Petro-Canada chases profits on worldwide scale, says CEO

Gary Park

Petroleum News Calgary correspondent

Troubled by rising exploration costs and shrinking discoveries in its Western Canadian natural gas activities, Petro-Canada plans to cast a wider net through its global holdings for profitable ventures.

Chief Executive Officer Ron Brenneman told analysts and investors in Toronto that his company is “starting to experience less than 100 percent reserve replacement” from the C$450 million a year it is spending on gas operations in the maturing Western Canada Sedimentary Basin. He said about half the wells Petro-Canada drills find gas, but that record has been unchanged for four or five years.

“It’s not because we’re being less successful,” he said. “It’s because each discovery is successively smaller.”

The integrated company is still among the leading producers in the Western Canada Sedimentary Basin at 680 million cubic feet per day in the second quarter, but that was off 7.6 percent from a year earlier at a time when the costs of drilling wells and servicing existing reservoirs is growing.

The signal from Brenneman that Petro-Canada plans to shift its focus away from Western Canada Sedimentary Basin gas reinforces the pattern others have experienced of smaller finds, faster depletion rates and predictions of flat production into the foreseeable future.

Bolstered by last year’s C$3.2 billion takeover of the widely diversified assets of Germany’s Veba Oil & Gas which doubled Petro-Canada’s production, the company now has the choice of pursuing opportunities in Venezuela’s heavy oil, the Trinidad and Tobago liquefied natural gas project and production in the North Sea, North Africa and Middle East, along with its established holdings in Alberta’s oil sands where it is close to deciding the fate of a C$5.8 billion project, off Canada’s East Coast and in the Far North.

Brenneman said the strategy will be to divert cash to areas where reserves are plentiful and returns are better.

“We’re looking to our existing core areas and to new theatres as well,” he said.

With its debt now at 0.8 times annual cash flow, Petro-Canada is “well-positioned to take advantage of new opportunities,” preferably assets being sold by major oil companies rather than corporate acquisitions.