EARNINGS/ PanCanadian Petroleum Generates $150 Million In Profits And
$802 Million In Cash Flow For 1998
CALGARY, Jan. 21 /CNW/ - PanCanadian Petroleum Limited announced today
strong financial results for 1998, despite continuing weak world crude oil
prices. The Company reported 1998 cash flow of $802 million, or $3.19 per
share, and net income of $150 million, or $0.59 per share, compared with 1997
cash flow and net income of $961 million and $330 million, respectively.
Natural gas production averaged 796 million cubic feet per day in 1998, up
seven percent from 744 million cubic feet per day in 1997. Crude oil and
natural gas liquids production averaged 140,638 barrels per day for 1998
relatively unchanged from 140,023 barrels per day in 1997.
David Tuer, President and Chief Executive Officer said, ''In a year
characterized by extremely weak crude oil prices, PanCanadian has achieved
solid financial results by reducing unit operating costs by 18 percent and
growing natural gas production to become the leading Canadian gas producer at
almost 800 million cubic feet per day.''
Capital expenditures for 1998 totalled $884 million, and included the
drilling of 1,079 wells. In light of the current economic environment, the
Company has removed 31 million barrels of heavy oil reserves from the proven
category. Excluding this reclassification, proved reserve additions totalled
42 million barrels of crude oil and natural gas liquids and 390 billion cubic
feet of natural gas, replacing 101 percent of 1998 production.
FOURTH QUARTER
During the fourth quarter of 1998, PanCanadian reported cash flow of $202
million, or $0.80 per share, and net income of $55 million, or $0.22 per
share. During the same period in 1997, the Company reported cash flow of $254
million, or $1.01 per share, and net income of $69 million, or $0.27 per
share. The decrease in cash flow and earnings from the fourth quarter of 1997
is primarily the result of significantly lower crude oil prices.
Natural gas production averaged 878 million cubic feet per day in the
fourth quarter, up nine percent from 808 million cubic feet per day in 1997.
Production of crude oil and natural gas liquids averaged 133,767 barrels per
day compared with 148,110 barrels per day in 1997. PanCanadian made the
decision to shut-in and defer uneconomic crude oil production due to the
continuing decline of crude oil prices throughout the quarter. These reserves
will be developed and produced when the market environment improves.
Natural gas prices were strong in the fourth quarter and averaged $2.54
per thousand cubic feet, up from $2.31 per thousand cubic feet for the same
period in 1997. PanCanadian received an average crude oil price of $13.81 per
barrel in the fourth quarter, down 30 percent from an average of $19.64 per
barrel in the fourth quarter of 1997. This decline reflects the continuing
weakness in crude oil markets.
OUTLOOK
PanCanadian's planned capital program for 1999 is approximately $650
million, reflecting the deferral of crude oil related capital expenditures in
response to the prevailing weak prices for crude oil. This program is focused
primarily on natural gas exploration and development in Western Canada and
will result in the drilling of about 1,000 wells. PanCanadian plans to grow
average natural gas production in 1999 approximately 10 percent over 1998
volumes. PanCanadian has fixed the sales price on 468 million cubic feet per
day of its natural gas production at a field gate price of $2.51 per thousand
cubic feet for the calendar year 1999, with 95 percent of the fixed price
volumes occurring over the first 10 months of the year.
The Company will monitor crude oil prices with a view to adjusting
capital expenditures as appropriate.
COMPARATIVE HIGHLIGHTS
Three Months Ended Year Ended
FINANCIAL December 31 December 31
-------------------- --------------------
(millions of dollars,
except amounts per share) 1998 1997 1998 1997
------------------------------------------------------------------------
Revenues $ 863.8 $ 918.7 $ 2,985.7 $ 3,258.3
Cash flow 201.7 254.5 801.8 961.4
Per share 0.80 1.01 3.19 3.82
Net income 54.8 69.4 149.7 329.7
Per share 0.22 0.27 0.59 1.31
Capital expenditures 165.7 382.3 884.0 1,136.2
(excludes net acquisitions)
DAILY PRODUCTION
(before royalty)
------------------------------------------------------------------------
Crude oil (barrels) 120,664 133,085 128,120 126,810
Field natural gas liquids
(barrels) 13,103 15,025 12,518 13,213
-------- -------- -------- --------
Total crude oil and field
natural gas liquids 133,767 148,110 140,638 140,023
-------- -------- -------- --------
-------- -------- -------- --------
Empress plants (barrels)
Production 13,610 13,996 13,398 13,184
Sales 16,079 14,219 13,226 12,675
-------- -------- -------- --------
-------- -------- -------- --------
Natural gas (million cubic feet)
Production 878 808 796 744
Sales(x) 860 787 776 725
-------- -------- -------- --------
-------- -------- -------- --------
(x) Sales represent total gas production, less a portion that is upgraded
and sold as natural gas liquids.
>>
OPERATIONAL HIGHLIGHTS
Canada:
Weyburn carbon dioxide flood project
In September 1998, Dakota Gasification Co. (DGC) advised PanCanadian that
it was re-examining its investment options in relation to its commitments to
construct a pipeline to deliver carbon dioxide (CO(2)) to the Weyburn project
and to supply CO(2) for injection. PanCanadian has suspended expenditures on
the project pending resolution by DGC of these issues to PanCanadian's
satisfaction. This has resulted in a delay of the start of the CO(2)
injection at Weyburn, originally scheduled for December 1, 1999. Discussions
are taking place between DGC and PanCanadian to determine a revised injection
date for the CO(2) flood project in year 2000.
East Coast
Preparations to drill the Shoal Point exploration well in western
Newfoundland are ongoing. Construction of the access road and lease site is
complete. Drilling is scheduled to commence by the end of January and last
approximately three months. PanCanadian is the operator and will hold a 44
percent interest after drilling.
PanCanadian is currently drilling an exploratory well on the Scotian
Shelf beneath the Panuke field of the Copan project. PanCanadian is the
operator and holds a 50 percent interest. Drilling should be completed by the
end of the first quarter.
International:
United Kingdom
In the recent UK 18th Licensing Round, PanCanadian and several partners
were awarded four exploration licenses in the Central North Sea. PanCanadian
will operate three of the four licenses and has interests ranging from 37.5 to
60 percent. The acquired licenses all fall within the Company's Central North
Sea core area and three of the licenses are adjacent to acreage PanCanadian
already has an interest in.
Gulf of Mexico
In November, drilling commenced on the first appraisal well of the Llano
discovery in the deep water Gulf of Mexico. The well is currently at a depth
of approximately 20,000 feet and should reach its target depth of 25,000 feet,
complete with evaluation, within the first quarter. PanCanadian holds a 20
percent interest in Llano.
Drilling of the Company's third exploration prospect in the deep water
Gulf of Mexico, called Elvis, did not result in a commercial discovery. The
well has been plugged and abandoned.
CORPORATE HIGHLIGHTS
Dividend payment
A quarterly dividend of 10 cents per share was paid on December 31, 1998
to shareholders of record as of December 7, 1998.
AVERAGE SALES PRICES
Three Months Ended Year Ended
December 31 December 31
-------------------- --------------------
(dollars per unit) 1998 1997 1998 1997
------------------------------------------------------------------------
Crude oil (per barrel) $13.81 $19.64 $13.91 $21.17
Hedging (1.01) (1.52) 1.20 (0.91)
-------- -------- -------- --------
$12.80 $18.12 $15.11 $20.26
-------- -------- -------- --------
-------- -------- -------- --------
Field natural gas liquids
(per barrel) $12.51 $17.80 $13.61 $20.58
-------- -------- -------- --------
-------- -------- -------- --------
Empress plants (per barrel) $15.80 $21.61 $15.84 $23.18
-------- -------- -------- --------
-------- -------- -------- --------
Natural gas
(per thousand cubic feet) $2.54 $2.31 $2.11 $1.99
Hedging (0.16) (0.01) (0.07) 0.08
-------- -------- -------- --------
$2.38 $2.30 $2.04 $2.07
-------- -------- -------- --------
-------- -------- -------- --------
CONSOLIDATED STATEMENT OF INCOME
Three Months Ended Year Ended
(Unaudited) December 31 December 31
------------------- -------------------
(millions of dollars) 1998 1997 1998 1997
------------------------------------------------------------------------
REVENUES
Operating $383.8 $458.0 $1,491.5 $1,750.9
Crown royalties and similar
payments (26.8) (31.6) (99.6) (141.8)
Marketing 499.1 491.1 1,573.7 1,629.5
Interest 0.7 2.5 4.6 21.5
Miscellaneous 7.0 (1.3) 15.5 (1.8)
-------- -------- -------- --------
863.8 918.7 2,985.7 3,258.3
EXPENSES
Operating(1) 147.8 164.2 451.5 511.2
Purchased product 480.0 481.3 1,534.6 1,602.4
Administrative(1) 1.2 (3.6) 93.4 74.2
Interest 30.1 19.5 104.2 67.4
Depletion, depreciation
and amortization 179.4 158.4 636.4 552.9
-------- -------- -------- --------
838.5 819.8 2,820.1 2,808.1
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 25.3 98.9 165.6 450.2
-------- -------- -------- --------
PROVISION FOR INCOME TAXES
Current 5.5 7.3 15.9 51.1
Future(2) (35.0) 22.2 - 69.4
-------- -------- -------- --------
(29.5) 29.5 15.9 120.5
-------- -------- -------- --------
NET INCOME $54.8 $69.4 $149.7 $329.7
-------- -------- -------- --------
-------- -------- -------- --------
(1) 1998 annual and fourth quarter results include a reclassification of
$33.8 million (1997 - $36.8 million) from administrative to
operating for expenses that relate directly to operations in order
to be consistent with industry reporting.
(2) 1998 future taxes are calculated under the liability method in
accordance with the new Canadian Institute of Chartered Accountants
income tax standard. The only significant effect of this change is
to record the benefit of previously unrecorded United States tax
losses of $25 million in the three months and year ended December
31, 1998.
CONSOLIDATED STATEMENT OF CHANGES IN CASH POSITION
Three Months Ended Year Ended
(Unaudited) December 31 December 31
------------------- -------------------
(millions of dollars) 1998 1997 1998 1997
------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $54.8 $69.4 $149.7 $329.7
Amounts not requiring a
current outlay of cash 146.9 185.1 652.1 631.7
-------- -------- -------- --------
Cash flow 201.7 254.5 801.8 961.4
Net change in deferred
items 28.8 (47.9) 18.4 (77.0)
Net change in non-cash
working capital 20.5 115.5 (86.9) 285.7
-------- -------- -------- --------
251.0 322.1 733.3 1,170.1
-------- -------- -------- --------
FINANCING ACTIVITIES
Increase in long-term debt (48.1) 100.6 227.3 223.8
Issue of common shares - 0.1 0.9 9.4
Dividends (25.2) (25.1) (101.1) (100.6)
Net change in non-cash
working capital - 1.2 (44.3) 44.3
-------- -------- -------- --------
(73.3) 76.8 82.8 176.9
-------- -------- -------- --------
INVESTING ACTIVITIES
Petroleum, natural gas and
mineral properties (99.0) (273.6) (578.9) (828.1)
Plant, production and other
equipment (66.7) (108.7) (305.1) (308.1)
-------- -------- -------- --------
(165.7) (382.3) (884.0) (1,136.2)
Net (acquisitions)
dispositions 6.1 1.8 54.2 (421.9)
Net change in non-cash
working capital (20.3) (28.4) (30.0) (33.5)
Net change in other assets (26.6) (2.6) (42.9) (21.0)
-------- -------- -------- --------
(206.5) (411.5) (902.7) (1,612.6)
-------- -------- -------- --------
-------- -------- -------- --------
DECREASE IN CASH (28.8) (12.6) (86.6) (265.6)
CASH AT BEGINNING OF PERIOD 31.8 102.2 89.6 355.2
-------- -------- -------- --------
CASH AT END OF PERIOD $3.0 $89.6 $3.0 $89.6
-------- -------- -------- --------
-------- -------- -------- --------
CONSOLIDATED CONDENSED BALANCE SHEET
(Unaudited) As at December 31
-------------------------
(millions of dollars) 1998 1997
------------------------------------------------------------------------
ASSETS
Cash and short-term investments $3.0 $89.6
Other current assets 541.6 517.8
Property, plant and equipment - net 5,226.6 4,800.2
Deferred charges and other assets 235.7 202.2
--------- ---------
$6,006.9 $5,609.8
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities $433.7 $571.2
Long-term debt 1,381.1 1,133.7
Deferred credits and liabilities 319.7 192.3
Future income taxes(2) 1,157.4 1,093.2
Shareholders' equity 2,715.0 2,619.4
--------- ---------
$6,006.9 $5,609.8
--------- ---------
--------- ---------
Weighted average number of shares
outstanding (millions) 251.7 251.5
1998 PRODUCT REVENUE VARIANCES FROM 1997
Three Months Ended Year Ended
December 31 December 31
-------------------- ------------------
(millions of dollars) Price Volume Price Volume
------------------------------------------------------------------------
Crude oil ($55.7) ($24.0) ($241.3) $10.1
Field natural gas liquids (6.0) (3.6) (31.8) (5.3)
Empress plants (9.5) 3.8 (29.9) 4.4
Natural gas 6.4 14.9 (9.6) 39.1
Other (0.5) (0.2) 5.0 (0.2)
-------- -------- -------- --------
Total operating revenue ($65.3) ($9.1) ($307.6) $48.1
-------- -------- -------- --------
DRILLING SUMMARY
Three Months Ended Year Ended
December 31 December 31
(gross number of working ------------------- ------------------
interest wells drilled) 1998 1997 1998 1997
------------------------------------------------------------------------
Crude oil 62 246 327 771
Natural gas 157 180 556 707
Service 8 38 36 116
Dry 33 83 160 226
-------- -------- -------- --------
260 547 1,079 1,820
-------- -------- -------- --------
-------- -------- -------- --------
Success ratio 87% 85% 85% 88%
Average working interest 88% 87% 92% 92%
SELECTED FINANCIAL INFORMATION
Year Ended
December 31
------------------------
1998 1997
----------------------------------------------------------------------
Net debt to cash flow 1.7 1.1
Return on average shareholders' equity 5.6% 13.2%
Return on average invested capital 5.3% 10.4%
Debt to Capital 24.8% 22.5%
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