Don't cry for the Canadian energy sector.
A new report says the industry's top 100 companies grossed an average of $1.4 billion in revenues last year - an increase of seven per cent over 2005 for companies focused on energy exploration and production. And the PricewaterhouseCoopers survey doesn't expect that trend to change in 2007.
"All sectors are still enjoying solid results, a trend we don't see changing any time soon," said Angelo Toselli, energy and utilities leader at PricewaterhouseCoopers.
The rosy outlook for the industry comes as UBS Investment Research increased share forecasts for energy giants EnCana Corp. (TSX:ECA) and Imperial Oil (TSX:IMO) based on their oilsands holdings in northern Alberta.
"We believe investors will pay increasing premiums for oilsands assets (highly profitable producing assets in particular)," oil and gas analyst Andrew Potter said in a research note Thursday.
EnCana's oilsands revenue surged to $1.56 billion in the first quarter from $189 million as its integrated oilsands business ramped up following its 50:50 partnership with US heavyweight ConocoPhillips that became effective Jan. 1.
"At current levels we believe EnCana's oilsands assets are being valued at 50 per cent of (net asset value)," said Potter. "We believe over the next 12 to 24 months, the market will attribute greater value to these assets as the profitability is demonstrated or the assets will be spun out to force the market to recognize the full value of the assets."
UBS has raised its target price for EnCana to US$80 from US$67, and Imperial Oil to C$53 from $45.
Imperial shares closed up 15 cents to $15.40 on the Toronto Stock Exchange Thursday, while EnCana closed up $1.96 to $70.86.
Calgary-based Imperial, Canada's largest integrated oil company and a major oilsands player, will continue to benefit from production at Cold Lake, Alta., and Syncrude in Fort McMurray, said Potter. That's despite the above-average risk in Imperial's Mackenzie Valley pipeline project and the Kearl bitumen mine north of Fort McMurray.
Imperial has said it's actively seeking alternatives to keep costs down at Kearl, which is now estimated at $7 billion. The Arctic pipeline project, now forecast at $16.2 billion, has faced rising costs and numerous regulatory delays.
Yet there are signs the gushing oil and gas dollars may be tapering off in Alberta. The resource-rich province announced a near-record surplus of $8.5 billion Thursday - more than double the original estimate - but energy revenue is down $2 billion, largely because lower natural gas prices triggered a drilling slowdown late in 2006. The reduction on Alberta's fiscal balance sheet - to $12.2 billion from a record $14.3 billion last year - still leaves the provincial treasury with a huge amount of money to fund services and construction that other provinces can only dream about.
"I would not push the alarm button yet," said Finance Minister Lyle Oberg.
"We're certainly seeing the rig counts down," said the minister. "We don't know if that will continue through 2007, although talking to industry they say it will. I'd hesitate to guess on that. But I will say the oilsands have given us a stability in this economy that we haven't seen in 10 years."
High commodity prices and current record margins between crude and refined oil prices are likely to continue the oilsands interest. Yet spiralling costs for labour and construction in Alberta's overheated economy could delay or make impractical some of the refinery proposals on the books.
The PricewaterhouseCoopers survey also notes that the energy industry is expected to shoulder a significant amount of the burden when the federal government releases its targets for reducing greenhouse gas emissions and air pollutants from industrial sources.
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