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.
"The fourth quarter was a solid quarter, capping off an excellent year," said Ron Brenneman, president and chief executive officer. "We successfully followed through on our two business priorities; exceeding our upstream production targets and not only advancing five major projects, but adding two more. In 2008, we will bring on the Edmonton refinery conversion project - a significant contributor to future cash flows. We will also advance our six other growth projects, making final investment decisions on Fort Hills, the Syria Ebla gas and Montreal coker projects."
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.
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
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.
