IN THE NEWS / Gulf Starts Selloff As Losses Soar
Chris Varcoe and Tony Seskus, Calgary Herald, Reuters
Battered by low oil prices, Gulf Canada Resources Ltd. took two dramatic steps Tuesday to get its financial house back in order -- punctuated by an asset writedown and one-time charge of nearly half a billion dollars.
The Denver-based company got the ball rolling Tuesday by selling half its midstream natural gas business and pipeline network in Western Canada to KeySpan Energy of New York for $290 million.
Later in the day, Gulf posted a third-quarter loss of $334 million - one of the largest losses witnessed in the Canadian oilpatch in years.
"We've got our debt down, we've taken a writedown here ... but it's the right thing to do to get our house in order,'' Gulf's chief executive Dick Auchinleck said in an interview.
"Is the worst behind us? Absolutely.''
Financially, the worst was a $465 million after-tax charge tied to the review and subsequent writedown of the carrying value on Gulf's assets, which was partially offset by $191 million in asset sales.
Most of the writedown came from the properties of heavy oil producer Stampeder Exploration, which Gulf took over in 1997 for about $1 billion.
Oil prices have slumped about 30 per cent since the acquisition.
"We had some assets that clearly in today's environment were overvalued on our books,'' said Auchinleck. "A lot of it is attributable to heavy oil and over 80 per cent of the writedown is attributable to the Stampeder transaction.''
The $334-million loss ($0.98 a share) compares with a $202-million profit ($0.67 a share) during the same period last year. Excluding the writedown and some one-time adjustments, the company's operating loss for the period was $60 million.
Revenues dropped 21 per cent to $259 million during the quarter. Cash flow fell 38 per cent to $96 million ($0.26 a share) from $155 million ($0.51 a share) last year.
Sales volumes during the quarter decreased 15 per cent to 161,700 barrels of oil equivalent per day due to the sale of some producing properties, but the company noted it recently completed the promising Corridor Gas Project in Indonesia.
"They're doing, I think, what is necessary to restructure the company for what is obviously a lower price of oil," said analyst Craig Langpap of Peters and Co. "I would say they've certainly got the majority of the bad news behind them."
Since Auchinleck replaced former CEO J.P. Bryan, Gulf has embarked on an aggressive campaign to sell off about $1.2 billion in assets this year and pay down debt created by several takeovers.
The company should exit the year with long-term debt of $2.2 billion, compared to $2.7 billion at the start of 1998. Gulf was taking offers on heavy oil properties in Alberta and Saskatchewan, but pulled them off the table after not getting satisfactory offers.
Prices for the discounted heavy oil have also rebounded since early summer.
"We're not having a fire sale here,'' Auchinleck said. "I think we can get better value by just operating them.''
Langpap applauded the company's deal to sell the interest in its western Canadian midstream, or natural gas gathering and processing, assets to KeySpan.
KeySpan owns Brooklyn Union, the gas utility for three boroughs in New York City and two counties on nearby Long Island. Under the deal, the firms will form a new company called Gulf Midstream Services Partnership that will oversee 14 gas plants in Alberta and British Columbia.
About 230 Gulf employees work at the facilities and no layoffs are planned, Auchinleck said.
KeySpan will also provide a three-year, $100-million loan and fund Gulf's share of spending in the partnership for the next three years for a higher share of the cash flow.
Gulf shares on the Toronto Stock Exchange closed up $0.35 to $6.15 Tuesday.
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