Earnings ease for Canadian companies in wake of lower prices

Nov. 19, 2001
Canadian oil and gas firms announced mixed year-on-year third quarter results.

Canadian oil and gas firms announced mixed year-on-year third quarter results. Softening commodity prices and refining margins hit the bottom lines of some Canadian firms during the third quarter. A sampling of earnings comparisons shows a 14% decline in profits on a 1% increase in revenues for the period. For the first 9 months, results remain strong, reflecting the higher natural gas prices from the first half of the year: revenues are up 26% and earnings are up 22% compared with the first three quarters of last year.

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All results reported are in Canadian dollars, and all companies mentioned are headquartered in Calgary, unless otherwise noted.

Company results

In the sampling of companies, only Westcoast Energy Inc. and Talisman Energy Inc. posted an increase in net income over third quarter 2000 results.

Vancouver, BC-based Westcoast Energy's third quarter 2001 results were favorably impacted by the gain of $80 million arising from the sale of two Canadian power generating facilities, while Talisman gained on proceeds from hedging positions the company took following its acquisition of Petromet Resources Ltd. in May.

Petro-Canada announced quarterly net earnings of $149 million, down from $229 million in the third quarter of last year.

Petro-Canada recorded earnings of $833 million for the first 9 months of this year. Upstream operations accounted for $611 million of this, as prices received for oil and liquids averaged $40.28/bbl and for natural gas, $6.99/Mcf. Prices received during the third quarter averaged $37.50/bbl for oil and $3.66/Mcf for gas.

Downstream earnings in the first 9 months of this year were $252 million, up from $207 million in the corresponding period last year. Petro-Canada attributes the increase to strong refining margins early in the year and wider differentials between the price of light and heavy crude oil.

Toronto-based Imperial Oil Ltd. posted third quarter earnings of $259 million, or $0.66/share, compared with third quarter 2000 income of $374 million, or $0.90/share.

The company cited three reasons for reduced earnings: lower oil and gas prices, higher expenses, and the absence of a gain on divestments that was recorded in the third quarter of last year. These factors more than offset the positive effect of increased production of Cold Lake bitumen and natural gas.

Despite a 6% boost in production, Nexen Inc. reported a net income decrease to $85 million, down from third quarter 2000 earnings of $172 million. Growth in production volume was only able to partially mitigate the effects of lower commodity prices and higher exploration expenses. "Our organic growth strategy has made us one of the lowest cost producers in North America, so we are well positioned to manage the price volatility we currently face," said Charlie Fischer, Nexen Pres. and CEO (see related article p. 36).

PanCanadian Petroleum Ltd. announced third quarter net income of $286 million compared with $297 million in the same quarter of last year. The company was able to largely offset the effects of weaker market prices through increased gas production coupled with gains on natural gas hedges.

For the quarter, natural gas production was up 12% from the same period last year while production of oil and natural gas liquids fell 3%, reflecting the disposition of certain noncore oil properties. The results of commodity and currency hedges contributed $185 million before tax in the quarter, primarily from the forward sale of 450 MMcfd of gas at $8.66/Mcf.

TransCanada PipeLines Ltd. posted consolidated earnings of $180 million on revenues of $1.3 billion in the third quarter vs. $260 million in net income and $1.1 billion in revenue for the period last year.

TransCanada has reached agreements that will complete the company's exit from the natural gas marketing and trading business to focus on its core businesses of natural gas transmission and power. Operations in the gas marketing segment were discontinued in the second quarter.

Noting that the company currently owns, controls, or is developing a total of 1,900 Mw of power, TransCanada CEO Hal Kvisle said that the company expects to grow its power business significantly in the next 5 years, both in assets and in earnings.