Lockerbie in a Hole, Thanks to Oil Sands Construction Delays

by: FP Trading Desk November 21, 2008 | about stocks: AEGXF.PK / SU    

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It's not only the oil companies that are getting creamed by falling oil prices and the credit crunch that has led to projects being put on hold.

Earlier this week, Lockerbie & Hole Inc. [TSE: LH], one of Canada’s leading mechanical contractors, announced that the construction and procurement portion of its Fort Hills North Mine contract is being delayed in light of lower crude prices, escalating cost pressures and the current turmoil in the financial and credit markets.

This has prompted Raymond James analyst Frederic Bastien to lower its target price on the company to  C$8.25 from C$9.25 a share.

“Obviously, the implications are negative,” he says in a research note, referring to Suncor Energy Inc.’s (SU) announcement to postpone the C$250-million construction program for its Voyager project. He estimates the delay is expected to defer roughly C$30-million and C$100-million of revenue for fiscal 2009 and fiscal 2010, respectively."

"Not only do these delays highlight how vulnerable some of Lockerbie’s backlog is, they also threaten to intensify competition among the oil sands-based contractors, making the ability to replace the dollar value of work increasingly difficult

Mr. Bastien concludes: “Although we continue to like the company’s prospects in the long term, we believe Lockerbie’s stock will remain under pressure as long as oil prices stay depressed and the development of new oil sands projects continue to be uneconomical,” he says in a note to clients. He has a market perform rating on the shares.

Instead, he favours companies with “material exposure” to the institutional sector and offering above-average client and geographic diversity, including Seacliff Construction Corp. [TSE:SDC] and Aecon Group Inc. [TSE:ARE].

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