EARNINGS / Petro-Canada reports 1st 3 months Results
CALGARY, April 21 /CNW/ - Petro-Canada today announced quarterly net
earnings of $36 million ($0.13 per share) and cash flow of $260 million ($0.96
per share), compared with net earnings of $104 million ($0.38 per share) and
cash flow of $389 million ($1.44 per share) in the first quarter of 1997.
Earnings from operations were $37 million ($0.14 per share), compared with
$109 million ($0.40 per share) a year earlier.
The decline in earnings during the first quarter of 1998 resulted from
lower commodity prices and lower production volumes in the Upstream sector,
which more than offset improved margins in the Downstream. Cash flow declined
as a result of lower earnings and higher current taxes.
In the Upstream, earnings from operations were $2 million, compared with
$86 million in the first quarter of last year. Prices of crude oil and natural
gas were significantly lower than during the first quarter of 1997. Natural
gas and crude oil volumes were also reduced, mainly as a result of non-core
asset dispositions that occurred after March 31, 1997.
Downstream earnings from operations were $63 million, up from the $50
million recorded in the first quarter of the preceding year. The Downstream
continued to achieve high asset utilization and to refine large volumes of
heavy crude in order to take advantage of significant price discounts for that
commodity.
''As we predicted last year, the current low crude price environment
promises to make 1998 a challenging year for the exploration and production
business,'' observed President and Chief Executive Officer Jim Stanford.
''However, we expect that for Petro-Canada, the effect of this environment
will be mitigated by our industry-leading refining and marketing operations
and our significant exposure to natural gas. 1998 will be the first full year
of production from Hibernia and promises to be another record production year
at Syncrude. In addition, we continue to expect to close our proposed
downstream joint venture with Ultramar Diamond Shamrock Corporation this
year.''
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
Total daily production of crude oil, field natural gas liquids and
natural gas was 168 600 barrels of oil equivalent during the first quarter of
1998 compared with 179 500 barrels during the same period in 1997.
Conventional crude oil and liquids production in Western Canada averaged
53 900 barrels per day in the first quarter of 1998, down from 61 300 barrels
per day in the same period last year as a result of dispositions of non-core
fields (4 000 barrels per day) and natural decline. Production of natural gas
was 738 million cubic feet per day, down from 817 million cubic feet per day
in 1997. Gas volumes were affected by non-core asset dispositions (34 million
cubic feet per day) that occurred in the second quarter of 1997, as well as
temporary, seasonal production delays in northeast British Columbia associated
with early breakup. Petro-Canada's share of daily synthetic crude oil
production from Syncrude, where a temporary coker malfunction reduced
production during the month of January, was 21 100 barrels, compared with 23
200 barrels a year earlier.
Crude oil prices declined significantly throughout the quarter. Oil and
liquids prices received averaged $19.07 per barrel during the first quarter,
compared with $28.32 per barrel in the first quarter of 1997. Prices received
for natural gas averaged $1.75 per thousand cubic feet, compared with $2.42
per thousand cubic feet in the same period last year. Petro-Canada is
reviewing its capital expenditure program in light of current weakness in
crude oil prices. If further deterioration occurs or if it becomes apparent
that commodity prices will remain low for a prolonged period Petro-Canada may
reduce the amount of capital expenditure planned for 1998.
Western Canada drilling
In Western Canada, Petro-Canada's focus is on increasing its natural gas
reserves and production. The Company continued to achieve success in the
Wildcat Hills area of the Alberta Foothills during the first quarter. Two
recent gas discoveries each have over 110 metres of net pay in the Turner
Valley formation. One of these tested at a combined rate of 25 million cubic
feet per day from two zones, while the other will be tested by mid-year.
Petro-Canada has a 56 per cent interest in both wells, and plans to drill
nine additional wells on its current land holdings in the Wildcat Hills area
over the next year.
Grand Banks developments
Hibernia production was 7 700 barrels of oil per day net to Petro-Canada
in the first quarter, as some Hibernia wells were shut in for pressure
maintenance in advance of water injection scheduled to begin late in the
second quarter. Petro-Canada's 20 per cent share of 1998 production is
expected to average approximately 12 000 barrels per day. The development is
projected to reach peak production of 135 000 barrels per day in the first
half of 1999. By the end of 1998, Hibernia is expected to have a total of six
producing wells and five injector wells in operation.
The Terra Nova oil development received regulatory and partner approval
during the quarter. Fabrication of the floating production vessel and
dredging of glory holes for the wellheads will begin this summer. Construction
of modules and deck assemblies for the floating production system will begin
this fall. Pre-drilling of six wells is expected to begin in the summer of
1999 followed by first oil at the end of the year 2000.
A rig will arrive on the Grand Banks this summer to begin drilling a
multi-well program including wells at Hebron, White Rose and Riverhead.
Petro-Canada and its partners will shoot 1 000 square kilometres of 3D
seismic on the Riverhead prospect and two adjoining parcels in 1998.
International activity
In Algeria, Petro-Canada's 70 per cent share of first quarter production
averaged 4 400 barrels per day before royalties and the sharing of profit
oil. During the quarter, Petro-Canada made a second gas/condensate discovery
on its two million acre Tinrhert block in Algeria at Timellouline Sud. The
Company will invest additional capital in Algeria in 1998 to evaluate recent
discoveries at Hassi Imoulaye and Timellouline Sud and to drill and evaluate
wells at Tamadanet South and other locations. The Ouine Eslak well will be
plugged and abandoned. The Tamadanet South well will spud in May.
In early April, Petro-Canada entered into an agreement with ETAP, the
Tunisian national oil company, to explore jointly on a large block of land in
south-central Tunisia. Petro-Canada and ETAP have acquired exclusive rights
to conduct geological and geophysical studies, as well as seismic
reprocessing and acquisition, on the Tataouine block, covering approximately
1.8 million acres in the Berkine (Ghadames) Basin. This basin is relatively
unexplored in Tunisia, but has provided a number of substantial oil
discoveries recently in adjacent areas of Algeria. Petro-Canada has committed
to spend $5 million in Tunisia during 1998 and 1999. Following the initial
two-year term, Petro-Canada will have an option to extend the agreement.
In the North Sea, Petro-Canada's share of production from the Veslefrikk
field averaged 5 900 barrels per day of liquids during the first quarter. The
Njord field, which came on stream in October, produced 1 800 barrels per day
net to Petro-Canada in the first quarter. Njord is expected to reach peak
production of 4 600 barrels per day net to Petro-Canada in early 1999.
DOWNSTREAM
Petro-Canada's Downstream enjoyed a strong first quarter, with earnings
from operations of $63 million compared with $50 million during the same
period last year. Significant discounts for heavy crude reduced refinery
feedstock costs. Petro-Canada's refineries were able to take advantage of
higher discounts for heavier crude oil grades during the quarter by optimizing
the volume of heavy oil processed. The Company's refineries continued to run
at full capacity during the quarter. The Company is planning a significant
maintenance shutdown at the Edmonton refinery during the second quarter.
Total sales of refined products were down approximately 3 per cent over
the same period last year mainly due to warmer than expected winter weather
and the shedding of certain less-profitable refinery sales contracts. Retail
sales volumes and profitability remained strong.
The rack back (refining and supply) segment contributed after-tax
operating earnings of $39 million, compared with $30 million in the first
quarter of 1997, while rack forward (marketing) earnings were $24 million, up
from $20 million during the same period last year.
The lubricants business achieved sales volume increases of 9 per cent
compared with the same period in 1997. Industry conditions continue to hamper
profitability in this business. Petro-Canada is taking action to improve the
profitability of its lubricants business by improving its sales mix and
further reducing basestock production costs. Petro-Canada worked throughout
the quarter to lay the foundation for its proposed refining and marketing
joint venture with Ultramar Diamond Shamrock Corporation (UDS). The joint
venture, which was announced in January, will combine Petro-Canada's
refining and marketing business with UDS' refining and marketing assets in
Eastern Canada and Michigan and in certain New England States. Creation of
the new entity will be subject to approval by the Government of Canada's
Competition Bureau. Petro-Canada expects to receive that approval and
close the transaction in the third or fourth quarter of this year.
Year 2000 readiness
Petro-Canada continues to build awareness throughout the whole
organization, in order to develop and implement a Year 2000 plan that is
intended to allow the Company's systems to handle the challenge smoothly. The
initial assessment of Year 2000 readiness includes a review of critical
processes within the Company's upstream, downstream and shared services
operations.
To assist in process control assessment at refineries and upstream gas
plants, the Company has contracted with an engineering firm that specializes
in process control. At the same time, Petro-Canada is contacting vendors to
receive Year 2000 compliant information about their equipment. The Company has
incorporated Year 2000 into its strategic planning and has looked at
initiatives that would help improve its overall business. For example, the
Company is retiring more than 25 non-compliant systems in its Downstream
operations, which will significantly reduce the effect of the Year 2000
challenge in this sector. Petro-Canada will test its systems extensively
throughout the latter half of 1998. The Company's objective is to have all
mission-critical systems Year 2000 ready by the end of 1998. In 1999,
Petro-Canada will continue contingency planning and communication with
suppliers and customers.
SHAREHOLDER INFORMATION
As at March 31, 1998, Petro-Canada's public float of 221.8 million
shares comprised 176.7 million common shares, held by residents of Canada,
and 45.1 million variable voting shares, held by non-residents of Canada.
<<
SELECTED FINANCIAL DATA
(unaudited, millions of Canadian dollars)
FIRST QUARTER
1998 1997
-----------------------------------------------------------------------
Revenue
Upstream 392 558
Downstream 1 010 1 296
Shared Services - (2)
Inter-segment sales (129) (198)
-------- --------
1 273 1 654
-------- --------
-------- --------
Earnings from operations
Upstream 2 86
Downstream 63 50
Shared Services (28) (27)
-------- --------
37 109
Losses on asset sales (1) (5)
-------- --------
Net earnings 36 104
-------- --------
-------- --------
Cash flow
Upstream 139 292
Downstream 137 112
Shared Services (16) (15)
-------- --------
260 389
-------- --------
-------- --------
Expenditures on property, plant
and equipment and exploration
Upstream 188 170
Downstream 34 43
Shared Services 2 5
-------- --------
224 218
-------- --------
-------- --------
Return on capital employed(1) (per cent) 5.5 6.6
Cash flow return on capital employed(1)
(per cent) 21.9 21.0
Debt 1 729 1 721
Cash and short-term investments (deficiency) 77 (8)
Debt to debt plus equity (per cent) 30.5 31.3
(1) 12 month rolling average.
SELECTED OPERATING DATA
FIRST QUARTER
1998 1997
------------------------------------------------------------------------
Crude oil and natural gas liquids production, net
before royalties (thousands of barrels per day)
Conventional crude oil - Western Canada 41.1 46.5
Conventional crude oil - Hibernia 7.7 -
Conventional crude oil - Algeria 4.4 6.5
Conventional crude oil - Norway 7.7 6.8
Synthetic and bitumen 21.1 23.2
Field natural gas liquids 12.8 14.8
Natural gas production, net before royalties,
excluding injectants
(millions of cubic feet per day) 738 817
Total production(2) (thousands of barrels of
oil equivalent per day) 168.6 179.5
Ethane and natural gas liquids production
from straddle plants 37.3 40.5
Propane sales (millions of litres) 279 328
Petroleum product sales
(thousands of cubic metres per day)
Gasolines 19.8 20.1
Distillates 17.6 19.6
Other including petrochemicals 7.5 6.7
-------- --------
44.9 46.4
-------- --------
-------- --------
Crude oil processed by Petro-Canada
(thousands of cubic metres per day) 46.9 48.5
Average refinery utilization (per cent) 103 107
Rack back margin (cents per litre) 2.3 1.9
Rack forward margin (cents per litre) 5.8 5.3
(2) Natural gas converted at 10 000 cubic feet of gas to 1 barrel of oil
equivalent.
CONSOLIDATED STATEMENT OF EARNINGS
(unaudited, millions of Canadian dollars)
FIRST QUARTER
1998 1997
------------------------------------------------------------------------
Revenue
Operating 1 263 1 651
Investment and other income 10 3
-------- --------
1 273 1 654
-------- --------
Expenses
Crude oil and product purchases 587 886
Producing, refining and marketing 339 322
General and administrative 54 51
Exploration 32 19
Depreciation, depletion and amortization 130 126
Taxes other than income taxes 18 16
Interest 29 28
-------- --------
1 189 1 448
-------- --------
Earnings before income taxes 84 206
Provision for income taxes 48 102
-------- --------
Net earnings 36 104
-------- --------
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
(unaudited, millions of Canadian dollars)
FIRST QUARTER
1998 1997
-----------------------------------------------------------------------
Retained earnings (deficit) at
beginning of period 139 (88)
Net earnings 36 104
Dividends on common and variable voting shares (22) (13)
-------- --------
Retained earnings at end of period 153 3
-------- --------
-------- --------
SHARE INFORMATION
(unaudited, stated in Canadian dollars)
FIRST QUARTER
1998 1997
------------------------------------------------------------------------
Average shares outstanding (millions) 271.1 270.8
Net earnings per share 0.13 0.38
Cash flow per share 0.96 1.44
Dividends per share 0.08 0.05
Share Price(a) - High 26.95 21.90
- Low 21.75 19.25
- Close at March 31 25.30 20.00
Shares traded(b) (millions) 65.1 112.1
(a) Share prices are for trading on the Toronto Stock Exchange.
(b) Total shares traded on the Toronto, Montreal, New York, Vancouver and
Alberta stock exchanges.
CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION
(unaudited, millions of Canadian dollars)
FIRST QUARTER
1998 1997
------------------------------------------------------------------------
Operating activities
Net earnings 36 104
Items not affecting cash flow 192 266
Exploration expenses 32 19
-------- --------
Cash flow 260 389
Increase in operating working
capital and other (27) (200)
-------- --------
Cash flow from operating activities 233 189
-------- --------
Investing activities
Expenditures on property, plant and
equipment and exploration (224) (218)
Proceeds from sale of property,
plant and equipment 12 2
(Increase) decrease in deferred charges
and other assets, net (1) 1
-------- --------
(213) (215)
-------- --------
Financing activities and dividends
Dividends on common and
variable voting shares (22) (13)
Reduction of long-term debt (1) (2)
Proceeds from issue of common
and variable voting shares 5 1
-------- --------
(18) (14)
-------- --------
Increase (decrease) in cash and
short-term investments 2 (40)
Cash and short-term investments
at beginning of period 75 32
-------- --------
Cash and short-term investments (deficiency)
at end of period 77 (8)
-------- --------
-------- --------
CONSOLIDATED BALANCE SHEET
(unaudited, millions of Canadian dollars)
MARCH 31, DECEMBER 31,
1998 1997
------------------------------------------------------------------------
Assets
Current assets
Cash and short-term investments 77 75
Other current assets 1 398 1 502
--------- ---------
1 475 1 577
Property, plant and equipment, net 6 493 6 441
Deferred charges and other assets 303 320
--------- ---------
8 271 8 338
--------- ---------
--------- ---------
Liabilities and shareholders' equity
Current liabilities
Accounts payable and accrued
liabilities 1 069 1 189
Current portion of long-term debt 3 3
--------- ---------
1 072 1 192
Notes payable - Hibernia 250 250
Long-term debt 1 476 1 488
Deferred credits and other liabilities 321 321
Deferred income taxes 1 211 1 165
Shareholders' equity 3 941 3 922
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8 271 8 338
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