EARNINGS - TOP 21 LISTED / Petro-Canada Annual Results (Part I)
PETRO-CANADA REPORTS BEST-EVER FINANCIAL RESULTS
CALGARY, Jan. 20 /CNW/ - In 1997, Petro-Canada posted the best results in
its history, with unaudited net earnings of $306 million ($1.13 per share), as
a result of strong performance in both the Upstream and Downstream sectors.
Net earnings increased by $59 million, or 24 per cent, over 1996. Earnings
from operations were $314 million ($1.16 per share), compared with $247
million ($0.94 per share) in 1996.
Cash flow increased to $1 263 million ($4.66 per share), up from $863
million ($3.29 per share) a year earlier, reflecting lower current income
taxes and higher earnings.
Net earnings in the fourth quarter of 1997 were $78 million ($0.29 per
share), down from a record $101 million ($0.38 per share) for the same period
last year. Cash flow was $308 million ($1.13 per share), compared with $270
million ($1.00 per share) in the fourth quarter of 1996.
President and Chief Executive Officer Jim Stanford said, ''We are very
proud of our accomplishments in 1997, which are primarily the result of the
outstanding effort and dedication of our employees. In the Downstream sector,
we achieved record results and increased our return on capital employed to 11
per cent, primarily by capturing the benefits of an improved business
environment, implementing successful marketing programs and continuing to
focus on managing controllable expenses.
''On the Grand Banks, the Company reached an historic milestone in
November, when Hibernia produced first oil,'' said Stanford. ''Hibernia's
first two wells are currently producing over 60 000 barrels per day and two
tanker loads of light, sweet Hibernia crude have already been shipped to
market. Terra Nova, the Company's next Grand Banks oil development, received
final regulatory approval last week and we expect approval by the project
co-owners in the next few weeks.
''In Western Canada, Petro-Canada's focus on natural gas is paying off,''
said Stanford. ''We added proved natural gas reserves in excess of our 1997
natural gas production. Despite generally rising costs in the industry,
Petro-Canada reduced overall finding and development costs for conventional
oil and gas to approximately $7.65 per barrel of oil equivalent. In addition,
the recently announced expansion at the Syncrude oil sands development will
double Petro-Canada's 12 per cent share of production from current levels to
over 50 000 barrels per day by 2007.''
Fourth quarter earnings from operations in the Upstream (exploration and
production) were $54 million, compared with $94 million in the same period
last year. Earnings in 1997 were reduced due to lower straddle plant margins,
and lower prices for crude oil and liquids as well as the disposition of
producing properties. The 1996 results were negatively affected by the
Company's oil and gas hedging activites.
The Downstream sector (refining and marketing) earned $48 million from
operations during the fourth quarter of 1997, up $18 million from the
comparative quarter in 1996. Stronger volumes, lower feedstock prices and a
wider light/heavy crude oil price differential contributed to the improvement.
In early January, Petro-Canada and Ultramar Diamond Shamrock Corporation
(UDS) announced their intention to form a Downstream joint venture that will
be the leader in the Canadian refining and marketing industry. The new entity
will provide Petro-Canada with a leading position across Canada and an
excellent platform for growth in adjacent U.S. markets. Stanford observed,
''The joint venture with UDS is a significant step forward in achieving
Petro-Canada's vision of becoming the pre-eminent Canadian integrated oil and
gas company.''
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 Canadian exchanges under the symbol PCA, and
its variable voting shares trade on the New York Stock Exchange under the
symbol PCZ.
SUPPLEMENTAL INFORMATION
UPSTREAM
The Upstream sector earned $188 million from operations in 1997, compared
with $192 million in 1996. Earnings in 1997 were reduced as lower straddle
plant margins and lower liquids production and prices more than offset
increased natural gas production and prices. The 1996 results were negatively
affected by the Company's oil and gas hedging activities. Daily crude oil,
liquids and natural gas production was 171 100 barrels of oil equivalent, up
slightly from 168 500 barrels of oil equivalent in 1996. Natural gas
production rose 48 million cubic feet per day, or over 6 per cent, to an
average of 760 million cubic feet in 1997. Total conventional crude oil and
liquids production was 70 200 barrels per day, down from 73 200 barrels per
day in 1996 as new production from Hibernia was offset by lower production in
Western Canada.
Western Canada conventional crude oil and liquids production was 57 500
barrels per day, down from 61 500 barrels per day in 1996. This decline was
due to the sale in 1997 of assets which had produced 4 000 barrels of oil and
liquids per day during the previous year, as well as natural decline. Daily
synthetic crude oil production from Syncrude averaged 24 900 barrels in 1997,
up from 24 100 barrels in 1996.
Crude oil and natural gas liquids prices averaged $25.49 per barrel in
1997, compared with $27.20 per barrel in 1996. Natural gas prices averaged
$1.85 per thousand cubic feet in 1997, compared with $1.61 a year earlier.
Prices received exclude the effects of Petro-Canada's crude oil and natural
gas hedging activities, which increased the Company's Upstream earnings by $9
million in 1997, compared with a negative effect of $51 million in 1996.
Western Canada conventional delivers strong results
Petro-Canada succeeded in reducing finding and development costs for
conventional proved reserves to approximately $7.65 per barrel of oil
equivalent in 1997 from $8.39 in 1996, despite higher industry costs for land,
seismic, drilling and personnel. The Company replaced more than 100 per cent
of its gas production in 1997 through exploration and development activities.
Reserve additions totalled more than 40 million barrels of oil equivalent, of
which over 85% was gas and associated liquids. In 1998, Petro-Canada plans to
invest approximately $375 million in its Western Canada conventional business,
accelerating its natural gas exploration and development program. The Company
is on track to reduce finding and development costs to first quartile levels.
Grand Banks developments
The Hibernia field's first oil well, which began producing in November,
has produced at rates of more than 40 000 barrels per day - the highest
single-well production in Canadian history. With the completion of the second
well in mid-December, the platform now is producing over 60 000 barrels of oil
per day.
Petro-Canada's 20 per cent interest in the Hibernia oil field is expected
to contribute an average of almost 15 000 barrels per day in 1998. The third
and fourth production wells were spudded late in the fourth quarter. In total,
six wells will be on production by the end of 1998 and will be supported by
three water injectors and two gas injectors.
It is expected that, having recently received regulatory approval for the
Terra Nova oil development, the owners will make a final decision on
proceeding within the next few weeks. Petro-Canada estimates that its 29 per
cent share of Terra Nova production will be approximately 33 000 barrels of
light, sweet crude oil per day at peak. This Grand Banks oil development,
operated by Petro-Canada, is expected to be on stream late in the year 2000.
The West Bonne Bay exploration well, in which Petro-Canada has a 10 per
cent working interest, has reached total depth and is being evaluated. In
December, Petro-Canada and three other companies acquired four exploration
licences on the Grand Banks totalling approximately 330 000 gross acres for a
total work commitment of $98 million over the next five years. The four
companies will participate with equal working interests. Three of the parcels
are located between the Hibernia, Terra Nova and Hebron/Ben Nevis oil fields
and the remaining parcel is located approximately 35 kilometres northeast of
Hibernia. These new licences give Petro-Canada and its partners a dominant
acreage position in the Jeanne d'Arc Basin.
Negotiations are underway between Petro-Canada and its partners and two
drilling contractors to bring two additional drilling rigs to the Grand Banks
which will allow a multi-well exploration and delineation drilling program to
begin in mid-1998. This drilling program will enable the Company and its
partners to identify which Grand Banks oil development will follow Terra Nova.
International activity
In the Norwegian sector of the North Sea, Petro-Canada's 9 per cent share
of production from the Veslefrikk field averaged 5 800 barrels per day in
1997. Production from the Njord field began on October 1. The Company's 7.5
per cent interest in Njord yielded an average of 1 900 barrels of oil per day
in the fourth quarter and production is expected to average 4 300 barrels per
day in 1998.
In Algeria, Petro-Canada commenced a three-well exploration program on
the Tinrhert Block during the second half of 1997. The first well of the
program encountered 75 metres of gas-condensate pay from four different zones
within the Siluro-Devonian formation and tested at stabilized rates of 64
million cubic feet per day of natural gas and 5 140 barrels per day of
condensate. Petro-Canada and SONATRACH, the Algerian national oil company, are
currently evaluating the test results to determine the commercial potential of
the discovery. The second exploration well is currently being tested and the
Company expects to spud the third well in the first quarter of 1998.
Petro-Canada's 70 per cent share of production from the Tamadanet oil field
was 5 700 barrels of oil per day in 1997 before royalties and the sharing of
profit oil.
DOWNSTREAM
The Downstream sector posted record results in 1997, with earnings from
operations of $225 million, compared with $130 million last year. The strong
performance resulted from an improved business environment, stronger margins
and the effective management of controllables, including refinery utilization,
site throughputs and operating expenses. In 1997, Petro-Canada's refineries
ran at full capacity.
Petro-Canada enjoyed outstanding petroleum product sales growth in 1997.
Sales increased 11 per cent from 1996 volumes, primarily due to the continued
success of the Company's marketing programs. Retail throughput per site
averaged 3.4 million litres in 1997, up almost 10 per cent from 3.1 million
litres last year. The Company continued to roll out its new-image sites and
larger Superstop convenience stores in 1997. At year end, Petro-Canada's
national retail network consisted of 1 784 retail sites, of which 180 have
been revitalized with the new image design.
Lubricants sales increased over 33 per cent from last year; however,
pressure on margins from international competitors continued to depress
earnings.
Operating earnings from rack back (refining and supply) were $143
million, compared with $87 million in 1996, while rack forward (marketing)
operating earnings were a record $82 million, up from $43 million last year.
Joint Venture
In January, 1998, Petro-Canada signed a memorandum of understanding with
Ultramar Diamond Shamrock Corporation (UDS) to form a refining and marketing
joint venture to serve customers in Canada and the north-eastern United
States more efficiently and to reduce costs of the combined operations. The
joint venture, which will operate as a Canadian general partnership, consists
of all of Petro-Canada's downstream assets, including lubricants, and UDS'
downstream operations in Canada, Michigan and several New England states.
Petro-Canada will hold a 64 per cent economic interest in the joint venture
and will own 51 per cent of the joint venture voting units. The joint venture
will have a very competitive cost structure, and will be able to leverage the
strength of the Petro-Canada brand in Canada. Petro-Canada expects that the
transaction will increase its operating earnings starting in the first full
year of operations.
Formation of the joint venture is subject to completion of due diligence,
definitive documentation and regulatory review. Until completion of the
regulatory review, including approval by the Government of Canada's
Competition Bureau, approval of definitive agreements and closing, the
downstream operations of each company will continue to be run separately.
Petro-Canada expects to complete the transaction by mid-1998.
FINANCIAL MEASURES
Petro-Canada's debt at December 31, 1997 was $1 741 million, up from
$1 709 million at year-end 1996. This increase was mainly due to the effect
of the lower Canadian/U.S. dollar exchange rate at year-end 1997. Debt was
approximately 1.4 times cash flow at year-end 1997, and the debt to debt plus
equity ratio was 30.7 per cent. These ratios improved during 1997 and are
consistent with the Company's conservative financial policies.
In 1997, Petro-Canada's capital investments of $1 156 million included
$92 million of capital lease obligations associated with the Hibernia crude
oil tanker Mattea, which was delivered in November, 1997. In keeping with
the Company's objectives, Petro-Canada's expected 1998 capital expenditures of
$1 135 million will be funded from cash flow and proceeds from non-core asset
dispositions.
The return on capital employed for 1997 was 6.8 per cent, compared with
6.2 per cent in 1996. Cash flow return on capital employed was 24.5 per cent,
up from 18.5 per cent a year earlier. Return on capital employed, while
improving, continues to be constrained by the significant capital employed in
Hibernia and the Company's investments for natural gas growth in Western
Canada.
SHAREHOLDER INFORMATION
As at December 31, 1997, Petro-Canada's public float of 221.6 million
shares comprised 175.5 million common shares, held by residents of Canada, and
46.1 million variable voting shares, held by non-residents of Canada.
SELECTED FINANCIAL DATA
(unaudited, millions of Canadian dollars)
FOURTH QUARTER FULL YEAR
1997 1996 1997 1996
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Revenue
Upstream 496 585 1 829 1 702
Downstream 1 200 1 267 4 980 4 559
Shared Services (2) 9 (6) 21
Inter-segment sales (188) (198) (707) (675)
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1 506 1 663 6 096 5 607
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Earnings from operations
Upstream 54 94 188 192
Downstream 48 30 225 130
Shared Services (24) (20) (99) (75)
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78 104 314 247
Losses on asset sales - (3) (8) -
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Net earnings 78 101 306 247
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Cash flow
Upstream 254 219 900 655
Downstream 60 60 415 243
Shared Services (6) (9) (52) (35)
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308 270 1 263 863
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Expenditures on property, plant
and equipment and exploration
Upstream 249 239 805 649
Downstream 74 97 215 282
Shared Services 14 12 29 28
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337 348 1 049 959
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Return on capital employed(1)
(per cent) 6.8 6.2
Cash flow return on capital
employed(1) (per cent) 24.5 18.5
Debt 1 741 1 709
Cash and short-term investments 75 32
Debt to debt plus equity (per cent) 30.7 31.6
(1) Capital employed is defined as the total of shareholders' equity and
debt, less the related translation adjustment.
SELECTED OPERATING DATA
FOURTH QUARTER FULL YEAR
1997 1996 1997 1996
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Crude oil and natural gas liquids
production, net before royalties
(thousands of barrels per day)
Conventional crude oil
- Western Canada 40.8 46.3 43.3 48.4
Conventional crude oil
- Hibernia 2.8 - 0.7 -
Conventional crude oil
- Algeria 4.3 8.7 5.7 5.2
Conventional crude oil
- Norway 7.9 6.5 6.3 6.5
Synthetic and bitumen 28.2 24.9 24.9 24.1
Field natural gas liquids 13.6 15.9 14.2 13.1
Natural gas production,
net before royalties,
excluding injectants (millions
of cubic feet per day) 758 803 760 712
Total production(2)
(thousands of barrels of
oil equivalent per day) 173.4 182.6 171.1 168.5
Ethane and natural gas liquids
production from straddle plants 37.7 37.5 39.6 34.9
Propane sales (millions of litres) 296 382 1 065 1 180
Petroleum product sales (thousands
of cubic metres per day)
Gasolines 21.2 18.8 21.5 19.2
Distillates 17.7 17.6 17.9 16.4
Other including petrochemicals 10.2 9.2 9.1 8.1
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49.1 45.6 48.5 43.7
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Crude oil processed by Petro-Canada
(thousands of cubic metres per day) 48.7 46.1 46.7 45.0
Average refinery utilization
(per cent) 107 102 103 99
Rack back margin (cents per litre) 1.6 1.5 1.9 1.6
Rack forward margin (cents per litre) 5.3 4.5 5.5 4.7
(2) Natural gas converted at 10 000 cubic feet of gas to 1 barrel of oil
equivalent. |
