(Repeats column first run April 19. In U.S. dollars unless noted.)
By Scott Haggett
CALGARY, Alberta, April 19 (Reuters) - It won't be pretty when Canada's biggest energy companies unveil what are bound to be their weakest quarterly results in years.
Low prices are almost certain to have slashed profits for oil and gas producers, who begin their first-quarter earning season in earnest this week.
Oil and gas prices were mired in recessionary lows in the quarter, with oil down 55 percent and the average natural gas price shaved by nearly half from the year-prior period.
But even after months of dismal pricing and economic turmoil, it may be that investors will shake off bleak earnings and look toward a brighter outlook for the commodities.
"Obviously it's going to be ugly because of the prices," said William Lacey, an analyst at FirstEnergy Capital. "But, for the most part, everyone is fully aware of that. It's going to be bad quarter ... but I think the worst is behind us."
Benchmark oil prices averaged $43.31 a barrel in the quarter, down from $97.82 in the first quarter of 2008.
Near-month natural gas on the New York Mercantile Exchange averaged $4.47 per million British thermal units, down 49 percent, while Canadian spot gas prices were down 38 percent at C$4.65 per gigajoule.
Though gas prices remain weak, oil has since climbed to around $50 a barrel and sector share prices have firmed, with the Toronto Stock Exchange energy index .SPTTEN up more than a third since the beginning of March.
While the gain in the index may be a sign that investors are looking to rising prices going forward, there are worries that the weak quarterly results may still come as a shock.
"The first quarter is going to exhibit the hard realities of the weak commodity environment," said Chris Feltin, an analyst at Tristone Capital. "The recent rally we've seen is going to be tempered with just what earnings can be achieved in a tough commodity market."
Exactly how tough that market has been will likely be reflected in the earnings of the two big oil and gas companies slated to report this coming week.
EnCana Corp (ECA.TO), the No. 1 Canadian energy firm, reports on Wednesday. EnCana has an extensive hedging program for its gas production that should cushion the blow from low prices.
"With 60 percent of natural gas production hedged in 2009 at a floor price north of $9.00 (per thousand cubic feet) look for significant hedging gains through 2009," Andrew Potter, an analyst with UBS Securities, wrote in a research report.
Despite its cushion, EnCana is likely to report a first-quarter operating profit almost half the size of its prior-year result, with earnings per share forecast to be just 72 cents, according the average of analyst forecasts compiled by Reuters Estimates. A year earlier, EnCana's per share profit was $1.39.
At Suncor Energy Inc (SU.TO), profits will likely be dismal because of weak prices, but those results will be secondary as investors look for progress on its C$18.4 billion ($15.2 billion) deal to buy Petro-Canada PCA.TO, creating a dominant player in the country's oil sands and the biggest Canadian energy firm.
Suncor is likely to report an operating profit of just 10 Canadian cents a share when it reports on Thursday, down from 85 Canadian cents in the first quarter of 2008.
Despite the weak environment, there still may be positive surprises. Prices for heavy oil, which normally trades at a significant discount to lighter varieties, were stronger than expected during the first quarter, and its discount to light crude was half the usual differential.
The relatively robust heavy oil price could augment EnCana's bottom line and also that of rival Canadian Natural Resources Ltd (CNQ.TO), since both sell large amounts of the commodity.
Prices for synthetic crude, the product of oil sands upgraders, were also better than expected, trading at a premium to benchmark crude, which could benefit Canadian Oil Sands Trust COS_u.TO, the biggest shareholder in the Syncrude Canada oil sands project.
"Heavy oil producers and the companies producing synthetic (crude) could surprise to the upside," Lacey said.
$1=$1.21 Canadian Reporting by Scott Haggett; editing by Rob Wilson