EARNINGS / Poco Petroleums 1997 Results
POCO PETROLEUMS LTD. - REPORT FOR TWELVE MONTHS ENDED DECEMBER 31,
1997
CALGARY, Feb. 19 /CNW/ -
1997 HIGHLIGHTS
- A 31 per cent increase in average daily production to 81,758 barrels of
oil equivalent, including a 53 per cent increase to 432.9 million cubic
feet of natural gas, a 22 per cent increase to 17,014 barrels of
natural gas liquids and a six per cent increase to 21,454 barrels of
crude oil.
- Exploration, development and acquisition expenditures of $607.2 million
added proven and probable reserves of 86.9 million barrels of oil
equivalent which is 291 per cent of 1997 production of 29.8 million
barrels of oil equivalent.
- Realized 30 per cent growth in cash flow per share to $2.63.
- Earnings per share increased 53 per cent to $0.46.
- Accessed the Canadian public debt markets by issuing $150 million of
6.6 per cent 10-year notes and $100 million in short term commercial
paper.
Three months Twelve months
ended December 31 ended December 31
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% Increase % Increase
FINANCIAL HIGHLIGHTS 1997 1996 (decrease) 1997 1996 (decrease)
------------------------------------------------------------------------
Oil and gas revenue
($ thousands) 189,357 155,200 22 637,552 471,580 35
Funds from operations
($ thousands) 101,092 79,106 28 336,688 231,424 45
Per share ($) 0.79 0.64 23 2.63 2.02 30
Net earnings
($ thousands) 18,372 17,770 3 58,293 34,356 70
Per share ($) 0.15 0.15 - 0.46 0.30 53
Capital expenditures
($ thousands) 107,847 330,623 (67) 607,153 724,974 (16)
Weighted average
shares outstanding
(thousands) 128,792 126,497 2 127,995 114,595 12
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OPERATIONAL HIGHLIGHTS
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Natural Gas
Daily production
(mmcf) 444.1 324.4 37 432.9 283.8 53
Sales price
($/mcf) 2.51 2.24 12 2.00 1.73 16
Royalties
($/mcf) (0.51) (0.43) 19 (0.34) (0.28) 21
Production
expenses ($/mcf) (0.44) (0.44) - (0.43) (0.41) 5
--------------------------------------------------
Netback ($/mcf) 1.56 1.37 14 1.23 1.04 18
--------------------------------------------------
Liquids
Daily production
(bbls) 41,358 36,193 14 38,468 34,194 12
Sales price
($/bbl) 22.37 27.91 (20) 22.69 23.78 (5)
Royalties
($/bbl) (4.44) (6.06) (27) (4.74) (5.29) (10)
Production
expenses ($/bbl) (3.70) (4.73) (22) (3.62) (4.28) (15)
--------------------------------------------------
Netback ($/bbl) 14.23 17.12 (17) 14.33 14.21 1
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MESSAGE TO THE SHAREHOLDERS
For the year ended December 31, 1997, Poco had record cash flow, earnings
and production levels. Continued exploration and development success generated
excellent 1997 results and significant year-over-year financial and
operational growth.
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OPERATIONAL HIGHLIGHTS
Production volumes increased due to continued exploration and development
success and acquisitions. Daily natural gas production for 1997 increased 53
per cent to 432.9 million cubic feet from 283.8 million cubic feet for 1996.
Liquids production increased 12 per cent to 38,468 barrels per day (17,014
barrels per day of natural gas liquids and 21,454 barrels per day of crude
oil) from 34,194 barrels for 1996 primarily due to exploration and development
in all of Poco's regions of activity. Poco now has the largest exposure to
natural gas-related production of any publicly-traded Canadian senior producer
with over 73 per cent of production volumes related to natural gas activity.
Poco's capital spending for 1997 totalled $607.2 million including $154.6
million for net acquisitions. Exploration and development expenditures of
$452.6 million included $107.4 million for facilities, $78.8 million for land
and geophysical, $259.8 million for drilling and $6.6 million for corporate
items. Poco's land expenditures for the year increased undeveloped land
inventory to 2.5 million gross acres (1.8 million net acres) from 1.8 million
gross acres (1.3 million net acres) at December 31, 1996. Drilling
expenditures resulted in 263 gross wells (214.8 net), with a success rate of
90 per cent. Poco's capital expenditures added proven plus probable reserves
of 86.9 million barrels of oil equivalent and resulted in a finding and
development cost of $6.98 per barrel of oil equivalent.
To better gauge performance, Poco uses a recycle ratio which measures
operating netbacks relative to replacement costs (finding and development
costs before dispositions). Poco's 1997 netback (revenue less production
expenses, royalties and general and administrative expenses) was $12.96 per
barrel of oil equivalent. By dividing the netback by the replacement cost of
$6.87 per barrel of oil equivalent, Poco's recycle ratio is 1.9:1. This means
that for every barrel of oil equivalent sold, Poco is finding and bringing
onstream 1.9 barrels of oil equivalent. Over the last five years, Poco has had
an excellent recycle ratio averaging 1.9:1.
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FINANCIAL HIGHLIGHTS
Poco's average natural gas price for the year ended December 31, 1997 was
$2.00 per thousand cubic feet, up 16 per cent from 1996. This strong natural
gas price reflects a fixed price for November and December 1997 of $3.00 per
thousand cubic feet on 300 million cubic feet per day of natural gas
production.The 1997 average liquids price was $22.69 per barrel versus $23.78
per barrel for 1996, which reflects a decline in the average annual West Texas
Intermediate price from U.S. $22.01 to U.S. $20.61 per barrel.
Record production and reasonably strong commodity prices generated record
cash flow of $336.7 million, a 45 per cent increase from 1996. On a per share
basis, cash flow increased 30 per cent to $2.63 from $2.02. Since 1993, Poco's
compound annual growth rate for cash flow per share has been 18.1 per cent.
Higher cash flow contributed to a 70 per cent jump in net earnings to
$58.3 million. On a per share basis, net earnings increased 53 per cent to
$0.46 from $0.30 in 1996. Since 1993, Poco's compound annual growth rate for
earnings per share has been 66.4 per cent.
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ACQUISITIONS
Poco has established a key operating and exploration area at Monkman Pass
in northeastern British Columbia. This initiative began with an acquisition in
early 1997 and through numerous transactions, including a January 1998
acquisition of Shell Canada Limited's interests in the area, Poco has
developed a significant operating position. While the 1997 year-end results do
not include the acquisition of Shell's interests, Poco's asset base at Monkman
Pass now includes: average daily production of 100 million cubic feet of
natural gas; 300 billion cubic feet of natural gas reserves; 3,500 miles of 2D
seismic; 150 square miles of 3D seismic; and 300,000 net acres of undeveloped
land.
The undeveloped land base has tremendous exploration potential with more
than 25 currently identified drilling locations. Successful wells drilled in
the area have typically produced at a daily rate of 20 to 60 million cubic
feet of natural gas, with some wells producing up to 80 million cubic feet.
Poco and one other senior producer now control the majority of the strategic
assets in one of the largest prospective natural gas areas in North America.
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1998 OUTLOOK
Poco remains bullish on the medium and long term outlook for natural gas
prices. Demand growth for natural gas in the United States is expected to
remain strong for the foreseeable future, while producers are having
difficulty materially increasing supply. This will likely be more apparent in
the latter months of 1998 particularly if North America experiences more
normal winter weather. With 1.1 billion cubic feet per day of incremental
pipeline capacity coming onstream in November 1998, all Alberta natural gas
production will be able to be transported to markets outside of Alberta. Poco
is forecasting an average gas price of $2.00 per thousand cubic feet.
Given the recent economic turmoil in Asian countries and the resultant
decrease in expected demand growth for crude oil, Poco expects West Texas
Intermediate crude oil to trade in a band of U.S. $16.00 to U.S. $20.00 per
barrel for much of 1998. However, the unpredictability of world events makes
any price forecast very vulnerable.
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CLOSING COMMENTS
Poco's achievements have been driven by a business plan focused on
building a dominant position in the deeper more prolific portions of the
Western Canadian sedimentary basin, with a significant emphasis on natural gas
prospects. Poco is now extremely well positioned to benefit from stronger
natural gas prices expected by the end of 1998. We are confident this strategy
will continue to generate profitable growth for our shareholders. To improve
shareholder's access to timely information, an internet web site is located at
www.pocopete.ca
CONSOLIDATED BALANCE SHEETS
(thousands)
As at December 31 As at December 31
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1997 1996
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ASSETS
CURRENT ASSETS
Accounts receivable $ 86,407 $ 73,364
Inventory 22,844 18,634
-----------------------------------
109,251 91,998
PROPERTY, PLANT AND EQUIPMENT 1,911,668 1,510,279
OTHER ASSETS 31,870 13,983
-----------------------------------
$ 2,052,789 $ 1,616,260
-----------------------------------
-----------------------------------
LIABILITIES AND SHAREHOLDERS'
EQUITY
ACCOUNTS PAYABLE AND ACCRUED
LIABILITIES $ 73,923 $ 84,030
-----------------------------------
LONG TERM DEBT 812,896 506,377
-----------------------------------
FUTURE SITE RESTORATION 12,417 9,329
-----------------------------------
DEFERRED INCOME TAXES 133,503 69,303
-----------------------------------
SHAREHOLDERS' EQUITY
Common shares 904,982 890,446
Retained earnings 115,068 56,775
-----------------------------------
1,020,050 947,221
-----------------------------------
$ 2,052,789 $ 1,616,260
-----------------------------------
-----------------------------------
CONSOLIDATED STATEMENTS OF EARNINGS
(thousands, except per share amounts)
For the three months For the twelve months
ended December 31 ended December 31
------------------------------------------------------------------------
1997 1996 1997 1996
------------------------------------------------------------------------
(unaudited)(unaudited)
REVENUE
Oil and gas revenue $ 189,357 $ 155,200 $ 637,552 $ 471,580
Royalty expense 37,573 32,602 118,826 93,473
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151,784 122,598 518,726 378,107
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EXPENSES
Depletion and
depreciation 56,372 42,451 209,795 152,712
Production 32,097 28,997 118,882 96,805
Financial charges 14,874 9,221 48,629 33,533
General and
administrative 4,326 4,181 13,551 14,696
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107,669 84,850 390,857 297,746
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EARNINGS BEFORE INCOME
TAXES 44,115 37,748 127,869 80,361
Income taxes 25,743 19,978 69,576 46,005
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NET EARNINGS $ 18,372 $ 17,770 $ 58,293 $ 34,356
------------------------------------------------
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NET EARNINGS PER
COMMON SHARE
Basic $ 0.15 $ 0.15 $ 0.46 $ 0.30
Fully diluted $ 0.14 $ 0.15 $ 0.45 $ 0.30
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(thousands, except per share amounts)
For the three months For the twelve months
ended December 31 ended December 31
-------------------------------------------------------------------------
1997 1996 1997 1996
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(unaudited) (unaudited)
OPERATING ACTIVITIES
Net earnings $ 18,372 $ 17,770 $ 58,293 $ 34,356
Depletion, depreciation
and amortization 58,254 42,936 214,195 155,568
Deferred income taxes 24,466 18,400 64,200 41,500
-----------------------------------------------
Funds from operations 101,092 79,106 336,688 231,424
Change in non-cash
working capital 23,605 (20,581) 3,661 (9,933)
-----------------------------------------------
Funds provided by
operating activities 124,697 58,525 340,349 221,491
-----------------------------------------------
FINANCING ACTIVITIES
Increase (decrease) in
production loans and
and other long term
debt 55,938 (76,944) 157,336 (73,136)
Issue of medium term notes - - 149,566 -
Issue of senior U.S.
dollar notes - 102,405 - 170,857
Repayment of senior U.S.
dollar notes (7,114) (3,395) (13,995) (6,809)
Redemption of 7 1/2%
debentures - - - (59,970)
Issue of common shares 1,166 4,534 16,663 200,452
-----------------------------------------------
49,990 26,600 309,570 231,394
-----------------------------------------------
Acquisition of Gardiner
Oil and Gas Limited - 235,823 - 235,823
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Funds provided by
financing activities 49,990 262,423 309,570 467,217
-----------------------------------------------
Total funds available for
investing activities $174,687 $320,948 $649,919 $688,708
-----------------------------------------------
-----------------------------------------------
INVESTING ACTIVITIES
Additions to property,
plant and equipment $ 96,126 $ 98,871 $452,537 $268,909
Property acquisitions 19,781 (1,409) 180,081 230,373
Acquisition of Gardiner
Oil and Gas Limited - 243,693 - 243,693
Proceeds on dispositions
of property (8,060) (10,532) (25,465) (18,001)
Site restoration costs
incurred 1,490 1,091 2,956 3,484
Other 6,826 4,281 8,789 3,772
Change in non-cash
working capital 58,524 (15,047) 31,021 (43,522)
-----------------------------------------------
Funds used for investing
activities $174,687 $320,948 $649,919 $688,708
-----------------------------------------------
FUNDS FROM OPERATIONS PER
COMMON SHARE
Basic $ 0.79 $ 0.64 $ 2.63 $ 2.02
Fully diluted $ 0.77 $ 0.61 $ 2.53 $ 1.93
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COMMON SHARE INFORMATION
1996 1997
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Q4 Q1 Q2 Q3 Q4
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Outstanding at quarter end
(millions) 126.8 127.5 128.0 128.7 128.8
High ($/share) 14.35 15.40 15.50 14.35 15.00
Low ($/share) 10.55 12.55 12.70 12.45 10.50
Close ($/share) 13.10 12.80 14.15 13.60 12.75
Shares traded (millions) 35.9 37.7 27.2 40.0 39.5
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