Underpinning analyst Steve Calderwood’s positive outlook for Talisman Energy Inc. (TLM), EnCana Corp. (ECA), Canadian Natural Resources Ltd. (CNQ) and Nexen Inc. (NXY) is the firm’s contention North American natural gas prices will shake their malaise and soar in 2008 to an average of US$10 per million British thermal units.
Also, West Texas Intermediate oil prices will average US$64 a barrel this year and US$70 next, which combined with rising gas prices will fuel a 47% increase in fully diluted earnings per share for the group next year, Raymond James said.
“Year 2006 was a difficult one for many independent oil and gas producers,” Mr. Calderwood said in a report to clients. “But all four senior Canadian E&P (exploration and production) companies were able to maintain profitability and add reserves at a reasonable price.”
The companies are called independents because they focus solely on exploration and production, as opposed to integrated oil companies, such as Petro-Canada and Imperial Oil Ltd., whose businesses include downstream operations like refineries and retail gas stations.
Mr. Calderwood’s 2008 production outlook for the group calls for a 14% gain in oil production and a 5% gain in natural gas, with Talisman leading the pack with a 20% increase in crude production and a 14% boost to its natural gas output.
Canadian Natural is poised to boost oil production in 2008 by 11%, while EnCana’s crude production will climb 10% and Nexen’s will rise by 15%, the report said.
On the gas side, EnCana’s output will rise 2% next year, Canadian Natural’s will increase 3% and Nexen is set for a 13% increase.
Raymond James rates EnCana shares and Talisman shares “outperform” and it projects a sizeable price gain for both next year. Its target price is C$70 for EnCana and C$25.50 for Talisman.
Raymond James rates Canadian Natural and Nexen “market perform.” Its price target for Canadian Natural is C$63 and for Nexen is C$65.