Petro-Canada: Oil Production Volume Up 15%

Buy-recommended Petro-Canada (PCZ) reported on April 24 first quarter 2007 production
volume 15% above the average for 2006, thus lending credibility to Chief Executive Ron Brenneman’s expectation of a gain of 15% for all of 2007.

Higher volume in the year ahead makes our estimate of present value of $49 a share look low, just as lower volume last year made it look high. Though the volume gains are from short-life oil production off the East Coast of Canada and in the North Sea, the company has long-life production in its 12% share of the Syncrude oil sands venture.

Similarly, expansion of the company’s Edmonton refinery due in 2008 will make its potentially long-life in situ oil sands production more valuable by eliminating the market risk in placing low-grade oil.

Yet the Fort Hills mining project, which we have not counted in present value, may be further delayed as steep cost increases raise investment risk in new construction. Meanwhile, Petro-Canada stock is back in favor as it trades above its 200-day average along with six-year oil and natural gas.

Originally published on April 24, 2007

PCZ 1-yr chart: