Petro-Canada

Description

Description
Petro-Canada is a major Canadian oil and gas company with a portfolio of businesses that span the Upstream and Downstream sectors of the petroleum industry globally.

In the Upstream, Petro-Canada explores for, develops, produces and markets crude oil, natural gas and associated liquids. In the Downstream, the Company refines, distributes and markets petroleum products and related goods and services.

Petro Canada's core businesses are:
- Natural gas exploration and production in North America, including Western Canada and the U.S. Rockies;
- Oil exploration, development and production offshore Newfoundland. East Coast Canada;
- Oil sands production and development in northern Alberta;
- International exploration and production business is focused on three prolific regions: the North Sea, North Africa and Northern Latin America;
- Refining and marketing of petroleum products, including lubricants, in Canada.

Core E&P Activity

Northwest Europe
- Netherlands (p)
- UK (p)
- Norway (e)

North Africa / Near East
- Libya (p)
- Syria (p)

Central America
- Trinidad & Tobago (p)

Canada
- East Coast (p)

History

1975 Parliament passes the Petro-Canada Act, establishing a Crown corporation to create a strong Canadian presence in the oil industry and identify new Canadian energy resources. Petro-Canada takes over federal government interests in Syncrude and Panarctic Oils.

1976 Petro-Canada invests in East Coast exploration programs operated by others, providing funds to pick up the pace of exploration. To gain a base of cash flow and operating expertise, Petro-Canada buys U.S.-owned Atlantic Richfield Canada, adding producing oil and natural gas properties in Western Canada, gas processing facilities, and some oil sands interests.

1978 Syncrude starts up in northeastern Alberta as the world's largest oil sands plant, and ships its first synthetic crude oil.

1979 To expand its Western Canada base, Petro-Canada buys U.S.-controlled Pacific Petroleums. The deal adds more oil and gas properties and, for the first time, refining and marketing operations including a small refinery and a marketing network in Western Canada. Petro-Canada shares in the Hibernia oil discovery off Newfoundland and major gas finds off Nova Scotia.

1980 Petro-Canada drills its first offshore wells as operator of an exploration program off Labrador.

1981 Acquisition of Belgian-owned Petrofina Canada gives Petro-Canada a refining and marketing presence in Eastern and Central Canada.

1982 Petro-Canada discovers oil at Valhalla, Alberta – the biggest new oil field of the 1980s in Western Canada.

1983 Petro-Canada buys the refining and marketing assets of British-owned BP Canada to enlarge operations in Ontario and Quebec.

1984 Petro-Canada's first big offshore discovery as operator is the Terra Nova oil field off Newfoundland. The new federal Conservative government tells Petro-Canada to change its mandate and conduct business in a solely commercial manner, focusing on profitability.

1985 Gulf Canada refining and marketing operations in Ontario and the West come into the fold, rounding out a national network strong in every region.

1988 Petro-Canada organizes and sponsors the 88-day Olympic Torch Relay – carrying the Olympic flame through every province and territory on the way to the Calgary Winter Olympics – inspiring Canadians and marking a turning point in their acceptance of the Petro-Canada brand.

1990 The federal government announces in February that it will privatize Petro-Canada; legislation is introduced in October.

1991 Privatization legislation passes and, on July 3, the first shares are sold to the public in an initial public offering.

1994 First well in Tamadenet, Algeria yields attractive oil discovery. Retail network rationalization boosts efficiency. Lubricants expansion announced.

1995 Government of Canada sells shares amounting to 50 per cent of Petro-Canada's common stock, reducing its interest to 20 per cent. Growing investor confidence brings significant appreciation in Company's market value. Petro-Canada unveils its first new-image retail sites.

1996 Petro-Canada acquires Amerada Hess Canada Ltd., adding production and exploration opportunities in Western Canada. Strategic alliance formed with Norsk Hydro, bringing Petro-Canada interests in production off Norway and access to offshore expertise. Lubricants plant expansion complete, doubling capacity. WinterGas and SuperClean gasoline brands introduced.

1997 Hibernia production platform towed to site; first two wells deliver initial production of 60,000 barrels per day. Eight consecutive gas discoveries highlight revival of once-dormant Wildcat Hills field in Alberta.

1998 Terra Nova offshore oil development launched following regulatory and owner approval. Record natural gas reserve additions.

1999 Hibernia reaches production of 150,000 barrels per day at year-end. Exploration continues to identify the next Grand Banks development. Land acquisitions target new natural gas areas in Mackenzie Delta and offshore Nova Scotia.

2000 Employees celebrate Petro-Canada's 25th anniversary. Oil sands development begins at MacKay River in northeastern Alberta. Plans are unveiled to potentially reconfigure the Edmonton refinery to process mostly bitumen in place of light sweet crude oil.

2001 Petro-Canada publishes its first annual Report to the Community, a review of the Company's performance in environmental stewardship, community involvement, and health and safety.

2002 The Terra Nova offshore development achieves first oil. Petro-Canada announces it has acquired for $3.2 billion Cdn the exploration and production assets of Veba Oil & Gas, a European-based company with operations concentrated in Northwest Europe, North Africa/Near East, and Northern Latin America. The acquisition nearly doubles Petro-Canada's production from the previous year and provides a new platform for long-term growth.

2003 Petro-Canada announces plans to consolidate the company's Eastern Canada refining operations at the Montreal refinery. The plans include shutting down the Oakville refinery by the end of 2004 and expanding the Oakville terminal facilities and Montreal refinery. The Clapham development (owned and operated 100 per cent by Petro-Canada) located in the U.K. Central North Sea achieves first oil. Petro-Canada confirms and advances the Company's integrated oil sands strategy with plans to upgrade and refine oil sands feedstock at the Edmonton refinery.

2004 Petro-Canada signs a Memorandum of Understanding with Gazprom to investigate a joint project which would see liquefied natural gas from Russia shipped to North American markets. The federal government sells its remaining 19 per cent ownership position in Petro-Canada. Petro-Canada unveils plans to develop and construct a liquefied natural gas terminal at Gros Cacouna, Quebec. Natural gas assets are acquired in the U.S. Rockies region. The company acquires a 29.9 per cent interest in the Buzzard oil field, in the United Kingdom North Sea. Petro-Canada announces a 50 per cent increase in the quarterly dividend paid to shareholders to 15 cents per share.

2005 Petro-Canada reaches agreement to sell the company holding its producing assets in Syria to a joint venture of companies owned by India's Oil and Natural Gas Corporation Limited and the China National Petroleum Corporation for €484 million ($676 million Cdn), before adjustments. Mining company Teck Cominco acquires a 15 per cent working interest in the Fort Hills oil sands project, while Petro-Canada remains project operator with a 55 per cent interest, and UTS holds a 30 per cent stake. Petro-Canada secures sponsorship rights for the 2010 Olympic and Paralympic Winter Games and Canadian Olympic Team sponsorship rights for Torino 2006, Beijing 2008, Vancouver 2010 and 2012 Olympic Games. Petro-Canada acquires a 60 per cent interest in the Fort Hills oil sands mining project near Fort McMurray, Alberta.

2006 Petro-Canada and Gazprom sign an agreement to proceed with initial engineering design to build a Baltic gas liquefaction plant near St. Petersburg, Russia. Plans are announced to build an oil sands upgrading facility for the Fort Hills oils sands project in Sturgeon County, about 40 kilometres northeast of Edmonton, Alberta.

2007 Expanded list of major growth projects to include Libyan Concession Development and White Rose Extensions

Strategy

2008 Capital Expenditure

• $5.3 billion capital program planned: focus on long-life projects that provide sustainable cash flow
• Upstream production guidance range for 2008 of 390,000 barrels of oil equivalent per day (boe/d) to 420,000 boe/d

Petro-Canada has set a capital and exploration expenditure program budget totalling $5.3 billion for 2008, an increase of 28% compared with the program in 2007.

The 2008 capital program includes $3.6 billion directed to growth projects, exploration and new venture developments, a 50% increase in this category compared with 2007. In addition, Petro-Canada expects to invest $1.2 billion to replace reserves in core areas, $430 million to enhance existing assets and to improve profitability in the base business, and $105 million to comply with new regulations. The 2008 capital expenditure program is expected to be funded primarily from cash flow and additional debt as required.

Petro-Canada's upstream production is expected to decrease slightly in 2008 and be in the range of 390,000 boe/d to 420,000 boe/d. In 2008, natural declines in East Coast Canada and Western Canada are expected to be partially offset by additional volumes from the full-year impact of Buzzard and Saxon in the North Sea, as well as higher planned Oil Sands production. Production for the full year of 2007 is expected to be at the high end of the range of 400,000 boe/d to 420,000 boe/d, in line with previous guidance.

The increased level of capital spending contemplated is consistent with the Company's priority of investing in attractive projects to create shareholder value. As the Company looks beyond 2008, spending on the next large projects will likely result in annual capital expenditures exceeding operating cash flow. Additional funding requirements are expected to be met by external financing. As financial leverage is expected to increase over time, it will be managed in the context of Petro-Canada's target ranges.

Outlook

Operational Updates
• Syncrude to commence planned 45-day Coker 8-1 turnaround in March
• White Rose advanced its planned 2008 maintenance turnaround to January 2008

Major Project Milestones
• Edmonton refinery conversion project construction 61% complete at the end of the fourth quarter and on track for startup in the fourth quarter of 2008
• Syria gas development front-end engineering and design (FEED) expected to be completed early in 2008, followed closely by the awarding of the engineering, procurement and construction (EPC) contract
• Libyan heads of agreement signed for extension of concession development, with final ratification anticipated in the first half of 2008
• White Rose Extension development agreement signed, FEED on the North Amethyst portion of the project completed and progressing with detailed design in pursuit of regulatory approval in the first half of 2008
• Montreal coker investment decision expected in the second quarter of 2008
• Fort Hills project FEED on track for completion mid-2008, with a final investment decision planned for the third quarter of 2008
• MacKay River expansion continues with FEED, with a final investment decision expected in the first quarter of 2009

Key data

At a glance

• One of Canada’s largest oil and gas companies, operating in both upstream and the downstream sectors of the industry in Canada and internationally
• Creates value by responsibly developing energy resources and providing world class petroleum products and services
• Headquartered in Calgary, Alberta, with more than 5,600 employees working on our behalf around the world
• Shares trade on the Toronto Stock Exchange under the symbol PCA, and on the New York Stock Exchange under the symbol PCZ
 
2007 Highlights
• Upstream production of 418,400 barrels of oil equivalent per day (boe/d) net from continuing operations in 2007
• Operating earnings from continuing operations - $2.6 billion in 2007
• Cash flow - $3.8 billion in 2007
• Planned capital expenditures of $5.3 billion in 2008
• 21% increase in production in 2007 compared with 2006, with a forecast in the range of 390,000 boe/d to 420,000 boe/d net for 2008
• Holds sponsorship rights for the 2010 Olympic and Paralympic Winter Games, including Canadian Olympic and Paralympic Team sponsorship rights for Beijing 2008, Vancouver 2010 and London 2012 Olympic Games
 
Core Businesses
 
North American Natural Gas
• Petro-Canada explore for and produce natural gas, crude oil and natural gas liquids (NGL) in Western Canada and the U.S. Rockies
• In 2007, the company produced 599 million cubic feet per day (MMcf/d) of natural gas (99,800 boe/d) net and 12,500 barrels per day (b/d) net of crude oil and NGL
• In 2007, Petro-Canada exited the year with U.S. Rockies production reaching 100 MMcfe/d
 
East Coast Oil
• Participation in major offshore projects in Eastern Canada contributed production of 98,700 boe/d net in 2007
• Production came from Terra Nova (operator and 34% interest), Hibernia (20% interest) and White Rose (27.5% interest)
• At Terra Nova and White Rose, the oil flows from wells on the seabed into Floating Production Storage and Offloading (FPSO) vessels
• Hibernia produces oil from a concrete gravity base structure
• East Coast Oil business goal is to sustain profitable production by extending existing reservoirs and tying in satellite fields
 
Alberta Oil Sands
• Petro-Canada have both mining and in situ assets
• In mining, the company’s 12% interest in Syncrude delivered 36,600 b/d in 2007
• As a 60% owner and operator of the proposed Fort Hills Oil Sands mining and upgrading project, Petro-Canada have regulatory approval to produce up to 190,000 b/d of bitumen, with initial production in 2011
• The company’s 100% owned and operated in situ MacKay River project produced 20,300 b/d in 2007 and there are plans to add another 40,000 b/d of capacity by the end of the decade
 
International Exploration & Production

• International business operations are in North Sea, Libya, Syria and Trinidad and Tobago
• Business is growing by optimizing existing assets, implementing a balanced exploration program and pursuing business development opportunities
• The North Sea region produced 91,000 boe/d net in 2007
• In Libya, Petro-Canada produced 47,700 boe/d net from continuing operations in 2007
• In Trinidad and Tobago, a 17.3% interest in a natural gas development produced 71 MMcf/d (11,800 net) in 2007
• At the end of 2007, Petro-Canada closed their office in Venezuela
• Petro-Canada’s exploration program spans all three regions
 
Refining & Marketing

• Canada's second-largest downstream business
• Downstream operations include two refineries - one in Edmonton, Alberta and one in Montreal, Quebec - with a total daily rated capacity of 40,500 cubic metres/day (m3/d) (255,000 b/d)
• Petro-Canada accounted for approximately 13% of Canada’s refining capacity in 2007
• The company are currently converting their Edmonton refinery to process 100% oil sands-based feedstock and are considering the potential for a new coker at the Montreal refinery
• Known as the “brand of choice,” selling approximately 16% of total petroleum products sold in Canada in 2007
• In 2007, the wholesale Petro-Pass network, which includes 229 truck stop facilities, continued to be the leading national marketer of fuel in the commercial road transport system in Canada
• In 2007, Petro-Canada received international recognition for its new food grade lubricant, PURITYTM with MICROLTM by winning the International Stevie Award®'ae for Best New Product; this prestigious award recognizes outstanding performance in the workplace worldwide

Overview of 2007 Results

Petro-Canada announces fourth quarter operating earnings from continuing operations adjusted for unusual items of $513 million ($1.06/share), compared with $486 million ($0.98/share) in the fourth quarter of 2006. Fourth quarter 2007 cash flow from continuing operating activities before changes in non-cash working capital was $17 million ($0.04/share), compared with $991 million ($1.99/share) in the same quarter of last year. The significant decrease in cash flow from continuing operating activities before changes in non-cash working capital in the fourth quarter of 2007, compared with the same quarter in 2006, was due to the payment of $1,145 million after-tax ($2.36/share) to settle the Buzzard derivative contract hedges as announced December 12, 2007.

Highlights

• Delivered 21% growth in 2007 upstream production, compared with 2006
• Replaced 127% of proved plus probable reserves over five years
• Expanded list of major growth projects to include Libyan Concession Development and White Rose Extensions

Net earnings from continuing operations were $522 million ($1.08/share) in the fourth quarter of 2007, compared with $384 million ($0.77/share) in the same period of 2006. Net earnings included the change in the fair value of the Buzzard derivative contracts, and gains or losses on foreign currency translation and disposal of assets.

In 2007, operating earnings from continuing operations adjusted for unusual items was $2,528 million ($5.17/share), compared with $2,010 million ($3.99/share) in 2006. Cash flow from continuing operating activities before changes in non-cash working capital was $3,762 million ($7.69/share) in 2007, compared with $3,687 million ($7.32/share) for the previous year. Cash flow from continuing operating activities before changes in non-cash working capital for the full year in 2007 decreased due to the payment of $1,145 million after-tax ($2.34/share) to settle the Buzzard derivative contract hedges.

Net earnings from continuing operations for the full year in 2007 was $2,733 million ($5.59/share), compared with $1,588 million ($3.15/share) in 2006.

Operating Highlights

Fourth quarter production from continuing operations averaged 409,800 barrels of oil equivalent per day (boe/d) net to Petro-Canada in 2007, up significantly from 368,200 boe/d net in the same quarter of 2006. Higher volumes reflected the addition of North Sea projects (Buzzard, De Ruyter, L5b-C and Saxon) and a rise in East Coast Canada production. This was partially offset by lower Oil Sands production and declines in the North American Natural Gas business. Production in the fourth quarter of 2006 was reduced as Terra Nova completed its planned maintenance turnaround.

In 2007, production of crude oil, natural gas liquids (NGL) and natural gas from continuing operations averaged 418,400 boe/d net, up 21% from 345,400 boe/d in 2006.

BUSINESS STRATEGY

Petro-Canada's capital program supports bringing on seven major projects over the next several years. In 2008, the Company expects to complete the project to convert the Edmonton refinery to process lower cost, oil sands-based feedstock and to make final investment decisions on the Fort Hills mine and upgrader, Syria Ebla gas and Montreal coker projects. These projects are expected to add significant earnings and cash flow.

International

International contributed $87 million of operating earnings from continuing operations, adjusted for unusual items, in the fourth quarter of 2007, up from $32 million recorded in the fourth quarter of 2006. Higher realized oil prices and increased production volumes were partially offset by the realized loss on the derivative contracts associated with the Buzzard acquisition and increased exploration and DD&A expenses. Higher exploration expenses were due to well write-offs for unsuccessful wells drilled in the U.K. sector of the North Sea and Trinidad and Tobago. Increased DD&A expenses related primarily to the addition of North Sea projects (Buzzard, De Ruyter, L5b-C and Saxon).

Exploration Update

As part of Petro-Canada's growth strategy, the Company has undertaken to build an exploration portfolio with prospects that provide a balanced risk/reward profile and that collectively add to reserves over time. In 2007, the Company and its partners drilled 15 wells. Seven of the 15 wells were completed as discoveries (Golden Eagle, 13/21b-7, van Nes and van Brakel in the North Sea; Farigh AA 13-12 in Libya; and Cassra-1 and Zandolie West offshore Trinidad and Tobago). Three wells were shut-in and are awaiting evaluation (Aklaq-6 and Aklaqyagg-1 in Alaska and Al Dahramat in Syria). Five wells were abandoned as dry holes or non-commercial discoveries and were written off.

At year-end 2007, operations continued on four additional wells (12/20b-1 in the North Sea, AA 14-12 in Libya, and Poinsettia-2 and Zandolie East offshore Trinidad and Tobago).

In the fourth quarter of 2007, the Company drilled two successful exploration wells. On Block 13/21b in the U.K. sector of the North Sea, Petro-Canada, as operator with a 50% working interest in the Block, drilled a well that encountered two separate oil columns. On Block 22 offshore Trinidad and Tobago, Petro-Canada, as operator with a 90% working interest in the Block, drilled the Cassra-1 well and established a gas water contact. Both wells have been completed as discoveries and the Company and its partners will complete further appraisal work before considering development options.

In 2008, the Company expects to drill up to 17 wells focused in the North Sea, offshore Trinidad and Tobago, Libya and North of 60 (Northwest Territories and Alaska). Work is underway for the drilling of the three North of 60 wells in the first quarter of 2008. In the North Sea, Petro-Canada and its partners plan to drill up to six wells. Up to three wells are planned as part of the ongoing drilling program in Libya and the Company will continue its multi-well exploration program offshore Trinidad and Tobago, where up to five wells are planned in 2008.

Proved Reserves (MMboe)

As at December 31, 2006: 1,274
Revisions of previous estimate: 85
Net purchases/sales: (3)
Discoveries, extensions and improved recovery: 112
Production net (153)

As at December 31, 2007: 1,315

In 2007, the Company replaced 243%(1) of production on a proved plus probable basis. Proved plus probable reserves additions totalled 372 MMboe, excluding 2007 production of 153 MMboe net. As a result, total proved plus probable reserves increased from 2,190 MMboe at year-end 2006 to 2,409 MMboe at year-end 2007. The proved plus probable reserves life index (RLI) was 15.8(1) at year-end 2007, compared with 17.3(1) at year-end 2006.

Petro-Canada's overall objective is to replace proved plus probable reserves on a rolling five-year basis. Petro-Canada's proved plus probable reserves replacement on a consolidated basis was 127%(1) over the last five years.

(1) Reserves replacement and RLI are non-standardized measures and may not be comparable to similar measures of other companies. They are illustrative only. For purposes of these calculations, Petro-Canada has added data from its oil and gas activities, and oil sands mining activities together. Reserves replacement percentage is calculated by dividing the change in reserves for the period stated, before deducting production, by the total production for the same period.

Capex

Future Plans

Production

Fourth quarter production from continuing operations averaged 409,800 barrels of oil equivalent per day (boe/d) net to Petro-Canada in 2007, up significantly from 368,200 boe/d net in the same quarter of 2006. Higher volumes reflected the addition of North Sea projects (Buzzard, De Ruyter, L5b-C and Saxon) and a rise in East Coast Canada production. This was partially offset by lower Oil Sands production and declines in the North American Natural Gas business. Production in the fourth quarter of 2006 was reduced as Terra Nova completed its planned maintenance turnaround.

In 2007, production of crude oil, natural gas liquids (NGL) and natural gas from continuing operations averaged 418,400 boe/d net, up 21% from 345,400 boe/d in 2006.

Fourth quarter 2006 production from continuing operations averaged 368,200 barrels of oil equivalent/day (boe/d), net to Petro-Canada in 2006, up from 359,800 boe/d, net in the same quarter of 2005. Higher volumes reflect the ramp up of White Rose, the addition of North Sea projects De Ruyter and L5b-C, and higher Oil Sands production. This was partially offset by the Terra Nova shutdown and natural declines in North American Natural Gas.

In 2006, production of crude oil, natural gas liquids (NGL) and natural gas from continuing operations averaged 345,400 boe/d net, down from 354,600 boe/d in 2005.

Reserves

In 2007, the Company replaced 243%(1) of production on a proved plus probable basis. Proved plus probable reserves additions totalled 372 MMboe, excluding 2007 production of 153 MMboe net. As a result, total proved plus probable reserves increased from 2,190 MMboe at year-end 2006 to 2,409 MMboe at year-end 2007. The proved plus probable reserves life index (RLI) was 15.8 at year-end 2007, compared with 17.3 at year-end 2006.

Proved Reserves (MMboe)
As at December 31, 2006: 1,274
Revisions of previous estimate: 85
Net purchases/sales: (3)
Discoveries, extensions and improved recovery: 112
Production net (153)

As at December 31, 2007: 1,315

In 2006, the Company replaced 134% of production on a proved basis. Proved reserves additions totalled 168 MMboe, compared with 2006 production of 126 MMboe net. As a result, total proved reserves increased from 1,232 MMboe at year-end 2005 to 1,274 MMboe at year-end 2006.

Who's Who

As Executive Vice-President, Downstream, Mr. Jackman is accountable for the establishment and achievement of all downstream business objectives of Petro-Canada. As a member of the Executive Leadership Team, he is also accountable for the effective integration of the planning and execution of downstream business objectives with overall strategies and activities of the corporation.

Mr. Jackman joined Petro-Canada in 1993 as Vice-President, Western Region. In 1996, he was appointed Vice-President, Central Region, and in 1998, Executive Vice-President.

Prior to joining Petro-Canada, Mr. Jackman served as the executive vice-president of First Brands Canada Corporation. Prior to 1986, Mr. Jackman spent 14 years at Union Carbide Canada Ltd. in various management and technical positions.

Mr. Jackman graduated from the University of Western Ontario with a Bachelor of Science degree in Chemical Engineering.

As Executive Vice-President and Chief Financial Officer, Mr. Roberts is accountable for the establishment of Petro-Canada's financial objectives and for the implementation of effective business processes, financial and risk management, accounting and internal control, corporate taxes, strategic planning, corporate finance and treasury, information technology and supply chain management.

As a member of the Company's Executive Leadership Team, Mr. Roberts contributes to the strategic management of Petro-Canada.

Mr. Roberts joined Petro-Canada in 1989, following 15 years in the financial and oil & gas industries.

Mr. Roberts graduated from the University of Alberta, with a Bachelor of Commerce degree.

Mr. Roberts is a member of the Audit Committee of the Board of Governors for the University of Calgary, Alberta, Canada.

As Senior Vice-President, Oil Sands, Mr. Camarta is responsible for creating shareholder value from Petro-Canada's Oil Sands business. The Oil Sands portfolio currently consists of a 12% interest in Syncrude, extensive in situ oil sands holdings including the MacKay River project, and a 55% stake in the proposed Fort Hills mine and upgrader project.

As a member of the Company's Executive Leadership Team, Mr. Camarta contributes to the strategic management of Petro-Canada.

Mr. Camarta holds a degree in Chemical Engineering from the University of Alberta. Over 30 years, he has held senior leadership positions with Shell in the energy business in Canada and internationally. Most recently, Mr. Camarta led the successful development, construction and startup of Shell's $6 billion Athabasca Oil Sands Project. Mr. Camarta retired from Shell in September 2005. He joined Petro-Canada in November 2005 as Vice-President, Corporate Planning and Communications.

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