Big-Cap Oil Companies Likely To Exceed Expectations

Big-cap names from the Canadian oil patch sloughed off lower natural gas prices and will exceed market expectations as second quarter results begin rolling out this week, UBS Securities Canada Inc. predicts in a sector preview.

Record refining margins have propped up profits among the Canadian integrateds — companies with downstream operations. Robust pricing for internationally-traded Brent crude and oilsands-upgraded synthetic oil were also key themes in the last quarter, UBS analyst Andrew Potter wrote.

Mr. Potter estimates earnings per share and cash flow per share that will come in 14% and 20% higher, respectively, than last year for the group that includes Canadian explorers and producers and integrateds. He also points to growing momentum quarter-to-quarter, estimating that across-the-board earnings will be up 16% and cash flow 11% from the first quarter.

Beneficiaries of a rare occurrence that saw Brent oil trading at a premium to North American benchmark West Texas Intermediate are Petro-Canada (PCZ), Talisman Energy Inc. (TLM), Nexen Inc. (NXY) and Canadian Natural Resources Ltd. (CNQ), all of which produce oil from international operations.

Oilsands players that upgrade production into synthetic crude, such as Suncor Energy Inc. (SU), Western Oil Sands Inc. (WTOIF.PK) and Canadian Oil Sands Trust also cashed in on a strong pricing environment.

EnCana Corp. (ECA), among UBS’s key names to watch, could see cash flow per share come in 10% higher than consensus, due to strong downstream results. UBS forecasts that Petro-Canada’s earnings will be 18% higher than consensus and Canadian Oil Sands’ will come in 15% higher.