Canadian Oil

[sumisu]

Falling Oil & Gas Prices Hits Energy Giants

By Judy Monchuk

25 Jan 2007 at 12:34 PM EST

CALGARY (CP) -- Falling natural gas prices took a toll on the fourth-quarter earnings of energy giant Petro-Canada [TSX:PCA; NYSE:PCZ] and will have an impact on development planned for 2007, the company said Thursday. Suncor Energy [TSX:SU; NYSE:SU] was hit with lower than expected crude prices in the quarter.

Calgary-based Petro-Canada is sticking with its target of increasing production by 15% this year, but the plans will be executed judiciously, said CEO Ron Brenneman. ''We're going to narrow our focus and dedicate our resources to those projects where we're confident we can execute.”

The oilsands giant said maintenance at its downstream operations hurt Q4 earnings and could impact production in 2007.

Upgrader 2 at the Fort McMurray operation, which will take Suncor to 350,000 barrels a day of capacity in 2008, is expected to be down for 50 days in the second quarter to allow for scheduled tie-ins to its oilsands facilities.

Another major turnaround is taking place at Suncor's refinery in Sarnia, Ont., where the operation is being converted to allow it to accept oilsands crude into the facility's feedstock. That shutdown is slated for the third quarter of 2007 and will enable the facility to process up to 40,000 barrels a day of oilsands crude.

''We finished the project to meet low-sulphur diesel (requirements) and we're underway to change the rest of the equipment necessary to turn this into a sour gas refinery,'' CEO Rick George told analysts in a conference call.

Conversion of Petro-Canada's Edmonton refinery to upgrade and refine oilsands feedstock exclusively is about 18% complete and a design for the Fort Hills oilsands development are expected by mid-year. Other projects in the planning stages are the oilsands play at MacKay River, the Montreal coker and Syrian natural gas development.

''Because all these projects are under cost pressure, we're going to take our time and make sure our design and engineering work is done right before we start sanctioning and construction,'' Brenneman told analysts during a conference call.

Earlier, Petro-Canada reported its net income in the fourth quarter dropped 46% to C$384 million, or 76 cents a share, from C$714 million during the same time in 2005. Lower production and falling natural gas prices were blamed for the slippage.

Petro-Canada's 2006 profits pulled back from the company's best-ever performance in 2005, with net earnings declining to C$1.74 billion from C$1.79 billion. Adjusted quarterly earnings of 98 cents per share missed the analyst expectation of C$1.04.

Brenneman said the weaker natural gas prices were offset by strong oil prices, growing upstream production and solid performance from the company's downstream operations.

Revenue for the year was C$18.91 billion, up from C$17.59 billion in 2005, and net earnings per share were flat at C$3.41. Operating earnings adjusted for one-time items were C$3.99 per share, against a consensus expectation of C$3.93 among analysts surveyed by Thomson Financial.

Looking forward, PetroCan plans to drill 20 exploration wells in 2007, including several in the North Sea.

''Our plans are to boost production at WhiteRose and TerraNova, plus the ramp up of Buzzard,'' said Brenneman.

Fourth-quarter daily production from continuing operations averaged 368,200 barrels of oil equivalent, up from 359,800 barrels a year earlier on higher oilsands production, the ramp-up of the White Rose offshore project and additional North Sea output.

That ''represents a 2% increases year over year and 11% sequentially,'' noted analyst Andrew Potter of UBS Research. ''Production should continue to ramp up as we see the impact of increasing production from Buzzard during H1/07.''

Petro-Canada is expecting the WhiteRose expansion off the coast of Newfoundland to be fully onstream in 2007. Production is expected to rise at its TerraNova plant, which was hampered in 2006 by an extended retrofit and problems with a retrofit at the TerraNova and the water injection system.

''That retrofit is now behind us and we've been running pretty close to full capacity,'' said Brenneman, adding that recent repairs to the water injection system seem to have fixed the problem until a major upgrade is done in 2008. ''We are committed to getting TerraNova reliability into the 90% range for 2007.”

Brenneman said Petro-Canada will likely put some assets up for sale during 2007, ''similar to putting some of our oilsands leases up for sale last November.”

Suncor's net earnings for the quarter ended Dec. 31 amounted to 78 cents a share, compared with C$1.52 per share a year earlier, the Calgary-based firm said Thursday. Analysts' consensus forecast was for earnings of C$1.09 a share, before one-time items, according to Thomson Financial.

For the full year, earnings per share amounted to C$6.47, versus C$2.54 per share in 2005. Analysts' forecast for the full year had been for EPS of C$5.44, before one-time items.

Although its fourth-quarter earnings declined to C$358 million from a year-ago C$693M, Suncor Energy said its full-year profit jumped to C$2.97 billion from C$1.16 billion on record oil and gas production and strong fuel prices. Cash flow from operations in 2006 rose to C$4.5 billion from C$2.5 billion in 2005.

''After a difficult year in 2005, we came back strong and went on to achieve a record level of production in 2006,'' CEO Rick George said in a release. ''The focus now is on the fundamentals - steady, safe and reliable operations as we continue to build the foundation for future growth.''

Combined oilsands and natural gas production in 2006 was 294,800 barrels of oil equivalent per day, compared with 206,100 boe per day in 2005. Oilsands production averaged 260,000 barrels per day in 2006, up from 171,300 bpd in 2005 and natural gas production averaged 191 million cubic feet per day, compared with 190 million in 2005.

The increase in both net earnings and cash flow from operations ''primarily reflects higher crude oil production and higher crude oil prices in 2006,'' the company said.

''In 2005, Suncor's operational and financial performance was impacted by a fire that cut production rates approximately in half for close to eight months, while in 2006, Suncor also benefited from an expansion project that resulted in increased production capacity.''

On Thursday, Petro-Canada stock was down 37 cents to C$44.63 on the Toronto Stock Exchange, with almost 4.9 million shares changing hands.

Suncor stock was trading down C$2.29 at C$87.17 on TSX.

© The Canadian Press 2007

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