Canadian oil and gas firms' first half earnings soar

Sept. 8, 2003
For the second quarter, Canadian oil and natural gas producers reported much stronger earnings as a result of higher oil and gas prices.

For the second quarter, Canadian oil and natural gas producers reported much stronger earnings as a result of higher oil and gas prices. Downstream results gained on improved margins and elevated demand but were tempered by higher feedstock costs.

Second quarter net income for the group of companies that OGJ sampled was double that for the same period a year ago on revenue that increased 13%. The group's earnings for the first half of the year were up 180% as revenues gained 38%.

All results are reported in Canadian dollars.

Company results

Calgary-based Talisman Energy Inc. reported record earnings of $774 million for the first 6 months of 2003. Earnings were $191 million during the first half of 2002.

Second quarter earnings were $201 million vs. $90 million a year earlier, although revenues were lower. The company cited several reasons for the increase in earnings from the second quarter of 2002.

During the second quarter, the gain on sale of Talisman's Sudan operations increased net income by $296 million. But the company changed its accounting for stock options, which resulted in an expense of $105 million.

Additionally, Talisman recorded a $133 million future tax recovery primarily due to a reduction in the Canadian federal and provincial tax rates, which was partially offset by a future tax expense associated with unrealized foreign exchange gains on the company's foreign denominated debt.

Net income during the second quarter of 2002 was reduced by a one-time, noncash future tax expense of $116 million, due primarily to a new supplemental tax in the UK. Talisman's production averaged 365,000 boe/d during the most recent quarter, with its unit operating costs averaging $6.98/boe, down 3% from the first quarter.

Imperial Oil Ltd., Toronto, reported second quarter earnings of $514 million, compared with $310 million for the same period in 2002. The main factors contributing to the increase were improved industry margins on sales of petroleum products, higher gas prices, and increased production of crude oil.

During the second quarter, Imperial's average realized price for conventional oil was $38.53/bbl, compared with $36.93/bbl in the corresponding quarter of last year. The producer's average price for gas was $6.80/Mcf vs. $4.22/ Mcf a year earlier. A decline in gas production partly offset the higher gas price and greater production volumes from the company's Cold Lake bitumen operations and its share of Syncrude Canada Ltd. operations.

Imperial's earnings in the first half were $1 billion, compared with $420 million during the same period last year. The main contributors to that increase were higher oil and gas prices and improved petroleum product margins. Higher demand for diesel fuel, heating oil, and gasoline drove stronger sales of petroleum products in the first 6 months of this year. Imperial's net earnings from petroleum products were $241 million compared with a net loss of $22 million during the same period last year.

The company's results in both the second quarter and the first half also benefited from lower income tax rates and favorable foreign exchange effects on Imperial's US dollar-denominated debt. However, the negative impact of the higher Canadian dollar on resource and product prices more than offset the foreign exchange benefits.

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Imperial's earnings from chemicals operations for the first half were $13 million compared with $20 million for the first half of last year. The company cites reduced margins on sales of polyethylene as a result of higher feedstock costs and lower volumes as the reasons for this decline in chemicals earnings.