Big oil producers nearly triple 4Q profits, but a 2003 repeat is unlikely

 GILLIAN LIVINGSTON Canadian Press Thursday, January 30, 2003

TORONTO (CP) - Four of Canada's biggest integrated oil companies nearly tripled their fourth-quarter profits to $1.3 billion thanks to higher oil and gas prices, but analysts say there won't likely be a repeat performance in 2003.

For Imperial Oil, Petro-Canada, Shell Canada and Suncor Energy, the fourth quarter in particular and 2002 overall was a bonanza as the threat of a U.S. war with Iraq and a major strike in Venezuela pushed oil prices above $30 US a barrel by year end.

Higher prices for oil and natural gas helped make 2002 a stellar year for the industry leaders, which also benefited from increased production from new projects in the Alberta oilsands, on Canada's East Coast, and from international acquisitions. Improved profits in gasoline refining and marketing gave an additional boost.

But Gord Currie, an analyst with Canaccord Capital, said it's "unlikely" that 2003 will be as strong as 2002 for Canada's big oil companies because prices are likely to dip as the Iraq situation is resolved.

"Whenever oil and gas prices are as high as they are today the balance of probabilities is that they're going to be lower," he said. "I think it's just a question of time - is it the second quarter or a year from now, we don't know. But it would be very difficult for 2003 to measure up."

The financial results released so far by four of Canada's biggest oil producers, refiners and gasoline marketers show that they're reaping the benefits of those higher prices while they have that option.

EnCana Corp. (TSX:ECA), the largest Canadian independent oil and gas producer following its creation last year by the merger of PanCanadian Energy and Alberta Energy, isn't due to release its fourth-quarter report until Feb. 20.

But Petro-Canada (TSX:PCA) issued vastly improved results Thursday when it reported a 440-per-cent increase in its fourth-quarter earnings - to $356 million from $66 million a year ago.

Higher energy prices were the main cause, although Petro-Canada also gained from its acquisition last year of the international assets of Veba Oil & Gas, whose production and exploration is focused in the North Sea, North Africa and northern Latin America.

Petro-Canada chief executive Ron Brenneman called 2002 "an outstanding year" as annual profits rose by 15 per cent over 2001 to $974 million.

"We of course got a big boost from commodity prices but more fundamentally, it was a year of successful execution across the board. We were really firing on all cylinders," he said on a conference call.

Shell Canada's earnings report Thursday echoed these events as its profits rose to $247 million in the fourth quarter from $170 million a year ago. However, full-year profits fell to $561 million from just over $1 billion a year ago, a period of extraordinarily high natural gas prices.

Last week, Calgary-based Suncor Energy reported that fourth-quarter profits soared nearly tenfold to $258 million from $26 million. For 2002, profits of $761 million were nearly double the year earlier.

Energy giant Imperial Oil more than doubled its fourth-quarter profits to $454 million as high oil prices helped it post its third-biggest annual profit ever.

For the full year, the Toronto-based company, a subsidiary of U.S.-based ExxonMobil, earned a profit of $1.2 billion compared with $1.24 billion in 2001.

Last year started with reasonable oil prices but then U.S. President George W. Bush unidentified Iraq as a possible target and "oil prices started a long gradual climb to $30 US and then, with a little help from Venezuela, pushed right through the $30 US level," Currie said.

The Venezuelan strike continues but production from the world's fifth-largest oil producer has recently gained ground, though it's still below the three million barrels per day it pumped before prior to the start of the strike on Dec. 2.

The main wildcard with oil prices this year, which have averaged nearly $33 US a barrel in January, is how the war on Iraq plays itself out, said Stephen Calderwood, an oil and gas analyst with Salman Partners Inc. in Calgary.

Calderwood is estimating the price of oil in 2003 will average about $25 US, and that's with the expectation that a war on Iraq will occur by the end of February and will be relatively quick.

"We still think there's going to be a war and we still think the oil price will take a huge nosedive after the event," Calderwood said.

However, Currie notes that there are a multitude of possible scenarios in Iraq.

Oil prices could stay high if it's a long and drawn-out conflict, or if the U.S. gives weapons inspectors a long time to complete their job, keeping uncertainty in the market, he said.

Canada's four major integrated oil companies nearly tripled their profits to $1.3 billion in fourth-quarter profits as they benefited from higher oil and natural gas prices and improved margins in gasoline refining.

Some facts:

Imperial Oil Ltd.

Quarterly Profits: $454 million, up from $194 million last year.

Company: Based in Toronto. Canadian arm of global energy giant ExxonMobil Corp. Operates (TSX:IMO) national chain of 2,500 Esso gasoline stations and a number of oil refineries. Is also a major heavy oil and natural gas producer.

Shell Canada Ltd.

Quarterly Profits: $247 million, up from $170 million last year.

Company: Based in Calgary. Major gas producer. Owns (TSX:SHC) national chain of Shell stations. Part of the European-based Royal Dutch Shell group of companies.

Petro-Canada Inc.

Quarterly Profits: $356 million, up from $66 million last year.

Company: Based in Calgary. Former Crown corporation. Now widely held although the federal government still owns about 18 per cent of company (TSX:PCA). Is a major oil and gas producer, with operations in Western Canada, off the East Coast and a growing international business. Operates national gas station chain.

Suncor Energy Inc.:

Quarterly Profits: $258 million, up from $26 million last year.

Company: Based in Calgary. Widely held. A major oilsands producer (TSX:SU) in northern Alberta. Has a chain of Sunoco gasoline stations in Ontario.