Petro-Canada
NYSE : PCZ
TSX : PCA

Petro-Canada

January 25, 2007 05:00 ET

Petro-Canada Delivers Strong 2006 Earnings; Upstream Growth Projects On-Stream

Highlights

  • Upstream production ramping up as new projects come on-stream
  • East Coast Oil, Downstream and Oil Sands delivered record operating earnings for 2006
  • Company advancing major projects and focusing portfolio in 2007

CALGARY, ALBERTA--(CCNMatthews - Jan. 25, 2007) - Petro-Canada announced today fourth quarter operating earnings from continuing operations adjusted for unusual items of $486 million ($0.98/share), compared with $666 million ($1.29/share) in the fourth quarter of 2005. Fourth quarter 2006 cash flow from continuing operations was $991 million ($1.99/share), compared with $1,116 million ($2.16/share) in the same quarter of last year. Cash flow is before changes in non-cash working capital.

Net earnings from continuing operations were $384 million ($0.77/share) in the fourth quarter of 2006, compared with $668 million ($1.29/share) in the same period of 2005. Net earnings include unrealized gains or losses on derivative contracts, and gains or losses on foreign currency translation and disposal of assets.

In 2006, operating earnings from continuing operations adjusted for unusual items was $2,010 million ($3.99/share), compared with $2,265 million ($4.37/share) in 2005. Cash flow from continuing operations was $3,687 million ($7.32/share) in 2006, compared with $3,787 million ($7.31/share) for the previous year.

"Looking back at 2006, our integrated portfolio helped us deliver a solid year financially," said Ron Brenneman, president and chief executive officer. "Weaker natural gas prices were offset by strong oil prices, growing upstream production and solid performance from our Downstream operations."


Fourth Quarter Results

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                                    Three months ended          Year ended
(millions of Canadian dollars,             December 31,        December 31,
 except per share and share amounts)    2006      2005      2006      2005
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Consolidated Results
Operating earnings adjusted for
 unusual items (1)                   $   486   $   714   $ 2,028   $ 2,365
Net earnings                             384       714     1,740     1,791
Cash flow                            $   991   $ 1,181   $ 3,704   $ 4,032
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Results from Continuing Operations (2)
Operating earnings from continuing
 operations adjusted for unusual
 items (1)                           $   486   $   666   $ 2,010   $ 2,265
 - $/share                              0.98      1.29      3.99      4.37
Net earnings from continuing
 operations                              384       668     1,588     1,693
 - $/share                              0.77      1.29      3.15      3.27
Cash flow from continuing operations     991     1,116     3,687     3,787
 - $/share                              1.99      2.16      7.32      7.31
Dividends - $/share                     0.10      0.10      0.40      0.33
Share buyback program                     50        89     1,011       346
 - millions of shares                    1.0       2.0      19.8       8.3
Capital expenditures for continuing
 operations                          $ 1,165   $   884   $ 3,484   $ 3,630
Weighted-average common shares
 outstanding (millions of shares)      497.9     516.2     503.9     518.4
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(1) Operating earnings adjusted for unusual items (which represent net
    earnings, excluding gains or losses on foreign currency translation and
    on disposal of assets and the unrealized gains or losses associated
    with the Buzzard derivative contracts) are used by the Company to
    evaluate operating performance.
(2) On January 31, 2006, Petro-Canada closed the sale of its Syrian
    producing assets. These assets and associated results are reported as
    discontinued operations and are excluded from continuing operations.

Operating Highlights

Fourth quarter production from continuing operations averaged 368,200 barrels of oil equivalent/day (boe/d), net to Petro-Canada in 2006, up from 359,800 boe/d, net in the same quarter of 2005. Higher volumes reflect the ramp up of White Rose, the addition of North Sea projects De Ruyter and L5b-C, and higher Oil Sands production. This was partially offset by the Terra Nova shutdown and natural declines in North American Natural Gas.

In 2006, production of crude oil, natural gas liquids (NGL) and natural gas from continuing operations averaged 345,400 boe/d net, down from 354,600 boe/d in 2005.

In the Downstream, a weaker business environment was partially offset by the strong performance of the lubricants business in the fourth quarter of 2006.

"Execution was a priority for us in 2006 and will continue to be top of mind in 2007," said Brenneman. "A focus on reliable operations and project management will be key to our plans to boost production by 15%, implement a substantial exploration program and advance major projects."


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                                    Three months ended          Year ended
                                           December 31,        December 31,
                                        2006      2005      2006      2005
---------------------------------------------------------------------------
Upstream - Consolidated (1)
 Production before royalties
  Crude oil and natural gas liquids
   production, net
   (thousands of barrels/day, Mb/d)    245.0     292.3     226.9     286.4
  Natural gas production, net
   excluding injectants
   (millions of cubic feet/day, MMcf/d)  739       803       744       831
  Total production, net (thousands of
   barrels of oil equivalent/day,
   Mboe/d) (2)                           368       426       351       425
 Average realized prices
  Crude oil and NGL ($/barrel, $/bbl)  62.37     61.29     67.48     60.77
  Natural gas ($/thousand cubic
   feet, $/Mcf)                         6.61     11.34      6.96      8.24
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Upstream - Continuing Operations
 Production from continuing
  operations before royalties
  Crude oil and NGL production,
   net (Mb/d)                          245.0     229.9     221.7     220.5
  Natural gas production, net
   excluding injectants (MMcf/d)         739       779       742       806
  Total production, net (Mboe/d) (2)     368       360       345       355
 Average realized prices from
  continuing operations
  Crude oil and NGL ($/bbl)            62.37     60.51     67.38     60.45
  Natural gas ($/Mcf)                   6.61     11.49      6.96      8.30
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Downstream
  Petroleum product sales (thousands
   of cubic metres/day, m3/d)           53.9      52.9      52.5      52.8
  Average refinery utilization (%) (3)    94        99        93        96
  Downstream earnings from operations
   after-tax (cents/litre) (4)           1.6       2.2       2.4       2.1
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(1) Includes discontinued operations.
(2) Total production includes natural gas converted at six Mcf of natural
    gas for one bbl of oil.
(3) Includes Oakville capacity pro-rated to reflect partial operation of
    Oakville refinery prior to permanent closure, effective April 11, 2005.
(4) Before additional depreciation and other charges related to the closure
    of the Oakville refinery.

Outlook

Operational Updates

  • Buzzard expected to ramp up to full production by mid-2007
  • Terra Nova production maintained at or above 100,000 b/d gross (34,000 b/d net)
  • Hibernia production expected to average between 100,000 b/d to 110,000 b/d gross (20,000 b/d to 22,000 b/d net) in January and February 2007
  • Syncrude 8-2 Coker turnaround completed mid-January 2007
  • Sale of natural gas production of 12 MMcfe/d from Brazeau and West Pembina assets closed in January 2007 (this is factored into annual production guidance)

Strategic Milestones

  • Anticipate a regulatory decision on the Gros Cacouna re-gasification project in the first half of 2007
  • Complete Fort Hills design basis in the first half of 2007

Petro-Canada is one of Canada's largest oil and gas companies, operating in both the upstream and downstream sectors of the industry in Canada and internationally. The Company creates value by responsibly developing energy resources and providing world class petroleum products and services. Petro-Canada is proud to be a National Partner to the Vancouver 2010 Olympic and Paralympic Winter Games. Petro-Canada's common shares trade on the Toronto Stock Exchange (TSX) under the symbol PCA and on the New York Stock Exchange (NYSE) under the symbol PCZ.

The full text of Petro-Canada's fourth quarter release, including Management's Discussion and Analysis (MD&A), can be accessed on Petro-Canada's website at http://www.petro-canada.ca/en/investors/845.aspx and will be available through SEDAR at http://www.sedar.com/.

Petro-Canada will hold a conference call to discuss these results with investors on Thursday, January 25, 2007 at 9:00 a.m. eastern standard time (EST). To participate, please call 1-866-898-9626 or 416-340-2216 at 8:55 a.m. Media are invited to listen to the call by dialing 1-866-540-8136 or 416-340-8010 and are invited to ask questions at the end of the call. Those who are unable to listen to the call live may listen to a recording of the call approximately one hour after its completion by calling 1-800-408-3053 or 416-695-5800 (pass code number 3202649#). A live audio broadcast of the conference call will be available on Petro-Canada's website at http://www.petro-canada.ca/en/investors/845.aspx on January 25, 2007 at 9:00 a.m. EST. Approximately one hour after the call, a recording will be available on Petro-Canada's website.

NON-GAAP MEASURES

Cash flow, which is expressed as cash flow from operating activities before changes in non-cash working capital, is used by the Company to analyse operating performance, leverage and liquidity. Operating earnings represent net earnings, excluding gains or losses on foreign currency translation and disposal of assets and unrealized gains or losses on the mark-to-market valuation of the derivative contracts associated with the Buzzard acquisition. Operating earnings are used by the Company to evaluate operating performance. Cash flow and operating earnings do not have a standardized meaning prescribed by Canadian generally accepted accounting principles (GAAP) and, therefore, may not be comparable with the calculations of similar measures for other companies. For reconciliation of the operating earnings and cash flow amounts to the associated GAAP measure, refer to the tables on pages 9 and 30, respectively, of the MD&A.

LEGAL NOTICE - FORWARD-LOOKING INFORMATION

This quarterly report contains forward-looking information. Such statements are generally identifiable by the terminology used, such as "plan," "anticipate," "forecast," "believe," "target," "intend," "expect," "estimate," "budget" or other similar wording suggesting future outcomes or statements regarding an outlook. Forward-looking information includes, but is not limited to, references to business strategies and goals, outlook (including operational updates and strategic milestones), future capital, exploration and other expenditures, future resource purchases and sales, construction and repair activities, refinery turnarounds, anticipated refining margins, future oil and gas production levels and the sources of growth thereof, project development and expansion schedules and results, future regulatory approvals, future results of exploration activities and dates by which certain areas may be developed or may come on-stream, retail throughputs, pre-production and operating costs, reserves and resources estimates, royalties and taxes payable, production life-of-field estimates, natural gas export capacity, future financing and capital activities (including purchases of Petro-Canada common shares under the Company's normal course issuer bid (NCIB) program), contingent liabilities (including potential exposure to losses related to retail licensee agreements), and environmental matters. By its very nature, such forward-looking information requires Petro-Canada to make assumptions that may not materialize or that may not be accurate.

This forward-looking information is subject to known and unknown risks and uncertainties, and other factors, which may cause actual results, levels of activity and achievements to differ materially from those expressed or implied by such information. Such factors include, but are not limited to, imprecision of reserves estimates of recoverable quantities of oil, natural gas and liquids from resource plays and other sources not currently classified as reserves; general economic, market and business conditions; industry capacity; competitive action by other companies; fluctuations in oil and gas prices; refining and marketing margins; the ability to produce and transport crude oil and natural gas to markets; the effects of weather and climate conditions; the results of exploration and development drilling and related activities; fluctuations in interest rates and foreign currency exchange rates; the ability of suppliers to meet commitments; actions by governmental authorities, including changes in taxes, royalty rates and resource utilization strategies; decisions or approvals of administrative tribunals; changes in environmental and other regulations; risks attendant with oil and gas operations, both domestic and international; international political events; expected rates of return; and other factors, many of which are beyond the control of Petro-Canada. More specifically, production may be affected by such factors as exploration success, startup timing and success, ramp up progress, facility reliability, planned and unplanned gas plant shutdowns, success of restarts following turnarounds, reservoir performance and natural decline rates, success of non-conventional resource plays, water handling and production from coal bed methane (CBM) wells, and drilling progress and results. Capital expenditures may be affected by cost pressures associated with new capital projects, including the availability of labour and materials, project management, drilling rig rates and availability, and seismic costs. These factors are discussed in greater detail in filings made by Petro-Canada with the Canadian provincial securities commissions and the United States Securities and Exchange Commission.

Readers are cautioned that the foregoing list of important factors affecting forward-looking information is not exhaustive. Furthermore, the forward-looking information contained in this quarterly report is made as of the date of this report and, except as required by applicable law, Petro-Canada does not undertake any obligation to update publicly or to revise any of the included forward-looking information, whether as a result of new information, future events or otherwise. The forward-looking information contained in this report is expressly qualified by this cautionary statement.

Where the term barrel of oil equivalent (boe) is used in this document, it may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic feet (Mcf): one barrel (bbl) is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

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