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Stock to watch: Petrowest poised to be a B.C. LNG play

Oil pumps at work on an oilfield in Los Angeles on May 12, 2009.


Petrowest Corp.

Monday's close: 80 cents

52-week trading range: 17 to 96 cents a share

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Annual dividend: none

Analysts' ratings: There were 2 buy ratings, according to Bloomberg data. Target prices were $1.25 and $1.50 a share.

Recent history: Shares of the Grande Prairie, Alta.-based oilfield services company have soared about 167 per cent over the past year. Petrowest, which went public in 2006 as an energy trust and converted to a corporation in 2011, also provides construction, infrastructure and transportation services in northern British Columbia and Alberta. The former trust, which went public at $10 a unit, suspended distributions in 2008 as it struggled amid falling gas prices and a heavy debt load, which has now been refinanced. Its shares have traded as a penny stock since then, but began climbing last July after Beacon Securities Ltd. initiated coverage, and highlighted that Petrowest should benefit from B.C. projects aimed at shipping liquified natural gas [LNG] to Asia. Irwin Michael Investment Counsel Ltd. acquired a 12-per-cent stake in the company late last year.

Outlook: Petrowest shares hit a 52-week high last week after the company was awarded a $78-million contract to build the final leg in the twinning of Highway 43 in Alberta. "This is the biggest contract in the company's history," and gives solid revenue visibility, said Don Walker, a portfolio manager with Hesperian Capital Management Ltd., which has owned its shares since 2010. "It does solidify 15 per cent of revenue over the next year and a half for a business that usually gets contracts for one-to three-months."

The latest contract with a civil customer is a nice bridge to expected future energy revenue, said Mr. Walker. "The real significance is it allows you to wait for the LNG projects to start being built, and all the activity related to that. Probably at the end of 2013 and 2014 is when it starts happening."

With drilling activity in northern British Columbia and Alberta, Petrowest, which has about 600 pieces of earth-moving equipment, will be able to get work doing well-site preparation and completion services, as well as road clearing for pipelines that will be built to ship gas to the LNG terminals on the B.C. coast, he said.

Petrowest is also a potential takeover target. "Northwest B.C. is going to get very active over the next three to five years," Mr. Walker said. "Someone like Aecon or Bird Construction might want to get into that area, and the easiest way would be to acquire someone like Petrowest…Aecon has concentrated on the oil sands, but I think northwest B.C. is going to be the new mega-project area. It is still early days, but infrastructure is going to be needed there, and Petrowest is very well positioned."

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