with rising worldwide demand for energy.