Reduced oil and gas price realizations affected financial results of oil and gas firms based in Canada, while rising feedstock costs squeezed refining margins.
Of the 10 Canadian companies in the OGJ sample, only two reported improved profits from a year ago for both the second quarter and the first half of 2002. The collective second quarter net income of the companies sampled declined 23% from a year ago, although revenues were up 5%. For the first half, profits for the group fell 39% and revenues dipped 10%.
All results are reported in Canadian dollars.
Company results
Petro-Canada reported upstream earnings of $232 million, nearly unchanged from $230 million for the same 2001 period. This strength follows the acquisition of oil and gas producing properties from Veba Oil & Gas GMBH and higher production off eastern Canada. While earnings were affected by lower oil and gas prices, there were benefits from increased production at Terra Nova and Hibernia fields.
Down from $111 million for second quarter 2001, Petro-Canada's refining and marketing earnings of $73 million were the highest among the Canadian integrated oil companies, noted Robert Plexman and Karin Scott of CIBC World Markets Inc. "The impressive performance reflected higher sales volumes, a strong retail presence, high refinery reliability, and continuing improvement in lubricants," the analysts commented.
For other Canadian firms, poor downstream earnings depressed profits. Shell Canada Ltd.'s net income from refining and marketing was $10 million, down from $122 million in the second quarter of last year. In addition, the firm's upstream earnings suffered under lower commodity prices, falling to $66 million from $186 million a year earlier.
While net income for Canadian Natural Resources Ltd. fell 50% for the quarter, gas production increased 22%. This is the seventh consecutive quarter in which CNR's gas production volumes have increased. Last month, the company announced plans to purchase a group of North Sea assets from Oklahoma City-based Kerr-McGee Corp. The transaction, still subject to approval, will build upon CNR's holdings in Ninian, Murchison, Lyell, and Columba Terraces fields.
Taking into account the 20,000 b/d of production associated with the purchase, Brian Dutton of UBS Warburg LLC commented that CNR historically improved the profitability of its asset base by having high working interests and operatorship of its production. This transaction, he said, "is clearly designed to apply these principles to its North Sea asset base, which it originally acquired with the purchase of Ranger Oil Ltd. in 2000."
