Big oil unlikely to see 2002 profit jump repeated in 2003

www.thestar.com Jan. 30, 2003. 06:11 PM

Click to launch  Big oil unlikely to see 2002 profit jump repeated in 2003

FROM CANADIAN PRESS 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 (TSX: IMO), Petro-Canada (TSX: PCA), Shell Canada (TSX: SHC) and Suncor Energy (TSX: SU), 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 (U.S.) a barrel by year-end.

Higher prices for oil and natural gas helped make 2002 a stellar year for the industry leaders, which also benefitted from increased production from new projects or acquisitions and improved profits in gasoline refining and marketing to make it a stellar year for the industry.

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 release so far by four of Canada's biggest oil producers, refiners and gasoline marketers are reaping the benefits of higher prices while they have that option.

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

But Petro-Canada 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" which annual profits rose by 15 per cent over 2001 to $974 million.

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. Full-year profits, fell, however, 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 fourth-quarter profits soared more than tenfold to $258 million from $26 million. For the year, profits of $761 million were nearly double the year earlier.

Energy giant Imperial Oil more than doubled its profits to $454 million in the fourth quarter as high oil prices helped the company 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 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 an expectation that a war on Iraq will occur by the end of February and will be relatively quick.

"We still 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 the conflict is long and drawn-out conflict, or if the U.S. gives weapons inspectors a long time to complete their job, he said.