Canadian Oil Sands Trust Posts 2Q Financial Results
Canadian Oil Sands Trust has announced cash used in operating activities of $44 million ($0.09 per Trust unit ("Unit")) for the second quarter of 2009 compared with cash from operating activities of $413 million ($0.86 per Unit) for the same period last year. During the first half of 2009, cash from operating activities was $6 million ($0.01 per Unit) compared with the $854 million ($1.78 per Unit) in the 2008 six-month period.
Net income for the second quarter of 2009 was $46 million ($0.10 per Unit) compared with $497 million ($1.04 per Unit) of net income in the 2008 period. Year-to-date, net income totaled $89 million ($0.18 per Unit) in 2009 compared with $795 million ($1.66 per Unit) in 2008.
The decreases in cash from operating activities and net income on a quarter and year-over-year basis reflect lower crude oil prices and lower production, partially offset by a decrease in Crown royalties expense. Net income in 2009 also reflects unrealized foreign exchange gains on U.S. dollar denominated debt and higher future income tax recoveries than the first half of 2008.
The Trust has declared a quarterly distribution amount of $0.25 per Unit for Unitholders of record on August 17, 2009, payable on August 28, 2009, a $0.10 per Unit increase from the distribution paid in the prior quarter. Effective July 25, 2009, the Trust suspended its Premium Distribution, Distribution Re-Investment and Optional Unit Purchase Plan ("DRIP"). The DRIP was active during the first half of 2009, but with the strengthening of crude oil prices and the improvement in the Trust's liquidity position, the Trust no longer felt it was needed.
"Although the first half of 2009 was very challenging operationally, the largest impact to our results was the weaker crude oil prices year-over-year," said Marcel Coutu, President and Chief Executive Officer. "Syncrude made a large investment in repairs and modifications to its new Coker 8-3 complex, designed to improve future yields and run lengths. With this major work completed and mining operations on an improving trend from the bitumen constraints experienced in the last 12 months, we are looking forward to a strong second half of the year and progress towards achieving design capacity rates. Our confidence in the operations, strengthening crude oil prices and an improved liquidity position support our decision to increase the distribution to $0.25 per Unit."
Sales volumes during the second quarter of 2009 averaged about 76,000 barrels per day compared with about 98,000 barrels per day during the same period in 2008. For the first half of 2009, sales volumes averaged about 89,000 barrels per day versus 98,000 barrels per day during the 2008 period. In 2009, Syncrude conducted a scheduled, comprehensive turnaround of Coker 8-3 and related units, the primary upgrading unit brought into operation in August 2006 as part of the Stage 3 expansion. The turnaround included modifications to improve the coker's run length and yield. The work took longer than originally anticipated because of additional work scope, schedule inefficiencies due to an earlier than planned shutdown, and lower than budget workforce productivity. Production in 2009 also was reduced by Coker 8-1 circulation issues and reliability issues in the mining and upgrading operations during the second quarter, and bitumen supply constraints in the first quarter. By comparison, 2008 first half production was impacted by a smaller Coker 8-1 turnaround, bitumen production constraints, and a disruption in operations in the first quarter.
In the second quarter of 2009, Syncrude's total recordable injury rate was 0.33 for every 200,000 hours worked compared to a rate of 0.34 recorded for the same period of 2008.
The reduced production volumes resulted in higher per barrel operating costs in 2009 compared with 2008. For the second quarter of 2009, operating costs averaged $50.23 per barrel compared with $41.92 per barrel in 2008. For the six-month period, per barrel operating costs were $43.66 and $38.90 in 2009 and 2008, respectively. Syncrude's operating costs are largely fixed, so changes in production volumes significantly impact per barrel operating costs.
Capital expenditures for the first half of 2009 were $223 million compared with $101 million in the same period of 2008, reflecting expenditures for the Syncrude Emissions Reduction project, tailings facilities and equipment purchases to improve bitumen production capabilities.
The Trust's liquidity position improved significantly in the second quarter of 2009 with the refinancing of its two 2009 debt maturities through the issuance of U.S. $500 million of Senior unsecured notes. The notes have an annual interest rate of 7.75 per cent payable semi-annually and mature on May 15, 2019.
The Trust has lowered its estimate for Syncrude production to 104 million barrels in 2009 to reflect actual results in the first half of the year. Substantially all of Syncrude's major maintenance work planned for 2009 has been completed and the continued focus is on broad plant reliability to ensure bitumen production is sufficient to meet the expected high availability in the upgrader. While the next coker turnaround is scheduled in 2010, circulation issues on Coker 8-1 during the second quarter suggest a heightened risk of advancing the turnaround into 2009; if this occurs, our 2009 production estimate would fall by approximately three million barrels.
Largely reflecting the impact of lower production, the Trust has increased its average annual per barrel operating cost estimate for 2009 to $35 per barrel.
For 2009, we are assuming an average crude oil price of U.S. $55 per barrel WTI, a $0.87 U.S./Cdn foreign exchange rate, and a discount of $1.50 per barrel for our synthetic crude oil relative to Cdn $ WTI.
Based on the above assumptions, we estimate 2009 cash from operating activities of $519 million, or $1.07 per Unit. After deducting capital expenditures of $460 million, we are estimating $59 million of remaining cash from operating activities.
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