The stock prices of mid-sized oil and natural gas companies in Western Canada have been outperforming the market since the spring, a new report reveals.

The latest iQ Report by Bryan Mills Iradesso, a national communications firm, shows that the average intermediate oil and gas player produced returns of 40% from April through August including dividends and distributions. This compares with a return over the same period of 25% for the S&P/TSX composite index, 21% for the S&P/TSX Capped Energy Index of senior players and 21% for the iQ Report’s list of junior players.

“Investors have returned to the oil and gas sector,” said Peter Knapp, president of Bryan Mills Iradesso and co-editor of the iQ Report. “Almost everyone who had the courage to average down when times were tough at the beginning of 2009 is glad they did.”

The iQ Report tracks the performance of junior and intermediate oil and gas companies and trusts that operate primarily in Western Canada and trade on the TSX or TSX Venture Exchange. The latest report compares the financial and operating results of 60 juniors and 25 intermediates that met the criteria for inclusion in the second quarter of 2009.

Only one of 25 intermediates lost ground on the stock market from April through August. Iteration Energy was the lone decliner over this period with a modest loss of 3% while Advantage Oil & Gas increased the most at 103%.

The average junior also gained ground over this period with 47 of the 60 companies in this category posting gains.

Knapp said investors have been attracted to the intermediate players during the early stages of the global economic recovery because of their balance of risk and reward. The intermediates offer a 33% oil weighting compared with 24% for the juniors. Mid-sized companies also offer active hedging programs to help shield investors from volatile commodity prices, and a level of trading liquidity that allows relatively easy access to funds.

“The juniors could be the next to shine as the economic recovery becomes firmly established,” Knapp said.

The quarterly report also revealed that a vast majority of oil and gas players – regardless of size – incurred a challenging second quarter. Fifty-seven of 60 junior companies, and 19 of 25 intermediates reported a loss in the second quarter of 2009.

Median cash flow netbacks – the amount of cash flow companies generate from each barrel of oil equivalent of production – were also hit hard. In the second quarter, median cash flow netbacks were $10.25 per boe for juniors and $20.24 per boe for intermediates, down sharply from the same quarter of 2008, when median cash flow netbacks were $38.08 per boe for the juniors and $37.43 for the intermediates.