Very long post to follow:
Petro-Canada Announces Record Annual Upstream Results
CALGARY, Jan. 20 /CNW-PRN/ - Petro-Canada today announced unaudited net
earnings for 1999 of $233 million ($0.86 per share) compared with $95 million
($0.35 per share) in 1998. Upstream earnings from operations were a record
$243 million. Downstream earnings from operations were $115 million. Cash
flow was $964 million ($3.55 per share) compared with $830 million ($3.06 per
share) in 1998. Higher crude oil and liquids prices in 1999 significantly
increased earnings and cash flow. Earnings from operations totalled $236
million ($0.87 per share), up from $130 million ($0.48 per share) before
reorganization costs in 1998.
In the fourth quarter of 1999, operating earnings were $74 million ($0.27
per share), up from $39 million ($0.14 per share) in 1998. Cash flow was $315
million ($1.16 per share) compared with $223 million ($0.82 per share).
Petro-Canada recorded a loss of $8 million after tax relating to the disposal
of assets compared with a loss of $20 million in 1998.
President and Chief Executive Officer Ron Brenneman said, ``Our
significantly improved performance results from higher oil and gas prices, an
improvement in controllable costs and a shift toward more profitable
production from the Grand Banks. Rising crude oil prices made 1999 a record
year for the upstream business, but contributed to a difficult environment for
the downstream.'
Upstream earnings from operations in the fourth quarter of 1999 were $98
million, up significantly from $26 million during the same period of 1998.
Upstream performance in the fourth quarter of 1999 was boosted by strong oil
and gas prices and by significantly increased earnings from the Hibernia oil
field offshore Newfoundland.
Downstream earnings from operations in the fourth quarter were $9
million, down from $34 million in the fourth quarter of 1998 as a result of
higher crude prices and lower refining margins.
I am delighted to be joining Petro-Canada on the eve of the Company's
twenty-fifth anniversary and I look forward to a prosperous future for the
Company and its shareholders,' Brenneman continued. ``Our business plan will
focus on the Company's strengths: a base of Grand Banks oil production, a
portfolio of development opportunities for Western Canada gas and our
competitive Downstream business. At the same time we'll be developing new
opportunities off the east coast, in the oil sands and internationally.'
Petro-Canada is one of Canada's largest oil and gas companies, operating
in both the upstream and downstream sectors of the industry. Its common and
variable voting shares trade on the Toronto Stock Exchange under the symbol
PCA, and its variable voting shares trade on the New York Stock Exchange under
the symbol PCZ.
SUPPLEMENTAL INFORMATION
BUSINESS ENVIRONMENT
The price of benchmark West Texas Intermediate (WTI) crude oil averaged
US$19.30 per barrel in 1999, up from an average of US$14.40 per barrel in
1998. In the fourth quarter the price of WTI averaged US$24.51 per barrel
versus US$12.92 in the fourth quarter of 1998.
The recovery in the price of WTI and a continuing weak Canadian dollar
drove the average price of Petro-Canada's postings of Edmonton Light crude oil
to $27.59 per barrel in 1999 from $20.35 in 1998. In the fourth quarter,
Edmonton Light averaged $35.73 per barrel compared with an average of $18.87
in the fourth quarter of 1998.
Internationally, in 1999, the price differential between WTI and Brent
narrowed to US$1.37 per barrel from an average of US$1.68 in 1998. The
narrowing of this differential was sharper in the fourth quarter, when it
averaged US$0.42 per barrel, compared with US$1.77 in the fourth quarter of
1998. This reduced the profitability of Eastern Canada refineries that import
crude from the Atlantic Basin.
Prices of heavier crudes also benefited from the recovery in light crude
prices. Internationally, the price differential between benchmark crudes such
as North Sea Brent and Mexican Maya narrowed in 1999 to US$3.44 per barrel
from an average of US$4.03 in 1998. Canadian light-heavy crude price
differentials mirrored that trend. Based on Petro-Canada's postings, the
spread between the prices of benchmark crudes - Edmonton Light and Bow River -
narrowed in 1999 to $4.32 per barrel from an average of $5.77 in 1998, but
widened in the latter part of the year. In the fourth quarter, the Edmonton
Light-Bow River price spread widened to $6.72 per barrel from $3.55 in the
fourth quarter of 1998. As a result, for the year as a whole, the price of
Bow River crude increased to $23.27 per barrel from an average of $14.58 in
1998. During the fourth quarter, it averaged $19.09 per barrel, up from an
average of $15.52 in the fourth quarter of 1998. Although these developments
were very positive from an oil producer perspective, they made it even more
challenging for Canadian refiners to operate profitably in the 1999
environment of steeply rising crude feedstock costs.
The major increase in crude oil prices beginning in the second quarter of
1999 reduced refining margins throughout North America. The 3-2-1 cracking
spread at New York Harbour, one of the industry's benchmark measures of
refining profitability, weakened in 1999 to US$2.51 per barrel from an average
of US$2.77 in 1998. Although still low by historical standards, in the fourth
quarter the 3-2-1 cracking spread increased to US$3.02 per barrel from an
average of US$2.20 in the fourth quarter of 1998. This improvement was driven
largely by consumers' Y2K-related stockpiling of refined products.
In 1999 the average price of natural gas at the Henry Hub in Louisiana
improved to US$2.27 per million BTUs from US$2.14 in 1998. In the fourth
quarter, natural gas prices at the Henry Hub averaged US$2.61 per million
BTUs, up from an average of US$2.13 in the fourth quarter of 1998. Canadian
gas prices improved even further, reflecting both the improvement in U.S. gas
prices and a significant narrowing of the basis differential between U.S. and
Canadian gas prices. This narrowing was due, in turn, to the availability of
ample pipeline capacity out of Western Canada. The benchmark price of gas at
the AECO-C Hub in Alberta improved to $3.09 per thousand cubic feet from an
average of $2.12 in 1998. In the fourth quarter, the AECO-C price averaged
$3.71 per thousand cubic feet, compared with an average of $2.77 in the fourth
quarter of 1998.
UPSTREAM
Petro-Canada's Upstream earnings from operations were a record $243
million in 1999, up from $29 million in 1998, primarily as a result of sharply
higher crude oil and natural gas prices, higher Hibernia production volumes
and a focus on controllable costs.
Crude oil and natural gas liquids prices received by Petro-Canada were up
significantly in 1999 at an average of $24.58 per barrel after hedging
compared with an average of $17.72 per barrel last year. Natural gas prices
received by Petro-Canada in 1999 averaged $2.59 per thousand cubic feet after
hedging, up from $1.96 per thousand cubic feet in 1998.
Petro-Canada periodically enters into hedging contracts to increase the
reliability of cash flow. The opportunity cost of the oil collar, which
expired at the end of December, was $29 million and of the gas hedge that
expired at December 31, 1999, $5 million. Petro-Canada's earnings for the year
would have been $34 million higher without those hedging activities. The
Company has made a forward sale of approximately 21 000 barrels per day of
crude oil production for the first quarter of 2000 at U.S.$ 22.55 per barrel.
In natural gas, Petro-Canada sold forward approximately 106 million cubic feet
of daily production for the year 2000 at a minimum average price of $2.96 per
thousand cubic feet Alberta and B.C. plant gate equivalent through the use of
physical sales and hedging activities.
Production
Petro-Canada's total daily production of crude oil, liquids and natural
gas averaged 167 200 barrels of oil equivalent in 1999, compared with 173 300
barrels in 1998. Total conventional crude oil and liquids production was
68 600 compared with 75 900 barrels per day, with asset sales in Western
Canada more than offsetting 7 000 barrels per day of increased crude oil
production from Hibernia. Natural gas production was virtually unchanged at
719 million cubic feet per day versus an average of 722 million cubic feet per
day in 1998. Natural gas exit volumes were 760 million cubic feet per day,
level with 1998 exit volumes.
Western Canada conventional crude oil and liquids production was 36 400
barrels per day, down from 51 000 barrels per day in 1998. The decline in
production in 1999 resulted from net asset sales, as the Company continued its
previously announced staged exit from conventional oil production in Western
Canada, and natural decline. The Company's share of Syncrude synthetic crude
oil production averaged a record 26 700 barrels per day, up from 25 200
barrels per day in 1998. International production in 1999 averaged 12 200
barrels per day, up slightly from 11 900 barrels per day in 1998.
Reserves Performance
Total proved reserves at year end 1999 were virtually unchanged from 1998
at 725 million barrels of oil equivalent, despite production of 61 million
barrels of oil equivalent and the net sale of producing properties with
reserves of nine million barrels of oil equivalent. The Company replaced 106
per cent of its natural gas production in 1999 through exploration and
development activities with the addition of 277 billion cubic feet of proved
gas reserves. Western Canada conventional proved finding and development costs
averaged $7.25 per barrel of oil equivalent in 1999, improved from $7.40 in
the prior year.
Western Canada
The Wildcat Hills area, in the Alberta Foothills 70 kilometres northwest
of Calgary, continues to be a key contributor to gas production and reserve
additions, with approximately 500 billion cubic feet equivalent of proved and
probable reserves added during the last four years. Three wells drilled in the
fourth quarter were successful, bringing Petro-Canada's record in the area to
29 consecutive successful wells.
Petro-Canada drilled 10 wells in the Wildcat Hills/Benjamin Creek area
during 1999. At the end of 1999, the area produced 100 million cubic feet per
day of natural gas for Petro-Canada. The debottlenecked Wildcat Hills gas
processing plant is now running at full capacity, and pipelines are now in
service to transport additional volumes to other processing plants in the
area. The Company will drill about 20 wells in the area in 2000 and currently
has four rigs working there. Petro-Canada will also drill about 16 wells in
the productive Hanlan area this year.
Petro-Canada is one of the largest holders of in-situ oil sands leases in
the Athabasca area of northeast Alberta, with working interests varying from
25 per cent to 100 per cent. Petro-Canada is evaluating development of its
in-situ oilsands acreage at MacKay River and currently has an application for
regulatory approval of commercial development before the Energy and Utilities
Board.
New Frontier Areas for Gas
Petro-Canada recently acquired two licences in the Mackenzie Delta,
Northwest Territories, that provide a new exploration theatre for natural gas.
Petro-Canada acquired a 60 per cent working interest in approximately 220 000
net acres for net work commitments of $63 million over five years and will
operate all exploration and development activities. The Company plans to shoot
seismic on the property this winter and expects to drill its first well during
the winter of 2001/2002. Production from the Delta would require construction
of a pipeline south to existing infrastructure.
In October Petro-Canada returned to the Scotian Shelf, offshore Nova
Scotia with a farm-in to a 742 000 acre block located southwest of the Sable
Offshore Energy Project. By conducting a seismic program in 2000 Petro-Canada
will earn a 66 2/3 per cent working interest in the block. In addition,
Petro-Canada acquired a 35 per cent interest in a 419 000 acre sale parcel
adjoining the farm-in block. With the recent first production of offshore Nova
Scotia gas, infrastructure is in place to reach northeastern U.S. gas markets,
providing future Scotian Shelf gas discoveries with good medium term
development potential.
Hibernia
The Hibernia reservoir's performance continued to be strong in 1999 and
operational reliability improved significantly by year-end. Hibernia, on the
Grand Banks, offshore Newfoundland, produced light, sweet crude oil at an
average rate of 100 000 barrels per day for the year, or 20 000 barrels per
day net to Petro-Canada. At the end of 1999 there were seven producing oil
wells, four water injectors and two gas injectors in operation. Petro-
Canada's expectation for year 2000 average production is 135 000 barrels per
day, or 27 000 barrels per day net to Petro-Canada. Based on the
better-than-expected performance of the Hibernia reservoir, Petro-Canada now
estimates ultimate reserves at Hibernia to be 730 million barrels, an increase
of 19 per cent or 115 million barrels over the Company's original estimate.
Drilling in the Avalon formation will begin this year. Hibernia contributed
$45 million after tax to Petro-Canada earnings in 1999.
Terra Nova
Petro-Canada is the operator of the Terra Nova oil field, 35 kilometres
southeast of Hibernia. In 1999, the four glory holes required for first oil
were excavated at Terra Nova, templates and surface casings for the first six
wells were completed and anchor chains were installed for the floating
production system. A fifth glory hole was excavated in the unexplored Far East
Block to allow for the drilling of an exploration well that, if successful,
could be used as a production or injection well. The Terra Nova production
vessel will be completed in Korea in early 2000 and is expected to arrive at
Bull Arm, Newfoundland, in the second quarter of 2000. At Bull Arm, all
production modules will be installed on the vessel.
During the third quarter of 1999, the drilling rig Grand Banks started
drilling the first Terra Nova production well. This rig was replaced in early
2000 by the Henry Goodrich, which, by the fall, is expected to complete all
six wells required for production start-up. The Henry Goodrich will then drill
the Far East block.
Petro-Canada expects the Terra Nova oil development to produce first oil
by the second quarter of the year 2001. Terra Nova is expected to produce
129 000 barrels per day at its peak and has estimated crude oil reserves of
370 million barrels, of which Petro-Canada's share is 29 per cent.
Flemish Pass and Other Grand Banks
In 1999, Petro-Canada participated in the acquisition of exploration
rights to three large, deep-water parcels in the Flemish Pass area, located
about 150 kilometres northeast of Hibernia, for total work commitments of $191
million ($106 million net) over five years. Petro-Canada is the operator for
two of the three blocks, holding a 50 per cent interest in two and 60 per cent
in the third. These parcels cover a total of 1.2 million acres (0.65 million
net acres) and are in addition to Petro-Canada's existing offshore
Newfoundland land holdings of 2.6 million acres (0.63 million net acres). They
bring the Company's total current East Coast land position to 5.0 million
acres (1.9 million net acres), equivalent to about 7 650 square miles. These
licences provide Petro-Canada and its co-owners with a number of attractive
exploration prospects.
Petro-Canada and its partners will shoot 4 200 kilometres of
three-dimensional seismic over the Jeanne d'Arc, Flemish Pass and Scotian
Shelf Basins during 2000. A minimum of four exploration or delineation wells
are planned this year, including potential locations at White Rose, Hebron,
Riverhead, and Southwest Hibernia.
International Activity
Crude oil production from the Tamadanet field in Algeria averaged 4 500
barrels per day net to Petro-Canada before royalty and the sharing of profit
oil. The Company has filed development plan applications for two 1998 oil
discoveries. Petro-Canada plans to drill two exploration wells in 2000.
Discussions continue with the Algerian state oil company, SONATRACH,
concerning a potential regional gas development in Algeria.
In Tunisia, Petro-Canada completed a seismic program in 1999 and has the
option to elect to proceed with the exploration license phase of the agreement
in February 2000.
In 1999, seven wells were drilled at the Veslefrikk and Njord fields in
Norway. The Veslefrikk field produced an average of 3 100 barrels per day net
to Petro-Canada, while the Njord field produced an average of 4 600 barrels
per day net to Petro-Canada. The Veslefrikk platform was dry-docked for four
months from June of 1999 for scheduled repairs and maintenance. The Njord
field achieved 98 per cent of planned volumes despite being shut down for 21
days this summer due to electrical problems.
Asset Rationalization
In 1999, Petro-Canada sold interests in several small fields, including
Caroline, Widewater, Mooney, Dunvegan and Stoddart/North Pine for a total
consideration of $54 million in cash. Production from these fields averaged
approximately 2 200 barrels of oil equivalent per day in 1999 prior to
disposition.
The Company invested $22 million to acquire assets in core gas properties
including Ghost River, Cardinal River, Laprise and Benjamin Creek. The net
effect of asset rationalization activities over 1998 and 1999 reduced the
Company's 1999 production of natural gas by approximately 12 million cubic
feet per day and its production of crude oil and natural gas liquids by about
11 000 barrels per day.
As part of its plan to exit conventional oil production in Western
Canada, Petro-Canada also announced during the fourth quarter its intention to
sell Western Canada conventional oil producing assets representing daily
production of approximately 17 000 barrels of oil and 20 million cubic feet of
natural gas. The data room is open, with bids due in early February.
DOWNSTREAM
Sharply rising crude prices, weaker industry refining margins and narrow
light/heavy crude price differential made 1999 a very difficult year for all
refiners. Petro-Canada's Downstream posted earnings from operations of $115
million, compared with $204 million in 1998.
The main cause of the earnings decline was the rising price of crude oil,
the raw material for the refining process. Crude prices rose from lows in
February of U.S. $11 per barrel to highs of U.S.$27 per barrel in November.
Just to recover this increase in the cost of crude oil, the price of gasoline
would have had to increase by 15 cents per litre.
Refinery utilization in 1999 was strong at 100 per cent, compared with 95
per cent in 1998.
Sales of refined petroleum products increased by 4% in 1999 to 51 200
cubic metres per day compared with 49 100 cubic metres per day in 1998.
Notwithstanding the Company's continued, deliberate retail site
rationalization, retail sales have slightly increased since 1998. Wholesale
sales have also shown substantial growth. These increases are mainly
attributable to the Company's strong marketing and capital investment
programs.
Lubricants sales were up 8 per cent over 1998. In addition, Petro-Canada
achieved improvements in product mix by converting low value conventional base
oils sales into higher valued channels.
In the fourth quarter, the refining and supply segment lost $2 million,
compared with earnings of $17 million during the same period in 1998. Fourth
quarter 1999 marketing earnings were $11 million, compared with $17 million
during the fourth quarter of 1998. Refining and supply earnings from
operations in 1999 were $34 million compared with $120 million in 1998.
Marketing operating earnings were $81 million, compared with $84 million in
1998.
On November 30, 1999, Petro-Canada re-launched the successful SuperClean
WinterGas program which promotes the specialized additives of Petro-Canada
gasolines. Petro-Points, the company's well-known loyalty program, also
announced a new auto club program, intended to generate additional
non-petroleum revenues and build customer loyalty.
YEAR 2000
As of the date of this release, Petro-Canada has experienced no business
interruption related to the Year 2000 date change. The Company spent $8.5
million in 1999 on Year 2000 initiatives. About half of that amount has
future value to the company and was capitalized, with the remainder expensed.
Although the Company is confident that it has successfully handled the Year
2000 date change, a systems change freeze approval process will remain in
place until March 1, 2000. As well, the Company will continue its ``clean
management' process to ensure hardware and software acquisitions over the
balance of the year have no date-related issues (such as the leap year) which
could negatively affect the Company. For a complete description of
Petro-Canada's corporate Year 2000 program, please refer to the Company's
third quarter release dated September 30, 1999, which is available at
www.petro-canada.ca or by request at (403) 296-4040.
FINANCIAL MEASURES
Petro-Canada's debt at December 31, 1999 was $1 711 million, compared
with $1 829 million at year-end 1998. Debt to cash flow was 1.8 times at
year-end 1999 and the debt to debt plus equity ratio was 29.5 per cent.
At December 31, 1999, cash and short-term investments totalled $206
million, down from $431 million at the end of 1998.
Capital expenditures in 1999 totalled $1 026 million while planned
capital expenditures in 2000 will be approximately 17 per cent higher at
$1 200 million. Grand Banks oil development and exploration expenditures are
the largest single portion of these expenditures at approximately $400
million. The 2000 program will be funded from cash flow and proceeds of
non-core asset sales.
Petro-Canada's return on capital employed in 1999 was 5.6 per cent,
compared with 3.0 per cent in 1998.
SHAREHOLDER INFORMATION
As at December 31, 1999, Petro-Canada's public float of 222.4 million
shares comprised 181.6 million common shares, held by residents of Canada, and
40.8 million variable voting shares, held by non-residents of Canada.
Petro-Canada will hold a conference call to discuss these results with
investors on Thursday, January 20 at 1615h, Eastern Time. To participate in
the call, please call 1-888-273-1350 at 1605h. Those who are unable to listen
to the call may listen to a recording of it approximately one hour after its
completion by calling 1-800-558-5253 and dialling reservation number 14036952.
A live audio broadcast of the conference call will be available on our
internet site at www.petro-canada.ca/investor/speeches on January 20th at
1615h Eastern Time. Approximately one hour after the call, a recording of it
will be available on our internet site.
Media please call Robert Andras at 403-296-8586.
This release contains forward-looking statements, including references to
oil and gas production levels and the sources of growth thereof, reserves and
probable reserves, results of exploration activities, dates by which certain
areas will be developed or will come on-stream and costs and timing of
addressing Year 2000 matters. These forward-looking statements are subject to
known and unknown risks and uncertainties and other factors which may cause
actual results, levels of activity and achievements to differ materially from
those expressed or implied by such statements. Such factors include, but are
not limited to: general economic, market and business conditions; industry
capacity; competitive action by other companies; fluctuations in oil and gas
prices; the ability to produce and transport crude oil and natural gas to
markets; the results of exploration and development drilling and related
activities; fluctuation in foreign currency exchange rates; actions by
governmental authorities including increases in taxes; changes in
environmental and other regulations; risks attendant with oil and gas
operations; and other factors, many of which are beyond the control of
Petro-Canada. These factors are discussed in greater detail in filings made
by Petro-Canada with the Securities and Exchange Commission and Canadian
provincial securities commissions.
SELECTED FINANCIAL DATA
December 31, 1999
(unaudited, millions of
Canadian dollars) FOURTH QUARTER FULL YEAR
1999 1998 1999 1998
------------------------------------------------------------------------
Revenue
Upstream 558 366 1 690 1 436
...Cash flow |
