EARNINGS / PetroCanada Q3 Results - Pt. I
Petro-Canada Reports Third Quarter Results
CALGARY, Oct. 20 /CNW/ - Petro-Canada today announced net earnings of $15
million ($0.06 per share) and cash flow of $174 million ($0.64 per share) for
the three months ended September 30, 1998, compared with net earnings of $73
million ($0.27 per share) and cash flow of $278 million ($1.03 per share) in
the third quarter of 1997. Operating earnings were $21 million ($0.08 per
share), down from $76 million ($0.28 per share) in the same period last year.
Jim Stanford, President and Chief Executive Officer, said, ''In the third
quarter, Petro-Canada's results were mixed. We are pleased to have achieved
solid results in our Downstream business, which will be the major source of
profitability for the Company this year. The strength of Petro-Canada's
Downstream will mitigate the impact of this year's low crude prices on our
overall 1998 results. In the Upstream, Petro-Canada is enjoying good natural
gas exploration success in Western Canada and strong oil production growth
from Hibernia, and has enhanced its future in the Grand Banks by acquiring
more exploration acreage offshore Newfoundland.''
In the first nine months of 1998, consolidated earnings were $76 million
($0.28 per share), down from $228 million ($0.84 per share) in the same period
of 1997. Earnings from operations before the reorganization charge taken in
the second quarter were $91 million ($0.34 per share), compared with $236
million ($0.87 per share) in the first nine months of 1997. Consolidated cash
flow was $607 million ($2.24 per share), down from $955 million ($3.53 per
share) a year earlier. Cash flow fell as a result of lower earnings and
higher current income taxes.
Upstream earnings from operations for the first three quarters were $3
million, compared with $134 million in the same period last year. This
decrease is primarily attributable to sharply lower crude oil and natural gas
liquids prices in 1998. Cash flow was $367 million, down from $646 million in
the first nine months of 1997.
Earnings from operations in the Downstream were $170 million, down
slightly from $177 million in the first nine months of 1997. As the third
quarter progressed, profitability was reduced primarily by lower refining
margins and narrower crude quality price differentials. Cash flow was $326
million in the first nine months of 1998, compared with $355 million in the
same period a year earlier.
Stanford stated, ''Petro-Canada will continue to manage its capital
expenditures according to our view of the commodity price environment. While
we believe that crude oil prices will eventually increase, we are basing our
plans on the assumption that prices will remain at current levels for the next
two years. We intend to live within our means and maintain our financial
strength and flexibility. Accordingly we are adjusting Petro-Canada's
strategies and asset portfolio to maximize the Company's financial performance
during this period.''
Petro-Canada is one of Canada's largest oil and gas companies, operating
in both the upstream and the 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
Production
Petro-Canada produced 172 600 barrels of oil equivalent per
day during the quarter, an increase of 8 300 barrels per day from the same
period in 1997 as new production from Hibernia more than offset lower Western
Canada oil and gas production. Petro-Canada's 20 per cent share of Hibernia
production averaged 17 000 barrels per day during the third quarter of 1998.
Daily conventional crude oil and liquids production in Western Canada averaged
51 300 barrels during the third quarter, compared with 54 700 barrels a year
earlier. Natural gas volumes were reduced to 689 million cubic feet per day
from 704 million cubic feet per day a year earlier, primarily due to the sale
of assets producing 23 million cubic feet per day since the third quarter of
1997 which more than offset property purchases in the Company's core areas.
In addition, third quarter 1998 gas volumes were affected by annual
maintenance of natural gas processing plants and regulatory delays. The
Company sold its interest in various small, non-core oil properties during the
third quarter of 1998. Petro-Canada plans to sell other oil properties during
the fourth quarter as the Company continues its emphasis on natural gas
production in Western Canada. International oil production averaged 11 100
barrels per day, down slightly from 11 400 barrels per day during the same
period in 1997 as a result of lower volumes from Algeria offsetting higher
production from Norway. Petro-Canada's share of synthetic crude oil from the
Syncrude oil sands mining project averaged 24 300 barrels per day, down 3 500
barrels per day from the third quarter of 1997 as a result of a coker
malfunction that has since been repaired. By September, Petro-Canada's share
of Syncrude's daily production was 28 300 barrels per day.
Prices
Prices received for crude oil and natural gas liquids averaged $18.02 per
barrel in the third quarter of 1998, down from $24.24 a year earlier. Prices
received for natural gas were $1.82 per thousand cubic feet, up from $1.32 per
thousand cubic feet during the third quarter of 1997. Low natural gas liquids
prices and strong gas prices squeezed margins at the Empress straddle plant,
where feedstock costs are based on gas prices and revenues on liquids prices.
Petro-Canada entered into a natural gas hedging contract during the third
quarter, selling approximately 200 million cubic feet per day of 1999
production at a price of approximately $2.40 per thousand cubic feet Alberta
plant gate equivalent.
Western Canada
Petro-Canada is well on its way to more than replace its natural gas
production through exploration and development activity again in 1998 and
foresees overall finding and developments costs comparable to those achieved
in 1997.
Petro-Canada continues to enjoy success in the Alberta Foothills. The
Hanlan gas plant, where the Company has a 48 per cent interest, processed
record volumes of 270 million cubic feet per day following a 25 per cent
capacity expansion in June. Petro-Canada has three rigs drilling at Wildcat
Hills, where it owns plant and gathering infrastructure and has drilled 15
consecutive successful wells. Petro-Canada continues to add to its interests
in the area. The disposition of the Shekilie field in northern Alberta after
the end of the quarter yielded cash and producing properties valued at
approximately $25 million, including a 51 per cent interest in the Salter
field just west of Wildcat Hills. Petro-Canada acquired over 2 500 acres of
land in the Salter area and has shot approximately 330 square kilometres of 3D
seismic, the largest 3D seismic program in Company history in Western Canada.
Grand Banks
Petro-Canada's 20 per cent share of production from Hibernia is projected
to surpass 20 000 barrels per day by year end from four production wells. At
year end the Company expects to see two gas and three water injectors in
operation and full-year 1998 average production of 12 000 barrels per day from
Hibernia, as planned. By the end of the third quarter, 17 shuttle tanker
loads of Hibernia crude had been shipped to customers. On October 3, the first
shuttle tanker delivery to the recently-constructed Newfoundland transhipment
terminal was successfully completed. Hibernia should reach peak production of
135 000 barrels per day (Petro-Canada share 27 000 barrels per day) early in
1999.
Engineering for the Terra Nova oil development continued throughout the
quarter. Hull construction and module fabrication for the floating production
system started on schedule in August and September, respectively. The third
quarter saw the start of glory hole excavation at the production site. Work
will be completed next summer. The Terra Nova owners expect first oil from the
field late in the year 2000.
The Glomar Grand Banks semi-submersible rig is scheduled to begin
drilling the D-94 well at Hebron in November. This well is the first of a
seven-well drilling program on the Grand Banks. Site surveys are in progress
over five potential project areas in preparation for the drilling program. A
3D seismic acquisition program over the Riverhead block and other parcels
acquired in 1997 has been successfully completed, and data from this program
are being processed.
In September, Petro-Canada acquired an interest in 835 000 acres (220 000
net acres) of Grand Banks exploration acreage offshore Newfoundland. This
acquisition consolidates Petro-Canada's position as a leader in the Jeanne
d'Arc Basin and opens new opportunities in the less-explored Flemish Pass
Basin. These parcels were acquired for work commitments totalling $166 million
($38 million net), over five years.
International Activity
Petro-Canada's total oil and liquids production from Norway was 6 700
barrels per day during the quarter, up from 5 600 barrels per day in the third
quarter of 1997. Petro-Canada's share of production from the Njord field was
1 900 barrels per day in the third quarter of 1998. The Company's share of
daily production from its other North Sea field, Veslefrikk, was 4 800 barrels
of oil during the third quarter, down 1 200 barrels from the third quarter of
1997 due to normal decline.
In Algeria, Petro-Canada's share of production from the Tamadanet field,
before royalty and the sharing of profit oil, has stabilized with the start of
gas lift at the first well. In the third quarter, two Petro-Canada wells on
the Tinrhert Block resulted in an oil discovery at Tamadanet South and a gas,
condensate and oil discovery at Tahala North. The value of Petro-Canada's
Algeria assets has been significantly enhanced through recent drilling
activity. The drilling of the Tahala North well completes Petro-Canada's
exploration commitment under Phase 1 of the Company's Production Sharing
Contract with SONATRACH, the Algerian national oil company. Petro-Canada has
elected to proceed to Phase 2 of the contract, and take on the associated
two-well exploration commitment over three years, while relinquishing the
least prospective 25 per cent of the Tinrhert block. The Company spudded a
well at Timellouline South (TMLS- 2) to delineate the earlier TMLS-1
gas-condensate discovery. This delineation well, in conjunction with the
successfully completed 280 kilometre seismic program over the field, should
allow better estimates of field reserves.
DOWNSTREAM
Petro-Canada's Downstream delivered solid results during the quarter
despite difficult conditions in the North American refining and marketing
industry. Weaker refining margins, narrower crude quality price differentials,
and intense competition in Eastern Canada and more recently in British
Columbia reduced third quarter earnings. Earnings from operations during the
quarter were $52 million, compared with a record $73 million during the same
period last year. The Company's refining operations continued to demonstrate
operational excellence, with record refinery utilization.
Refined petroleum product sales were up 4 per cent due to stronger
asphalt and gasoline volumes. The Company estimates that 1998 annualized
average retail throughput per site will be about 3.5 million litres, a gain of
approximately three per cent over the previous year.
In 1999, Petro-Canada expects that the Canadian economy will grow, albeit
at a reduced rate, and that demand for refined petroleum products will also
increase modestly. The Company will continue to run its refineries at full
capacity and implement its successful marketing programs. Petro-Canada is also
beginning to see an improved earnings contribution from its lubricants
business.
The rack back (refining and supply) segment contributed after-tax
operating earnings of $27 million, compared with $47 million in the third
quarter of 1997, while rack forward (marketing) earnings were $25 million,
down slightly from $26 million during the same period last year.
Year 2000 Systems preparations
Petro-Canada continues to make significant progress in developing
employee awareness and preparing process control and information systems to
handle the Year 2000 challenge. Inventories as well as risk and impact
assessments have been completed. Remediation and testing is well underway.
Supplier and customer contact activities to enhance awareness and determine
third party risks continue. Contingency planning to mitigate potential
business interruption is underway and will continue into 1999.
The Company expects to spend approximately $20 million in year 2000
initiatives in 1998 and a further $10 million in 1999. Approximately $10
million of the two-year total of $30 million will be capital expenditures,
with the remainder expected to be expensed.
SHAREHOLDER INFORMATION
As of September 30, 1998, Petro-Canada's public float of 221.9 million
shares comprised 178.1 million common shares held by residents of Canada, and
43.8 million variable voting shares held by non-residents of Canada.
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