FINANCING / Gulf Canada announces Debt Reduction Plan Part 1
DENVER, CO, Feb. 19 /CNW/ - Gulf Canada Resources Limited today announced
a significant debt reduction program, including the sale of North American and
international producing and non-producing assets and the creation of an
infrastructure trust in Western Canada, with target proceeds of approximately
$850 million.
Gulf has hired RBC Dominion Securities Inc. to assist in the creation and
marketing of an infrastructure trust to capture value by selling approximately
49 per cent of a portion of the Company's extensive network of gas
transmission and processing facilities with one billion cubic feet of sour gas
processing capacity in west-central Alberta, a highly prospective area for
natural gas. Gulf has made a significant investment in these assets over the
past three years to increase capacity to handle and process third-party gas
volumes. The long-life infrastructure trust will monetize third party
processing revenues. Gulf will continue to operate the facilities and maintain
the flexibility to process its gas volumes in what the Company believes is
becoming a very exciting gas market.
In addition, the company plans to sell its interest in the United Kingdom
North Sea. Budgeted 1998 production from interests in four non-operated oil
fields is approximately 19,000 barrels per day, less than nine per cent of
GulfŠs total budgeted production. The company also has two projects currently
under development, and onshore and offshore exploration licenses totaling
500,000 undeveloped acres. The Company's Netherlands North Sea assets will
not be part of the divestiture package.
Gulf also plans to sell approximately $100 million of non-oil and gas
assets including its Mount Klappan coal deposit, its large acreage position
near Reno, Nevada, and approximately $50 million of non-producing Canadian
assets.
Adds Gulf's President and CEO Dick Auchinleck, ''The program announced
today will not distract us from our aggressive 1998 exploration and
development program that calls for capital investment of nearly $1 billion in
our core assets. The divestiture program allows us to focus on those core
areas that can continue to generate significant growth rates for the company.
We believe that Gulf is significantly undervalued in today's market. We plan
to move quickly to capture unrealized value from our assets and reduce debt to
approximately 2.5 times cash flow within the next 12 months. The benefits of
having an investment grade balance sheet and the financial flexibility that
will give us more than offset the modest impact this program will have on
production volumes and cash generation.''
In another move today, the Board of Directors of Gulf adopted a
Shareholders' Protection Rights Plan. The Plan will be presented to the
shareholders for ratification at the Gulf Annual and Special Meeting on April
30, 1998.
GULF CANADA ANNOUNCES 46% INCREASE IN PROVED RESERVES
AND 35% INCREASE IN CASH FLOW
HIGHLIGHTS
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$Canadian
Year-ended December 31,
1997 1996
FINANCIAL
Cash Generated ($mm) $ 592 $ 440
Cash Generated per Share, after
preferred dividend ($) 1.96 1.72
Earnings ($mm) 204 37
Earnings per Share ($) 0.62 0.03
SALES VOLUMES (average boe/d)
North America 124 117
Indonesia 22 14
Other International 34 0
--- ---
Total 180 131
RESERVES
Proved Gross Oil / Liquids (mmb) 599 392
Proved Gross Natural Gas (bcf) 2,419 1,986
Total (mmboe) 912 624
Gulf Canada Resources Limited became a true international, diversified
oil and gas exploration and production company in 1997. The acquisitions of
Clyde Petroleum plc and Stampeder Exploration Ltd. added to Gulf's already
large and prospective position internationally and in Western Canada. These
actions present the opportunity in 1998 and beyond for Gulf to utilize its
exploration and technological expertise to maximize the value of its assets.
In addition, Gulf Canada successfully took Gulf Indonesia Resources Limited
public, retaining 72.4 per cent, and establishing a US$1.7 billion net value
for these assets.
Success in 1997 was recognized not only through these transactions, but
also through the drill bit with sizable discoveries in Indonesia plus success
in new international areas including Australia, the Netherlands and Yemen.
Average production on a barrel of oil equivalent (boe) basis increased 37
per cent to 180,000 boe/d. This increase was achieved in combination with
reduced operating and G&A costs that averaged $7.05 per boe for the year
versus $7.44 in 1996. Gross proved reserves increased 46% per cent to 912
million barrels of oil equivalent (mmboe) from 624 mmboe. This also equates
to a production replacement rate of over 450 per cent. Probable reserves more
than doubled to 618 mmboe indicating a sizable base for future proved reserve
additions. Financially, earnings grew to $0.62 per share from $0.03, largely
as a result of the gain realized after the Gulf Indonesia public offering, and
cash generated increased 14 per cent to $1.96 per share.
Gulf continued with its strong finding and development costs record with
gross proved reserve averaging $6.56 per boe for the year and $5.28 per boe
using a three year average. For Western Canada conventional, the averages are
$5.54 per boe for 1997 and $5.97 per boe using a three-year average. The 1997
finding and development cost figure does not include discoveries recently
announced in Australia, Indonesia and Yemen, which will be delineated in 1998.
During the year, Gulf invested $1.1 billion in exploration and
development and completed $1.9 billion worth of acquisitions. Funding
included $0.6 billion in cash generated from operations, $1.1 billion from
asset sales and the Gulf Indonesia public offering, approximately $1.0 billion
in equity issued and $0.5 billion in new debt net of repayments and cash.
The 1997 capital and exploration expenditure budget of $1.1 billion was
significantly higher than $644 million in 1996. The capital program was
applied to North America (53%) and Indonesia (32%), and the remainder to other
international programs.
Highlights from Gulf's 1997 operations include:
Western Canada
--------------
- Canadian conventional light oil and natural gas production averaged
approximately 100,000 boe/d.
- Capital expenditures for the conventional light oil and natural gas
operations of $450 million funded 588 wells and a significant
investment in infrastructure and processing facilities in and around
Gulf's west-central Alberta holdings. Gulf is positioning the region
to take advantage of improved gas markets expected beginning in late
1998.
- Gulf formed several innovative joint ventures/alliances with aligned
parties, bringing together prospective natural gas exploration
properties, infrastructure and shared expertise to more quickly and
economically explore large land positions. These alliances allow Gulf
to accelerate the exploration and development of large areas.
- Divestitures totaled $451 million, of which $366 million is from the
fourth quarter including the sale of the Zama Virgo properties, were
completed and funds received were applied to reduce debt.
- Gulf Heavy Oil was established in October, and it is now being
positioned for public offering later this year or in 1999. Timing of
the offering will depend upon market conditions and the differential
obtained for heavy oil, as well as technological results from the
Surmont pilot thermal recovery project. Steam injection at the Surmont
pilot project began in August and reservoir response has been
encouraging to date. Results required to make a decision regarding
commercial production potential are expected by yearend 1998. If
successful, Gulf estimates ultimate recoverable reserves of more than
two billion barrels.
- In November, the owners of Syncrude approved a plan to double the size
of the Syncrude project in a four-stage expansion program to be
completed in 2007. Gulf holds a 9.03 per cent interest in Syncrude and
its shares of 1997 production averaged 18,600 b/d. Gulf also
administers the Athabasca Oil Sands Trust that holds an 11.74 per cent
interest in Syncrude.
Indonesia
---------
- Indonesia crude oil production averaged 22,500 b/d, up from 13,900 b/d
in 1996, due to the acquisition of Clyde Petroleum plc's Kakap assets
early in the year.
- Cash generation from Indonesia was $100 million for the year, or $0.26
per Gulf Canada share.
- An 80 per cent increase in exploration activity resulted in significant
finds, including the Mengoepeh oil discovery and the Rayun and Bungin
natural gas discoveries.
- The Corridor natural gas development project (54% WI) is on time and on
budget, with start-up expected in fall 1998.
North Sea and Australia
-----------------------
- Daily sales volumes averaged 18,500 barrels of oil and natural gas
liquids and 62 million cubic feet natural gas in the North Sea.
Development of the Ross field (14.5% WI) is underway.
- Australian production averaged 5,000 boe/d in 1997. Gulf announced the
Tenacious wildcat discovery (25% WI) offshore in the Timor Sea. This
discovery identifies a new reservoir which Gulf will be delineating in
1998. Development scenarios are currently being discussed.
''Gulf has undergone a terrific year of geographic diversification and
expansion of operations with significant increases in cash flow and earnings
per share'' says Richard (Dick) H. Auchinleck who was recently promoted to the
position of President and Chief Executive Officer and appointed to Gulf's
Board of Directors. ''Moving forward into 1998, Gulf is well positioned to
maximize the value of its sizable and geographically diversified asset base.
Operating activity will focus on delivering value from our existing core
assets. Corporate activity will concentrate on our debt repayment program
announced today and achieving an investment grade credit rating from U.S.
agencies.''
<<
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
AND RETAINED EARNINGS (DEFICIT)
Year ended December 31,
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(millions of dollars) 1997 1996 1995
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EARNINGS (LOSS)
Revenues
Net oil and gas $ 1,254 $ 856 $ 661
Gain on sale of shares by subsidiary 417 0 0
Net gain on asset disposals and
provision for future losses (75) 5 6
Other 81 48 51
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1,677 909 718
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Expenses
Operating - production 399 309 254
- other 12 11 10
Exploration 150 70 67
General and administrative 64 49 53
Depreciation, depletion and amortization 504 289 193
Pension settlement and restructuring
charges 67 4 24
Finance charges, net 222 79 135
Income tax expense 59 59 10
Minority shareholder's interest (4) 0 0
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1,473 870 746
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Earnings (loss) from continuing
operations 204 39 (28)
Discontinued operations 0 (2) 0
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Earnings (loss) for the year $ 204 $ 37 $ (28)
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Per ordinary share
Earnings (loss) from continuing
operations $ 0.62 $ 0.04 $ (0.32)
Earnings (loss) $ 0.62 $ 0.03 $ (0.32)
RETAINED EARNINGS (DEFICIT)
Balance, beginning of year $ 0 $ (8) $ (1,129)
Earnings (loss) for the year 204 37 (28)
Dividends declared on preference shares (23) (29) (37)
Deficit elimination 0 0 1,186
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Balance, end of year $ 181 $ 0 $ (8)
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CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
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(millions of dollars) 1997 1996 1995
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OPERATING ACTIVITIES
Earnings (loss) from continuing
operations $ 204 $ 39 $ (28)
Non-cash items included in earnings (loss)
Depreciation, depletion and
amortization 504 289 193
Net gain on asset disposals and
provision for future losses (342) (5) (6)
Amortization of deferred foreign
exchange losses 17 15 52
Pension settlement and restructuring
charges 53 0 25
Exploration expense 150 70 67
Deferred income taxes 17 41 (3)
Other (11) (9) (8)
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Cash generated from operations 592 440 292
Other long-term liabilities (10) (15) 20
Changes in non-cash working capital 43 (44) (21)
Other, net (4) (9) (16)
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621 372 275
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INVESTING ACTIVITIES
Proceeds on asset disposals 1,099 278 51
Acquisitions (1,944) (284) (216)
Capital expenditures and exploration
expenses (1,133) (644) (502)
Changes in non-cash working capital 3 (21) 62
Other, net 39 (72) (30)
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(1,936) (743) (635)
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DIVIDENDS
Regular dividends declared on
preference shares (23) (29) (37)
Special dividends declared on
preference shares (45) (13) 0
Changes in non-cash working capital (1) 0 2
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(69) (42) (35)
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FINANCING ACTIVITIES
Foreign exchange on short-term loans (4) 0 0
Proceeds from issue of long-term debt 1,628 500 281
Long-term debt repayments (897) (421) (663)
Issue of equity 964 150 295
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1,691 229 (87)
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Increase (decrease) in cash 307 (184) (482)
Cash at beginning of year (170) 14 496
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Cash at end of year (1) $ 137 $ (170) $ 14
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(1) Comprise cash and short-term investments, net of short term loans
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
Year ended December 31,
1997 1996
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ASSETS
Current
Cash and short-term investments $ 188 $ 53
Accounts receivable 346 295
Other 121 83
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655 431
Investments, deferred charges and
other assets 238 236
Property, plant and equipment 5,736 2,809
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$ 6,629 $ 3,476
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Short-term loans $ 51 $ 223
Accounts payable 420 277
Current portion of long-term debt 29 0
Current portion of other long-term
liabilities 37 34
Other 129 86
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666 620
Long-term debt 2,785 1,198
Other long-term liabilities 201 140
Deferred income taxes 307 148
Minority interest 220 0
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4,179 2,106
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Commitments and contingent liabilities
Shareholders' equity
Share capital
Senior preference shares 577 577
Ordinary shares 1,660 687
Contributed surplus 35 80
Retained earnings 181 0
Foreign currency translation adjustment (3) 26
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2,450 1,370
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$ 6,629 $ 3,476
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SUPPLEMENTARY INFORMATION
Year ended December 31,
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1997 1996
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VOLUMES SOLD (1) (gross/net)
Crude oil and natural gas liquids
(thousands of barrels per day)
North America
- Conventional light oil 43.0 / 35.3 39.0 / 31.4
- Conventional heavy oil 5.4 / 4.7 - / -
- Syncrude crude oil 18.6 / 16.9 18.2 / 15.0
- Condensate 5.7 / 4.0 5.6 / 4.6
- Other natural gas liquids 10.7 / 9.1 10.5 / 8.6
------------------------------------------------------------------------
83.4 / 70.0 73.3 / 59.6
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International
- Indonesia 22.5 / 16.6 13.9 / 10.3
- United Kingdom 17.0 / 16.2 - / -
- Other 2.0 / 1.7 - / -
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41.5 / 34.5 13.9 / 10.3
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Total liquids 124.9 / 104.5 87.2 / 69.9
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Natural gas
(millions of cubic feet per day)
- North America 413 / 351 441 / 371
- Netherlands 62 / 61 - / -
- Other 22 / 21 - / -
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497 / 433 441 / 371
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Total barrels of oil
equivalent per day (2) 180.2 / 153.3 131.3 / 107.0
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(1) ''Gross'' sales include royalties; ''net'' sales are after
royalties. Volumes are adjusted for:
- NGL and gas re-injection
requirements (mboe/d) (4.2) (4.2)
- Inventory drawdown / (buildup) (mboe/d) (0.0) (0.4)
(2) Canada gas converted at 10:1, International gas at 6:1
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