IN THE NEWS / Giants Bemoan Shrinking Profits
Oil price slide takes heavy toll
Chris Varcoe, Calgary Herald
The reality of depressed oil prices paved the way Thursday for profits to fall at three of Canada's biggest oil companies.
Earnings at Imperial Oil Ltd., Petro-Canada and PanCanadian Petroleum Ltd. all sagged under the weight of a 30-per-cent drop in crude oil prices last year.
"This is the kind of cataclysmic change you get when prices fall out of bed,'' said analyst Doug Gowland at First Marathon Securities.
"I don't think there are any earth-shattering surprises here."
At Imperial Oil, net income for the year dropped 35 per cent from 1997 to $554 million, or $1.26 per share. Cash flow was $1.27 billion, or $2.89 per share.
Fourth-quarter 1998 profits at the country's largest oil company were cut in half to $136 million, or 31 cents a share, from the same period a year earlier.
Earnings in the period were partly bolstered by a $74-million tax refund from the Alberta government.
There was good news in the field for Imperial, a major heavy oil producer, as it boosted bitumen production at Cold Lake by 20 per cent last year.
Total oil and liquids production climbed three per cent to 279,000 barrels per day, while natural gas output dropped three per cent to 439 million cubic feet per day.
But higher production wasn't enough to offset the drop in conventional oil prices, which shot down $7.58 a barrel last year to average $17.45 Cdn.
With oil prices hovering around $12 US per barrel, other petroleum producers have slashed spending, sold assets or shed staff to deal with the downturn.
A glut of oil internationally and reduced demand in Asia has kept crude prices depressed since late 1997.
At Imperial, the effect could be clearly seen in its natural resources business, where profits fell 77 per cent last year to $107 million.
Imperial, which operates the Esso service station chain, reported
$274 million in earnings last year, down eight per cent. The drop was caused mainly by lower margins and weaker sales of home heating oil.
Imperial is owned 69.6 per cent by oil giant Exxon Corp., which reported Thursday a 38-per-cent drop in its own fourth-quarter profits.
In Calgary, Petro-Canada was hit hard by the oil-price decline, as net earnings fell 69 per cent last year to $95 million, or 35 cents a share, from a record $306 million in 1997.
During the final three months of the year, profits fell by half to $39 million, or 14 cents a share.
"It's been a challenging year for everybody,'' said Robert Andras of Petro-Canada. "One would never say this is as bad as it gets, but it's been very tough."
Both Petro-Canada and Imperial are integrated oil companies, with refining and marketing operations bolstering weaker exploration and production businesses, Gowland noted.
Petro-Canada said lower refining margins and narrower crude price differentials cut into downstream earnings, which fell nine per cent to $204 million last year.
Upstream profits were $29 million, compared to $188 million in 1997.
The exploration and production business during the fourth quarter made $26 million, down about half from one year earlier.
Despite tough market conditions, Petro-Canada's East Coast projects remain on track, with Hibernia expected to increase oil production this year and Terra Nova forecast to begin flowing oil in 2000.
Petro-Canada's share of the Syncrude oilsands venture hit a record 25,200 barrels per day during the year and the company increased its natural gas reserves by 340 billion cubic feet.
At PanCanadian, one of the country's biggest exploration and production outfits, slumping oil prices reduced annual earnings 55 per cent from the previous year to $150 million, or 59 cents per share.
Cash flow fell 17 per cent last year to $802 million, or $3.19 per share.
"If the prices would have been the same as '97, net revenue would have been up $307 million,'' said Alan Boras of PanCanadian.
"When you make oil and the price is down 30-35 per cent, there's no way to escape it. It's just the reality of being a price taker in the oil industry."
The Calgary-based company, 87-per-cent owned by Canadian Pacific Ltd., made $55 million in the fourth quarter, or 22 cents per share, down 21 per cent from a year earlier.
PanCanadian president David Tuer said the company drove down operating costs by 18 per cent and took advantage of stronger natural gas markets - increasing production seven per cent to average almost 800 million cubic feet per day last year.
Output of crude oil and gas liquids averaged 140,000 barrels per day, the same as in 1997, despite PanCanadian shutting in some uneconomic heavy oil production.
With more financial results expected in the coming week, Gowland noted all three companies should outperform most of the energy sector.
"As you get more into the pure producers tilted towards oil, it will get worse,'' he predicted.
On the Toronto Stock Exchange, PanCanadian shares were unchanged Thursday at $16.50, Petro-Canada rose 35 cents to $17.50, and Imperial was up $1.40 to $24.20.
Oilpath Profits Dwindle
Petro Canada
1998 1997
Earnings: $95M $306M
per share: $0.35 $1.13
Cash Flow: $830M $1.3B
per share: $3.06 $4.66
Total Revenues: $5.0B $6.1B
Esso Imperial Oil
1998 1997
Earnings: $554M $847M
per share: $1.26 $1.83
Cash Flow: $1.3B $1.4B
per share: $2.89 $3.30
Total revenues: $9.1B $11.1B
Pam Canadian
1998 1997
Earnings: $150M $330M
per share: $0.59 $1.31
Cash Flow: $802M $961M
per share: $3.19 $3.82
Total Revenues: $3B $3.3B |
