* Canadian oil producers to benefit from higher prices
* Natural gas, refining weak
* Canadian dollar appreciation may cut into profits
By Scott Haggett
CALGARY, Alberta, Jan 26 (Reuters) - Canadian energy companies that concentrate on producing oil should report strong quarterly results in the coming weeks, while natural gas producers and refiners will struggle.
After a year of reporting weak recessionary profits in comparison with year-before periods during which oil prices were climbing to records, many Canadian oil companies are likely to deliver improved earnings as the economy recovers.
"I think we're going to see an uptick in earnings and cash flow," said Kyle Preston, an analyst at Canaccord Adams. "Commodity prices have been stronger ... and costs have been coming down all year."
Canada's big oil companies begin the fourth-quarter reporting season on Thursday, when Canadian Oil Sands Trust COS_u.TO, which owns the largest share in Syncrude Canada, the biggest producer in the Alberta oil sands, reports its results.
The trust and other big oil producers are expected to report solid profits as benchmark prices rose 29 percent from the year-before quarter to average $76.13 a barrel.
Prices for heavy oil have improved even more as declining supplies from Venezuela and Mexico and more processing capacity at U.S. refiners have helped narrow the discount, or differential, that heavy oil receives compared with lighter grades.
"The biggest winners will be those with the heavier barrels," said Martin Molyneaux, an analyst at FirstEnergy Capital. "The differential shrunk and (oil) prices were up."
Strong oil prices, however, will be offset by weak natural gas. Demand for the fuel fell during the recession while new supplies from prolific shale gas fields helped raise U.S. production and beef up inventories to record levels.
Benchmark natural gas prices on the New York Mercantile Exchange averaged $4.93 per million British thermal units over the fourth quarter, down 23 percent from the year before.
Canadian spot natural gas prices also declined, with prices at the AECO hub in southeastern Alberta falling 32 percent year over year to average C$4.35 per gigajoule in the quarter.
Those weak gas prices should cut profit at EnCana Corp (ECA.TO), Canada's biggest natural gas producer, but analysts are also waiting to see how the November spinoff of its oil sands and refining business into the separately traded Cenovus Energy Inc (CVE.TO) affects its bottom line.
"We expect a relatively messy quarter for the company as the organization into separate entities continues," Andrew Potter, an analyst at UBS Securities, wrote in a research report.
Analysts expect profits from refining and marketing operations at Canada's integrated companies, Suncor Energy Inc (SU.TO), Imperial Oil and Husky Energy, to weaken as the recession cut demand for gasoline and other refined products.
UBS's Potter forecasts profit from Imperial's downstream operations to fall to just C$85 million from C$285 million in the fourth quarter of 2008.
"We expect (Imperial) to be negatively impacted by tighter refining margins and weak end-user demand," he wrote.
Further clouding the earnings picture is the appreciation of the Canadian dollar. In the fourth quarter of 2009, the value of the Canadian dollar averaged 94 U.S. cents, up about 13 percent from the year-earlier quarter.
"That mitigates the uptick" in oil that's priced in U.S. dollars, Molyneaux said.
EARNINGS ESTIMATES Q4 '09 (Est.) Q4 '08
Imperial Oil Ltd C$0.68 C$0.76
Suncor Energy Inc C$0.43 C$0.46
Husky Energy Inc C$0.54 C$0.27
EnCana Corp $0.49 n.a
Cenovus Energy Inc C$0.36 n.a
Canadian Natural Resources Ltd C$1.42 C$1.29
Nexen Inc NXY.TO C$0.45 C$0.89
Canadian Oil Sands Trust C$0.43 C$0.26
Talisman Energy Inc TLM.TO C$0.16 C$0.53
Source: Thomson Reuters I/B/E/S
$1=$1.06 Canadian Reporting by Scott Haggett; editing by Peter Galloway