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  • Roger S. Conrad

International Coverage Universe: Key Takeaways from Third-Quarter Earnings

By Roger S. Conrad on Dec. 6, 2016

The most important takeaway from third-quarter results and earnings calls is that best-in-class Canadian upstream operators have made enough progress on this front to begin ramping up production.

Peyto Exploration & Development Corp (TSX: PEY, OTC: PEYUF), a member of the International Portfolio’s aggressive sleeve, slashed its industry-low cash costs per thousand cubic feet of gas produced to CA$0.76 in the third quarter. The conservatively run company also reduced its capital expenditures by 21 percent and has managed to grow its hydrocarbon output per share by 14 percent.

The gas producer’s success in part reflects its extremely low-cost reserves, which have enabled the company to grow its output consistently over the past few years.

Management’s decision to increase Peyto Exploration & Development’s maximum hedge position to 85 percent of expected production (from 65 percent) positions the firm to continue this growth.

Fellow International Portfolio holding Suncor Energy (TSX: SU, NYSE: SU) continues to pursue cost improvements at Syncrude Canada, a development in which the company owns a 53.74 percent stake after acquiring Canadian Oil Sands and purchasing Murphy Oil Corp’s (NYSE: MUR) 5 percent interest. Management’s guidance calls for the company to reduce its capital expenditures by CA$1 billion next year and grow its hydrocarbon output by 13 percent. Suncor Energy rates a buy on pullbacks to less than US$27 per share.

SELL-rated Penn West Petroleum (TSX: PWT, NYSE: PWE) produced just a little over 41,000 barrels of oil equivalent per day in the third quarter, a sharp decline from year-ago levels. Much of this weakness stems from asset sales and reduced capital expenditures. But even this financially stretched company expects to grow its hydrocarbon output in 2017.

Encana Corp’s (TSX: ECA, NYSE: ECA) guidance calls for its “core production” to increase by 15 to 20 percent in 2017, despite a 16.7 percent decline in third-quarter liquids output and a 14.3 percent drop in gas volumes.

Have costs savings and stabilizing oil prices enabled even weaker producers to gain a foothold and position for growth?

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    • Elliott H. Gue

      Founder and Chief Analyst: Capitalist Times and Energy & Income Advisor

    • Roger S. Conrad

      Founder and Chief Analyst: Capitalist Times and Energy & Income Advisor