EARNINGS / Petro-Canada Announces 1998 Fourth Quarter and Annual Results
(Part 1 of 2)
CALGARY, Jan. 21 /CNW/ - Petro-Canada today announced unaudited net
earnings for 1998 of $95 million ($0.35 per share) following record earnings
of $306 million ($1.13 per share) in 1997. Cash flow was $830 million ($3.06
per share) in 1998, down from $1 263 million ($4.66 per share) in 1997. Lower
crude and liquids prices in 1998 significantly reduced earnings and cash flow.
Cash flow was further reduced by higher current income taxes. Earnings from
operations before the reorganization charge taken in the second quarter and
gains on disposals totalled $130 million ($0.48 per share) in 1998, compared
with $314 million ($1.16 per share) last year.
In the fourth quarter of 1998, operating earnings were $39 million ($0.14
per share) and cash flow was $223 million ($0.82 per share). There were
several one-time items affecting fourth quarter results, including a gain of
$12 million after tax for the sale of the Petro-Canada Centre office building
and a provision for losses of $32 million after tax relating to the planned
disposal of closed retail sites. In 1997, fourth quarter results were $78
million ($0.29 per share) for both operating and net earnings and $308 million
($1.13 per share) in cash flow.
President and Chief Executive Officer Jim Stanford said, ''Exceptionally
low crude prices made 1998 a difficult year for the oil and gas industry.
However, we continue to position Petro-Canada for the long term, investing in
areas with the greatest potential and divesting non-core assets. We are very
pleased to have maintained the strength of Petro-Canada's balance sheet, and
to have raised over $400 million during the fourth quarter through non-core
asset sales.''
Earnings from Upstream operations in the fourth quarter of 1998 were $26
million, compared with $54 million in the same period of 1997. Upstream
performance in the fourth quarter of 1998 was negatively affected by lower
crude and liquids prices and the Company's hedging activities, which more than
offset higher production volumes and natural gas prices.
Downstream earnings from operations totalled $34 million in the fourth
quarter of 1998, down from $48 million in the same period last year. Lower
refining margins and narrower crude quality price differentials reduced
downstream earnings.
''Petro-Canada's major growth initiatives are on course,'' Stanford
continued. ''We expect increasing production rates from Hibernia, which in
1998 averaged 13 000 barrels per day to Petro-Canada, and Terra Nova is on
track for first oil late in the year 2000. Our share of Syncrude production
will continue to grow from 1998's record 25 200 barrels per day. We also
added record proved natural gas reserves of 340 billion cubic feet in 1998
through exploration and development, exceeding our annual production for the
second consecutive year.
Petro-Canada's Downstream business was well-positioned to weather the
difficult economic environment in the second half of 1998 as a result of
investments in refinery processes and marketing programs along with improved
retail performance. The Downstream will continue to be a key contributor to
the Company's overall financial performance, especially in a low crude price
environment.''
Petro-Canada's Board of Directors today declared a quarterly dividend of
8 cents per share payable on April 1, 1999 to shareholders of record on March
3, 1999.
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
Petro-Canada's Upstream earnings from operations were $29 million in
1998, down from $188 million in 1997 primarily as a result of sharply lower
crude oil prices and the Company's hedging activities.
Production
Petro-Canada's total daily production of crude oil, liquids and natural
gas averaged 173 300 barrels of oil equivalent in 1998, up slightly from the
171 100 barrels of oil equivalent per day produced in 1997. Natural gas
production declined to an average of 722 million cubic feet per day, from 760
million cubic feet per day in 1997, primarily as a result of the sale of
non-core properties. Total conventional crude oil and liquids production was
75 900 barrels per day, with 13 000 barrels per day of crude oil production
from Hibernia more than offsetting declining volumes from Western Canada.
International production in 1998 averaged 11 900 barrels per day.
One of Petro-Canada's major sources of future oil production and reserve
growth will be the Grand Banks, offshore Newfoundland. As a result, the
Company is making a staged exit from conventional oil production in Western
Canada. Western Canada conventional crude oil and liquids production was
51 000 barrels per day in 1998, down from 57 500 barrels per day in 1997 and
was approximately 37 000 barrels per day at the end of 1998. The decline in
production in 1998 resulted from net asset sales of 3 400 barrels per day and
natural decline. In the fourth quarter of 1998, Petro-Canada sold several
high cost, non-core, conventional oil properties in Western Canada for net
proceeds of approximately $109 million. The properties sold represented total
daily production of approximately 10 000 barrels of oil equivalent and proved
reserves of approximately 24 million barrels of oil equivalent.
The Company's share of Syncrude synthetic crude oil production averaged
25 200 barrels per day, up from 24 900 barrels per day in 1997. Petro-Canada's
share of growing Syncrude production is expected to reach 50 000 barrels per
day in stages by 2007.
Prices
Crude oil and natural gas liquids prices received by Petro-Canada were
down significantly in 1998, at an average price of $17.71 per barrel compared
with an average price of $25.49 per barrel in 1997. In contrast, natural gas
prices received in 1998 averaged $1.96 per thousand cubic feet, up from $1.85
per thousand cubic feet in 1997. The effect of rising natural gas prices and
falling crude prices significantly reduced margins at the Empress straddle
plant.
Western Canada
Petro-Canada is a strong believer in the future of natural gas as a fuel
and in the gas potential of the Western Canadian Sedimentary Basin. The
Company's approach to achieving production growth in natural gas involves a
combination of drilling and asset acquisition. In light of the diminished
cash flow associated with a low crude price environment, Petro-Canada will
reduce its capital expenditures in the natural gas business in 1999 in order
to continue to emphasize other growth businesses. The Company expects to
maintain gas production at 1998 levels through its drilling program while
seeking value-creating opportunities to acquire gas producing assets.
Finding and development costs for proved reserves were $7.40 per barrel
of oil equivalent in 1998, an improvement of $0.26 from 1997 levels. The
Company replaced 129 per cent of its natural gas production in 1998 through
exploration and development activities with the addition of 340 billion cubic
feet of proved gas reserves. Total proved reserve additions, including
conventional oil and natural gas liquids, were a record 48.8 million barrels
of oil equivalent.
The Wildcat Hills area, located 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 three years. All three of
the wells drilled in the fourth quarter were successful, bringing
Petro-Canada's record in the area to 18 consecutive successful wells. The
Company also completed a new pipeline during the fourth quarter to handle
increased volumes and processed record net volumes of over 50 million cubic
feet per day at the Wildcat Hills gas plant, which is handling twice as much
gas as it was only three years ago.
Petro-Canada also increased its working interest in the nearby Salter
area from 51 to 90 per cent during the quarter.
A new discovery in the Benjamin Creek field, north of Wildcat Hills,
encountered 147 metres of net gas pay and tested at a combined initial rate of
35 million cubic feet per day from multiple zones in the Turner Valley
formation. It is Petro-Canada's most promising well to date in the region,
and is expected to be capable of production of 20-25 million cubic feet per
day. The Company has a 74 per cent interest in this well.
Petro-Canada plans to drill 8 to 10 wells in the Wildcat Hills/Benjamin
Creek area during 1999.
In the fourth quarter of 1998, Petro-Canada applied for approval to
develop in-situ resources at its 100 per cent owned MacKay River site.
Feasibility studies of the Company's extensive in-situ resources in the
Athabasca region are continuing. Petro-Canada will proceed prudently in the
evaluation of this asset in view of the current low crude price environment.
Grand Banks
The Hibernia reservoir's performance exceeded Petro-Canada's expectations
in 1998, producing at an average rate of 65 000 barrels per day for the year,
or 13 000 barrels net to Petro-Canada. The Company expects planned plateau
production of 135 000 barrels per day (27 000 barrels per day net) to be
reached in early 1999. At the end of 1998 there were four producing oil wells
and three water injectors in operation, with a gas injector to come on stream
in late-January 1999. Petro-Canada expects a temporary curtailment of
Hibernia production to 68 000 barrels per day imposed for conservation
purposes by the Canada- Newfoundland Offshore Petroleum Board to be lifted
once the gas injection well is operational.
The transshipment terminal at Whiffen Head in Newfoundland began
operation in the fourth quarter of 1998. The terminal allows the marketing of
crude oil from Hibernia anywhere in the world.
The Terra Nova oil development remains on schedule and budget for first
oil late in the year 2000. Construction and fabrication of the floating
production system began in 1998. Engineering continued throughout the year.
Terra Nova is expected to produce 115 000 barrels per day at its peak and has
estimated recoverable crude oil reserves of 370 million barrels, of which
Petro-Canada's share is 29 per cent.
The Terra Nova consortium determined during the fourth quarter that an
improving market for floating drilling rigs represents a window of opportunity
to engage a state-of-the-art semi-submersible rig at attractive rates for the
planned drilling of the first Terra Nova production wells offshore
Newfoundland this summer. Accordingly the consortium cancelled a contract for
the Transocean Explorer rig, which would have required significant
modification before doing the work. The consortium believes that engaging a
newer, more efficient rig requiring fewer upgrades will result in significant
cost savings.
A multi-well offshore drilling program began at Hebron in late 1998. The
program includes delineation wells at Hebron and White Rose. Additional
exploratory and delineation wells will be drilled elsewhere in the Jeanne
d'Arc Basin. Hebron and White Rose are the leading candidates to become the
next stand-alone Grand Banks oil development.
Petro-Canada increased its holdings in the Grand Banks region in 1998,
acquiring working interests in six oil and gas exploration licences.
Petro-Canada is a key player in the region with a large inventory of
exploration prospects. The Company's net acreage in the Grand Banks is now
605 000 acres, 520 000 in the Jeanne d'Arc Basin and 85 000 in the Flemish
Pass Basin.
International Activity
Crude oil production from the Tamadanet field in Algeria stabilized with
the addition of gas lift in 1998, averaging 4 500 barrels per day net to
Petro-Canada before royalty and the sharing of profit oil. Drilling activity
yielded positive results from wells at Tamadanet South, Tahala North and
Timellouline South. Assessment of these wells will continue in 1999.
In Tunisia, Petro-Canada and ETAP, the Tunisian national oil company,
have completed field work in preparation for a 600 square kilometre seismic
program to be shot in the second quarter of 1999.
In Norway, the Veslefrikk field produced an average of 5 200 barrels per
day net to Petro-Canada, while the Njord field produced an average of 2 200
barrels per day net to Petro-Canada. Another well was drilled at
Njord during the fourth quarter, which enhanced production. In 1999, eight
wells will be drilled at the Veslefrikk and Njord fields.
DOWNSTREAM
Petro-Canada's Downstream was key to the Company's financial performance
in 1998 with earnings from operations of $204 million, compared with a record
$225 million in 1997. Despite falling crude prices and strong operating
performance, weaker industry refining margins prevented Petro-Canada from
duplicating 1997's Downstream results in 1998. The Company recorded a
provision for losses of $32 million after tax in the fourth quarter of 1998
relating to the planned disposal of closed retail sites.
Petro-Canada's success in operating refineries at high utilization rates
prompted a reassessment of refinery capacities in the fourth quarter. The
high rates of refinery utilization achieved were a result of debottlenecking
of secondary processing units, improvements in the reliability of refinery
operations and more efficient shutdown processes. The reassessment results in
an 8 per cent increase in the combined rated capacities of Petro-Canada's
three refineries. Total rated refinery capacity is now approximately 49 000
cubic metres or 308 000 barrels per day, up from the previous 45 400 cubic
metres or 286 000 barrels per day.
The Montreal refinery successfully completed a 45 day planned maintenance
session to expand its catalytic cracker during the fourth quarter, which
increases the unit's capacity by 10 000 barrels per day and decreases the
refinery's greenhouse gas emissions by up to five per cent. This expansion
enhances the refinery's ability to produce gasoline.
Sales of refined petroleum products increased slightly in 1998 to 49 100
cubic metres per day compared with 48 500 cubic metres per day in 1997. Retail
sales also increased by 1 per cent despite continued rationalization of retail
sites. Retail competition continued to be intense, especially in Eastern
Canada and British Columbia. 1998 throughputs per retail site were 3.5 million
litres.
During the fourth quarter, Petro-Canada announced that Petro-Points, the
Company's loyalty program, has become affiliated with Air Canada's Aeroplan
frequent flier program, allowing Petro-Points members to redeem their
Petro-Points for free or discounted Air Canada flights. The Petro-Points
program continues to grow, and at year-end 1998 had members in 3.8 million
Canadian households.
Lubricants sales were up 8.6 per cent over 1997. In December 1998,
Petro-Canada expanded its supply and distribution agreement with Witco Corp.,
a large U.S. speciality chemicals company. Petro-Canada is now the exclusive
supplier of paraffinic white oils to Witco Corp., which will use its extensive
network to sell, market, and distribute the product. The agreement
capitalizes on Petro-Canada's ability to produce high quality, low cost white
oils and Witco's expertise as a distributor.
Refining and supply earnings from operations were $120 million compared
with $143 million in 1997. Marketing operating earnings were $84 million, up
from $82 million in 1997.
ASSET RATIONALIZATION
Petro-Canada closed the sale of ICG Propane Inc. in December, 1998 for
proceeds of $177 million. There was no gain or loss on the sale. Also in
December, the Company sold its 50 per cent interest in the Petro-Canada Centre
office building in Calgary for a net gain of approximately $12 million after
tax. The sale also reduced Petro-Canada's balance sheet debt by $140 million
and contingent liabilities by a further $140 million. These sales allow
Petro-Canada to focus its resources on its core businesses.
YEAR 2000 SYSTEMS PREPARATIONS
As initially reported early in 1998, Petro-Canada's Executive Leadership
Team has established a Year 2000 Project Team with a mandate to ensure a
smooth transition of business processes and systems into the new century. The
Company has undertaken a systematic and comprehensive approach to manage the
Year 2000 challenge.
Petro-Canada spent approximately $12 million for Year 2000 initiatives in
1998 and expects to spend a further $10 million in 1999. Approximately half
of the two year total of $22 million will be capital expenditures with the
remainder expected to be expensed. The Company continues to make progress in
preparing process control and information systems to handle the Year 2000
challenge. Inventories and risk and impact assessments have been completed.
Remediation and testing is underway and will be complete by mid year 1999.
The Company's review of its supply chain is at an advanced stage. A
supplier classification process enables the Company to identify critical
alliance relationships and preferred suppliers from its supplier lists. The
Company has held many face-to-face meetings with key suppliers, and plans to
expedite contingency planning for those that fall into a high risk category.
Petro-Canada uses a database of approximately 9 000 suppliers to monitor
feedback and compliance information and facilitate supplier evaluation.
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. Petro-Canada's objective is to make all
mission critical systems Year 2000 ready by June 1999. During the second half
of the year, the Company will continue to monitor and fine-tune contingency
plans and non-critical systems.
There can be no assurance that the Company's equipment or systems or
those of its suppliers and customers will be Year 2000 compliant on a timely
basis or that Year 2000 problems, including the identification and remediation
of all relevant Year 2000 problems in a timely manner, will not have a
material adverse effect on the Company.
FINANCIAL MEASURES
Petro-Canada's debt at December 31, 1998 was $1 829 million, up from
$1 741 million at year-end 1997. The increase was partly due to a US$ 250
million debt issue in November 1998. The proceeds retired Cdn$ 250 million in
debt with the balance to be used for general corporate purposes. The decline
of the Canadian dollar relative to the US dollar in 1998 also increased the
debt. Debt to cash flow was 2.2 times at year-end 1998 and the debt to debt
plus equity ratio was 31.7 per cent.
At December 31, 1998, cash and short-term investments totalled $431
million, up from $75 million at the end of 1997.
Capital expenditures in 1998 totalled $1 133 million while planned
capital expenditures in 1999 will be approximately 5 per cent lower at $1 075
million. Grand Banks oil development and exploration expenditures are the
largest part of these expenditures at approximately $400 million. The 1999
program will be funded from cash flow and proceeds of non-core asset sales.
Petro-Canada's return on capital employed in 1998 was 3.0 per cent,
compared with 6.8 per cent in 1997.
SHAREHOLDER INFORMATION
As at December 31, 1998, Petro-Canada's public float of 221.9 million
shares comprised 179.5 million common shares, held by residents of Canada, and
42.4 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 21 at 1615h, Eastern Time. To participate in
the call, please call 1-800-997-6755 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 1462949.
Media please call Robert Andras at 403-296-8586.
This release contains forward-looking statements, including references to
future capital expenditures (including the amount, nature and sources of
funding thereof), 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. |
