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Oil Patch Insider Petro-Canada boosts 2006 investment yardstick
Petro-Canada has raised the threshold for its 2006 investments and given a solid vote of confidence to its view that oil prices have moved into a new territory.
The Calgary-based company has boosted by 25 percent to US$40 per barrel for Brent crude the price it will use to measure long-term profitability of its capital spending.
In making the announcement at a Merrill Lynch investing conference in New York earlier in November, Chief Executive Officer Ron Brenneman said he does not believe the current demand for oil and natural gas will ease any time soon.
“It’s clear to us that the world has changed,” he said.
The price target, which also includes a hike in natural gas prices and refining spreads, is the industry basis for establishing capital budgets which are usually unveiled in November and December.
But, until Petro-Canada stepped forward, companies have been hesitant about tying their fortunes to a wildly gyrating oil market.
Those looking for other signals have been left to interpret numbers from recent takeover bids.
Chevron’s US$17.8 billion acquisition of Unocal carried an estimated per barrel price above US$30, while Talisman Energy’s more recent C$2.5 billion offer for Paladin Resources point to a Brent price of US$45.
Although Petro-Canada has taken the boldest move yet, Brenneman did concede he has a couple of doubts.
He said intense bidding for exploration rights in Libya and the soaring cost of deals in Alberta’s oil sands put some restraints on cash-rich companies competing for limited expansion opportunities.
However, Petro-Canada’s price target carries a positive implication that the company is ready to crank up its exploration and development spending, which could mean opening new sources of supply and easing commodity prices — both a potential plus and minus for investors, who can benefit from higher returns from increased capital spending, while their exposure to a drop in commodity prices is greater.
—Gary Park The Explorers 2005 released at RDC The Explorers, Petroleum News’ annual magazine about exploration in Alaska, was released Nov. 16 at the annual Resource Development Council conference in Anchorage.
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