Gas Shortage Hits Oil-Rich Alberta

Tickers in this Article: PCZ, CVX, XOM, C.PCA

Drivers in Western Canada were shocked to find many Petro Canada (TSX:C.PCA, NYSE:PCZ) stations dry over the past few weeks, as a problem with the catalytic cracker, the refinery's key unit in the production of gasoline from crude oil, at its Edmonton, Alberta refinery caused shortages. 

Bad Timing 
These problems unfortunately coincided with a planned 60-day closure of Petro Canada's 125,000-barrel-per-day refinery in Edmonton. The shut down was needed so the company could to tie in new equipment that will allow the refinery to process crude and other heavy oils from the Alberta oil sands. This closure was not expected to affect supply to its customers, and the catalytic cracker was supposed to have remained operating throughout. The catalytic cracker was restarted last Wednesday, and is now producing gasoline with ramp-up procedures in place to help improve supply issues.

Problems aside, the past quarter has been very good for Petro Canada which is one of Canada's largest oil and gas companies. Just over a month ago the company increased its quarterly dividend by 54% reflecting confidence in its ability to execute a long-term business plans. This confidence is also reflected in Petro Canada's recent quarterly earnings report, with operating earnings up 43% from $1.63 per share to $2.38. Cash flow from operating activities was up as well, jumping 47% from $2.74 per share to $4.09 per share. (To learn more about investing in this hot sector, be sure to read our Oil And Gas Industry Primer.)

Petro Canada Leading The Pack
The outlook for the future looks rosy as well with a recent deal reached with the Newfoundland government on the fiscal terms for the development of Hebron, a 400-700 million barrel deposit discovered in 1981. Petro Canada has a 22.7% stake in the development, along with Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX), who have 36.0% and 26.6% interests respectively.

With this development now on the track to produce oil in 8 to 10 years, and the new upgrades to its Edmonton refinery allowing it to process crude from the oil sands, Petro Canada is on track to continue to impress shareholders as it moves itself to the front of the pack of Canadian oil and gas companies.

Bottom Line
Hopefully these past few weeks were the last we have seen of gas stations with no gas. Ironically, it was in one of the most oil rich areas of the world that consumers had to find alternate supplies. Even with the recent problems, however, Petro Canada was able to minimize the impact and move forward with its plans for future expansion. It's down almost 10% over the past month, and investors may want to take this opportunity to buy this company on a dip.

What do you think will happen with Petro Canada going forward? Will the recent moves to increase production be enough to bring the stock price back up from its recent fall? Join me (aytonmm) in the FREE Stock Picking Community, to share your thoughts and see what other investors are saying.

By Ayton MacEachern

Ayton MacEachern is the Senior Financial Editor at Investopedia.com. After receiving his bachelor's degree in financial services from Mount Royal College in Calgary, Alberta, MacEachern began his career at an international securities trading firm. Before joining Investopedia in 2008, MacEachern worked in a variety of roles in the financial industry, including workers' compensation insurance underwriting, financial planning, and equity, currency and options trading. MacEachern is also Co-Founder of theskipper.ca, a source for online outdoor education.

Type

Overnight avgs