Shell Canada Sees Higher Third Quarter Earnings

Shell Canada Limited announces quarterly earnings of $457 million or $0.55 per common share for the third quarter of 2005, up $6 million from $451 million or $0.55 per common share for the corresponding period in 2004. Earnings for the first nine months of 2005 were $1,400 million compared with $1,104 million for the same period in 2004.

Cash flow from operations reached $686 million for the quarter and a record $2,126 million for the first nine months of 2005, up $37 million and $434 million respectively from the same periods in 2004.

Capital, including capitalized exploration and pre-development expenditure, was $410 million for the third quarter and $1,006 million for the first nine months of 2005 compared with $294 million and $626 million for the same periods in 2004.

"Both the Exploration & Production (E&P) and Oil Sands businesses delivered higher operational earnings in the third quarter," said Clive Mather, President and Chief Executive Officer, Shell Canada Limited. "In E&P, results from the basin centered gas drilling program have been encouraging and we will continue to invest in this significant growth area. Oil Sands achieved its second straight quarter of production above the design rate and added to its land base in the Athabasca region. And, in spite of maintenance activities at two of its refineries, Oil Products performed well in what has been a challenging environment."

	    Earnings ($ millions)
	         Q3 04    Q4 04    Q1 05    Q2 05    Q3 05
	           451      182      417      526      427


	    Cash Flow ($ millions)
	         Q3 04    Q4 04    Q1 05    Q2 05    Q3 05
	           649      588      637      803      686


	    Capital Expenditures ($ millions)
	         Q3 04    Q4 04    Q1 05    Q2 05    Q3 05
	           294      325      269      327      410


	                            SHELL CANADA LIMITED
	                    MANAGEMENT'S DISCUSSION AND ANALYSIS

	    Total Company Earnings

	    Shell Canada Limited earnings for the third quarter of 2005 were
$457 million, up $6 million from $451 million for the same period in 2004.
Continuing strong commodity prices and refining margins contributed to the
results. The impact of the Company's Long Term Incentive Plan (LTIP) resulted
in an $83 million charge to earnings due to strong appreciation in the share
price during the quarter. Third-quarter results included favourable after-tax
benefits related to prior year tax adjustments of $41 million in 2005 and
$55 million in 2004.
	    Earnings for the first nine months of 2005 were $1,400 million compared
with $1,104 million for the corresponding period in 2004 as stronger commodity
prices and refining margins compensated for higher costs. After-tax LTIP
charges of $146 million for the first nine months of 2005 were more than
offset by the use of non-capital losses available to the Company in 2005 and
by additional proceeds from insurance settlements to those in 2004.

	    Exploration & Production

	    Exploration & Production earnings in the third quarter of 2005 were
$157 million compared with earnings of $129 million reported for the same
period in 2004. The gains from strong commodity prices were partially offset
by lower volumes. Expenses in the quarter included an after-tax charge of
$24 million related to the LTIP. Exploration expenses were in line with
expenditures incurred in the same quarter of 2004, while pre-development costs
increased by $7 million after-tax. In the quarter, a favourable tax adjustment
of $17 million and a favourable insurance settlement of $12 million after-tax
were recorded.
	    Exploration & Production earnings for the first nine months of 2005 were
$402 million compared with $376 million for the same period in 2004, due to
strong commodity prices offset by lower volumes and increased costs. Results
in 2005 reflect favourable tax adjustments of $39 million and an insurance
settlement of $12 million, offset by an after-tax charge of $42 million
related to the LTIP.
	    The Sable Offshore Energy Project natural gas volumes were higher in the
third quarter of 2005 compared with the third quarter of 2004 and the second
quarter of 2005 due to increased production from the South Venture field.
Natural gas production volumes in Western Canada were lower in the third
quarter of 2005 than in the same period of 2004 due to normal field decline
and operational issues. The Tay River well, which started production in the
second quarter of 2005, was re-tubed during September and came back on stream
October 18, 2005. The increased tubing size is expected to increase well
production to more than 50 million cubic feet per day from 30 million cubic
feet per day. While the Company expects Western Canada production to increase
in the fourth quarter, a scheduled outage at the Jumping Pound facility will
partly offset the improvement. This will include the installation of an
additional unit to increase sulphur recovery rates.
	    Peace River volumes for the third quarter of 2005 increased from the
prior quarter and were in line with production levels for the same period of
2004. Drilling of two additional well pads began in the third quarter and the
resulting new production is expected to come on stream in late 2006.
	    The proponents of the Mackenzie Gas Project (MGP) have been working
diligently to resolve certain areas critical to the project in advance of the
public hearings phase of the proposed project. Progress has been made in all
key areas, with some having been largely resolved. However benefits and access
agreements have not been concluded and the fiscal framework for the project
has not been agreed with governments. The regulators will be advised in
November 2005 of the MGP's decision on whether or not to proceed with a public
hearing.
	    Exploration drilling has yielded encouraging results for the Company's
basin centered gas (BCG) program and a multi-rig program is planned for the
upcoming winter drilling season. Pending access to third-party processing
facilities, initial production from existing wells is expected in the fourth
quarter of 2005. Infrastructure options are being evaluated for additional BCG
production over the longer-term, including a possible new gas plant. The
Company is currently working through the public and industry consultation
process.

	    Oil Sands

	    Oil Sands achieved earnings of $227 million in the third quarter of 2005
compared with $173 million for the corresponding period in 2004. The increase
was mainly due to higher prices and volumes, offset in part by increased unit
costs. Earnings in the third quarter of 2005 include an after-tax charge of
$14 million related to the Company's LTIP. Third-quarter 2004 earnings
included a $21 million contribution from a prior year tax adjustment. After
adjusting for an $82 million insurance settlement in the second quarter,
earnings in the third quarter of 2005 were up 25 per cent from the prior
quarter. This was the result of higher prices and volumes offsetting increased
costs.
	    Oil Sands earnings for the first nine months of 2005 were $594 million,
up significantly from $365 million for the same period in 2004 as higher
prices and volumes more than offset increased costs. Higher proceeds from
insurance settlements in 2005 also contributed to the earnings increase.
	    In the third quarter of 2005, underlying commodity prices and the average
synthetic crude oil price were significantly stronger than in the prior
quarter and the same period last year. Heavy oil market differentials narrowed
somewhat during the third quarter but remained much wider than those
experienced in the third quarter of 2004. The average synthetic crude oil
price differential relative to Edmonton light crude improved by about $1.35
per barrel from the second quarter of 2005 but was almost $3.00 per barrel
wider than in the third quarter of last year.
	    The Company's share of bitumen production in the third quarter of 2005
averaged 99,100 barrels per day (bbls/d) compared with 92,500 bbls/d for the
same period of 2004. Total bitumen production in the third quarter of 2005
averaged 165,100 bbls/d, a new quarterly production record even with the
planned maintenance work undertaken and completed during September. Bitumen
production was often well above the design rate during the quarter, at times
prompting the blending and sale of additional heavy product at the upgrader.
Total bitumen production for the first nine months of 2005 averaged 153,800
bbls/d, approaching the calendar day design rate of 155,000 bbls/d.
	    Unit cash operating costs in the third quarter of 2005 were $24.25 per
barrel. This was up $3.79 per barrel from the preceding quarter and up $5.47
per barrel versus the corresponding period last year due mainly to LTIP
charges, planned maintenance costs and increased energy costs. Higher natural
gas and LTIP costs accounted for more than 75 per cent of the year-over-year
increase. Improvements in unit cash operating costs related to higher
reliability and production are being offset by increased costs for energy,
materials and services in the current high commodity price environment. With
West Texas Intermediate crude oil prices in a range of $40 to $60 per barrel,
unit cash operating costs (excluding LTIP and major maintenance costs) are
targeted to range from $16 to $20 per barrel.
	    During the third quarter, the Company's investment in Oil Sands continued
with the acquisition of additional oil sands leases with mining potential in
the Athabasca area. Four leases were acquired through Alberta Crown land sales
with a combined area of 18,560 hectares for a total value of $72 million. This
included Leases 351 and 352 acquired at the August 24th land sale and Leases
631 and 632 at the September 21st sale.

	    Oil Products

	    Oil Products earnings for the third quarter were $81 million compared
with $114 million for the same period in 2004. This decrease was primarily
related to maintenance activities at the Montreal East and Scotford
refineries. An after-tax LTIP charge of $25 million in the third quarter was
offset by a prior year tax adjustment of $25 million. Third-quarter 2004
earnings included a favourable prior year tax adjustment of $11 million and
after-tax provision for the loyalty program of $23 million.
	    A previously announced planned turnaround at the Scotford Refinery near
Edmonton was completed at the end of September and the refinery resumed
operations in the first week of October. At the Montreal East Refinery,
unplanned maintenance work on a compressor in a hydro-cracker unit resulted in
reduced throughputs and higher black oil yields. Work on this compressor is
expected to be completed by late October.
	    The quarter was marked by supply disruptions and unprecedented volatility
in fuel prices in North America following hurricanes Katrina and Rita.
Nevertheless the Company was able to ensure a reliable supply to customers at
competitive prices. Market factors also compounded the impact of maintenance
activities during the third quarter. While light oil refining margins remained
strong, black oil and benzene margins were below those realized earlier in the
year. It was also necessary to purchase additional supplies of gasoline at
high spot prices to meet customer needs and marketing margins continued to be
severely compressed for most of the third quarter. As a result, the Company
was unable to take full advantage of the strong market for light oils.
	    Operating expenses rose in the third quarter of 2005 compared with the
same period in 2004. The increase was due to higher costs associated with the
maintenance and turnaround activities at the refineries, increased costs
associated with price sensitive items and LTIP charges.
	    Oil Products earnings for the first nine months of 2005 were $332 million
compared with $342 million for the same period in 2004. Improved refinery
yield and margins, sales volumes and larger favourable tax adjustments were
partially offset by higher costs. Operating expenses rose over the same period
last year mainly due to the LTIP charges of $45 million, higher advertising
expenses for the launch of Shell V-Power(TM) gasoline, and higher refinery
turnaround and maintenance costs. The launch of Shell V-Power(TM) gasoline in
June of 2005 continues to have a positive impact on the retail business with
increased sales of premium gasoline in the third quarter of 2005 compared with
the previous 12-month trend.

	    (TM) Trademark of Shell Canada Limited. Used under licence by Shell
	         Canada Products.

	    Corporate

	    Corporate earnings for the third quarter of 2005 were negative $8 million
compared with earnings of $35 million for the corresponding period in 2004.
Third-quarter earnings included a $20 million after-tax charge related to the
LTIP. The corresponding quarter in 2004 included a $23 million benefit from a
prior year tax adjustment.
	    Corporate earnings for the first nine months of 2005 were $72 million
compared with earnings of $21 million for the same period in 2004.  In 2005,
results were improved by $99 million after-tax due to the use of non-capital
losses and negatively impacted by $35 million due to the after-tax LTIP
charge.  In 2004, the prior year tax assessments increased the nine-month
corporate earnings.

	    Cash Flow and Financing

	    In the third quarter of 2005 and for the comparative periods, the Company
has reflected certain exploration expenses as a reduction of cash flow from
operations. These expenses were previously reflected as investing activities
in the consolidated statement of cash flow. The impact for the nine-month
period of 2005 is a reduction of cash flow from operations of $67 million
(2004 - $54 million) and, in the third quarter of 2005, a reduction of cash
flow from operations of $30 million (2004 - $18 million).
	    Cash flow from operations was $686 million for the third quarter of 2005
and a record $2,126 million for the first nine months of 2005. This represents
an increase of $37 million over the same quarter last year, and $434 million
higher than for the corresponding nine-month period in 2004. This increase is
largely attributable to higher commodity prices.
	    During the third quarter, the remaining $150 million balance under the
accounts receivable securitization program was reduced to zero and the Company
elected to terminate the program. Significant cash generation also allowed for
the reduction of $284 million in medium-term debt as well as accounts
receivable securitization in the first nine months of 2005. Corporate debt at
the end of the third quarter is now limited to the $217 million for the mobile
equipment lease.
	    Capital, exploration and pre-development expenditures for the third
quarter were $410 million and $1,006 million for the first nine months of
2005. This compares with $294 million and $626 million for the same periods in
2004 respectively. The main drivers for this increase were expenditures on the
ultra-low-sulphur diesel projects and higher exploration expenditures related
to the BCG program. Total capital expenditures for the year are expected to be
approximately ten per cent below the original capital expenditure plan of
$1.8 billion for 2005. Plans to capitalize a lease arrangement for large
mobile equipment at the Muskeg River mine were not implemented, accounting for
the majority of this change.
	    Dividends paid in the third quarter were $0.09 per common share totalling
$74 million. This reflected an eight per cent increase over the dividend per
share paid in the second quarter. In the first nine months of 2005, the
Company paid $211 million in dividends on its common shares.
	    The third-quarter-end cash balance of $484 million has been invested in
short-term money market investments.

	    Outstanding Shares

	    At October 15, 2005, the Company had 825,074,112 common shares and 100
preference shares outstanding (July 15, 2005 - 824,992,312 common shares and
100 preference shares) and there were 21,544,416 employee stock options
outstanding, of which 10,163,103 were exercisable or could be surrendered to
exercise an attached share appreciation right (July 15, 2005 - 22,340,611
outstanding and 10,939,801 exercisable). 

     
    
Events  SUBSCRIBE TO OUR NEWSLETTER

Our Privacy Pledge
SUBSCRIBE


Most Popular Articles


From the Career Center
Jobs that may interest you
Senior Certified Public Accountant
Expertise: Accounting
Location: Chantilly, VA
 
Project Accounting Analysts
Expertise: Accounting|Financial Analyst
Location: San Diego, CA
 
Cost Controls (Maitland, FL)
Expertise: Budget / Cost Control|Project Controls
Location: Maitland, FL
 
search for more jobs

Brent Crude Oil : $59.02/BBL 3.79%
Light Crude Oil : $52.22/BBL 3.07%
Natural Gas : $2.92/MMBtu 1.31%
Updated in last 24 hours