Energy firms eye $1B profits - Results reflect higher prices
www.canada.com Chris Varcoe Calgary Herald Tuesday, January 21, 2003 CREDIT: Calgary Herald Archive Nine of the 50 largest companies traded in Toronto are energy firms.
ulked up by strong oil and natural gas prices, at least two Canadian energy companies are set to become billionaires in the profit department.
Canadian petroleum producers will begin releasing 2002 financial results today and two oil companies -- Imperial Oil Ltd. and EnCana Corp. -- are expected to post more than $1 billion in net earnings.
Industry analysts say a string of mergers, along with relatively strong commodity prices, have Imperial, EnCana, and possibly Petro-Canada poised to join the domain of Canada's biggest banks and blue-chip businesses.
"From the consumers' standpoint, it's wow, how much is enough," said energy analyst Wilf Gobert of Peters & Co. "But when I put my financial analyst's hat on here, the amount of profit doesn't matter. It's a question of what your rate of return is."
While commodity prices were low at the start of 2002, oil rose throughout the year due to mounting tensions in the Middle East and political instability choking off exports from Venezuela.
Crude oil traded on the New York Mercantile Exchange averaged $26.20 US a barrel during 2002, up one per cent from the previous year and surging above $30 in December.
Spot prices for western Canadian natural gas averaged $4.12 a gigajoule, down 24 per cent from the previous year, but rallying from a low point during the summer to a recent two-year high.
With a spate of mergers and takeovers creating large-scale companies such as EnCana -- the biggest independent producer in the world -- it's little surprise the sector's heavyweights will top $1 billion in earnings, said Patricia Mohr, vice-president of economics at Scotiabank.
"These are very large companies. I wouldn't sneeze at that," she said. "I'm sure the results will look good."
Gobert forecasts Imperial Oil, Canada's largest integrated oil company, to make about $1.1 billion in 2002. EnCana -- created by the merger of Alberta Energy Co. Ltd. and PanCanadian Energy Corp. -- should earn $1.37 billion for the entire year.
Petro-Canada, which bulked up significantly in early 2002 with its $3.2-billion takeover of Veba Oil & Gas, is projected to make between $923 million and $964 million, but could "have a shot" at a billion dollars in profits depending upon unusual charges, Gobert added.
"In Canada, it's been a long time since we've had this many companies that are this big -- in fact, probably never," he said.
Gobert noted that nine of the 50 largest companies traded on the Toronto Stock Exchange are energy firms.
The best year on oilpatch record, 2000, saw Imperial post net earnings of $1.4 billion, while PanCanadian -- then controlled by Canadian Pacific Ltd. -- made $1 billion.
Suncor Energy Ltd. is set to release results today and fourth-quarter figures are also expected to show the influence of rising commodity prices.
Oil jumped 38 per cent during the fourth quarter compared with the same period in 2001, averaging $28.33 US a barrel. And heavy oil prices were particularly strong.
Natural gas prices in Western Canada gained 67 per cent to average $5.38 per gigajoule for the three months ending Dec. 31, putting gas-leveraged companies in a profitable position.
However, many companies were challenged to increase gas output in the mature Western Canadian Sedimentary Basin, said analyst Dan Tsubouchi of Griffith McBurney Partners.
"We think there might be some minor disappointment on production numbers," Tsubouchi said. "It's very difficult for this industry to build (gas) supply in a maturing basin."
For integrated companies that refine and market petroleum products, another issue is the tight refining margins witnessed during parts of the year.
"We're going to see continued lack of profitability or difficulties in refining," said analyst Kate Warne of Edwards Jones in St. Louis.
By the Numbers
Earnings expectations for 2002, in millions of dollars, followed by percentage change over the year before. (Earnings are net, and if unusual items are added, figures will be higher, as companies had negative foreign exchange transactions.)
EnCana 1,393 7%
Imperial Oil 1,127 -9%
Petro-Canada 923 2%
Talisman 858 13%
Husky 802 14%
Suncor Energy 709 96%
Canadian Natural 571 -18%
Shell Canada 526 -48%
Nexen 410 0%
Penn West 158 -35%
Source: Peters & Co.
This story features a factbox "By the Numbers".