ENERGY TRUSTS / Canadian Oil Sands Trust Third Quarter 1998 Report & Distribution
CALGARY, Oct. 20 /CNW/ - Canadian Oil Sands Trust announced a third
quarter distribution of $0.12 per unit, bringing the cumulative distributions
for 1998 to $0.55 per unit. Chuck Shultz, Chairman of Canadian Oil Sands,
summarized the quarter with the following comments: ''Canadian Oil Sands
continues to make reasonable Cash Distributions in light of the weak oil
prices of the third quarter as well as the unscheduled maintenance turnaround
to one of Syncrude's cokers which reduced production to 140,000 barrels per
day for 25 days during the quarter. Canadian Oil Sands maintains its strong
balance sheet in the face of difficult market conditions.'' West Texas
Intermediate crude oil prices averaged US$13.38 during August; oil prices
have not traded this low since July of 1986 when the monthly average was
US$11.49. The trading price of Trust Units also recovered during the quarter
from a low of $15.00 in late August to $20.25 by quarter end.
Distributable Income during the third quarter totalled $3.2 million
($0.12 per unit) compared to $11.5 million ($0.50 per unit) for the third
quarter of 1997. The third quarter Distributable Income in 1998 includes a
$5.5 million provision for the external financing of capital expenditures and
a $2.1 million reduction in respect of the July sale of second quarter
production. Distributable Income for the first nine months of 1998 totals
$14.8 million ($0.55 per unit) including $3.3 million carried forward from
1997. Cash flow from operations for the third quarter of $13.5 million in
1998 compares with $22.5 million in 1997 while capital expenditures total
$13.2 million in 1998 ($9.3 million in 1997).
Syncrude Operations
Syncrude's production for the first nine months of 1998 totalled 55.9
million barrels of Syncrude Sweet Blend, an increase of 3% over 1997. The
third quarter production of 18.7 million barrels reflects a 3 million barrel
shortfall from expectations due to the unscheduled maintenance turnaround of
one coker to remove an excess build-up of coke in the reactor. The unit
operating costs for the first nine months of $14.21 are 4% lower than the
$14.83 achieved in 1997 due to the increase in production over a relatively
fixed cost structure, the improving recovery rate of bitumen from the oil
sands and the improving yield of Syncrude Sweet Blend from bitumen. There has
also been a deferral of overburden stripping during 1998 which has contributed
to lower operating costs.
Syncrude's capital expenditures totalled $132 million during the third
quarter with the strategic expenditures focused on the North Mine's second
train and the Aurora Mine accounting for $80 million while the sustaining
expenditures on the Mildred Lake plant aggregated $52 million.
The regulatory application for the expansion of Syncrude's Upgrading
Facilities from 110 million barrels per year to 175 million barrels was
submitted to the Alberta Energy and Utilities Board during the quarter. The
Board's decision respecting this application is not expected until 1999.
CANADIAN OIL SANDS TRUST
Highlights
(thousands of dollars
except per Unit amounts)
Three Months Nine Months
Ended September 30 Ended September 30
------------------ ------------------
1998 1997 1998 1997
---- ---- ---- ----
Net Income $ 5,992 $14,575 $15,442 $34,325
Per Trust Unit $ 0.22 $ 0.63 $ 0.59 $ 1.49
Funds From Operations $13,487 $22,474 $37,052 $56,991
Per Trust Unit $ 0.50 $ 0.98 $ 1.40 $ 2.48
Cash Distribution $ 3,240 $11,500 $14,850 $27,600
Per Trust Unit $ 0.12 $ 0.50 $ 0.55 $ 1.20
Daily Average Sales
(bbls)
Syncrude Sweet Blend 22,464 23,533 20,169 19,853
Average Selling Price
per barrel
West Texas Intermediate
(U.S.) $ 14.15 $ 19.80 $ 14.93 $ 20.84
------- ------- ------- -------
------- ------- ------- -------
Before Hedging $ 20.95 $ 26.90 $ 21.26 $ 27.95
Hedging - Oil Price - (0.11) 1.32 (0.08)
- Currency (0.09) 0.32 (0.01) 0.43
------- ------- ------- -------
$ 20.86 $ 27.11 $ 22.57 $ 28.30
------- ------- ------- -------
------- ------- ------- -------
Financial Performance
Canadian Oil Sands' revenues were $43.2 million for the third quarter of
1998 compared to $58.6 million in 1997, a 26% drop. The 1998 revenues are the
result of selling 2.1 million barrels of oil at an average price of Cdn$20.95
per barrel compared to selling 2.2 million barrels at an average price of
Cdn$26.90 per barrel in 1997; the 1998 volumes are lower due to the
unscheduled coker maintenance turnaround. The price of West Texas
Intermediate crude oil averaged US$14.15 during the third quarter of 1998
compared to US$19.80 in the third quarter of 1997, roughly a 30% drop. During
the first nine months of 1998, West Texas Intermediate averaged US$14.93
compared to US$20.84 in 1997, a price decrease of 30% similar to the third
quarter. Canadian Oil Sands' share of Syncrude production averaged 22,464
barrels per day during the third quarter of 1998 compared to 23,533 barrels in
1997, a shortfall of 5%.
Canadian Oil Sands included the proceeds from the July sale of
approximately 220,000 barrels of Syncrude Sweet Blend in the second quarter
Distributable Income as the production properly related to second quarter
activity. For financial reporting, the sale of this production, along with
the related operating costs, are recorded in the third quarter operations and
the third quarter Distributable Income has been reduced to reflect the
inclusion of these funds in the second quarter Distributable Income.
Canadian Oil Sands' operating costs during the first nine months totalled
$78.3 million ($14.21 per barrel) compared to $80.2 million ($14.83 per
barrel) for 1997. A comparison of the operating costs for the third quarter
of 1998 versus the third quarter of 1997 is not appropriate due to the
unscheduled coker maintenance turnaround in 1998. The Crown Royalty charge
for the first nine months of 1998 has been eliminated by the Crown Royalty
credit which reduces Crown Royalties otherwise payable by 43% of capital
expenditures incurred. The Crown Royalty credit for capital expenditures was
introduced, effective January 1, 1997, to encourage further investment in the
development of Alberta's oil sands.
Canadian Oil Sands' capital expenditures for the first nine months of
1998 total $37.8 million compared to $27.8 million in 1997. The third quarter
Distributable Income includes a $5.5 million provision for the external
financing of capital expenditures which results in the funding of capital
expenditures from operating cash flow being approximately $1.5 million less in
1998 than in 1997.
Corporate Activities
Risk Management: Canadian Oil Sands is subject to considerable U.S.
dollar exposure attributable to the sale of crude oil. To reduce this
exposure to exchange rate fluctuations, Canadian Oil Sands has entered into
currency exchange contracts at an average rate of US$0.693 covering 50% of its
crude oil sales for the next five years and 35% of its sales for an additional
thirteen years. In addition, it has granted a call option to a counter-party
for a further 15% of its sales revenue at an exchange rate of US$0.693 for
five years commencing in 2003. Although Canadian Oil Sands oil sales revenue
benefited by $2.1 million from the weakening in the Canadian dollar during the
third quarter, the benefit has been offset by the $1.2 million payment
required to settle currency exchange contracts. Canadian Oil Sands' currency
exchange commitments required that US$17 million currency be settled at
US$0.693 per Canadian dollar during the third quarter while the average
exchange rate was US$0.660. Canadian Oil Sands has received $3.9 million from
the settlement of its currency exchange contracts since the inception of the
Trust through the first quarter of 1998 and has made payments totalling $1.4
million in the second and third quarter of 1998. As at October 19, 1998, the
mark-to-market deficiency of its currency contracts was US$64 million with
the spot exchange rate at approximately US$0.650. While the decline in the
mark-to-market value of the currency exchange contracts reflects the current
weakness in the Canadian currency relative to the US dollar, Canadian Oil
Sands' revenues, net of currency exchange contract settlements, benefit from
the weakness as only 50% of its revenues are hedged.
During September 1998, certain of its currency exchange contracts was
amended to permit collateralization by the Trust of mark-to-market
deficiencies in excess of US$50 million and less than US$100 million. Under
the amended arrangements, a payment is now required only when the deficiency
exceeds US$100 million. At October 19, 1998, no pledge of collateral was
required.
Interest costs on the US$70 million of 7.625% Senior Notes during the
quarter were $1.6 million, reflecting a US fixed rate of 5.95% for the
quarter. Canadian Oil Sands has swapped its US interest rate position to a
5.95% fixed rate contract for the remaining eight years of the Senior Notes.
In the 1997 Annual Report to Unitholders, Canadian Oil Sands has
described the process and timeline being followed in addressing the potential
impact of the Year 2000 Issue. The related projects are proceeding as planned
and Canadian Oil Sands expects that all necessary remedial actions will be
completed within the appropriate time frames. Additional details of Canadian
Oil Sands' Year 2000 readiness will be available in the 1998 Annual Report to
Unitholders.
Income taxes: The Trust has designated this distribution as a ''return of
capital'' which brings the accumulated ''return of capital'' distributions
paid by the Trust since its inception to $3.28 per Trust Unit. 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 five
years. ''Return of capital'' distributions result in the Unitholder's adjusted
cost base of the trust unit being reduced by the amount of such distributions.
Such distributions also enable Unitholders who are non-residents of Canada to
receive such amounts exempt from 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 $0.12 per unit will be
paid on November 13, 1998 to Unitholders of record on November 6, 1998.
Outlook
Syncrude anticipates its annual production in 1998 will total 77.5
million barrels of Syncrude Sweet Blend at an expected unit operating cost of
$13.50 per barrel. Capital expenditures are expected to total approximately
$550 million in 1998 with the deferral of approximately $100 million of
capital expenditures to future years. With the price of crude oil at or near
historic lows, Syncrude's efforts to further lower operating costs as well as
improve the bitumen recovery and yield factors become more important to
enhance the value of our Trust Units.
We are pleased to announce that Brian Stevens has joined Canadian Oil
Sands as Chief Executive Officer replacing Monte Montemurro who is retiring.
Mr. Stevens has over 25 years of experience in the oil and gas industry with
PanCanadian Petroleum. Mr. Montemurro will continue as a Director of Canadian
Oil Sands.
Web-Site On Line
Canadian Oil Sands also announces that its web-site is available to the
public on the Internet and we encourage you to visit our site at
www.canadianoilsandstrust.com.
Unit Trading Activity
Canadian Oil Sands' units trade on the Toronto Stock Exchange under the
symbol CO.UN
Three Months Ended
---------------------------------------------------
September 30, June 30, March 31, December 31,
1998 1998 1998 1997
------------- -------- --------- ------------
Unit Price ($)
- High 20.75 23.45 27.25 28.75
- Low 15.00 18.50 19.60 23.75
- Close 20.25 20.85 22.40 27.00
Volume Traded (in 000's) 2,987 2,793 3,403 2,115
Average Number Of Units
Outstanding (in 000's) 27,000 27,000 24,822 23,000
>>
Certain information included in this interim report regarding, but not
limited to, cash distributions, production targets, crude oil prices, exchange
rates, unit operating costs and capital expenditures is forward looking and
based upon assumptions and anticipated results that are subject to
uncertainties. Should one or more of these uncertainties materialize or
should the underlying assumptions prove incorrect, actual results may vary
significantly from those expected.
CANADIAN OIL SANDS TRUST
CONSOLIDATED STATEMENT OF TRUST ROYALTY AND DISTRIBUTABLE INCOME
(unaudited)
Three Months Nine Months
Ended September 30 Ended September 30
--------------------- ---------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
(thousands of dollars except
per unit amounts)
Revenues $ 42,077 $ 58,611 $ 119,991 $ 150,513
Operating expenses (27,151) (25,912) (78,349) (80,240)
Administration expenses (835) (947) (2,201) (2,321)
Crown royalties - (8,168) - (10,764)
Interest expense (1,746) (1,097) (4,837) (3,259)
Large Corporations Tax (105) (77) (283) (236)
---------- ---------- ---------- ----------
12,240 22,410 34,321 53,693
Capital expenditures (13,174) (9,251) (37,848) (27,820)
Utilization of Expansion
Financing 5,500 - 13,800 -
Mining reclamation trust (226) (220) (586) (548)
Site restoration costs - - (323) (276)
Reserve - future production
costs (2,131) (1,205) 3,173 (190)
---------- ---------- ---------- ----------
Base for Trust Royalty $ 2,209 $ 11,734 $ 12,537 $ 24,859
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Trust Royalty @ 99% $ 2,187 $ 11,616 $ 12,412 $ 24,610
Distribution of Surplus Cash - - - 3,353
Interest earned on Trust's
short term investment 1,086 - 2,708 -
Administration expenses of
Trust (75) (116) (312) (363)
---------- ---------- ---------- ----------
Distributable income $ 3,198 $ 11,500 $ 14,808 $ 27,600
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Distributable income per
Trust Unit $ 0.12 $ 0.50 $ 0.55 $ 1.20
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
CANADIAN OIL SANDS TRUST
CONSOLIDATED STATEMENT OF CHANGES IN CASH POSITION
(unaudited)
Three Months Nine Months
Ended September 30 Ended September 30
--------------------- ---------------------
(thousands of dollars) 1998 1997 1998 1997
---------- ---------- ---------- ----------
Cash provided by (used in):
Operating activities:
Net income $ 5,992 $ 14,575 $ 15,442 $ 34,325
Items not involving cash 7,495 7,899 21,610 22,666
---------- ---------- ---------- ----------
Funds from operations 13,487 22,474 37,052 56,991
Net change in deferred
items (900) (533) (351) (993)
Site restoration costs - - (323) (276)
Change in non-cash
working capital 4,344 6,527 (2,415) (5,610)
---------- ---------- ---------- ----------
16,931 28,468 33,963 50,112
---------- ---------- ---------- ----------
Financing:
Repayment of long-term debt - - - (95,000)
Issuance of Senior Notes
(US$70MM - 7.625%) - - - 96,278
Cash distribution to
Unitholders (3,240) (11,500) (14,850) (27,600)
Issuance of Trust Units - - 91,950 -
---------- ---------- ---------- ----------
(3,240) (11,500) 77,100 (26,322)
---------- ---------- ---------- ----------
Investments:
Reclamation trust (226) (220) (586) (548)
Capital expenditures (13,174) (9,251) (37,848) (27,820)
---------- ---------- ---------- ----------
(13,400) (9,471) (38,434) (28,368)
---------- ---------- ---------- ----------
Increase (decrease) in cash 291 7,497 72,629 (4,578)
Cash at beginning of period 92,272 7,049 19,934 19,124
---------- ---------- ---------- ----------
Cash at end of period $ 92,563 $ 14,546 $ 92,563 $ 14,546
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
CANADIAN OIL SANDS TRUST
CONSOLIDATED BALANCE SHEET
(thousands of dollars) September 30, 1998 December 31, 1997
------------------ -----------------
ASSETS
Current assets:
Cash $ 92,563 $ 19,934
Restricted cash 1,377 1,334
Accounts receivable 17,455 22,254
Inventories 11,814 10,424
Prepaid expenses 685 266
------------------ -----------------
123,894 54,212
Reclamation trust 1,764 1,178
Capital assets, net 441,584 423,559
Deferred Charges 13,022 6,029
------------------ -----------------
$ 580,264 $ 484,978
------------------ -----------------
------------------ -----------------
LIABILITIES AND UNITHOLDERS
EQUITY
Current liabilities:
Accounts payable and
accrued liabilities $ 24,434 $ 18,561
Unit distribution payable 3,240 13,800
------------------ -----------------
27,674 32,361
Other liabilities 14,280 14,365
Long-term debt 107,100 100,100
Future site reclamation and
restoration costs 8,708 8,192
Preferred shares of
subsidiary 2,000 2,000
------------------ -----------------
159,762 157,018
Unitholders' equity 420,502 327,960
------------------ -----------------
$ 580,264 $ 484,978
------------------ -----------------
------------------ -----------------
CANADIAN OIL SANDS TRUST
CONSOLIDATED STATEMENT OF INCOME AND UNITHOLDERS EQUITY
(unaudited)
Three Months Nine Months
Ended September 30 Ended September 30
--------------------- ---------------------
(thousands of dollars except
per unit amounts) 1998 1997 1998 1997
---------- ---------- ---------- ----------
Revenues:
Syncrude Sweet Blend $ 41,722 $ 58,504 $ 119,281 $ 149,753
Other 1,441 109 3,418 766
---------- ---------- ---------- ----------
43,163 58,613 122,699 150,519
---------- ---------- ---------- ----------
Expenses:
Operating 27,151 25,912 78,349 80,240
Administration 910 1,063 2,513 2,684
Crown royalties - 8,168 - 10,764
Interest 1,746 1,097 4,837 3,259
Depletion, depreciation
and amortization 7,184 7,665 21,051 18,846
Large Corporations Tax 105 77 283 236
Dividends on preferred
shares of subsidiary 75 56 224 165
---------- ---------- ---------- ----------
37,171 44,038 107,257 116,194
---------- ---------- ---------- ----------
Net income for the period 5,992 14,575 15,442 34,325
Unitholders' equity,
beginning of period 417,750 321,763 327,960 318,113
Proceeds on issue of
4,000,000 Trust Units - - 91,950 -
Cash distribution to
Unitholders (3,240) (11,500) (14,850) (27,600)
---------- ---------- ---------- ----------
Unitholders' equity,
end of period $ 420,502 $ 324,838 $ 420,502 $ 324,838
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net income per Trust Unit $ 0.22 $ 0.63 $ 0.59 $ 1.49
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Distributable income per
Trust Unit $ 0.12 $ 0.50 $ 0.55 $ 1.20
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
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
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