CALGARY, Alberta - The financial crisis and falling oil prices are likely to overshadow higher earnings for Canada's big oil companies, which are set to begin reporting their third-quarter results on Tuesday.
The third quarter again featured stellar commodity prices, with oil and natural gas prices substantially above the year-earlier quarter. All of Canada's big oil and gas companies, beginning with Husky Energy Inc (HSE.TO: Quote, Profile, Research, Stock Buzz) on Tuesday, are expected to report stronger operating earnings.
However the importance of the results for investors is likely be dwarfed by the crisis that has roiled stock and commodity markets, sending shares lower, cutting oil prices by nearly half from the July peak and casting the profitability of the oil sands and conventional energy projects into doubt.
Analysts say investors will be more interested in how Canada's biggest oil and gas companies adjust their spending in response to the economic turmoil and cope with scarce credit than in the past quarter's results.
"Most (capital spending) programs have had a material rewrite in the past few weeks as the equity market went into a tailspin," said Martin Molyneaux, an analyst at FirstEnergy Capital. "The picture is changing radically ... There are financial constraints out there and people are looking at how (companies') debt is going to evolve."
Since the third quarter ended on September 30, oil prices, which averaged $118.22 over the quarter, 57 percent above average for the third quarter of 2007, have plunged by more than a fourth, forcing companies to revisit their capital plans.
The TSX energy index has also fallen, dropping more than 20 percent in October, reflecting plunging energy stocks.
And as shares and oil prices drop, the future of oil sands projects has also been thrown into doubt. Costs have skyrocketed, with Petro-Canada (PCA.TO: Quote, Profile, Research, Stock Buzz) reporting last month that the estimated tab for its Fort Hills oil sands project jumped by half, to more than C$21 billion, from a year-earlier forecast.
And those costs become even more burdensome if they must be funded by hard-to-find debt financing. Worries over the availability of credit have hammered shares of companies such as Suncor Energy Inc (SU.TO: Quote, Profile, Research, Stock Buzz), which is planning a C$20.6 billion expansion of its Fort McMurray, Alberta, oil sands operations.
"The period that ended September 30 is almost ancient history," said Garey Aitken, a portfolio manager at Bissett Investment Management. "The things that people are going to be focused on is access to credit, what's transpired with commodity prices ... and updates to major projects."
However Aitken said that the traditional issues for oil company earnings reports will still be in play. Investors will still look to see if a company meets its production targets
Aitken said he'll look for updates from Canadian Natural Resource Ltd (CNQ.TO: Quote, Profile, Research, Stock Buzz) and Nexen Inc (NXY.TO: Quote, Profile, Research, Stock Buzz) on their oil sands projects, which are expected to begin operations this quarter.
Natural gas prices strengthened from year-prior quarter, with the quarterly average benchmark price on the New York Mercantile Exchange gaining 44 percent to $8.98 per million British thermal units and Canadian spot prices climbing 49 percent to C$7.35 per gigajoule.
Heavy oil, which trades at a discount to lighter blends, also had a banner quarter, with Bow River Heavy prices averaging C$105.39 a barrel in the quarter, up 87 percent from C$56.29 a barrel in the year-earlier period, according to UBS Securities.
The third quarter again featured stellar commodity prices, with oil and natural gas prices substantially above the year-earlier quarter. All of Canada's big oil and gas companies, beginning with Husky Energy Inc (HSE.TO: Quote, Profile, Research, Stock Buzz) on Tuesday, are expected to report stronger operating earnings.
However the importance of the results for investors is likely be dwarfed by the crisis that has roiled stock and commodity markets, sending shares lower, cutting oil prices by nearly half from the July peak and casting the profitability of the oil sands and conventional energy projects into doubt.
Analysts say investors will be more interested in how Canada's biggest oil and gas companies adjust their spending in response to the economic turmoil and cope with scarce credit than in the past quarter's results.
"Most (capital spending) programs have had a material rewrite in the past few weeks as the equity market went into a tailspin," said Martin Molyneaux, an analyst at FirstEnergy Capital. "The picture is changing radically ... There are financial constraints out there and people are looking at how (companies') debt is going to evolve."
Since the third quarter ended on September 30, oil prices, which averaged $118.22 over the quarter, 57 percent above average for the third quarter of 2007, have plunged by more than a fourth, forcing companies to revisit their capital plans.
The TSX energy index has also fallen, dropping more than 20 percent in October, reflecting plunging energy stocks.
And as shares and oil prices drop, the future of oil sands projects has also been thrown into doubt. Costs have skyrocketed, with Petro-Canada (PCA.TO: Quote, Profile, Research, Stock Buzz) reporting last month that the estimated tab for its Fort Hills oil sands project jumped by half, to more than C$21 billion, from a year-earlier forecast.
And those costs become even more burdensome if they must be funded by hard-to-find debt financing. Worries over the availability of credit have hammered shares of companies such as Suncor Energy Inc (SU.TO: Quote, Profile, Research, Stock Buzz), which is planning a C$20.6 billion expansion of its Fort McMurray, Alberta, oil sands operations.
"The period that ended September 30 is almost ancient history," said Garey Aitken, a portfolio manager at Bissett Investment Management. "The things that people are going to be focused on is access to credit, what's transpired with commodity prices ... and updates to major projects."
However Aitken said that the traditional issues for oil company earnings reports will still be in play. Investors will still look to see if a company meets its production targets
Aitken said he'll look for updates from Canadian Natural Resource Ltd (CNQ.TO: Quote, Profile, Research, Stock Buzz) and Nexen Inc (NXY.TO: Quote, Profile, Research, Stock Buzz) on their oil sands projects, which are expected to begin operations this quarter.
Natural gas prices strengthened from year-prior quarter, with the quarterly average benchmark price on the New York Mercantile Exchange gaining 44 percent to $8.98 per million British thermal units and Canadian spot prices climbing 49 percent to C$7.35 per gigajoule.
Heavy oil, which trades at a discount to lighter blends, also had a banner quarter, with Bow River Heavy prices averaging C$105.39 a barrel in the quarter, up 87 percent from C$56.29 a barrel in the year-earlier period, according to UBS Securities.
