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Pipes which are part of the processing plant at the McKay River Suncor oil sands in-situ operations near Fort McMurray, Alta., Sept. 17, 2014.Todd Korol/Reuters

The plunge in the price of oil has eviscerated the share price of most Canadian energy stocks.

Among the majors, Husky Energy was down 28 per cent from its 52-week high as of the close of trading on Aug. 10. Canadian Natural Resources had lost 30 per cent, Cenovus Energy was down 45 per cent, and EnCana Corp., which is mainly a natural gas producer, was off 62 per cent.

But two of the country's largest petroleum producers, Suncor Energy and Imperial Oil, are holding up reasonably well in these tough times. Both stocks are off about 16 per cent from their 52-week highs and both have rallied impressively from their lows of late 2014/early 2015.

What sets them apart from the rest of the pack? Both have significant downstream operations, including refineries and retail outlets (Imperial owns the Esso brand while Suncor owns Petro-Canada). These segments of the business actually benefit from low oil prices, somewhat offsetting the loss of revenue on the production side.

For example, Imperial Oil reported a second-quarter loss of $174-million in its upstream (production) operations. But the downstream business generated a profit of $215-million and the company reported net income of $69-million from its chemical operations. Corporate and other added $10-million, producing a profit of $120-million. That was well below last year but at least the ink on the bottom line was black.

Suncor's results were even better. The company reported a $44-million loss on its oil sands operations, but a profit of $663-million on the refining and marketing side put the company comfortably in the black for the quarter. Total net earnings were $729-million.

Those results were good enough for the company's directors to approve a surprise dividend increase of four per cent, to 29 cents per quarter ($1.16 per year) and renew the share repurchase program in moves designed to demonstrate "the company's ability to generate cash flows and return value to shareholders."

At the same time Suncor again cut its expected capital expenditures, this time by $400=million to a range of $5.8-$6.4=billion from $6.2-$6.8=billion previously. Management said: "non-essential projects have been re-evaluated as part of the company's cost reduction initiatives and overall approach to capital discipline."

As we've seen with other energy companies, both Imperial and Suncor reported higher production during the quarter despite the world glut that is keeping prices low. Suncor's total upstream production was 559,900 barrels of oil equivalent per day (boe/d) in the quarter compared with 518,400 boe/d the year before. Suncor said this was due primarily to "strong reliability in oil sands operations and the continued ramp up of Golden Eagle production in the U.K." Operating costs for oil sands production dropped to $28 a barrel from $34.10 a year ago.

Imperial Oil said its production averaged 344,000 boe/d, up 20 per cent from 287,000 boe/d in the second quarter of 2014 due to higher Kearl and Cold Lake volumes. Amazingly, given market conditions, production was at its highest level since the third quarter of 2007.

The bottom line is that both Imperial Oil and Suncor are handling this cyclical downturn relatively well, thanks to their downstream operations. Both stocks pay dividends but Suncor's yield of 3.1 per cent is by far the more attractive.

If you feel you must own some energy stocks despite the current environment, either of these companies is a good place to start. Check with your financial adviser.

Gordon Pape is Editor and Publisher of the Internet Wealth Builder and Income Investor newsletters. For more information and details on how to subscribe, go to www.buildingwealth.ca.

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