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 $3.4 billion announced on April 28, 2009.
Operating Highlights
Second quarter production in 2009 averaged 374,000 boe/d net to
Petro-Canada, down from 414,000 boe/d net in the same quarter of
2008. Volumes reflected decreased North American Natural Gas, East
Coast Canada and International production while Oil Sands
production was relatively unchanged.
In the Downstream, earnings were negatively impacted by a weaker business
environment in the second quarter of 2009.
----------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30,
2009 2008 2009 2008
----------------------------------------------------------------------------
Upstream - Consolidated
Production before royalties
Crude oil and natural gas liquids
(NGL) production net (thousands
of barrels/day - Mb/d) 267 296 281 303
Natural gas production net,
excluding injectants (millions of
cubic feet/day - MMcf/d) 645 705 670 709
Total production net (Mboe/d)(1) 374 414 392 421
Average realized prices
Crude oil and NGL ($/barrel -
$/bbl) 65.37 117.22 58.38 104.67
Natural gas ($/thousand cubic
feet - $/Mcf) 3.44 9.55 4.56 8.56
----------------------------------------------------------------------------
Downstream
Petroleum product sales (thousands
of cubic metres/day - m3/d) 50.0 51.8 50.5 52.0
Average refinery utilization (%) 85 96 87 99
Downstream operating earnings (loss)
after-tax (cents/litre) (0.4) - 0.5 0.6
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Total production included natural gas converted at six Mcf of natural
gas for one bbl of oil.
BUSINESS STRATEGY
Petro-Canada's strategy is to create shareholder value by
delivering long-term, profitable growth and improving the
profitability of the base business. On March 23, 2009, the Company
announced plans to merge with Suncor to create the premier Canadian
energy company.
The Company continues to advance the three major growth projects
previously sanctioned by the Company: the extension of the White
Rose field off the East Coast of Canada; the Syria Ebla gas
project; and the developments associated with the new Libya EPSAs.
The other three major growth projects, MacKay River expansion, Fort
Hills mining project and the Montreal coker, are not sanctioned by
the Company and are on hold until the merger with Suncor is
completed. After the close of the merger all capital projects for
the merged company will be reviewed in the context of capital
investment being directed toward projects with the strongest
near-term cash flow potential, highest anticipated return on
capital and lowest risk.
Petro-Canada continually works to strengthen its base business
by improving the safety, reliability and efficiency of its
operations and is focused on delivering upstream production in line
with guidance.
Outlook
Operational Updates
- Terra Nova successfully completed a nine-day turnaround in the
second quarter of 2009 and is planning a 21-day turnaround in the
third quarter of 2009 to complete planned regulatory and
maintenance scope.
- White Rose is planning a 28-day regulatory and maintenance
turnaround in the third quarter of 2009, followed by a further
period of reduced production, lasting approximately 40 days, to do
subsea work associated with the tie-in of the North Amethyst
project.
- Buzzard is planning a 28-day turnaround in the third quarter
of 2009 to do regulatory work and to complete tie-ins for the
enhancement project. Production will be reduced for a further 14
days during the third quarter due to maintenance work on the
Forties pipeline system.
- Syncrude is planning a 15-day turnaround in the third quarter
of 2009 that will be significantly smaller in scope than the spring
turnaround.
- MacKay River is planning a 14-day slowdown in the third
quarter of 2009 for planned maintenance of the third-party
co-generation unit.
Major Project Update
- Development drilling has commenced and installation of subsea
infrastructure is underway for the North Amethyst portion of the
White Rose Extensions, with the project on schedule to deliver
first oil in early 2010. The West White Rose development will be
divided into two stages. Stage 1 was approved in the second quarter
of 2009 and development drilling and subsea installation of this
stage will take place in 2010, with first oil expected in late 2010
or early 2011. Results of Stage 1, combined with ongoing
evaluation, will help define the scope of Stage 2.
- In the second quarter of 2009, co-venturers in the ExxonMobil
Canada Properties (ExxonMobil) operated Hibernia South project
signed a non-binding Memorandum of Understanding (MOU) with the
Government of Newfoundland and Labrador establishing the key
fiscal, equity and operational principles for the development of
the Hibernia Southern Extension satellite (Petro-Canada's working
interest is 20%), with anticipated production starting in late 2009
or early 2010.
- The Syria Ebla gas project is on plan and was 70% complete at
the end of the second quarter of 2009. Three wells have been
drilled and handed over to the engineering, procurement and
construction contractor for tie-in. The 910 km2 Ash Shaer 3D
seismic shoot was completed in the second quarter of 2009 and the
seismic crew moved on to Petro-Canada Cherrife acreage. First gas
is expected in mid-2010.
- Following the signing of the new Libya EPSAs, work has
commenced with a focus on preparing the Amal field development
program and initiating the new exploration program. Seismic
operations continued in the second quarter of 2009, with
approximately 55% of the program completed at the end of the second
quarter.
BUSINESS UNIT RESULTS
UPSTREAM
North American Natural Gas
----------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30,
(millions of Canadian dollars) 2009 2008 2009 2008
----------------------------------------------------------------------------
Net earnings (loss) $ (239) $ 100 $ (241) $ 174
----------------------------------------------------------------------------
Loss on sale of assets (1) - (106) - (104)
Income tax adjustments - - 1 -
Asset impairment charge (2) (158) - (158) (24)
----------------------------------------------------------------------------
Operating earnings (loss) $ (81) $ 206 $ (84) $ 302
----------------------------------------------------------------------------
Cash flow from operating activities
before changes in non-cash working
capital $ 42 $ 404 $ 160 $ 668
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) 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).
(2) 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 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 DD&A charge of $35 million before-tax ($24 million after-tax)
for accumulated project development costs relating to the proposed LNG
re-gasification facility at Gros-Cacouna, Quebec, which has been
postponed due to global LNG business conditions.
In the second quarter of 2009, North American Natural Gas
recorded an operating loss of $81 million, compared with operating
earnings of $206 million in the second quarter of 2008. Results
reflected lower realized prices, volumes and sulphur sales,
combined with higher exploration and DD&A expenses.
North American Natural Gas production averaged 608 million cubic
feet of gas equivalent/day (MMcfe/d) in the second quarter of 2009,
down 8% from 660 MMcfe/d in the same quarter of 2008. Decreased
production reflected reduced capital spending and natural
declines.
Oil Sands
----------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30,
(millions of Canadian dollars) 2009 2008 2009 2008
----------------------------------------------------------------------------
Net earnings (loss) $ (188) $ 177 $ (256) $ 289
----------------------------------------------------------------------------
Income tax adjustments 1 - 2 2
Charges due to the deferral of the
Fort Hills project (1) (185) - (241) -
----------------------------------------------------------------------------
Operating earnings (loss) $ (4) $ 177 $ (17) $ 287
----------------------------------------------------------------------------
Cash flow from (used in) operating
activities before changes in
non-cash working capital $ (12) $ 231 $ (50) $ 399
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) 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 on certain property, plant and equipment due to the deferral
of the Fort Hills FID.
Oil Sands had an operating loss of $4 million in the second
quarter of 2009, compared with operating earnings of $177 million
in the second quarter of 2008. Results reflected lower realized
prices, lower production from Syncrude and higher operating
expense, partially offset by increased production from MacKay
River.
Oil Sands production averaged 53,000 barrels/day (b/d) in the
second quarter of 2009, relatively unchanged from 53,900 b/d in the
second quarter of 2008. Increased production at MacKay River
reflected strong reliability and increased capability as well as
planned maintenance in the second quarter of 2008. Decreased
Syncrude production reflected operational upsets and the longer
than planned completion of the turnaround of Coker 8-3 in the
current quarter.
International & Offshore
East Coast Canada
----------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30,
(millions of Canadian dollars) 2009 2008 2009 2008
----------------------------------------------------------------------------
Net earnings (1) $ 137 $ 385 $ 241 $ 760
----------------------------------------------------------------------------
Terra Nova insurance proceeds - - - 29
Income tax adjustments - - 1 2
----------------------------------------------------------------------------
Operating earnings $ 137 $ 385 $ 240 $ 729
----------------------------------------------------------------------------
Cash flow from operating activities
before changes in non-cash working
capital $ 221 $ 464 $ 418 $ 930
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) East Coast Canada crude oil inventory movements increased (decreased)
net earnings by $35 million before-tax ($24 million after-tax) and $(4)
million before-tax ($(3) million after-tax) for the three and six months
ended June 30, 2009, respectively. The same factor decreased net
earnings by $57 million before-tax ($39 million after-tax) and $63
million before-tax ($43 million after-tax) for the three and six months
ended June 30, 2008, respectively.
In the second quarter of 2009, East Coast Canada contributed
$137 million of operating earnings, down from $385 million in the
second quarter of 2008. Results reflected lower realized prices and
production.
East Coast Canada production averaged 69,200 b/d in the second
quarter of 2009, down 23% from 90,400 b/d in the same period in
2008. Hibernia production was lower due to the completion of a
25-day turnaround and natural declines, which were partially offset
by strong reservoir performance and reliability. Terra Nova
production was lower due to natural declines and the completion of
a nine-day maintenance turnaround, while White Rose production was
lower due to natural declines.
International
----------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30,
(millions of Canadian dollars) 2009 2008 2009 2008
----------------------------------------------------------------------------
Net earnings (1) $ 143 $ 672 $ 184 $ 1,008
----------------------------------------------------------------------------
Gain (loss) on sale of assets (5) 6 (5) 6
Libya EPSA ratification adjustment (2) - 47 - -
Income tax adjustment (3) - 230 - 230
----------------------------------------------------------------------------
Operating earnings $ 148 $ 389 $ 189 $ 772
----------------------------------------------------------------------------
Cash flow from operating activities
before changes in non-cash working
capital $ 304 $ 635 $ 558 $ 1,191
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) International crude oil inventory movements decreased net earnings by
$5 million before-tax ($1 million after-tax) and $3 million before-tax
($nil after-tax) for the three and six months ended June 30, 2009,
respectively. The same factor increased (decreased) net earnings by $42
million before-tax ($(14) million after-tax) and $76 million before-tax
($11 million after-tax) for the three and six months ended June 30, 2008,
respectively.
(2) In the second quarter of 2008, the Company signed six new EPSAs with the
Libya 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.
(3) In the second quarter of 2008, the International business unit recorded
a $230 million future income tax recovery due to the ratification of the
Libya EPSAs.
International contributed $148 million of operating earnings in
the second quarter of 2009, down from $389 million in the second
quarter of 2008. Lower realized crude oil prices, decreased
production volumes, and higher operating and DD&A expenses were
partially offset by lower exploration expense and foreign exchange
gains.
International production averaged 150,600 boe/d in the second
quarter of 2009, down 6% from 159,500 boe/d in the second quarter
of 2008. Decreased production primarily reflected Organization of
the Petroleum Exporting Countries (OPEC) quota restraints imposed
in Libya and natural declines in some North Sea assets.
Exploration Update
During the first half of 2009, Petro-Canada and its partners
finished operations on six wells. One well was completed as a gas
discovery (L6-7 in the Netherlands sector of the North Sea). This
well was started in 2008 but was completed in the first quarter of
2009. In the United Kingdom (U.K.) sector of the North Sea, one
well was completed as an oil discovery (Hobby), and one well was
plugged and abandoned (appraisal well for the Pink discovery). The
three wells drilled in Alaska (Chandler 1, Wolf Creek 4 and Gubik
4) all encountered natural gas. Drilling operations were completed
for the Wolf Creek and Gubik wells, so they were plugged and
abandoned. The Chandler well was suspended for possible future
testing. These wells are part of a multi-season program, and the
results are being evaluated for incorporation into an overall plan
to determine the commerciality of natural gas development in the
region.
DOWNSTREAM
----------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30,
(millions of Canadian dollars) 2009 2008 2009 2008
----------------------------------------------------------------------------
Net earnings $ 121 $ 300 $ 203 $ 484
----------------------------------------------------------------------------
Gain on sale of assets - 1 2 2
Downstream estimated current cost of
supply adjustment 137 299 152 422
Insurance premium surcharges 1 - 1 -
Income tax adjustments 1 - 3 2
----------------------------------------------------------------------------
Operating earnings (loss) $ (18) $ - $ 45 $ 58
----------------------------------------------------------------------------
Cash flow from operating activities
before changes in non-cash working
capital $ 286 $ 433 $ 565 $ 741
----------------------------------------------------------------------------
----------------------------------------------------------------------------
In the second quarter of 2009, the Downstream business recorded
an operating loss of $18 million, compared with operating earnings
of $nil in the same quarter of 2008.
Refining and Supply recorded a second quarter 2009 operating
loss of $60 million, down compared with a loss of $16 million in
the same quarter of 2008. The increased operating loss reflected
lower distillate cracking margins, unfavourable crude price
differentials and higher DD&A. These factors were partially
offset by an increase in realized refining margins for asphalt and
coke, lubricants, heavy fuel oil and light oil products and higher
gasoline cracking margins.
Marketing contributed second quarter 2009 operating earnings of
$42 million, up compared with $16 million in the same quarter of
2008. Marketing results reflected higher margins and lower
expenses, partially offset by lower overall volume demand.
CORPORATE
----------------------------------------------------------------------------
Three months ended Six months ended
Shared Services and Eliminations June 30, June 30,
(millions of Canadian dollars) 2009 2008 2009 2008
----------------------------------------------------------------------------
Net earnings (loss) $ 103 $ (136) $ (101) $ (141)
----------------------------------------------------------------------------
Foreign currency translation gain
(loss) on long-term debt 273 (13) 174 (61)
Stock-based compensation expense (1) (87) (117) (112) (49)
Income tax adjustments - - - 20
----------------------------------------------------------------------------
Operating loss $ (83) $ (6) $ (163) $ (51)
----------------------------------------------------------------------------
Cash flow used in operating activities
before changes in non-cash working
capital $ (207) $ (188) $ (315) $ (98)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Reflected the change in the mark-to-market valuation of stock-based
compensation.
Shared Services and Eliminations recorded an operating loss of
$83 million in the second quarter of 2009, compared with a loss of
$6 million for the same period in 2008. The increase in operating
loss was due to foreign currency translation losses on cash and
cash equivalents, versus a gain in the same period last year, and
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, versus a recovery of profits on these
sales in the same period last year.
The Company's financial capacity and flexibility remain strong.
This is due to Petro-Canada being able to generate cash flow,
having access to existing cash balances and significant credit
facility capacity, and requiring no near-term refinancing.
Petro-Canada is one of Canada's largest oil and gas companies,
operating in both the upstream and downstream sectors of the
industry in Canada and internationally. The Company creates value
by responsibly developing energy resources and providing world
class petroleum products and services. Petro-Canada is proud to be
a National Partner to the Vancouver 2010 Olympic and Paralympic
Winter Games. Petro-Canada's common shares trade on the Toronto
Stock Exchange (TSX) under the symbol PCA and on the New York Stock
Exchange (NYSE) under the symbol PCZ.
The full text of Petro-Canada's second quarter release,
including Management's Discussion and Analysis (MD&A), can be
accessed on Petro-Canada's website at
http://www.petro-canada.ca/en/investors/845.aspx and will be
available through SEDAR at http://www.sedar.com/.
Petro-Canada will hold a conference call to discuss these
results with investors on Thursday, July 30, 2009 at 9:00 a.m.
eastern daylight time (EDT). To participate, please call
1-800-769-8320 (toll-free in North America), 00-800-4222-8835
(toll-free internationally), or 416-695-6622 at 8:55 a.m. EDT.
Media are invited to listen to the call by dialing 1-800-952-4972
(toll-free in North America) or 416-695-7848. Media are invited to
ask questions at the end of the call. A live audio broadcast of the
conference call will be available on Petro-Canada's website at
http://www.petro-canada.ca/en/investors/845.aspx on July 30, 2009
at 9:00 a.m. EDT. Those who are unable to listen to the call live
may listen to a recording of the call approximately one hour after
its completion by dialing 1-800-408-3053 (toll-free in North
America) or 416-695-5800 (pass code number 6821571#). Approximately
one hour after the call, a recording will be available on
Petro-Canada's website.
LEGAL NOTICE - FORWARD-LOOKING INFORMATION
This news release contains forward-looking information. You can
usually identify this information by such words as "plan,"
"anticipate," "forecast," "believe," "target," "intend," "expect,"
"estimate," "budget" or other terms that suggest future outcomes or
references to outlooks. Listed below are examples of references to
forward-looking information:
- business strategies and goals
- future investment decisions
- outlook (including operational updates and strategic
milestones)
- future capital, exploration and other expenditures
- future cash flows
- future resource purchases and sales
- anticipated construction and repair activities
- anticipated turnarounds at refineries and other facilities
- anticipated refining margins
- future oil and natural gas production levels and the sources
of their growth
- project development, and expansion schedules and results
- future exploration activities and results, and dates by which
certain areas may be developed or come on-stream
- anticipated retail throughputs
- anticipated pre-production and operating costs
- reserves and resources estimates
- future royalties and taxes payable
- production life-of-field estimates
- natural gas export capacity
- future financing and capital activities
- contingent liabilities (including potential exposure to losses
related to retail licensee agreements)
- the impact and cost of compliance with existing and potential
environmental regulations
- future regulatory approvals
- expected rates of return
Such forward-looking information is based on a number of
assumptions and analysis made by the Company. These assumptions and
analysis are described in greater detail throughout this news
release and include, without limitation, assumptions with respect
to future commodity prices, the state of the economy, required
capital expenditures, levels of cash flow, regulatory requirements,
industry capacity, the results of exploration and development
drilling, and the ability of suppliers to meet commitments.
Undue reliance should not be placed on forward-looking
information. Such forward-looking information is subject to known
and unknown risks and uncertainties, which may cause actual
results, levels of activity and achievements to differ materially
from those expressed or implied by such information. Such risks and
uncertainties include, but are not limited to:
- the possibility of corporate amalgamations and
reorganizations
- changes in industry capacity
- imprecise reserves estimates of recoverable quantities of oil,
natural gas and liquids from resource plays, and other sources not
currently classified as reserves
- the effects of weather and climate conditions
- the results of exploration and development drilling, and
related activities
- the ability of suppliers to meet commitments
- decisions or approvals from administrative tribunals
- risks associated with domestic and international oil and
natural gas operations
- changes in general economic, market and business
conditions
- competitive action by other companies
- fluctuations in oil and natural gas prices
- changes in refining and marketing margins
- the ability to produce and transport crude oil and natural gas
to markets
- fluctuations in interest rates and foreign currency exchange
rates
- actions by governmental authorities (including changes in
taxes, royalty rates and resource-use strategies)
- changes in environmental and other regulations
- international political events
- nature and scope of actions by stakeholders and/or the general
public
Many of these and other similar factors are beyond the control
of Petro-Canada. Petro-Canada discusses these factors in greater
detail in filings with the Canadian provincial securities
commissions and the United States (U.S.) Securities and Exchange
Commission (SEC).
Readers are cautioned that this list of important factors
affecting forward-looking information is not exhaustive.
Furthermore, the forward-looking information in this news release
is made as of July 30, 2009 and, except as required by applicable
law, will not be publicly updated or revised. This cautionary
statement expressly qualifies the forward-looking information in
this news release.
Petro-Canada disclosure of reserves
Petro-Canada's qualified reserves evaluators prepare the
reserves estimates the Company uses. The Canadian provincial
securities commissions do not consider Petro-Canada's reserves
staff and management as independent of the Company. Petro-Canada
has obtained an exemption from certain Canadian reserves disclosure
requirements that allows Petro-Canada to make disclosure in
accordance with SEC standards where noted in this news release.
This exemption allows comparisons with U.S. and other international
issuers.
As a result, Petro-Canada formally discloses its proved reserves
data using U.S. requirements and practices, and these may differ
from Canadian domestic standards and practices. The use of the
terms such as "probable," "possible," "resources" and
"life-of-field production" in this news release does not meet the
SEC guidelines for SEC filings. To disclose reserves in SEC
filings, oil and gas companies must prove they are economically and
legally producible under existing economic and operating
conditions. Note that when the term barrels of oil equivalent (boe)
is used in this news release, it may be misleading, particularly if
used in isolation. A boe conversion ratio of six Mcf to one bbl is
based on an energy equivalency conversion method. This method
primarily applies at the burner tip and does not represent a value
equivalency at the wellhead. The table below describes the industry
definitions that Petro-Canada currently uses:
Definitions Petro-Canada uses Reference
----------------------------------------------------------------------------
Proved oil and natural gas reserves SEC reserves definition (Accounting
(includes both proved developed Rules Regulation S-X 210.4-10,
and proved undeveloped) U.S. Financial Accounting Standards
Board Statement No. 69)
SEC Guide 7 for Oil Sands Mining
Unproved reserves, probable and Canadian Securities Administrators:
possible reserves Canadian Oil and Gas Evaluation
Handbook (COGEH), Vol. 1 Section 5
prepared by the Society of
Petroleum Evaluation Engineers (SPEE)
and the Canadian Institute of
Mining Metallurgy and Petroleum (CIM)
Contingent and Prospective Resources Petroleum Resources Management
System: Society of Petroleum
Engineers, SPEE, World Petroleum
Congress and American
Association of Petroleum Geologist
definitions (approved March 2007)
Canadian Securities Administrators:
COGEH Vol. 1 Section 5
Although the Society of Petroleum Engineers resource
classification has categories of 1C, 2C and 3C for Contingent
Resources, and low, best and high estimates for Prospective
Resources, Petro-Canada will only refer to the unrisked 2C for
Contingent Resources and the partially risked best estimate for
Prospective Resources when referencing resources in this news
release. Estimates of resources in this news release include
Contingent Resources that have not been adjusted for risk based on
the chance of development and partially risked Prospective
Resources that have been risked for chance of discovery, but have
not been risked for chance of development. Such estimates are not
estimates of volumes that may be recovered and actual recovery is
likely to be less and may be substantially less or zero. If a
discovery is made, there is no certainty that it will be developed
or, if it is developed, there is no certainty as to the timing of
such development.
Canadian Oil Sands represents approximately 68% of
Petro-Canada's total for Contingent and Prospective Resources. The
balance of Petro-Canada's resources is spread out across the
business, most notably in the North American frontier and
International areas. Also, when Petro-Canada references resources
for the Company, unrisked Contingent Resources are approximately
70% of the Company's total resources and partially risked
Prospective Resources are approximately 30% of the Company's total
resources.
Cautionary statement: In the case of discovered resources or a
subcategory of discovered resources other than reserves, there is
no certainty that it will be commercially viable to produce any
portion of the resources. In the case of undiscovered resources or
a subcategory of undiscovered resources, there is no certainty that
any portion of the resources will be discovered. If discovered,
there is no certainty that it will be commercially viable to
produce any portion of the resources.
For movement of resources to reserves categories, all projects
must have an economic depletion plan and may require:
- additional delineation drilling and/or new technology for
unrisked Contingent Resources
- exploration success with respect to partially risked
Prospective Resources
- project sanction and regulatory approvals
Reserves and resources information contained in this news
release is as at December 31, 2008.
Contacts: Investor and analyst inquiries: Ken Hall, Investor
Relations Petro-Canada (Calgary) (403) 296-7859 Email:
investor@petro-canada.ca Lisa McMahon, Investor Relations
Petro-Canada (Calgary) (403) 296-3764 Email:
investor@petro-canada.ca Media and general inquiries: Andrea
Ranson, Corporate Communications Petro-Canada (Calgary) (403)
296-4610 Email: corpcomm@petro-canada.ca Website:
www.petro-canada.ca
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