Petro-Canada's Reserve Life Likely to Lengthen
Sporting estimated Net Present Value [NPV] of $72 a share, Petro-Canada (PCZ) stock has the lowest McDep Ratio of all our buy recommendations outside emerging market countries. 
First quarter results reported today exceeded expectations for production volume, cash flow and earnings from our analysis three months ago.
Projected volumes along with current futures prices promise a continuing high level of unlevered cash flow (Ebitda). NPV could be higher than estimated, considering projected cash flow capitalized at unlevered multiples (PV/Ebitda) related to reserve life (Adjusted R/P).
Pointing to more volatility in production, latest proven oil and gas reserves imply an unusually short life in important areas. Reserve life should lengthen as the company commits to the Fort Hills oil sands mine and upgrader project in the last quarter of 2008. While embarking on a large capital project entails large risk, PCZ has the cash flow and assets to bear it. Meanwhile oil price continues to trend upward.
Originally published on April 29, 2008.
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