Petro-Canada: Terra Nova Outages Hurt Results, Production Set to Grow in Q4


Petro-Canada said that the Terra Nova mechanical failure impacted the company’s second-quarter results and contributed to a lower annual production outlook. However, the company noted that its upstream projects remain on track to deliver production growth by year’s end and over the next three years.

The company reported second quarter operating earnings from continuing operations adjusted for unusual items of $474 million ($0.94/share), compared with $501 million ($0.96/share) in the second quarter of 2005. Second-quarter 2006 cash flow from continuing operations was $754 million ($1.49/share), compared with $869 million ($1.67/share) in the same quarter of last year. Cash flow is before changes in non-cash working capital.

Net earnings were $472 million ($0.93/share) in the second quarter of 2006, compared with $345 million ($0.66/share) in the same period of 2005. Net earnings include unrealized gains or losses on derivative contracts, and gains or losses on foreign currency translation and disposal of assets. In the second quarter of 2006, net earnings included a $127 million future income tax recovery due to lower federal and provincial corporate income tax rates in Canada and a $70 million current income tax charge due to the Quebec government enacting retroactive tax legislation.

“Strong crude oil prices and refining margins contributed to a solid quarter financially,” said Ron Brenneman, president and chief executive officer. “Terra Nova’s unexpected outage impacted quarterly results and our annual production forecast, but we expect strong upstream production growth by year end. This quarter we also completed our refinery and lubricants plant turnarounds so that our Downstream facilities are back to running at full capacity.”

Operating Highlights

Second-quarter production from continuing operations averaged 326,000 barrels of oil equivalent/day (boe/d) in 2006, down from 349,000 boe/d in the same quarter of 2005. Slightly higher International production was more than offset by lower volumes in East Coast Oil, North American Natural Gas, and Oil Sands. East Coast Oil production declined in the second quarter of 2006 due to Terra Nova shutting down earlier than expected and lower Hibernia production, partially offset by the addition of White Rose production.

The company updates its annual capital and exploration expenditure and production outlook at mid-year. Full-year upstream production from continuing operations is now expected to be in the 345,000 boe/d to 360,000 boe/d range in 2006, down from the 365,000 boe/d to 390,000 boe/d production outlook previously provided. The decrease relates primarily to a mechanical failure at Terra Nova and power supply problems and drilling delays in Libya.

“While the annual production outlook is lower than previously forecast, the impact of new growth projects will come on-stream in the fourth quarter, boosting year-end production,” said Brenneman.

The 2006 capital and exploration expenditure program from continuing operations is expected to be $3,525 million, up slightly from the prior guidance of $3,385 million. The increase reflects project cost increases and the purchase of land for the Fort Hills project.

In the Downstream, extensive turnaround work, primarily at the Edmonton refinery, impacted operating earnings in the second quarter of 2006. With the completion of the ultra-low sulfur diesel projects at the Edmonton and Montreal refineries, the Downstream facilities were able to return to full capacity. At the same time, the 25% expansion of the lubricants plant began ramping up in June.


Operational Updates

  • Expect Terra Nova to restart by the fourth quarter.
  • Syncrude Stage III expansion to restart in the third quarter.
  • Continue to ramp up White Rose production.

Strategic Milestones

  • Achieve first oil at new North Sea developments (De Ruyter, L5b-C and Buzzard) late in 2006.
  • Receive regulatory decision on Gros-Cacouna re-gasification project by year end.
  • Complete Fort Hills design basis memorandum by year end.
  • Make final investment decision on a new coker at the Montreal refinery in the first quarter of 2007.

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.