CALGARY, ALBERTA -- (Marketwire) -- 07/30/09 -- Highlights
- Production in line with guidance due to reliable upstream operations
- Maintained strong liquidity through a difficult business environment
- Obtained shareholder, court and Competition Bureau approval for merger with Suncor Energy Inc. (Suncor) to create Canada's premier energy company, effective August 1, 2009
Petro-Canada announced today second quarter operating earnings of $99 million ($0.20/share), down 91% from $1,151 million ($2.38/share) in the second quarter of 2008. Second quarter 2009 cash flow from operating activities before changes in non-cash working capital was $634 million ($1.31/share), down 68% from $1,979 million ($4.09/share) in the same quarter of last year.
Net earnings were $77 million ($0.16/share) in the second quarter of 2009, compared with $1,498 million ($3.10/share) in the same quarter of 2008.
"We continued to manage our business in a prudent manner during the second quarter, as the downturn persisted," said Ron Brenneman, president and chief executive officer. "Staying the course we charted for ourselves at the beginning of this year has us in a strong position heading into our merger with Suncor."
As a result of the merger between Petro-Canada and Suncor, Petro-Canada will not be declaring further dividends. Dividends will now be granted and paid by the new amalgamated Company, subject to the approval of its new Board of Directors.
Second Quarter Results
----------------------------------------------------------------------------
Three months ended Six months ended
(millions of Canadian dollars, June 30, June 30,
except per share and share amounts) 2009 2008 2009 2008
----------------------------------------------------------------------------
Consolidated Results
Operating earnings(1) $ 99 $ 1,151 $ 210 $ 2,097
- $/share 0.20 2.38 0.43 4.33
Net earnings 77 1,498 30 2,574
- $/share 0.16 3.10 0.06 5.32
Cash flow from operating activities
before changes in non-cash working
capital(2) 634 1,979 1,336 3,831
- $/share 1.31 4.09 2.76 7.92
Dividends - $/share 0.20 0.13 0.40 0.26
Capital expenditures $ 683 $ 2,141 $ 1,364 $ 3,157
Weighted-average common shares
outstanding (millions of shares) 485.0 483.8 484.9 483.8
Total production net before royalties
(thousands of barrels of oil
equivalent/day - Mboe/d)(3) 374 414 392 421
Operating return on capital
employed (%)(4)
Upstream 18.3 35.1
Downstream 3.2 3.3
Total Company 11.3 20.6
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Operating earnings (which represent net earnings, excluding gains or
losses on foreign currency translation of long-term debt and on sale of
assets, including the Downstream estimated current cost of supply
adjustment and excluding mark-to-market valuation of stock-based
compensation, the Libya Exploration and Production Sharing Agreements
(EPSAs) ratification adjustment, income tax adjustments, asset
impairment charges, insurance proceeds and premium surcharges, and
charges due to the deferral of the Fort Hills project - see page 2
NON-GAAP MEASURES) are used by the Company to evaluate operating
performance.
(2) From operating activities before changes in non-cash working capital
(see page 2 NON-GAAP MEASURES).
(3) Total production includes natural gas converted at six thousand cubic
feet (Mcf) of natural gas for one barrel (bbl) of oil.
(4) Returns calculated on a 12-month rolling basis.
NON-GAAP MEASURES
Cash flow and cash flow from operating activities before changes in non-cash working capital are commonly used in the oil and gas industry and by Petro-Canada to assist management and investors in analyzing operating performance, leverage and liquidity. In addition, the Company's capital budget was prepared using anticipated cash flow from operating activities before changes in non-cash working capital, as the timing of collecting receivables or making payments is not considered relevant for capital budgeting purposes. Operating earnings represent net earnings, excluding gains or losses on foreign currency translation of long-term debt and on sale of assets, including the Downstream estimated current cost of supply adjustment and excluding mark-to-market valuation of stock-based compensation, the Libya EPSA ratification adjustment, income tax adjustments, asset impairment charges, insurance proceeds and premium surcharges, and charges due to the deferral of the Fort Hills project. Operating earnings are used by the Company to evaluate operating performance. Cash flow, cash flow from operating activities before changes in non-cash working capital and operating earnings do not have standardized meanings prescribed by Canadian generally accepted accounting principles (GAAP) and, therefore, may not be comparable with the calculations of similar measures for other companies. For a reconciliation of cash flow and cash flow from operating activities before changes in non-cash working capital to the associated GAAP measures, refer to the table on page 4. For a reconciliation of operating earnings to the associated GAAP measures, refer to the table below.
----------------------------------------------------------------------------
Three months ended June 30,
(millions of Canadian dollars, except
per share amounts) 2009 ($/share) 2008 ($/share)
----------------------------------------------------------------------------
Net earnings $ 77 $ 0.16 $ 1,498 $ 3.10
----------------------------------------------------------------------------
Foreign currency translation gain
(loss) on long-term debt(1) 273 (13)
Loss on sale of assets(2) (5) (99)
Downstream estimated current
cost of supply adjustment 137 299
Mark-to-market valuation of
stock-based compensation (87) (117)
Libya EPSA ratification adjustment(3) - 47
Income tax adjustments(4) 2 230
Asset impairment charge(5) (158) -
Insurance proceeds and premium
surcharges 1 -
Charges due to the deferral of
the Fort Hills project(6) (185) -
----------------------------------------------------------------------------
Operating earnings $ 99 $ 0.20 $ 1,151 $ 2.38
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Six months ended June 30,
(millions of Canadian dollars, except
per share amounts) 2009 ($/share) 2008 ($/share)
----------------------------------------------------------------------------
Net earnings $ 30 $ 0.06 $ 2,574 $ 5.32
----------------------------------------------------------------------------
Foreign currency translation gain
(loss) on long-term debt(1) 174 (61)
Loss on sale of assets(2) (3) (96)
Downstream estimated current
cost of supply adjustment 152 422
Mark-to-market valuation of
stock-based compensation (112) (49)
Libya EPSA ratification adjustment(3) - -
Income tax adjustments(4) 7 256
Asset impairment charge(5) (158) (24)
Insurance proceeds and premium
surcharges 1 29
Charges due to the deferral of
the Fort Hills project(6) (241) -
----------------------------------------------------------------------------
Operating earnings $ 210 $ 0.43 $ 2,097 $ 4.33
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Foreign currency translation reflected gains or losses on United States
(U.S.) dollar-denominated long-term debt not associated with the self-
sustaining International business unit and the U.S. Rockies operations
included in the North American Natural Gas business unit.
(2) In the second quarter of 2008, the North American Natural Gas business
unit completed the sale of its Minehead assets in Western Canada,
resulting in a loss on sale of $153 million before-tax ($112 million
after-tax).
(3) In the second quarter of 2008, the Company signed six new EPSAs with the
Libya National Oil Corporation (NOC) to replace existing concession
agreements and one EPSA. The new EPSAs were ratified as of the signing,
with an effective date of January 1, 2008. Net earnings for the three
months ended June 30, 2008 included a $47 million after-tax adjustment
to recognize incremental earnings on the new EPSAs relating to the
period from January 1 to March 31, 2008, which could not be recognized
until ratification on June 19, 2008.
(4) In the second quarter of 2008, the International business segment
recorded a $230 million future income tax recovery due to the
ratification of the Libya EPSAs.
(5) In the second quarter of 2009, the North American Natural Gas business
unit recorded a charge of $244 million before-tax ($158 million
after-tax) for impairments primarily related to the coal bed methane
(CBM) assets in the U.S. Rockies due to production performance combined
with lower prices. In the first quarter of 2008, the North American
Natural Gas business unit recorded a depreciation, depletion and
amortization (DD&A) charge of $35 million before-tax ($24 million
after-tax) for accumulated project development costs relating to the
proposed liquefied natural gas (LNG) re-gasification facility at Gros-
Cacouna, Quebec, which has been postponed due to global LNG business
conditions.
(6) In the second quarter of 2009, the Oil Sands business unit recorded
expenses of $252 million before-tax ($185 million after-tax) primarily
related to writedowns of property, plant and equipment due to the
indefinite deferral of the upgrading portion of the Fort Hills project.
In the first quarter of 2009, the Oil Sands business unit recorded
expenses of $80 million before-tax ($56 million after-tax) to reflect
costs incurred terminating certain goods and services agreements and
writedowns of certain property, plant and equipment due to the deferral
of the Fort Hills final investment decision (FID).
Earnings Variances
Q2/09 VERSUS Q2/08 FACTOR ANALYSIS
Operating Earnings
(millions of Canadian dollars, after-tax)
To view a graph for the Operating Earnings please visit the following link: http://media3.marketwire.com/docs/730pcae1.jpg.
Operating earnings decreased 91% to $99 million ($0.20/share) in the second quarter of 2009, compared with $1,151 million ($2.38/share) in the second quarter of 2008. The decrease in second quarter operating earnings reflected lower realized upstream prices ($(768) million), decreased upstream volumes(1) ($(184) million), decreased Downstream margin and volumes(2) ($(10) million), and higher DD&A and exploration ($(47) million), operating, general and administrative (G&A) ($(28) million) and other(3) ($(15) million) expenses.
(1) Upstream volumes included the portion of DD&A expense associated with changes in upstream production levels.
(2) Downstream margin included the estimated current cost of supply adjustment.
(3) Other mainly included changes in the elimination of profits in the upstream business units for crude oil sales to Downstream, where the crude oil still resides in Downstream's inventories ($(56) million), decreased sulphur sales ($(28) million), foreign exchange ($(14) million) and upstream inventory movements ($77 million).
Operating Earnings by Segment
(millions of Canadian dollars, after-tax)
To view a graph for the Operating Earnings by Segment please visit the following link: http://media3.marketwire.com/docs/730pcae2.jpg.
The decrease in second quarter operating earnings on a segmented basis reflected lower operating earnings in East Coast Canada ($(248) million) and International ($(241) million), a decrease from operating earnings to an operating loss in North American Natural Gas ($(287) million, Oil Sands ($(181) million) and Downstream ($(18) million), and higher Shared Services and Eliminations costs ($(77) million).
Net earnings in the second quarter of 2009 were $77 million ($0.16/share), compared with $1,498 million ($3.10/share) during the same period in 2008. Net earnings in the second quarter of 2009 were lower than in the second quarter of 2008 due to significantly lower operating earnings, expenses from the deferral of the Fort Hills project, impairment charges in North American Natural Gas and a smaller current cost of supply adjustment in the Downstream. Net earnings for the second quarter of 2008 included a $230 million future income tax recovery on the ratification of the Libya EPSAs. These factors were partially offset by lower expenses from the mark-to-market valuation of stock-based compensation, smaller losses on the sale of assets and foreign currency translation gains on long-term debt during the second quarter of 2009, versus foreign currency translation losses in the same period of the prior year.
----------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30,
(millions of Canadian dollars) 2009 2008 2009 2008
----------------------------------------------------------------------------
Cash flow from operating activities $ 465 $ 2,479 $ 937 $ 3,914
Increase (decrease) in non-cash
working capital related to operating
activities 169 (500) 399 (83)
----------------------------------------------------------------------------
Cash flow from operating activities
before changes in non-cash
working capital $ 634 $ 1,979 $ 1,336 $ 3,831
----------------------------------------------------------------------------
----------------------------------------------------------------------------
During the second quarter of 2009, cash flow from operating activities before changes in non-cash working capital was $634 million ($1.31/share), down significantly from $1,979 million ($4.09/share) in the same quarter of 2008. The decrease in cash flow from operating activities before changes in non-cash working capital reflected significantly lower net earnings.
2009 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 355,000 barrels of oil equivalent/day (boe/d) to 375,000 boe/d range in 2009, in line with the 345,000 boe/d to 385,000 boe/d production outlook previously provided. The 2009 capital and exploration expenditure program is expected to be $3.2 billion, down $200 million from the prior guidance of $3.4 billion announced on April 28, 2009.
Operating Highlights
Second quarter production in 2009 averaged 374,000 boe/d net to Petro-Canada, down from 414,000 boe/d net in the same quarter of 2008.
