CALGARY (CP) -- With no end in sight to near-record energy prices, the profit parade in Canada's oilpatch should begin again this week as the country's largest oil and gas companies start reporting second quarter earnings.
Wilf Gobert, an energy analyst with Calgary-based Peters & Co., said general expectations are that it will be another record quarter.
''Oil prices were up from the record level of the first quarter, natural gas prices were up from the first quarter and the heavy oil price was also up significantly,'' he said.
While the profits will be large, most of big energy companies have a host of huge, expensive new projects in the works that can use the extra capital. Nexen Inc. [NYSE:NXY; TSX:NXY], which starts off earnings season on Thursday, is in the middle of building a major offshore oil platform in the North Sea and an oilsands plant in northern Alberta.
Many other companies, like Canadian Natural Resources [TSX:CNQ] and Shell Canada [TSX:SHC] have huge oilsands developments under construction or massive expansions in the planning stages.
To ensure they can pay for these projects, companies like Canadian Natural and Petro-Canada [NYSE:PCZ; TSX:PCA] - which also is also developing a large list of big projects - have hedged some of their production by selling it on futures markets.
But because prices for oil and gas are likely to be far higher than the hedged price, these companies will have to account for the unrealized losses of selling the commodity at lower prices - as was the case in the first quarter.
Other accounting rules that could affect companies this quarter will be the stock-based compensation expense, where firms that have enjoyed large spikes in their share price over the quarter, like Imperial Oil [AMEX:IMO; TSX:IMO] and Talisman Energy [NYSE:TLM; TSX:TLM], will have to record the increased value of outstanding stock options paid to management and employees.
Integrated oil companies, like Shell, Imperial, Petro-Canada and Husky Energy [TSX:HSE] that are involved in both the so-called upstream business of exploration and production of oil and gas as well as the downstream refining and marketing of fuels, unveil their results starting next week.
Earnings are expected to particularly strong here, as refining margins have risen significantly.
''A company like Husky, where you had really high heavy oil differentials, (the spread) should mean its Lloydminster upgrader will have another outstanding quarter,'' said analyst Tom Ebbern with Tristone Capital.
''Downstream operations for Shell and Imperial should be excellent.''
Smaller energy companies and the service companies are likely to be hurt by record rainfalls in Alberta during the month of June that delayed many drilling rigs and well-servicing work.
Ebbern said the June rains would also hit many of the conventional energy income trusts that get the lion's share of their production out of the Western Canada Sedimentary Basin.
''Still, it's fairly widely known that activity levels were lower than expected and I think the market is going to be fairly forgiving in terms of issues like that,'' said Ebbern.
''We had great fundamentals, we have crude at $60 per barrel ... and that theme continues to play well.''
The market will also be watching major oilsands producer, Suncor Energy [NYSE:SU; TSX:SU] when it releases results on July 27. Suncor has promised a detailed update on the company's rebuilding plans after a nine-hour fire early January at its main northern Alberta facility knocked production nearly in half for the first seven months of the year.
(c) The Canadian Press 2005
