Petro-Canada Bets Big on Oil Sands

Long-suffering Petro-Canada (PCZ) investors may think their luck has turned this past year as the company starts to shake off a reputation for operational unreliability and its share price has risen. But its biggest challenge yet lies ahead: a massive C$26.2 billion oil sands project that has some analysts wondering whether it might halt the stock’s upward march.

Canada’s fourth-largest oil and gas producer has set itself an aggressive schedule for bringing 280,000 barrels a day of synthetic crude onstream by 2014. Meanwhile, other oil sands projects are struggling increasingly with scarce labor and materials, sending budgets spiraling upward.


So the question is, can Petro-Canada pull it off?

Even a year ago, the overwhelming response probably would have been doubt, but now opinion is mixed. While all acknowledge the massive cost pressures that are straining Alberta’s oil sands patch, some believe the company is being unfairly penalized for past mistakes and is currently undervalued by the market.

But Sam La Bell, vice president at Toronto-based Veritas Investment Research Corp., still has doubts about the oil sands project. In an August research note, he calls the recent cost estimates “a careful bit of subterfuge” to disguise borderline economics. The company didn’t return calls for comment.

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