Highlights
- Strong production in line with guidance due to successful turnarounds and reliable operations
- Final Libya agreements signed, adding reserves and extending terms by an expected 30 years
- Edmonton refinery conversion project 92% complete and on track for startup in the fourth quarter of 2008
- On July 23, 2008, declared a 54% increase in the quarterly dividend commencing on October 1, 2008
Petro-Canada announced today second quarter operating earnings of $1,151 million ($2.38/share), up 43% from $805 million ($1.63/share) in the second quarter of 2007. Second quarter 2008 cash flow from operating activities before changes in non-cash working capital was $1,979 million ($4.09/share), up 47% from $1,350 million ($2.74/share) in the same quarter of last year.
Net earnings were $1,498 million ($3.10/share) in the second quarter of 2008, compared with $845 million ($1.71/share) in the same quarter of 2007.
"We had another strong quarter, both operationally and financially," said Ron Brenneman, president and chief executive officer. "As we head into the second half of the year, we will continue to execute on our priorities - to deliver value today and realize the benefits of our long-term strategy."
2008 Consolidated Net Production and Capital Expenditure Outlooks
The Company updates its annual production and capital and exploration expenditure outlooks at mid-year. Full-year upstream production is expected to be in the 400,000 barrels of oil equivalent per day (boe/d) to 420,000 boe/d range in 2008, slightly higher than the 390,000 boe/d to 420,000 boe/d production outlook previously provided. The 2008 capital and exploration expenditure program is expected to be $6,155 million, up $870 million from the prior guidance of $5,285 million. The increase primarily reflects increased costs for the Edmonton refinery conversion project in the Downstream and the accrual for the full impact of the $1 billion US Libya EPSA ratification signing bonus in the International segment. About half of the Libya signing bonus was paid in July 2008, with the remainder to be paid from 2009 to 2013. These factors were partially offset by lower upstream capital spending.
Operating Highlights
Second quarter production averaged 414,000 boe/d net to Petro-Canada in 2008, down 3% from 425,000 boe/d net in the same quarter of 2007. Lower volumes reflected decreased North American Natural Gas and East Coast Canada production, partially offset by increased Oil Sands and International production.
UPSTREAM
North American Natural Gas
In the second quarter of 2008, North American Natural Gas contributed $206 million of operating earnings, compared with $79 million in the second quarter of 2007. Higher realized prices and lower exploration expenses were partially offset by lower volumes and higher operating and DD&A expenses.
Net earnings in the second quarter of 2008 of $100 million included a net loss on the sale of assets of $106 million. The main contributing factor was the sale of its Minehead assets in Western Canada for a loss of $153 million before-tax ($112 million after-tax).
North American Natural Gas production averaged 660 million cubic feet of oil equivalent/day (MMcfe/d) in the second quarter of 2008, down 2% from 675 MMcfe/d in the same quarter of 2007. Lower production reflected anticipated natural declines and scheduled turnarounds in Western Canada, largely offset by higher natural gas production in the U.S. Rockies.
Oil Sands
Oil Sands delivered operating earnings of $177 million in the second quarter of 2008, up from $26 million in the second quarter of 2007. Higher realized prices and production, and lower exploration and DD&A expenses were partially offset by higher operating costs.
Oil Sands production averaged 53,900 barrels/day (b/d) in the second quarter of 2008, up 3% from 52,400 b/d in the second quarter of 2007. Increased production primarily reflected increased reliability at MacKay River. This was partially offset by planned preventative maintenance at MacKay River, a planned 45-day turnaround of Coker 8-1 at Syncrude and reliability issues with the sulphur plants at Syncrude. Production in the second quarter of 2007 was reduced by a turnaround of Coker 8-3 at Syncrude.
International & Offshore
East Coast Canada
In the second quarter of 2008, East Coast Canada contributed $385 million of operating earnings, up from $322 million in the second quarter of 2007. Higher realized prices and lower operating, DD&A and exploration expenses were partially offset by lower production and higher royalty payments.
Net earnings in the second quarter of 2007 included $7 million in insurance proceeds related to Terra Nova and a $5 million future income tax recovery.
East Coast Canada production averaged 90,400 b/d in the second quarter of 2008, down 17% from 108,400 b/d in the same period in 2007. Terra Nova's production was lower due to a 16-day maintenance turnaround that was planned for July, but advanced to June. The turnaround was completed two days ahead of schedule and on budget. Hibernia production was lower due to anticipated natural declines, partially offset by the positive impact of recent well workovers and strong reliability. White Rose production was lower due to the impact of unplanned shutdowns as a result of ice conditions at the beginning of the second quarter of 2008.
International contributed $389 million of operating earnings in the second quarter of 2008, up from $193 million recorded in the second quarter of 2007. Higher realized prices, increased production volumes, the Libya EPSA ratification adjustment and lower operating and DD&A expenses were partially offset by increased exploration expense. Higher exploration expenses were due to well write-offs in the Netherlands, Syria, and Trinidad and Tobago. Lower operating and DD&A expenses were primarily due to the Libya EPSA ratification adjustment, partially offset by increased production from the North Sea.
Net earnings in the second quarter of 2008 included a future income tax recovery due to the ratification of the Libya EPSAs of $230 million, the Libya EPSA ratification adjustment of $47 million and a gain on sale of mature assets in the Netherlands of $6 million. Net earnings in the second quarter of 2007 included a future income tax recovery of $30 million and an unrealized loss on the Buzzard derivative contracts of $28 million.
International production averaged 159,500 boe/d in the second quarter of 2008, up 5% from 151,200 boe/d in the second quarter of 2007. Increased production primarily reflected higher production from Buzzard, partially offset by anticipated natural declines in the other North Sea assets.
Exploration Update
In the first half of 2008, Petro-Canada and its partners finished operations on 10 of the up to 17 wells planned for the year. Three of the wells were completed as natural gas discoveries (Gubik-3 in the Alaska Foothills, Sancoche on Block 22 offshore Trinidad and Tobago, and van Ghent in the Netherlands sector of the North Sea). One appraisal well offshore Trinidad and Tobago (Cassra-2) confirmed Contingent Resources in the range of 0.6 trillion cubic feet (Tcf) to 1.3 Tcf in the earlier Cassra-1 discovery. Two wells were completed as non-commercial discoveries (Maria in the United Kingdom (U.K.) sector of the North Sea and L5a-11 in the Netherlands sector of the North Sea). Drilling of the Chandler-1 well in the Alaska Foothills was suspended, as planned, for re-entry next season. Three wells were dry and abandoned (Kwijika in the Northwest Territories, Gemini in the U.K. sector of the North Sea, and Tegu in Block 1a offshore Trinidad and Tobago).
DOWNSTREAM
In the second quarter of 2008, the Downstream business contributed $nil operating earnings, down significantly from $249 million in the same quarter of 2007, reflecting a weak business environment.
Refining and Supply recorded a second quarter 2008 operating loss of $16 million, down significantly compared with operating earnings of $217 million in the same quarter of 2007. Results reflected four key items discussed in order of impact. First Refining and Supply results were impacted by lower gasoline cracking margins. Second, results were impacted by a decrease in realized refining margins for asphalt and heavy fuel oil, light oil, lubricants, liquid petroleum gases and petrochemical products. Third, results were impacted by lower refinery yields associated with crude availability and quality issues at Edmonton, and planned turnaround activity and partial unit shutdown at Montreal. Last, results were impacted by increased operating costs primarily associated with environmental costs for the Quebec green levy and Alberta greenhouse gases legislation, and turnaround costs at Montreal. These four key items were partially offset by favourable crude price differentials, lower costs for other feedstock and higher distillate cracking margins.
Marketing contributed second quarter 2008 operating earnings of $16 million, compared with $32 million in the same quarter of 2007. In the second quarter of 2008, Marketing results reflected increased operating costs due to higher fuel costs associated with delivery and card fees, partially offset by higher non-petroleum revenue.
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