Heavy Oil Investing News

 SOME CHEER ON THE OIL FRONT 

By Duncan Sutherland – Exclusive to Heavy Oil Investing News

A good quarter for heavy oil companies

Heavy oil and oil sands companies, by and large,  posted positive results in the just-ended quarter.

This was to be expected, what with oil prices hitting an all-time high.  It is worth noting, however, that energy costs took a bite out of the profits, especially for the refiners. EnCana (TSX:ECA) was one of the harder-hit companies, but the earnings loss stemmed mostly from gas hedges. The heavy oil division, with its Western Canadian Select grade, maintained an average price of $102.18 over the quarter, more than double in the same period last year.

The winners’ column had Suncor Energy (TSX:SU), which reported  $829 million (CDN) in earnings for the quarter. To fully appreciate the significance of this, investors should note that during the equivalent period last year, Suncor reported earnings of $738 million and 14 per cent more oil sands production.

Australian Roc Oil Company (ASX:ROC) has been getting disappointing results in its Angolan Cabinda South heavy oil play. The joint venture with Force Petroleum Ltd and state-owned Sonangol SA, has drilled six exploration wells already, and is playing its cards close to its chest, not confirming whether any are commercially viable. Roc is trading upward recently, as it has tendered a bid for rival Anzon Australia (ASX:AZA).

Cheer for investors too

Besides oil majors, some investors, too, landed up on the positive side. This time around, Pembina Pipeline Income Fund (TSX:PIF.UN) is not likely to be the sole player increasing distribution rates. Pembina increased the monthly rate by 8.3 per cent per unit, from $1.44 per annum to $1.56 (CDN).

Canada’s SONIC Technology Solutions (TSX.V:SNV) has agreed to purchase Northern Oil Research Technologies Inc, based on potential synergy between SONIC’s and NORT’s technologies for heavy oil upgrading. Also, on the technology side, Wescorp Energy’s (OTCBB:WSCE) subsidiary Flowstar Technologies has signed on with an unspecified Canadian oil & gas producer to use its well head measurement and other critical equipment.

Earth Search Sciences Inc (OTC:ESSE) has bought General Synfuels International to use its proprietary gasification technology. It’s subsidiary Petro Probe is expected to start full-scale field tests of this technology as early as this fall. The company hopes the technology will help the extraction of oil shale even more economically viable.

In other oil news….

Earlier speculations are now confirmed that Shell’s (NYSE:RDS.A) Sarnia, Ontario refinery for Alberta’s oil will not be built.

BP (NYSE:BP) is being more aggressive in refining Canadian heavy oil, having “taken the final investment decision to upgrade its Whiting refinery in Indiana in order to run on 80 per cent Canadian heavy crude oil”. If all goes well, the expansion will be over in 2011, with supplementary gasoline output of 1.7m gallons per diem. There are environmental regulatory hurdles yet to be jumped, but these should not pose too much of a problem.

A bit of a black eye for oil as a barge and tanker collided last Wednesday, spilling thousands of gallons into the southern reaches of the Mississippi River. The situation worsened last Wednesday as more heavy oil poured into the river, forcing the Coast Guard to shut two miles of it to all traffic.

Kuwait is eyeing its largely untapped heavy oil reserves, amid signs that its conventional fields, especially the supergiant Burgan field, are maturing. Planning massive new investments in refining infrastructure, the Gulf state wants higher quantities of domestic input. Kuwait Oil Company is cooperating with Exxon (NYSE:XOM) in exploring and evaluating the nascent heavy oil industry.

These moves mirror a similar evolution in thought by the leaders of Saudi Arabia. Gulf states are using their hydrocarbon revenues to diversify their economies while oil prices are on a high. We are all familiar with Dubai’s megaproject strategy to encourage tourism, but the other countries of the region have taken a more conservative approach. Afraid of production decline, Kuwait and Saudi Arabia see expanding the amount and variety of hydrocarbon processing as a viable first step.