EARNINGS / Petro-Canada 2nd Quarter Report (Part I)
PETRO-CANADA ANNOUNCES SECOND QUARTER FINANCIAL RESULTS
CALGARY, July 21 /CNW/ - Petro-Canada today announced quarterly net
earnings of $25 million ($0.09 per share), compared with $51 million ($0.19
per share) in the second quarter of 1997 and cash flow of $173 million ($0.64
per share). As previously announced, in the second quarter of 1998 the Company
recorded a one-time charge of $42 million after tax ($0.16 per share) to
earnings and $38 million ($0.14 per share) to cash flow as a result of a
reorganization of its Downstream administration. Excluding this charge and
gains on asset sales, operating earnings and cash flow were $33 million ($0.12
per share) and $211 million ($0.78 per share), respectively, compared with $51
million ($0.19 per share) and $288 million ($1.06 per share) for the three
months ended June 30, 1997. Gains on asset sales were $34 million ($0.13 per
share) during the quarter, relating to the sale of the Company's non-core Gold
Creek property.
''In the first half of 1997, Petro-Canada enjoyed the benefits of very
strong crude oil prices; however, the oil and gas industry is characterized by
significant swings in commodity prices,'' said Petro-Canada President and
Chief Executive Officer Jim Stanford. ''Like most oil and gas producers,
Petro-Canada has experienced a significant erosion of profitability in 1998 as
a result of extraordinarily low crude oil prices. Unlike most producers,
however, Petro-Canada has the benefit of a strong refining and marketing
business.''
Consolidated six month net earnings were $61 million ($0.22 per share),
down from $155 million ($0.57 per share) for the same period last year.
Earnings from operations before the reorganization charge and gains on asset
sales were $70 million ($0.26 per share), compared with $160 million ($0.59
per share) in the first half of 1997, while cash flow was $433 million ($1.60
per share), down from $677 million ($2.50 per share).
Upstream earnings from operations were $7 million in the first six months
of 1998, compared with $110 million last year primarily due to lower commodity
prices and lower straddle plant margins.
Downstream earnings from operations before the reorganization charge were
a record $118 million during the first six months of 1998 compared with $104
million in the first half of 1997. The Company captured the benefits of wider
crude quality price differentials.
''While first half Upstream results have been disappointing, we have a
great deal to look forward to in the remainder of the year,'' said Stanford.
''Hibernia is performing very well, with volumes expected to exceed 100 000
barrels per day by the end of this year. Syncrude production continues to set
new records. At Terra Nova, subsea construction is about to begin, and we
look forward to starting fabrication of the floating production system later
this summer. In refining and marketing, recent refinery maintenance has
prepared our refineries for the third quarter, typically the strongest of the
year. We expect that 1998 will be another very strong year for Petro-Canada's
Downstream.''
Petro-Canada is one of Canada's largest oil and gas companies, operating
in both the upstream and the downstream sectors of the industry. Its common
and variable voting shares trade on Canadian exchanges under the symbol PCA,
and its variable voting shares trade on the New York Stock Exchange under the
symbol PCZ.
SUPPLEMENTAL INFORMATION - UPSTREAM
Drilling
Petro-Canada continues to enjoy success at Wildcat Hills in southwestern
Alberta, where its most recent exploration well encountered 87 metres of
natural gas pay. The Company plans to tie in this new well along with two
previously-announced Wildcat Hills gas discoveries in the month of September,
by which time a pipeline twinning project will have removed field volume
restrictions. Two wells are currently being drilled and an additional four
well program is planned for Wildcat Hills later this year.
Petro-Canada also brought significant gas volumes on stream at West
Ferrier and Wilson Creek in West Central Alberta during the quarter. The
Company has a one hundred per cent interest in two wells at West Ferrier that
are together producing 16 million cubic feet per day and a fifty per cent
interest in a well at Wilson Creek that is producing 20 million cubic feet per
day.
Production
Production averaged 170 900 barrels of oil equivalent per day in the
second quarter, up from 167 200 barrels of oil equivalent in the second
quarter of 1997. Daily production of natural gas was 721 million cubic feet
per day, down from 761 million cubic feet per day in 1997 primarily as a
result of non-core property dispositions.
Crude and liquids production was 98 800 barrels per day, compared with
91 100 barrels per day in the second quarter of last year. Conventional crude
oil and liquids production in Western Canada averaged 52 200 barrels per day
in the second quarter of 1998, down from 60 000 barrels per day in the same
period last year. This decrease is attributable to disposals of non-core
assets and decline rates that reflect the maturity of the Company's Western
Canada oil properties. Petro-Canada's share of daily synthetic crude oil
production from Syncrude was a record 28 300 barrels, up from 20 300 barrels
last year when the plant underwent maintenance. International production
increased slightly to 11 100 barrels per day in the second quarter of 1998
from 10 800 barrels per day in the same period in 1997 as increased Norway
production offset a decline in Algerian production. Petro-Canada's 20 per
cent share of Hibernia production averaged 7 200 barrels per day during the
second quarter of 1998.
Prices
Crude oil and natural gas liquids prices received were sharply lower than
in the second quarter of 1997. Prices received for crude and liquids were
$17.78 per barrel compared with $24.57 in 1997. Prices received for natural
gas averaged $1.86 per thousand cubic feet, up from $1.55 per thousand cubic
feet in the same period last year.
Grand Banks developments
Petro-Canada's share of production from Hibernia is projected to reach
over 20 000 barrels per day by year end. The Company expects a full year 1998
average of 12 000 barrels per day from Hibernia. Drilling at Hibernia
continues to indicate excellent reservoir quality. Production will increase
from current levels with the drilling of additional producing wells, as well
as water and gas injectors. Hibernia should reach peak production of 135 000
barrels per day (Petro-Canada share 27 000 barrels per day) in the first half
of 1999.
Engineering for the Terra Nova oil development continued throughout the
quarter. The third quarter will see the excavation of glory holes at the
production site and the start of module fabrication and hull construction for
the floating production system. Terra Nova owners expect first oil from the
field late in the year 2000.
A drilling rig will arrive on the Grand Banks in late summer to begin a
multi-well drilling program commencing with the Petro-Canada-operated Hebron
D-94 well. Petro-Canada has begun a 3D seismic program on the Riverhead block
and other parcels acquired in 1997.
International activity
In Algeria, gas lift and water disposal projects have been completed at
Tamadanet, where oil production has declined from 6 200 barrels per day in the
second quarter of 1997 to 4 200 barrels per day in the same period in 1998 due
to water influx. The recently installed gas lift is expected to mitigate this
decline. The TAMS - 1 well is currently being evaluated. Drilling of the
next exploratory well on the Tinrhert block will commence in late July at
Tahala North.
Petro-Canada and SONATRACH are continuing to evaluate gas/condensate
discoveries at HIM and TMLS, with a 280 kilometre delineation seismic program
at TMLS nearing completion.
In Tunisia, surveying of the 2 million acre Tataouine block is complete,
and the gathering of existing well and seismic data is underway.
Norway production in the quarter was 6 900 barrels per day compared with
4 600 barrels per day in the second quarter of 1997. This increase is due to
our share of new Njord production of 1 500 barrels per day in the second
quarter and increased production from Veslefrikk of 800 barrels per day.
ICG Propane
Subsequent to the quarter end, Petro-Canada entered into an agreement
with Superior Propane Inc. for the sale of the Company's wholly-owned
subsidiary ICG Propane Inc. for net proceeds of approximately $175 million
effective July 20, 1998. No gain or loss will be attributable to Petro-Canada
from this transaction, which is subject to regulatory review and approval from
the Government of Canada's Competition Bureau. The transaction is expected to
close during the fourth quarter of 1998.
DOWNSTREAM
Petro-Canada's Downstream enjoyed a strong second quarter, with earnings
from operations of $55 million, compared with $54 million during the same
period last year. The largest maintenance shutdown in the history of the
Edmonton refinery was completed successfully. This planned shutdown reduced
Downstream earnings during the quarter. Petro-Canada's refineries are now well
positioned for the key third quarter. Petro-Canada was able to maintain a
strong overall refinery utilization rate of 93 per cent during the quarter.
Despite the continuing decline of feedstock costs, margins remained under
significant pressure due to intensified competitive activity. Management of
expenses and other controllables contributed positively to Downstream results
during the quarter. Petro-Canada took advantage of wide light/heavy and
sweet/sour crude oil price differentials throughout the period to reduce
feedstock costs.
Total sales of petroleum products were flat compared with the same period
last year. Volumes shed during the first quarter were not replaced because of
the Edmonton refinery maintenance shutdown.
Faced with a persistently difficult lubricants business environment,
Petro-Canada is managing controllable factors to enhance the profitability of
its state of the art lubricants facility and is starting to see some
improvement. Lubricants sales rose 5 per cent, although competitive pressures
continued to hamper profitability.
The rack back (refining and supply) segment contributed after-tax
operating earnings of $37 million, compared with $34 million in the second
quarter of 1997, while rack forward (marketing) earnings were $18 million,
down from $20 million during the same period last year.
Petro-Canada announced during the quarter that the Company will not be
proceeding with its proposed refining and marketing joint venture with
Ultramar Diamond Shamrock Corporation. The Company became convinced that to
proceed further with its application to the Competition Bureau would require a
lengthy and expensive process, including extended public hearings, with no
certainty of success.
During the evaluation of the proposed joint venture with Ultramar Diamond
Shamrock, Petro-Canada identified several initiatives to reduce costs. The
Company intends to pursue those initiatives that are feasible on a stand-alone
basis and is carrying out a reorganization designed to generate annual savings
of $13 million after tax. As a result of this reorganization and costs
associated with the cancellation of the joint venture, Petro-Canda will take a
one-time charge to 1998 second quarter earnings of $42 million after tax.
Petro-Canada's Downstream business is on track for another excellent year. The
Company will continue to pursue all opportunities to enhance the profitability
of its refining and marketing operations.
Year 2000 systems preparations
Petro-Canada has made significant progress in preparing its systems to
handle the Year 2000 challenge. Inventory and assessment phases are complete
for all processes and systems and remediation has begun on several fronts. As
well, Petro-Canada is contacting suppliers and key customers to enhance
awareness and determine potential third party risks. Contingency planning
will continue through the last quarter of 1998 to mitigate risk of systems
failure.
Following further investigation of its requirements, the Company now
expects to spend approximately $20 million for Year 2000 initiatives in 1998
and a further $10 million in 1999. Approximately $10 million of the two year
total of $30 million will be capital expenditures with the remainder expected
to be expensed.
SHAREHOLDER INFORMATION
As at June 30, 1998, Petro-Canada's public float of 221.9 million shares
comprised 177.5 million common shares, held by residents of Canada, and 44.4
million variable voting shares, held by non- residents of Canada. |
