Canadian Oil Sands Trust (2) (C-COS) - News Release
Cdn Oil Sands earns $262-million in Q1 2007
2007-04-25 17:28 ET - News Release
Shares issued 479,114,728
COS.UN Close 2007-04-24 C$ 28.99
Mr. Marcel Coutu reports
CANADIAN OIL SANDS TRUST ANNOUNCES 2007 FIRST QUARTER RESULTS AND A QUARTERLY DISTRIBUTION INCREASE TO $0.40 PER TRUST UNIT AND 2007 FIRST QUARTER RESULTS
Canadian Oil Sands Trust has released first quarter 2007 results and declared a 33-per-cent increase in the Trust's quarterly distribution to 40 cents per trust unit for unitholders of record on May 8, 2007, payable on May 31, 2007. Net income in the first quarter of 2007 increased to $262-million, or 55 cents per unit, from $91-million, or 20 cents per unit, during the previous year's same period. First quarter 2007 cash from operating activities was $202-million, or 42 cents per unit, compared with $187-million, or 40 cents per unit, in 2006. Non-cash operating working capital requirements, primarily a result of higher accounts receivable, reduced first quarter 2007 cash from operating activities by $94-million.
Net income and cash from operating activities reflect higher revenues as a result of incremental stage 3 production, less turnaround and maintenance activity, compared with the prior year, and a larger Syncrude working interest. As well, net income and cash from operating activities benefited from a 41-per-cent reduction in per barrel operating costs quarter over quarter, offset somewhat by a higher Crown royalty expense.
Crown royalties increased to $9.58 per barrel in 2007 from 67 cents per barrel in 2006 with the shift to the higher royalty rate of 25 per cent of net revenues from the minimum 1 per cent of gross revenue, which occurred in the second quarter of 2006. In the first quarter of 2007 Syncrude paid royalties totalling $256-million to the Province of Alberta. The Syncrude project began paying the higher rate at roughly the same time as the stage 3 expansion was completed as a result of robust crude oil prices, which increased revenues from the base plant and accelerated project payout.
"Reflecting our constructive view of our free cash flow over the next several quarters and our intention to move to fuller payout of that free cash flow, we are very pleased to announce our third distribution increase since our stage 3 project funding began to diminish," said Marcel Coutu, president and chief executive officer. "Reduced capital spending, growing volumes from our recently expanded facilities and a renewed focus on costs and operational reliability are cornerstones of our current operation. These form the foundation upon which our next growth stages will be launched."
First quarter highlights
The trust's 2007 financial results reflect a 36.74-per-cent working interest in the Syncrude joint venture, which represents the trust's increased ownership following its previously announced acquisition of a 1.25-per-cent Syncrude interest from Talisman Energy Inc. on Jan. 2, 2007. Prior year comparative information is based on the trust's previous ownership of 35.49 per cent.
* Sales volumes increased 46 per cent, averaging about 109,000 barrels per day, in the first quarter of 2007 compared with the same 2006 period. The trust's larger Syncrude ownership, incremental production from stage 3, and less turnaround and maintenance activity quarter over quarter contributed to higher volumes in 2007.
* Operating costs averaged $23.56 per barrel in 2007, down from $40.26 per barrel in 2006 as a result of lower turnaround and maintenance activity, a decrease in the value of Syncrude's long-term incentive plan, and lower purchased energy costs in 2007 compared with 2006.
* Quarterly capital expenditures in 2007 declined to $33-million from $137-million in 2006 with the completion of the stage 3 project in August, 2006.
* Net debt-to-book capitalization of 25 per cent at the end of the first quarter of 2007 remained the same as at 2006 year-end.
* The trust is maintaining its single point estimate for 2007 production of 110 million barrels, or 40.4 million barrels net to the trust. On March 13, 2007, the trust announced a reduction to the upper end of its production range by five million barrels with the current range now between 105 million to 115 million barrels, or 39 million to 42 million barrels net to the trust. The change reflects constrained production rates from Coker 8-3 since late 2006. Syncrude plans to perform maintenance on Coker 8-3 during the second quarter of 2007 to restore production throughput.
* The Syncrude joint venture owners have approved the recommendations of an opportunity assessment team as part of the management services agreement between Syncrude Canada Ltd. and Imperial Oil Resources Ltd., previously announced in Stockwatch on Nov. 1, 2006. Implementation of the recommendations will be led by Tom Katinas, who has been appointed to the consolidated role of president and chief executive officer of Syncrude Canada, effective May 1, 2007.
Effective April 25, 2007, Walter O'Donoghue will be retiring from Canadian Oil Sands' board of directors. Commencing as chairman in 1995 of Athabasca Oil Sands Trust, one of the predecessors of Canadian Oil Sands Trust, Mr. O'Donoghue has served as a board member since the trust's inception.
2007 outlook
The trust's single point estimate for 2007 production is unchanged at 110 million barrels, or 40.4 million barrels net to the trust, which reflects maintenance on coker 8-3 in May to remove coke residue build-up. Once coker 8-3 is operating at its design capacity, Syncrude should be able to reduce throughput in cokers 8-1 and 8-2 and thereby slightly extend these cokers' run lengths. The result is that Syncrude is planning to defer the turnaround of another coker previously scheduled for the fall of 2007 into early 2008 and the trust's annual production target remains unchanged at 110 million barrels. While Syncrude anticipates that the coker 8-3 maintenance will enable that coker to produce at higher rates, the high-end production range of 120 million barrels is less probable, given the reduced run rates for coker 8-3 for the first part of the year. Consequently, on March 13, 2007, the trust reduced the high end of its production range by five million barrels from the guidance provided on Jan. 29, 2007, with the current range now between 105 million to 115 million barrels, or 39 million to 42 million barrels based on the trust's 36.74-per-cent interest. The low end of the production range continues to reflect the possibility that another coker turnaround could occur later this year. Syncrude had planned to modify the new hydrogen plant steam generation system in the fall of 2007, but now expects to perform this work coincident with a coker turnaround in order to optimize the efficiency of maintenance work. As a result, the transition of Syncrude's production volumes to the higher Syncrude sweet premium quality is expected to be delayed into 2008.
The unscheduled coker 8-3 maintenance work, together with other scheduled maintenance work, is expected to result in Syncrude production totalling 23 million barrels in the second quarter. The trust estimates production in each of the third and fourth quarters of 2007 to total 30 million barrels.
Canadian Oil Sands Trust has increased its WTI (West Texas Intermediate) crude oil price estimate for the year to average $60 (U.S.) per barrel and reduced the discount to Canadian dollar WTI to $2.50 per barrel from $4.00 per barrel. The revision to the trust's differential is based on the differentials realized in the first quarter of the year, and the trust is estimating positive differentials in the second quarter because of the reduced supply from various oil sands producers undergoing turnarounds and tie-ins, as well as lower relative WTI prices compared with other crude oil benchmarks as a result of market dynamics in the U.S. These estimates, together with a stronger average foreign exchange rate of 87 U.S. cents:Canadian dollar are expected to result in 2007 revenues totalling $2.7-billion.
Operating costs are estimated at $25.56 per barrel, which includes $7.34 per barrel for purchased energy based on an average AECO natural gas price of $7.75 per gigajoule for 2007. The trust's practice is to expense turnaround and maintenance costs in the period they are incurred. Accordingly, operating costs are expected to be higher in the second quarter as a result of the coker 8-3 and other maintenance work. The trust expects Crown royalties expense to total $333-million, or $8.22 per barrel, in 2007.
Canadian Oil Sands expects cash from operating activities to total $1,098-million, or $2.29 per unit, including an increase in operating non-cash working capital of $36-million. Capital expenditures are estimated at $251-million with approximately 90 per cent directed to sustaining capital, including $78-million for the SER project. The remaining 10 per cent pertains to stage 3 completion and modification costs. Free cash flow, defined as cash from operating activities less capital expenditures and reclamation trust contributions, is estimated to be $1.76 per unit in 2007.
Canadian Oil Sands estimates that virtually all of the distributions paid in 2007 will be taxable as other income. The actual taxability of the 2007 distributions will be determined and reported to unitholders prior to the end of the first quarter of 2008. The trust's 2006 distributions were 97 per cent taxable.
Conference call
Canadian Oil Sands Trust's annual and special meeting of unitholders will be held on April 25, 2007, at 2:30 p.m. A live audio webcast of the meeting will be available on its website under investor information, presentations and webcasts. An archive of the webcast will be available approximately one hour following the meeting.
CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME
(in millions of dollars)
Three months ended
March 31, March 31,
2007 2006
Revenues $ 783 $ 516
Crude oil purchases and transportation expense (109) (43)
--------- ---------
674 473
--------- ---------
Expenses
Operating 231 271
Non-production 18 25
Crown royalties 94 5
Administration 4 5
Insurance 3 2
Interest, net 24 25
Depreciation, depletion and accretion 82 50
Foreign exchange loss (gain) (7) 2
Large corporations tax and other 1 2
Future income tax recovery (38) (5)
--------- ---------
412 382
--------- ---------
Net income $ 262 $ 91
Other comprehensive income, net of income taxes
Reclassification of derivative gains to net income (2) -
--------- ---------
Comprehensive income $ 260 $ 91
========= =========
Net income per trust unit(*)
Basic $ 0.55 $ 0.20
Diluted $ 0.55 $ 0.20
(*) Unit information has been adjusted to reflect the 5:1 unit split, which
occurred on May 3, 2006.
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