Petro-Canada Profit Soars in Fourth Quarter

www.morningstar.ca 30 Jan 03(6:10 PM) |  E-mail Article to a Friend

By Jeffrey Jones

CALGARY, Alberta (Reuters) - Petro-Canada, the country's No. 3 oil producer, refiner and marketer, said on Thursday its fourth-quarter profit quintupled on high oil and gas prices and a hefty production jump after buying international assets.

Petro-Canada's <PCA.TO> better than expected showing was also fueled by strong results at its refineries, as industry-wide profit margins improved.

The company, which more than doubled output last year by acquiring the widespread assets of Veba Oil & Gas, earned C$356 million ($230 million), or C$1.34 a share, in the quarter, up from C$66 million, or 25 Canadian cents a share, a year earlier

That handily beat an average estimate of C$1.02 a share among analysts polled by Thomson First Call.

Cash flow, which gives a glimpse into an oil company's ability to fund projects, was C$807 million, or C$3.06 a share, up from C$307 million, or C$1.17 a share in the fourth quarter of 2001. Revenue rose to C$3 billion from C$1.8 billion.

For the year, profit rose 15 percent to C$974 million, or C$3.71 a share, from C$846 million, or C$3.19 a share.

"We of course got a big boost from commodity prices, but more fundamentally it was a year of successful execution across the board," chief executive Ron Brenneman said.

The stock rose 78 Canadian cents to C$50.52 in Toronto, just shy of its record high of C$50.80 set last week. It is up 9 percent since the start of the fourth quarter, beating the Toronto Stock Exchange's energy group, which slipped slightly.

Petro-Canada is known for its national gas station chain, western natural gas and oil sands developments, and offshore oil projects on the country's East Coast.

Last year it bought Veba for C$3.2 billion, giving it exploration and production projects in the North Sea, North Africa, the Middle East and South America.

Canada's integrated oil firms are awash in cash due to sky-high commodity prices.

Fears of war with Iraq and the protracted strike in major oil exporter Venezuela drove crude prices up 38 percent, while cold weather and dwindling inventories pushed Canadian natural gas prices up 67 percent in the quarter.

Petro-Canada has the top percentage gain in fourth-quarter profit among its peers.

"Price is a big component of that and, of course, the acquisition of Veba was a big component of that," said Gord Currie, analyst with Canaccord Capital Corp.

"But their (refining and marketing arm) has also been performing extremely well. Not only did they get some help from refining margins, but their refineries are running flat out and making darn near their cost of capital."

The exploration and production division earned C$343 million, up from C$52 million in the fourth quarter of 2001. With the Veba takeover and last year's startup of the Terra Nova oil project off Newfoundland, production more than doubled to 472,400 barrels of oil equivalent a day.

Refining and marketing earnings were C$78 million, up from C$48 million, partly due to improved refining margins, or the difference between the cost of crude and the wholesale price of petroleum products like gasoline wholesale, Petro-Canada said.

Brenneman, who has warned oil sands plans could be shelved over cost uncertainty created the Kyoto climate change accord, said he was heartened by Ottawa's recent measures to limit the industry's exposure. Canada ratified the treaty on cutting greenhouse gas emissions late last year.

However, Petro-Canada needed more clarification before embarking on its next oil sands expansion phase, he said.

The company is nearing a decision on going ahead with its 80,000 barrel a day Meadow Creek, Alberta, project and a refurbishment of its Edmonton refinery to process the supply. Meadow Creek could start production in 2007.

Ottawa's deal with the industry provides protection against emission-cutting costs for current operations, Brenneman said.

"What we're looking for from the federal government is ... a framework of principles that would govern the fiscal terms around these longer-term, larger projects," he said.

($1=$1.53 Canadian)