ENERGY TRUSTS / Canadian Oil Sands Trust report 1st 3 months Results
CALGARY, April 21 /CNW/ - Canadian Oil Sands Trust announced a first
quarter distribution of $0.25 per Trust Unit for 1998 compared to $0.50 for
the first quarter of 1997. Despite the drop in the West Texas Intermediate
crude oil price from US$17.50 to US$15.60 and the unscheduled maintenance
turnaround in the first quarter, the first quarter distribution reflects our
policy of maintaining a stable stream of distributions supported by the
Trust's strong financial position and first quarter's $4.5 million oil price
hedging settlement. Chuck Shultz, Chairman of Canadian Oil Sands, summarized
the first quarter with the following comments, ''Canadian Oil Sands
successfully completed its issue of 4 million Trust Units at $24 per Trust
Unit with net proceeds of $92 million. Together with its credit facilities,
Canadian Oil Sands has over $350 million of financing available as the
Syncrude expansion progresses. The Trust Units have been trading at the
$23.00 level during the quarter.''
Distributable Income earned during the first quarter totalled $6.8
million ($0.25 per unit) compared to $11.5 million ($0.50 per unit) for the
first quarter of 1997. In addition to the drawdown of $3.2 million from the
Reserve for Future Production Costs, the Distributable Income for the first
quarter of 1998 includes $3.0 million of expansion financing in respect of the
$6.1 million of capital spending on the ''Syncrude 21'' initiatives. In 1997,
the maintenance turnaround was scheduled for April and a Reserve for Future
Production Costs of $1.6 million was deducted from the first quarter
Distributable Income to smooth the second quarter distribution. Cash flow
from operations for the quarter was $9.5 million compared to $20.3 million in
1997 while capital expenditures totalled $8.4 million in 1998 and $6.8 million
in 1997.
Syncrude Operations
Syncrude's production for the first quarter of 1998 was 15.8 million
barrels of Syncrude Sweet Blend, 2.2 million barrels less than the first
quarter in 1997. The coker turnaround was successfully completed in mid-
February, $2.1 million under the anticipated cost with Syncrude achieving an
average production rate of 244,000 barrels per day in March. Syncrude
anticipates that the first quarter shortfall in volumes will be recovered over
the next two quarters.
The winter work at the Aurora Mine is progressing as planned with much of
the surface preparation work completed ahead of schedule due to the
unseasonable warm temperatures throughout the first quarter. Final approval
for the Aurora Mine by the Syncrude owners is expected in July 1998. The
engineering of the hydrotransport system for the Second Train at the North
Mine is on schedule and within budget. The development of the Second Train is
benefiting from the learning curve attained developing the Train One system.
Following a Strategic Planning session with all Syncrude owners in March,
Syncrude management is reviewing options that may provide attractive economics
while managing cash flow in a low crude oil price environment. Cost reduction
initiatives should remain intact as Syncrude strives to achieve its goal of
delivering a $12.00 per barrel operating cost by the year 2000 as compared to
$13.77 in 1997.
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CANADIAN OIL SANDS TRUST
Highlights
Three Months Three Months
Ended Ended
March 31, 1998 March 31, 1997
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(thousands of dollars except per
Unit amounts)
Net Income $ 3,556 $ 11,094
Per Trust Unit $ 0.14 $ 0.48
Funds From Operations $ 9,521 $ 20,299
Per Trust Unit $ 0.38 $ 0.88
Distributable Income $ 6,750 $ 11,500
Per Trust Unit $ 0.25 $ 0.50
Daily Average Sales (bbls.)
Syncrude Sweet Blend 16,907 18,839
Average Selling Price per barrel
West Texas Intermediate (in US$) $ 15.95 $ 22.77
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Realized at plant gate $ 21.60 $ 30.12
Commodity hedging $ 2.99 (2.03)
Currency hedging 0.09 0.59
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$ 24.68 $ 28.68
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Financial Performance
Canadian Oil Sands' revenues were $38.1 million for the first quarter of
1998 compared to $49.0 million in 1997. The price of West Texas Intermediate
crude oil averaged US$15.95 during the quarter with Canadian Oil Sands
receiving an average plant gate price of Cdn$21.60 per barrel for its sale of
Syncrude Sweet Blend compared to US$22.77 and Cdn$30.12 per barrel,
respectively, in 1997. Canadian Oil Sands' share of Syncrude production
averaged 16,907 barrels per day during the first quarter compared to 18,839
barrels in the first quarter of 1997. The significant decrease in first
quarter production is the result of one of Syncrude's cokers failing on
January 1, 1998 leading to a shutdown of the coker and an unscheduled
maintenance turnaround in the first quarter. The maintenance turnaround had
been scheduled for the second quarter. As expected, the turnaround has
resulted in lower production and increased operating costs and capital
expenditures during the quarter. Syncrude continues to forecast an annual
production target of 80 million barrels for 1998 with the first quarter
production shortfall recovered in the second and third quarters. The $4.5
million settlement of the first quarter oil price hedge has significantly
reduced the impact of the low crude oil prices by adding $2.99 per barrel to
the average price.
Operating costs during the first quarter totalled $26.4 million ($17.35
per barrel) compared to $23.6 million and $13.89 per barrel in 1997. The unit
operating cost for the first quarter of 1998 is higher than 1997 primarily due
to the reduced production and the maintenance turnaround work on the
extraction plant. The annual operating costs for 1998 are expected to be
$13.57 per barrel, down from the $13.77 per barrel experienced in 1997.
The Crown Royalty charge for the first quarter of 1998 has been
eliminated by the Crown Royalty credit which, effective January 1, 1997,
reduced Crown Royalties otherwise payable by 43% of capital expenditures
incurred. The Crown Royalty charge in the first quarter of 1997 totalled $6.5
million ($3.85 per barrel). Changes to the Crown Royalty structure were
introduced to encourage further investment in the development of Alberta's oil
sands.
Canadian Oil Sands' share of Syncrude's capital expenditures for the
first quarter of 1998 total $8.4 million, $1.7 million higher than the first
quarter in 1997. Sustaining expenditures totalling $2.3 million were primarily
directed towards the composite tailings project, the improvements at the froth
treatment plant to reduce chlorides and the development of the Second Train in
the North Mine. The $6.1 million of capital expended on the ''Syncrude 21''
projects focussed on the Aurora Mine development and the detailed engineering
for the Phase II Debottlenecking project at Mildred Lake upgrading facilities.
Corporate Activities
Risk Management: To offset its U.S. dollar exposure attributable to the
sale of crude oil, Canadian Oil Sands entered into a twenty year/US$1.5
billion foreign currency exchange contract at an average rate of US$0.694 in
1996. In the first quarter of 1998, Canadian Oil Sands has entered into
foreign currency exchange contracts fixing the exchange rate on an additional
US$5 million a quarter for the next five years at US$0.692 with the
counter-party receiving an option to extend the contract for a further five
years at the same rate. As at April 17, 1998, the mark-to-market value of
these currency hedges was $61 million, representing $2.25 per Trust Unit.
During the first quarter of 1998, the currency hedge added $137,000 to
Canadian Oil Sands' revenue as US$12 million of US currency was settled at
US$0.694 per Canadian dollar compared to the average exchange rate of
US$0.700. During the next three quarters of 1998, the quarterly settlements
total US$17 million at approximately US$0.693 prior to escalating to US$18
million per quarter in 1999 and US$19 million per quarter in 2000.
In early October 1997, Canadian Oil Sands entered into oil price put options
which provided a floor price of US$21.00 per barrel on 7,000 barrels per day
for the first quarter of 1998 representing approximately 40% of the first
quarter production. The cost of these options was US$0.95 per barrel with its
settlement aggregating to Cdn$4.5 million or US$5.05 per barrel hedged.
Interest costs on the US$70 million of 7.625% Senior Notes during the
quarter were $1.4 million, an effective rate of 5.66% after including the
benefit of swapping the 7.625% fixed rate obligation to a Canadian floating
rate in 1997, and then in early 1998, swapping the Canadian floating rate
position to US floating rate.
Issue of 4 million Trust Units: On February 19, 1998, the Trust issued 4
million Trust Units to a syndicate of underwriters at a price of $24.00 per
Trust Unit. After closing, the net proceeds of $92 million were invested in
high quality short term investments yielding just under 5 percent per annum.
These funds, along with $250 million in unsecured credit facilities, should
enable Canadian Oil Sands to fully participate in the $6 billion ''Syncrude
21'' expansion as well as maintain a stable stream of distributions to the
Unitholders.
Income taxes: Distributions from Canadian Oil Sands Trust continue to be
categorized as a return of capital with the adjusted cost base of the Trust
Unit reduced by the amount of such returns of capital. Including this
distribution, the Trust has distributed $2.98 per Trust Unit as a return of
capital. The Trust is able to distribute cash as a return of capital due to
its significant tax pools, which are expected to shelter distributions for at
least the next four years. As the distributions are considered to be a return
of capital of the Trust, Unitholders who are non-residents of Canada are not
subject to Canadian withholding tax. The income tax liability of each
Unitholder will depend on the Unitholder's specific circumstances, and
accordingly, each Unitholder should obtain independent advice regarding their
specific income tax status.
Unit Distributions: The quarterly distribution of $0.25 per Trust Unit
will be paid on May 15, 1998 to Unitholders of record on May 8, 1998. This
distribution includes a $3.2 million ($0.12 per Trust Unit) drawdown from the
Reserve for Future Production Costs. Similar to the second quarter of 1997,
this drawdown smoothes the first quarter distribution at the expense of
distributions in other quarters.
Outlook
With the annual maintenance turnaround completed in the first quarter,
the second quarter production volumes should be much better than the second
quarter production volumes in 1997 with Syncrude's 1998 annual production
anticipated to be 80 million as originally planned. While the oil price hedge
tempered the impact of the oil price drop in the first quarter, weak oil
prices will have a full impact on the next quarters' results. Certain
statements included in this Outlook are forward looking and are based upon
assumptions and anticipated results that are subject to uncertainties.
Unit Trading Activity
The Canadian Oil Sands' Trust Units trade on the Toronto Stock Exchange
under the symbol CO.UN
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Three Months Ended
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March 31, December 31, September 30, June 30,
1998 1997 1997 1997
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Trust Unit Price ($)
- High 27.25 28.75 28.90 24.45
- Low 19.60 23.75 23.05 19.90
- Close 22.40 27.00 28.00 24.10
Volume Traded
(in 000's) 3,403 2,115 3,243 4,480
Average Number Of Trust
Units Outstanding
(in 000's) 24,822 23,000 23,000 23,000
CANADIAN OIL SANDS TRUST
CONSOLIDATED STATEMENT OF TRUST ROYALTY AND DISTRIBUTABLE INCOME
(unaudited)
Three Months Three Months
Ended Ended
March 31, 1998 March 31, 1997
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(thousands of dollars except per
Unit amounts)
Revenues $ 37,617 $ 49,005
Operating expenses (26,398) (23,557)
Administration expenses (586) (679)
Crown royalties - (6,525)
Interest expense (1,440) (1,023)
Capital taxes (85) (89)
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9,108 17,132
Capital expenditures (8,368) (6,755)
Utilization of Expansion Financing 3,000 -
Mining reclamation trust (159) (170)
Site restoration costs (323) (262)
Reserve - future production costs 3,173 (1,580)
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Base for Trust Royalty $ 6,431 $ 8,365
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Trust Royalty at 99% $ 6,367 $ 8,281
Distribution of surplus cash - 3,353
Interest earned on Trust's short
term investments 515 -
Administration expenses of Trust (132) (134)
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Distributable income $ 6,750 $ 11,500
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Distributable income per Trust Unit $ 0.25 $ 0.50
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CANADIAN OIL SANDS TRUST
CONSOLIDATED STATEMENT OF CHANGES IN CASH POSITION
(unaudited)
Three Months Three Months
Ended Ended
March 31, 1998 March 31, 1997
-------------- --------------
(thousands of dollars)
Cash provided by (used in):
Operating activities
Net income $ 3,556 $ 11,094
Items not involving cash 5,965 9,205
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Funds from operations 9,521 20,299
Net change in deferred items (1,933) (177)
Site restoration costs (323) (262)
Change in non-cash working capital (7,735) 4,228
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(470) 24,088
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Financing activities
Cash Distribution to Unitholders (6,750) (11,500)
Issuance of Trust Units 91,950 -
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85,200 (11,500)
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Investing Activities
Reclamation Trust (159) (170)
Capital Assets (8,368) (6,755)
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(8,527) (6,925)
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Increase (decrease) in cash 76,203 5,663
Cash at beginning of period 19,934 19,124
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Cash at end of period $ 96,137 $ 24,787
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CANADIAN OIL SANDS TRUST
CONSOLIDATED BALANCE SHEET
March 31, 1998 December 31, 1997
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(thousands of dollars) (unaudited)
ASSETS
Current assets:
Cash $ 96,137 $ 19,934
Restricted cash 1,349 1,334
Accounts receivable 19,279 22,254
Inventories 13,227 10,424
Prepaid expenses 329 266
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130,321 54,212
Reclamation trust 1,337 1,178
Capital assets, net 426,420 423,559
Deferred charges 5,114 6,029
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$ 563,192 $ 484,978
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LIABILITIES AND UNITHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
liabilities $ 17,783 $ 18,561
Unit distribution payable 6,750 13,800
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24,533 32,361
Other liabilities 12,437 14,365
Long-term debt 99,400 100,100
Future site reclamation and restoration
costs 8,106 8,192
Preferred shares of subsidiary 2,000 2,000
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146,476 157,018
Unitholders' equity 416,716 327,960
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$ 563,192 $ 484,978
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CANADIAN OIL SANDS TRUST
CONSOLIDATED STATEMENT OF INCOME AND UNITHOLDERS' EQUITY
(unaudited)
Three Months Three Months
Ended Ended
March 31, 1998 March 31, 1997
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(thousands of dollars except per
Unit amounts)
Revenues:
Syncrude Sweet Blend $ 37,542 $ 48,637
Other 590 370
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38,132 49,007
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Expenses:
Operating 26,398 23,557
Administration 719 813
Crown royalties - 6,525
Interest 1,440 1,023
Depletion, depreciation and amortization 5,860 5,852
Capital and other taxes 85 89
Dividends on preferred shares of subsidiary 74 54
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34,576 37,913
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Net income for the period 3,556 11,094
Unitholders' equity, beginning of period 327,960 318,113
Proceeds on issue of 4,000,000 Trust Units 91,950 -
Unit distributions (6,750) (11,500)
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Unitholder's equity, end of period $ 416,716 $ 317,707
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Net income per Trust Unit $ 0.14 $ 0.48
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Distributable income per Trust Unit $ 0.25 $ 0.50
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Canadian Oil Sands Investments Inc.
PO Box 2850
150 - 9 Avenue SW
Calgary AB T2P 2S5
Canada
Units Listed - Symbol: CO.UN
The Toronto Stock Exchange |
