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Expectations of share sale for Petro-Canada take hit Integrated oil company takes drubbing over 5% cut in reserves and lowered production outlook; but sets long-term goal to ‘significantly’ replace reserves Gary Park Petroleum News Calgary Correspondent
Speculation that the Canadian government might finally unload its last 18.6 percent stake in Petro-Canada was even more firmly pushed to the side Jan. 29 when the company absorbed one of the largest single-day declines in its share value.
More than 11 hours after posting a 44 percent drop in its fourth-quarter profits, a 5 percent drop in its proved reserves in 2003 and a projected 3 percent drop in production this year, the Calgary-based integrated held a conference call to explain the bad news.
But by then the damage had been done. In a staggering sell-off, 7.3 million shares changed hands — 12 times the average daily volume — with the stock plunging 12.35 percent and wiping as much as C$2.18 billion from the market capitalization.
Most analysts agreed the response was an over-reaction, given that Petro-Canada had boosted its 2003 profits to C$1.67 billion from C$974 million in 2002, but the immediate result was to lower the value of the government’s stake to C$2.88 billion from a record high of C$3.44 billion.
Analysts agreed that the new Canadian government, which had already cooled talk that it might divest its Petro-Canada shares, would have even less reason to announce a sale with a spring election in the offing. One-time problems cited Chief Executive Officer Ron Brenneman, discussing why the company fell short of analysts’ predictions for the first time in several quarters, said the drop in final quarter profit to C$200 million from C$356 million a year earlier stemmed from a number of one-time problems.
He blamed the write-down of an Edmonton refinery that had been targeted for conversion, C$51 million in higher Ontario taxes and “quite extreme” margins as companies jockeyed for market share at the gasoline pumps.
Predicting that “those events are behind us,” Brenneman said Petro-Canada will be looking for ways operationally this year to beat its production outlook of 450,000 barrels of oil equivalent per day, down from 471,500 barrels in the final quarter of 2003 and 465,000 barrels through last year.
He also cautioned that 2004 would be a transitional year, with Petro-Canada increasing its capital budget by only 3 percent to C$2.6 billion and no “large projects coming on this year to offset natural decline in our mature areas.”
One of the few hopes for 2004 is the possibility of deferring maintenance shutdowns at Newfoundland’s Terra Nova and Hibernia offshore oil fields, which delivered a net 87,500 bpd in the fourth quarter and were projected to drop to 80,000 bpd this year assuming the maintenance proceeded.
Beyond 2004, there are a number of additions on tap — Petro-Canada’s 27.5 percent share of the White Rose oil field offshore Newfoundland that is due to start pumping in 2006 and peak at 92,000 bpd; a 12 percent interest in the Syncrude Canada oil sands consortium that is expected to grow by more than 50 percent to 350,000 bpd in 2005; and its portfolio of wholly owned Alberta oil sands assets. Long-term goal to improve reserve replacement Brenneman emphasized that Petro-Canada’s “long-term goal is to significantly replace reserves,” indicating he was encouraged by the 80 percent reserve replacement rate for natural gas in the maturing Western Canada sedimentary basin, although there was “still a lot of work to be done” to better the 50 percent replacement rate in the company’s international operations, which grew dramatically in 2002 with the C$3.2 billion acquisition of Germany’s Veba Oil & Gas.
“Over time we expect to do a lot better than the 50 percent reserve replacement that we achieved last year in international,” he said. “We’re fully intending to get that up to 100 percent or better over time.”
Exploration programs are planned for this year in blocks recently acquired in Algeria, Tunisia and Syria. In addition, Petro-Canada is part of a Marathon Oil-led group that is studying a gas-to-liquids, LPG and condensate project in Qatar and has a 10 percent interest in a consortium bidding on development of the Kuwait North oil fields.
Further growth is possible in Newfoundland offshore fields, as Petro-Canada and its partners delineate the Far East block at Terra Nova and evaluate the Avalon sands at Hibernia.
Brenneman said the company expects to unveil a development plan later this year for both opportunities, while weighing some small satellite fields that are within reach of both production systems.
He also said there could be “room to start talking about reviving” Newfoundland’s stalled Hebron-Ben Nevis project — operated by Chevron Canada Resources with a 28 percent stake and including ExxonMobil Canada at 38 percent, Petro-Canada at 24 percent and Norsk Hydro Canada at 10 percent.
Progress on the C$3 billion scheme was stopped two years ago when the partners decided that the field, comprising three adjacent fault blocks and holding about 414 million barrels of oil and 313 billion cubic feet of gas, was too technically difficult and expensive to develop.
But hopes have been revived again in recent months, with talk of a possible breakthrough on a separate royalty regime for Hebron-Ben Nevis.
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