Peters & Co. Analyst Raises Petro-Canada's Price Target

Peters & Co. picked at Petro-Canada’s (PCZ) approach to its conventional and unconventional natural gas business recently, gently dissing the company yet increasing its target price on the stock. Petro-Canada’s North American conventional natural gas business has shrunk as the company shifts its focus towards “the evaluation” of unconventional natural gas opportunities north and south of the border, Peters said in a note to clients.

The note said:

Having screened [about] 50 different play types in North America, the company has determined that the majority of these unconventional natural gas plays face challenging economics, largely due to piloting costs, limited infrastructure, and rising land acquisition costs.

Peters thinks Petro-Canada will only develop its land position in the Cordova Embayment once other operators go first, allowing the company a free peek at the potential of its nearby properties.

The note said:

We disagree with the company’s assessment on the economics of unconventional gas resources. Therefore, while the stock remains inexpensive, the company does not appear poised to create any incremental value in the near term.

Peters & Co. stuck with its “sector perform” call, but notched up its target price to C$58 from C$54, based on a 2009 price-to-earnings multiple of six, plus about C$15 per share based on Peters’ risked oil sands net asset value.