PKZ reports strong results -
EPS of $1.49 for Q4 and $6.28 for the year, versus $1.09 and $3.90 the prior year - stock is around $43
Q4 EPS impacted negatively by about $0.42 due to temporary inventory build ups.
Reserves are large and growing with replacement of an impressive 180% of production for the year !
Company targeting 12% increased production in 2005. Share buyback continues along with increased dividend. It should be a banner year !
CALGARY, March 3 /PRNewswire-FirstCall/ - PetroKazakhstan Inc. ("PetroKazakhstan" or the "Company") announces its financial results for the three months and year ended December 31, 2004. All amounts are expressed in U.S. dollars unless otherwise indicated.
HIGHLIGHTS: - Record financial results; earnings up 58% over 2003 and cash flow up
40% over 2003
- Significant increases in oil reserves attributed to exploration
success and improved performance in the Kumkol and Akshabulak fields
- Reserve recognition of substantial Natural Gas Liquids and natural gas
- Exploration success in Kyzylkiya and Aryskum
- Increase of regular quarterly dividend to C$0.20 per quarter
- Shares begin trading on the Kazakhstan Stock Exchange
- Build up of oil and products inventories decreases fourth quarter
income FINANCIAL HIGHLIGHTS: -------------------------------------------------------------------------
(in thousands of US$
except per share amounts Three Months ended Year ended
and shares outstanding) December 31 December 31
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2004 2003 2004 2003
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Gross Revenue 405,131 310,648 1,642,427 1,117,324
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Net income 114,937 88,808 500,668 316,940
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Per share (basic) 1.51 1.14 6.40 4.06
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Per share (diluted) 1.49 1.09 6.28 3.90
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Cash flow 118,850 110,339 560,491 399,975
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Per share (basic) 1.56 1.42 7.16 5.12
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Per share (diluted) 1.55 1.36 7.03 4.92
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Weight Average Shares
Outstanding
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Basic 76,089,557 77,827,328 78,285,025 78,149,904
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Diluted 76,922,009 81,110,704 79,708,905 81,292,206
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Shares Outstanding at
End of Period 76,223,130 77,920,226 76,223,130 77,920,226
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The Company announces fourth-quarter 2004 net income of $114.9 million ($1.51 per share) compared with $88.8 million ($1.14 per share) for the same period in 2003. Cash flow for the fourth quarter of 2004 was $118.9 million ($1.56 per share) versus $110.3 million ($1.42 per share) for the same period in 2003.
For the year ended December 31, 2004, net income was $500.7 million ($6.40 per share) compared with net income of $316.9 million ($4.06 per share) in 2003. Cash flow for the year was $560.5 million ($7.16 per share) compared to $400.0 million ($5.12 per share) for 2003.
The Company generated both record net income and cash flow in 2004. Improvements in the Company's transportation costs and higher prices contributed to these record results.
Fourth quarter earnings were affected by a build up of crude oil inventory and in transit volumes of 1.7 million barrels and an increase in refined product volumes of 630 thousand barrels as compared with inventory and in transit volumes at September 30, 2004. Our refinery turnaround, which began in the middle of October, was completed successfully, but with a build up of crude inventories. We also moved the sales point for crude oil on one of our export routes closer to the final destination. This build up of inventories led to a deferral of earnings and reduced our net income for the fourth quarter by an estimated $32.0 million compared to the third quarter of 2004, an impact of $0.42 per share.
There was also a build up of crude oil in transit and inventory levels when comparing with December 31, 2003. There was an increase of 1.08 million barrels with an estimated reduction in net income of $14.5 million.
SHARE REPURCHASES
The Company's substantial issuer bid share tender, which ended on July 19, 2004, resulted in the repurchase and cancellation of 3,999,975 shares at C$40.00 per share.
The Company's Normal Course Issuer Bid program was renewed on August 13, 2004 and will terminate on August 12, 2005. Under the terms of this share repurchase program, the Company is able to repurchase up to 7,091,429 Class A common shares through the facilities of the TSX. In the third quarter of 2004, the Company repurchased and cancelled 1,257,500 shares at an average price of C$40.00. No repurchases were made in the fourth quarter of 2004.
At the end of the fourth quarter, the Company had 76,223,130 common shares and 2,086,656 options and convertible securities outstanding.
Additional repurchases and cancellations of 459,100 shares at an average price of C$42.62 have been executed in January 2005.
LISTING ON THE KAZAKHSTAN STOCK EXCHANGE
On December 27, 2004 PetroKazakhstan's common shares began trading on the Kazakhstan Stock Exchange, being the first foreign company to be granted approval for listing. The Company believes that this will create an excellent opportunity for Kazakh investors to participate in the growth and success of its business operations in Kazakhstan.
UPSTREAM OPERATIONS REVIEW
-------------------------- PRODUCTION
As announced, for the fourth quarter 2004, production averaged 152,510 barrels of oil per day ("bopd") and for the year as a whole production averaged 151,102 bopd. Mechanical pump failures on some high rate wells as well as allocation of capacity at the Kumkol Central Processing Facility used by both PetroKazakhstan and the neighbouring field operator, Turgai Petroleum, and the delay in drilling of a number of Aryskum development wells negatively affected overall production. As these problems either have or are being addressed, and as the development program for the Kyzylkiya, Aryskum and Maibulak ("KAM"), Akshabulak and Kumkol North fields progresses, PetroKazakhstan's 2005 annual production target is 170,000 bopd. However, the company recognizes that this target can only be achieved with the timely receipt of various regulatory approvals and in the absence of unforeseen marketing constraints.
EXPLORATION AND APPRAISAL
During 2004, the Company's successful exploration and appraisal program resulted in the addition of some 25 mmbbls in the proved and probable category. The extension of the Kyzylkiya field to the north and into the new Kolzhan license is now an integral part of the field development as new wells will be brought on to production quickly. Similarly, the drilling of wells to locations below the Aryskum gas cap, resulted in the discovery of new reservoirs in high quality channels sands. Production rates of up to 1,600 bopd confirm the similarity to sands in the Akshabulak field. This opens up a whole new concept for development of channel sands in this geological trend in our licenses, which will be pursued with further seismic and appraisal wells in 2005. As in previous years, the Akshabulak field yields further reserves additions as channel sands and extensions to the existing reservoirs are found from successful appraisal drilling.
In 2005, the Company will drill at least 17 E&A wells, acquire a minimum of 400 kilometres ("kms") and 300 square kms of 2D and 3D seismic respectively.
The Company now has an exploration prospect inventory that includes 94 independent structures and over 1.1 billion barrels of unrisked reserves.
RESERVES
On February 23, 2005, PetroKazakhstan reported significant additions to its oil and gas reserves in 2004. As of January 1, 2005, Proved and Probable reserves totaled 549.8 million barrels oil equivalent ("mmboe"), compared to last year's total of 495.4 mmboe. This year's total comprises 502.9 million barrels of oil ("mmbo"), 32.1 mmboe of Natural Gas Liquids ("NGLs") and 88.4 billion cubic feet ("bcf") of natural gas representing a replacement of production of 197%.
Of the 549.8 mmboe reported, 71% (or 392.0 mmboe) is proven and 29% (or 157.8 mmboe) is probable. The proven reserves are further broken down into 229.7 mmboe of proved producing and 162.3 mmboe of proved undeveloped.
Oil reserves have increased from 490.0 mmbo to 502.9 mmbo, replacing production by 123%. Similarly, total oil and NGLs reserves have increased from 490.0 mmboe to 535.0 mmboe, replacing production by 180%.
NGLs and gas reserves additions have been a result of PetroKazakhstan programs for the full utilization of its gas resources: extraction of Liquefied Petroleum Gas ("LPG") at plants in the Akshabulak and KAM fields, efficient use of produced gas at the Kumkol Power Plant and conservation of dry gas by re-injection into reservoirs for future extraction and sale.
These reserve additions and the low associated capital cost translate into finding and development costs that are extremely low at $1.08/bbl and $1.53/bbl for the one and five year periods, respectively.
Finally, the independent reserves evaluator, McDaniels and Associates Consulting Ltd, has estimated that the Company's proved, probable and possible reserves are in excess of 800 mmboe.
DOWNSTREAM MARKETING, TRANSPORTATION AND REFINING
------------------------------------------------- CRUDE OIL PRICES AND TRADING
Throughout 2004 the international crude oil markets remained nervous about the lead up to the elections in Iraq, production interruptions, and the level of US inventories. At the same time strong demand from China and transportation capacity limits in Russia added further upward pressure to an already upward market. As a consequence of these issues, international crude oil prices remained at extremely high levels with an enormous level of volatility. The highest recorded daily mean for Brent dated in 2004 was $52.03/bbl with a low of $29.13/bbl producing a price spread over the year of $22.90/bbl.
In response to the supply concerns OPEC increased their output of heavier sour crudes. While this addressed the overall supply demand balance it caused a distortion of the heavy sour/light sweet differentials. Crude grades such as Urals saw their discount against Brent rise from around $1.60/bbl at the beginning of 2004 to a high of $7.50/bbl by October 2004. This generated a strong incentive for European refineries to buy the cheaper heavier grades and consequently the Mediterranean market became long on sweet crude and prices for sweet crudes began to slide against Brent in November 2004. Grades like CPC Blend and Siberian Light faired worst recording a discount to Brent of up to $4.50/bbl. While Kumkol performed better, the premium against Brent which typically was between $0.50 to $0.80/bbl slipped to a discount of between $0.10 and $2.00/bbl during the last 6 weeks of 2004. Kumkol closed the year at a discount to Brent of $0.12/bbl.
DIFFERENTIALS
Our export netback differential to Brent constitutes our largest single expenditure and the management of this cost is one of our primary objectives.
On a yearly basis, our average 2004 differential was $12.62/bbl, $1.49/bbl lower than the $14.11/bbl achieved in 2003. This was the result of the elimination of FCA contracts, the higher utilization of cheaper routes and our KAM pipeline and Dzhusaly terminal.
However, the fourth quarter of 2004 saw a deterioration of the differential (to $13.83) reflecting the changes in the crude oil markets above and the seasonal impact of night time shipping restrictions in the Bosphorous Straits, increased demurrage costs and shipping rates. This situation is expected to continue for the first quarter of 2005.
On a go forward basis, the Company anticipates the average differential to return to the $12.00/bbl range.
New pipeline infrastructure currently being built in or near Kazakhstan, namely the Baku-Tbilisi-Ceyhan ("BTC") pipeline to the Mediterranean and the pipeline from Atasu to Western China expected to be operational by mid-2006 are anticipated to have a positive impact on differentials.
REFINING AND REFINED PRODUCT SALES
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The ongoing continuous improvement program at our Shymkent refinery continues to yield significant value benefits. By measuring the change in product yield value on a fixed crude and product price basis (thus eliminating the variations of market prices) we obtain indications of a steady trend of improvements over the last two years which have generated efficiencies in excess of $2.00/bbl. This trend has shown an on going improvement as well as a significant reduction in volatility.
By the second quarter of 2004 the Vacuum Distillation Unit ("VDU") was operating at maximum capacity and regular sales were being made through the Baltic port of Tallinn. During 2005 we expect to be able to increase the yield and to develop additional outlets for our Vacuum Gasoil ("VGO").
Refinery unit costs showed an increase from $0.58/bbl in 2003 to $0.80/bbl which is line with the equivalent figures in 2002. The primary reasons for the increase was lower throughput reflecting partially the maintenance turnaround in 2004 and the additional operating costs associated with the start up of the VDU.
