ENERGY TRUSTS / Canadian Oil Sands Unit Distribution
CANADIAN OIL SANDS TRUST ANNOUNCES $0.18 PER UNIT DISTRIBUTION FOR
SECOND QUARTER 1998
CALGARY, July 21 /CNW/ - Canadian Oil Sands Trust announced a second
quarter distribution of $0.18 per unit bringing the cumulative distributions
for 1998 to $0.43 per unit. Chuck Shultz, Chairman of Canadian Oil Sands,
summarized the second quarter with the following comments, ''Syncrude
continues to set production records with its billionth barrel produced on
April 16th and 21.4 million barrels of Syncrude Sweet Blend delivered during
the second quarter. The owner's approval of the Aurora Mine development will
provide a low cost source of bitumen for further growth in production. The
drop in Distributable Income in 1998 compared to 1997 is attributed to the
significant drop in oil prices. With its financial strategy in place,
Canadian Oil Sands is able to continue to provide its Unitholders with a
stable stream of income, subject to commodity price fluctuations. The Trust
Units have been trading at the $20.00 level during the quarter despite the
continuing weakness in the West Texas Intermediate crude oil prices which
dropped from US$15.60 in the first quarter to US$14.20 by the end of June.''
Distributable Income during the second quarter totalled $4.9 million
($0.18 per unit) compared to $4.6 million ($0.20 per unit) for the second
quarter of 1997. The Distributable Income for the second quarter of 1998
includes a $5.3 million provision for the external financing of capital
expenditures and $2.1 million for the sale of second quarter production in
July. Distributable Income for the first six months of 1998 totals $11.6
million ($0.43 per unit) including $3.3 million ($0.12 per unit) of earnings
carried forward from the fourth quarter of 1997 compared to $16.1 million for
the comparable period in 1997 which also included $3.4 million of surplus
cash. Cash flow from operations for the quarter was $14.0 million compared to
$14.2 million in 1997 with capital expenditures of $16.3 million in 1998 and
$11.8 million in 1997.
Syncrude Operations
Syncrude's production for the first six months of 1998 of 37.2 million
barrels of Syncrude Sweet Blend is an increase of 13% over the 32.8 million
barrels in 1997. Due to the timing of the annual maintenance turnaround (first
quarter in 1998 and the second quarter in 1997), the comparison of Syncrude's
year-to-date performance is more appropriate than a quarterly comparison. The
unit operating costs for the first six months of $14.94 are 13% lower than the
$17.03 achieved in 1997 due to increase in production over a relatively fixed
cost structure and the improving recovery rate of bitumen from the oil sands,
currently exceeding 92% compared to less than 91% in 1997. In addition, the
yield of Syncrude Sweet Blend from bitumen was approximately 85% compared to
84% in 1997.
Syncrude's capital expenditures totalled $125 million during the second
quarter with the strategic expenditures on the North Mine's second train and
the Aurora Mine accounting for $69 million with the sustaining expenditures on
the Mildred Lake plant aggregating to $56 million.
The approval of the Aurora Mine and related de-bottlenecking on June 12,
1998 provides for the expenditure of over $900 million over the next two years
and is projected to lift Syncrude's annual production capability to 94 million
barrels of Syncrude Sweet Blend with an incremental operating cost of less
than $10 per barrel commencing July 1, 2000.
The owners of Syncrude also concluded agreements to purchase additional
oil sand leases at an approximate cost of $40 million for an estimated 3.2
billion barrels of bitumen in place, an average cost of approximately $0.01
per barrel.
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CANADIAN OIL SANDS TRUST
Highlights
(thousands of dollars except per Unit amounts)
Three Months Six Months
Ended June 30 Ended June 30
-------------------------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
Net Income $ 5,894 $ 8,656 $ 9,450 $ 19,750
Per Trust Unit $ 0.22 $ 0.38 $ 0.36 $ 0.86
Funds From Operations $ 14,044 $ 14,218 $ 23,565 $ 34,517
Per Trust Unit $ 0.52 $ 0.62 $ 0.90 $ 1.50
Cash Distribution $ 4,860 $ 4,600 $ 11,610 $ 16,100
Per Trust Unit $ 0.18 $ 0.20 $ 0.43 $ 0.70
Daily Average Sales (bbls.)
Syncrude Sweet Blend 21,136 17,143 19,033 17,983
Average Selling Price per
barrel
West Texas Intermediate
(U.S.) $ 14.68 $ 19.94 $ 15.31 $ 21.36
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Before Hedging $ 20.95 $ 27.04 $ 21.26 $ 28.62
Hedging - Oil Price - - 1.32 -
- Currency (0.09) 0.43 (0.01) 0.51
---------- ---------- ---------- ----------
$ 20.86 $ 27.47 $ 22.57 $ 29.13
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
>>
Financial Performance
Canadian Oil Sands' revenues were $41.4 million for the second quarter of
1998 compared to $42.9 million in 1997. While the revenues are relatively
unchanged, the 1998 revenue is the result of selling 1.9 million barrels of
oil at an average price of Cdn$20.95 per barrel compared to selling 1.5
million barrels at an average price of Cdn$27.04 per barrel in 1997: the 1997
volumes are low due to the annual maintenance turnaround occurring in the
second quarter in 1997. The price of West Texas Intermediate crude oil
averaged US$14.68 during the second quarter of 1998 compared to US$19.94 in
the second quarter of 1997, a drop of 27%. For the first six months of 1998,
West Texas Intermediate has averaged US$15.31 compared to US$21.36 for the
first six months of 1997, a drop of 29%. Canadian Oil Sands' share of
Syncrude production averaged 20,568 barrels per day during the first six
months of 1998 compared to 17,983 barrels for the first six months of 1997; an
increase of 14% over 1997.
During the second quarter, Canadian Oil Sands accumulated approximately
220,000 barrels of Syncrude Sweet Blend as the market experienced a temporary
supply/demand imbalance. This imbalance developed due to refineries
completing their annual maintenance turnarounds during the second quarter to
coincide with Syncrude's scheduled turnaround. However, Syncrude advanced its
turnaround to early in the first quarter due to operations problems and its
record setting production in the second quarter was delivered into a market
requiring less crude oil due to the refinery turnarounds. Rather than sell
into this imbalance, Canadian Oil Sands has accumulated an inventory of crude
oil for sale in July. This has resulted in a reduction of approximately $2.1
million in the second quarter cash flow from operations. The inclusion of the
proceeds to be received from the July sale of second quarter production in the
second quarter Distributable Income is thought to be appropriate as these
funds relate to second quarter activity and will be received by approximately
the same time the second quarter Cash Distribution is paid to the Unitholders.
Canadian Oil Sands operating costs during the first six months totalled
$51.2 million ($14.86 per barrel) compared to $54.3 million and $16.69 per
barrel for the first six months of 1997. The 1998 unit operating costs are
lower than 1997 due to the increased production and the improved yield from
the oil sand processed. These factors are expected to continue throughout
1998. A comparison of the operating costs for the second quarter of 1998
versus the second quarter of 1997 is not appropriate due to the timing of the
annual maintenance turnaround in 1998.
The Crown Royalty charge for the first six months of 1998 has been
eliminated by the Crown Royalty credit which, effective January 1, 1997,
reduces Crown Royalties otherwise payable by 43% of capital expenditures
incurred. The Crown Royalty credit for capital expenditures was introduced
to encourage further investment in the development of Alberta's oil sands.
Canadian Oil Sands capital expenditures for the first six months of 1998
total $24.7 million with $7.9 million incurred on sustaining the Mildred Lake
upgrading facilities, $13.0 million on strategic projects and $3.8 million on
the acquisition of additional oil sand leases. Capital projects related to the
management of plant tailings and chlorides are the more significant sustaining
expenditures. The strategic projects focus on development of the Second Train
in the North Mine, the First Train in the Aurora Mine and the detailed
engineering for the Phase II De-Bottlenecking project at Mildred Lake
upgrading facilities. The second quarter Distribution Income includes a $5.3
million provision for the external financing for capital expenditures which
results in the funding of capital expenditures from operating cash flow being
approximately the same in 1998 as in 1997.
Corporate Activities
Risk Management: To offset its U.S. dollar exposure attributable to the
sale of crude oil, Canadian Oil Sands has two foreign currency exchange
contracts: one contract at an average rate of US$0.694 for 35% of its crude
oil sales for the next eighteen years, and a second contract at an average
rate of US$0.693 for a further 15% of its crude oil sales for the next five
years with the counter-party receiving an option to extend this contract for a
further five years. As at July 10, 1998, the mark-to-market liability of
these currency contracts was $9 million while the spot exchange rate was
approximately US$0.672. During the second quarter of 1998, currency hedging
reduced Canadian Oil Sands' revenue by $180,000, less than $0.01 per Trust
Unit, as US$17 million of US currency was settled at US$0.6935 per Canadian
dollar compared to the average exchange rate of US$0.6910. The net settlement
of currency hedges for the year to date aggregates to a loss of $43,000
including the gain of $137,000 realized in the first quarter of 1998. These
US$17 million quarterly settlements continue through 1998 and increase to
US$18 million per quarter for 1999.
During the second quarter, Canadian Oil Sands did not have any crude oil
hedging contracts in place and was exposed to the full impact of the drop in
the West Texas Intermediate oil prices. Opportunities in the future will be
evaluated with the objective of minimizing the exposure to low crude oil
prices while retaining a significant portion of the upside.
Interest costs on the US$70 million of 7.625% Senior Notes during the
quarter were $1.6 million, reflecting a US floating rate of 6.15% for the
quarter, compared to $1.1 million in the second quarter of 1997. In June of
1998, Canadian Oil Sands swapped its US floating rate position to a 5.95%
fixed rate contract: for the remaining nine years of the Senior Notes.
Income taxes: The Trust has designated this distribution as a ''return of
capital'' which brings the accumulated ''return of capital'' distributions
paid by the Trust since its inception to $3.16 per Trust. The Trust is able to
distribute cash as a ''return of capital'' due to its significant tax pools,
which are expected to shelter distributions for at least the next five years.
''Return of capital'' distributions from the Trust result in the Unitholder's
adjusted cost base of the trust unit being reduced by the amount of such
''returns of capital'' distributions. Such distributions designated as
''return of capital'' distributions by the Trust enable Unitholders who are
non-residents of Canada to receive such amounts exempt from Canadian
withholding tax. The income tax liability of each Unitholder will depend on
the Unitholder's specific circumstances, and accordingly, each Unitholder
should obtain independent advice regarding their specific income tax status.
Unit Distributions: The quarterly distribution of $0.18 per unit will be
paid on August 14, 1998 to Unitholders of record on August 7, 1998.
Outlook
Syncrude continues to project an annual production target of 80 million
barrels of Syncrude Sweet Blend for the year, has reduced its expected unit
operating cost to $13.30 per barrel and has deferred approximately $100
million of capital expenditures to future years. The weak crude oil prices
experienced in the first six months of 1998 are likely to improve slowly as
the OPEC countries reduce deliveries of crude oil to the international arena
and the uncertainty related to oil consumption by the Asian countries
dissipates.
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Unit Trading Activity
Canadian Oil Sands' units trade on the Toronto Stock Exchange under the
symbol CO.UN
Three Months Ended
--------------------------------------------------------
June 30, March 31, December 31, September 30,
1998 1998 1997 1997
-------- --------- ------------ -------------
Unit Price ($)
- High 23.45 27.25 28.75 28.90
- Low 18.50 19.60 23.75 23.05
- Close 20.85 22.40 27.00 28.00
Volume Traded
(in 000's) 2,793 3,403 2,115 3,243
Average Number Of
Units Outstanding
(in 000's) 27,000 24,822 23,000 23,000
>>
Certain information included in this Interim Report regarding Cash
Distributions, production targets, unit operating costs and capital
expenditures is forward looking and based upon assumptions and anticipated
results that are subject to uncertainties.
<<
CANADIAN OIL SANDS TRUST
CONSOLIDATED STATEMENT OF TRUST ROYALTY AND DISTRIBUTABLE INCOME
(unaudited)
(thousands of dollars except per unit amounts)
Three Months Six Months
Ended June 30 Ended June 30
-------------------------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
Revenues $ 40,297 $ 42,897 $ 77,914 $ 91,902
Operating expenses (24,800) (30,771) (51,198) (54,328)
Administration expenses (780) (695) (1,366) (1,374)
Crown royalties - 3,929 - (2,596)
Interest expense (1,651) (1,139) (3,091) (2,162)
Large Corporations Tax (93) (70) (178) (159)
---------- ---------- ---------- ----------
12,973 14,151 22,081 31,283
Capital expenditures (16,306) (11,814) (24,674) (18,569)
Utilization of Expansion
Financing 5,300 8,300
Mining reclamation trust (201) (158) (360) (328)
Site restoration costs - (14) (323) (276)
Reserve - future production
costs 2,131 2,595 5,304 1,015
---------- ---------- ---------- ----------
Base for Trust Royalty $ 3,897 $ 4,760 $ 10,328 $ 13,125
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Trust Royalty at 99% $ 3,858 $ 4,713 $ 10,225 $ 12,994
Distribution of Surplus Cash - - - 3,353
Interest earned on Trust's
short term investments 1,107 - 1,622 -
Administration expenses of
Trust (105) (113) (237) (247)
---------- ---------- ---------- ----------
Distributable income $ 4,860 $ 4,600 $ 11,610 $ 16,100
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Distributable income per
Trust Unit $ 0.18 $ 0.20 $ 0.43 $ 0.70
---------- ---------- ---------- ----------
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CANADIAN OIL SANDS TRUST
CONSOLIDATED STATEMENT OF CHANGES IN CASH POSITION
(unaudited)
Three Months Six Months
Ended June 30 Ended June 30
--------------------- ---------------------
(thousands of dollars) 1998 1997 1998 1997
---------- ---------- ---------- ----------
Cash provided by (used in):
Operating activities:
Net income $ 5,894 $ 8,656 $ 9,450 $ 19,750
Items not involving cash 8,150 5,562 14,115 14,767
---------- ---------- ---------- ----------
Funds from operations 14,044 14,218 23,565 34,517
Net change in deferred
items 2,482 (283) 549 (460)
Site restoration costs - (14) (323) (276)
Change in non-cash working
capital 976 (16,365) (6,759) (12,137)
---------- ---------- ---------- ----------
17,502 (2,444) 17,032 21,644
---------- ---------- ---------- ----------
Financing:
Repayment of long-term debt - (95,000) - (95,000)
Issuance of Senior Notes
(US$70MM- 7.625%) - 96,278 - 96,278
Cash distribution to
Unitholders (4,860) (4,600) (11,610) (16,100)
Issuance of Trust Units - - 91,950 -
---------- ---------- ---------- ----------
(4,860) (3,322) 80,340 (14,822)
---------- ---------- ---------- ----------
Investments:
Reclamation trust (201) (158) (360) (328)
Capital expenditures (16,306) (11,814) (24,674) (18,569)
---------- ---------- ---------- ----------
(16,507) (11,972) (25,034) (18,897)
---------- ---------- ---------- ----------
Increase (decrease) in cash (3,865) (17,738) 72,338 (12,075)
Cash at beginning of period 96,137 24,787 19,934 19,124
---------- ---------- ---------- ----------
Cash at end of period $ 92,272 $ 7,049 $ 92,272 $ 7,049
---------- ---------- ---------- ----------
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CANADIAN OIL SANDS TRUST
CONSOLIDATED BALANCE SHEET
(thousands of dollars) June 30, 1998 December 31, 1997
------------------- -------------------
ASSETS
Current assets:
Cash $ 92,272 $ 19,934
Restricted cash 1,365 1,334
Accounts receivable 13,357 22,254
Inventories 14,739 10,424
Prepaid expenses 846 266
------------------- -------------------
122,579 54,212
Reclamation trust 1,538 1,178
Capital assets, net 435,173 423,559
Deferred Charges 9,274 6,029
------------------- -------------------
$ 568,564 $ 484,978
------------------- -------------------
------------------- -------------------
LIABILITIES AND UNITHOLDERS' EQUITY
Current liabilities:
Accounts payable and
accrued liabilities $ 16,771 $ 18,561
Unit distribution
payable 4,860 13,800
------------------- -------------------
21,631 32,361
Other liabilities 15,855 14,365
Long-term debt 102,900 100,100
Future site reclamation
and restoration costs 8,428 8,192
Preferred shares of
subsidiary 2,000 2,000
------------------- -------------------
150,814 157,018
Unitholders' equity 417,750 327,960
------------------- -------------------
$ 568,564 $ 484,978
------------------- -------------------
------------------- -------------------
CANADIAN OIL SANDS TRUST
CONSOLIDATED STATEMENT OF INCOME AND UNITHOLDERS' EQUITY
(unaudited)
Three Months Six Months
Ended June 30 Ended June 30
--------------------- ---------------------
(thousands of dollars 1998 1997 1998 1997
except per unit amounts) ---------- ---------- ---------- ----------
Revenues:
Syncrude Sweet Blend $ 40,017 $ 42,612 $ 77,559 $ 91,249
Other 1,387 287 1,977 657
---------- ---------- ---------- ----------
41,404 42,899 79,536 91,906
---------- ---------- ---------- ----------
Expenses:
Operating 24,800 30,771 51,198 54,328
Administration 884 808 1,603 1,621
Crown royalties - (3,929) - 2,596
Interest 1,651 1,139 3,091 2,162
Depletion, depreciation
and amortization 8,007 5,329 13,867 11,181
Large Corporations Tax 93 70 178 159
Dividends on preferred
shares of subsidiary 75 55 149 109
---------- ---------- ---------- ----------
35,510 34,243 70,086 72,156
---------- ---------- ---------- ----------
Net income for the period 5,894 8,656 9,450 19,750
Unitholders' equity, beginning
of period 416,716 317,707 327,960 318,113
Proceeds on issue of
4,000,000 Trust Units - - 91,950 -
Cash distributions to
Unitholders (4,860) (4,600) (11,610) (16,100)
---------- ---------- ---------- ----------
Unitholders' equity, end
of period $ 417,750 $ 321,763 $ 417,750 $ 321,763
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net income per Trust Unit $ 0.22 $ 0.38 $ 0.36 $ 0.86
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Distributable income per
Trust Unit $ 0.18 $ 0.20 $ 0.43 $ 0.70
---------- ---------- ---------- ----------
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