BAY STREET-Takeovers, uncertainty overshadow Canada oil patch earnings
* Oil price near year-before level, natural gas much weaker * Exxon Mobil, CNOOC buyers of Canadian assets * TSX energy group up 14 pct since June, still off year high * Encana kicks off reporting season on Wednesday * Refiners seen reporting strongest results By Jeffrey Jones CALGARY, Alberta, Oct 21 (Reuters) - For Canada's energy companies, the quarterly reporting period that starts this week would probably be rather ho-hum if it were not for all the fuss surrounding actual and possible takeovers. Oil prices are close to where they were a year ago. Natural gas prices have slumped, and some of the big producers decided at the end of the last quarter to claw back spending budgets to deal with that, tempering their outlooks. But all it took to renew interest in the sector were a few multibillion-dollar takeover bids by foreign companies such as Exxon Mobil Corp and China's CNOOC Ltd. Investors are scouring the sector for clues on the next target, although Ottawa's 11th hour rejection of a bid for Progress Energy Resources by Malaysia's Petronas adds a huge new element of risk to the equation. The Toronto Stock Exchange's oil and gas subindex has climbed 14 percent since the end of June, thanks to the deals, though it is still 7.5 percent under the 2012 high set in February. Energy is a TSX pillar, accounting for more than one quarter of the weighting of the benchmark index, second only to financial stocks. "This quarter is all about headlines to me," Morningstar analyst Robert Bellinski said, referring to the merger and acquisition activity. "There are a lot of headlines versus broad thematic changes in the energy space." Encana Corp, Canada's biggest gas producer, kicks off the third-quarter reporting on Wednesday. Encana has been shifting to more valuable oil and liquids-rich gas production with dry gas prices under pressure due to an oversupply of the fuel in North America. That means a focus on such prospects as the Tuscaloosa Marine Shale in Mississippi and Louisiana, the Duvernay shale in Alberta, and on its search for partners to help bankroll the developments. Encana shares hit a 52-week high last week as investors weighed Exxon Mobil's C$2.6 billion ($2.6 billion) takeover bid for Celtic Exploration Ltd, which also has assets in the Duvernay, and wagered Encana might also tempt a supermajor. Encana closed at C$23.78 on the Toronto Stock Exchange on Friday, up 16 percent from a year ago. Encana's profit is expected to be up marginally for the quarter, with analysts, on average, forecasting 26 cents a share before unusual items, compared with 23 cents a share a year earlier, according to Thomson Reuters I/B/E/S. Nexen Inc, target of a $15.1 billion takeover bid from CNOOC, reports results on Thursday, though the numbers take a back seat to Ottawa's recently extended review of the deal. The bid, China's largest foreign takeover, has become increasingly contentious as Canadians debate the prospect of more of the Alberta oil sands being controlled by a Chinese state-owned enterprise. With Ottawa blocking Petronas's C$5.2 billion bid for Progress late Friday, the takeover of Nexen has a whole new layer of uncertainty that investors will have to navigate, and Canadian energy shares are likely to take an immediate hit. Fear that the government might nix the transaction has already kept Nexen's shares well below the $27.50 bid price since it was announced in July. The stock closed at $25.40 in New York on Friday. "It's kind of a waiting game for what's going to happen. We still continue to think that the transaction is more likely than not going to go through," Bellinski said last week, before Ottawa's unexpected veto of the Progress deal. "The secondary effects are something to really watch for, too, though. What's the response from the Chinese afterwards? Do they start booking trips to Calgary and start looking at other names?" One speculated takeover target is Talisman Energy Inc , and investors are anxious for an update of the company's new strategy under recently appointed CEO Hal Kvisle. Andrew Potter, analyst at CIBC World Markets, said he expects a mixed bag of operating and financial results, though there could be some Street-beating showings, largely because expectations are low. Canadian natural gas prices averaged C$2.19 a gigajoule in the quarter, down 29 percent from the same period in 2011. U.S. benchmark oil averaged $92.15 a barrel, up about 3 percent from last year. Despite intense day-to-day volatility, Canadian prices were not far off. Potter's top picks among the large caps are Suncor Energy Inc and Cenovus Energy Inc. Those companies' Canadian and U.S. refineries are expected to have generated rich returns due a wide spread between the cost of crude oil and the wholesale price of gasoline and other fuels. "Anyone with inland refineries is going to have a pretty strong Q3," Potter said. For Cenovus, the results from joint venture refineries in Illinois and Texas could mean an increase in expected cash flow for the year, said Menno Hulshof, analyst at TD Securities. Cenovus, also known for its growing oil sands operations, is expected to earn 53 Canadian cents a share, up from 40 Canadian cents a share in the third quarter of 2011. Third-quarter earnings-per-share estimates: 2012 2011 Suncor Energy Inc C$0.79 C$1.13 Imperial Oil Ltd C$1.05 C$0.99 Husky Energy Inc C$0.40 C$0.53 Cenovus Energy Inc C$0.53 C$0.40 Canadian Natural Resources C$0.51 C$0.65 Encana Corp* $0.26 $0.23 Nexen Inc C$0.19 C$0.32 Talisman Energy Inc* $0.07 $0.15 Crescent Point Energy C$0.12 C$0.74 Penn West Petroleum (C$0.06) (C$0.29) * U.S. dollars
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