Petro-Canada to Close Hedged Portion of Buzzard Production
Petro-Canada has entered into contracts to close out the hedged portion of its Buzzard production from Jan. 1, 2008, to Dec. 31, 2010. Under the terms of the contracts, the company has repurchased 30,688,000 barrels (bbls) of Dated Brent crude oil at an average price of approximately $85.79 US/bbl ($83.20 Cdn/bbl(1)), resulting in a settlement of $1.72 billion US ($1.67 billion Cdn(1) or $1.11 billion Cdn after tax(1)).
Funding of the transaction will be provided by cash and the use of currently available credit lines. The settlement will result in a reduction in fourth quarter 2007 cash flow from operating activities. A significant amount of the earnings impact associated with this settlement has been previously recorded as a reduction to net earnings.
"The hedges were originally put in place to let us acquire the Buzzard field by protecting the project economics, but with higher oil prices and greater expected upside from the Buzzard platform, we no longer need this protection," said Harry Roberts, executive vice president and CFO. "As well, Petro-Canada's balance sheet is well positioned right now. We have surplus cash, and the Canadian dollar is very strong; so the time is right for us to pre-pay on this obligation before our capital program ramps up in coming years."
The hedges, which represented approximately 50% of the Company's share of estimated plateau production for the Buzzard field, were originally entered into in the second quarter of 2004. They were to be in place for 3 1/2 years, starting on July 1, 2007 until December 31, 2010 at an average price of approximately $26 US/bbl.
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