Petro-Canada Proceeds With Confidence Towards Fort Hills Oil Sands Project

Buy-recommended Petro-Canada (PCZ) offers unlevered appreciation potential of 16% to estimated net present value [NPV] of $65 a share revised up from $55 following strong second quarter results reported on July 26. Earlier we revised NPV to $55 from $49 on May 29 when we raised long-term oil price to $66 a barrel from $60.

Upstream volume gains and downstream margins are contributing to more than a 40% gain in estimated unlevered cash flow (Ebitda) for the next twelve months compared to the year 2006. Even after the upward revision, NPV for the large cap stock looks low compared to our estimates for some thirty other producers.

Strong performance for the company may reinforce chief executive Ron Brenneman in his June 28 commitment to proceed with detailed engineering for the $18 billion Fort Hills oil sands project (55% PCZ). Calculating that Fort Hills needs an oil price of $54 a barrel for an adequate profit, the chief executive probably takes confidence from the current longterm quote of $71 and rising.

Finally, PCZ stock also has positive momentum as it trades above its 200-day average.

Originally published on July 26, 2007.

PCZ 1-yr chart: