Canadian Oil Sands earnings hit by production issues
The biggest partner in the Syncrude-canada consortium reported sharply lower fourth-quarter net income Wednesday because of missed output targets and a $70-million deferred tax expense charge.
Canadian Oil Sands Ltd. reported earnings for the last three months of 2011 was $232 million or 48 cents per share, down 60 per cent from $575 million or $1.19 per share in the same period of 2010.
“Syncrude production in 2011 was affected by the outage of our largest hydrogen unit which reduced our production by millions of barrels in the fourth quarter and, as a result, we missed our annual target; this exemplifies the value of the effort currently underway to target unplanned capacity losses,” said Marcel Coutu, president and chief executive, in a news release.
“We do expect this to gradually result in increased capacity rates at Syncrude, and in 2012 we are looking forward to a seven per cent increase in volumes over 2011.”
Syncrude is operated by 25 per cent partner Imperial Oil. Peters & Co. analyst Kam Sandhar said in a note to investors that the results were highlighted by weaker production reliability.
“Despite the maintenance activities which negatively impacted production in Q4/11, Syncrude production has not returned to normal levels,” he wrote. “As a result, additional coker maintenance will be required in February (about 30 days), which will reduce Syncrude’s productive capacity by about 100,000 bpd during the period.”
Peters said it would lower its production forecast to be below the company’s guidance of 113,000 barrels per day to 107,000 bpd and warned that costs related to additional tailings compliance expected in the second half of 2012 could be higher than its forecast of $1.6 billion.
For the year, net income was $1.14 billion compared with $1.19 billion in 2010. Net income in 2011 reflects a $387 million increase in deferred tax charges after conversion from an energy trust to a corporation on Dec. 31, 2010. The 2010 income reflected a net tax recovery of $289 million.
Canadian Oil Sands, which owns 37 per cent of Syncrude, said cash flow from operations was $363 million or 75 cents per share in the fourth quarter, slightly missing the consensus of 78 cents per share in a Bloomberg survey of financial analysts.
It had cash flow of $398 million or 82 cents per share in the same quarter of 2010, although realized pricing in the 2011 period was $104.78 per barrel, 25 per cent higher than $83.97 in Q4 2010.
Higher prices, however, boosted cash flow for the year by 54 per cent to $1.9 billion from $1.2 billion.
Sales volumes in the quarter were 91,260 barrels per day versus 114,740 in the year-earlier period. For 2011, Canadian Oil Sands’ share in Syncrude output of synthetic crude came to 106,000 bpd, down from 107,000 bpd in 2010.
Production volumes in the fourth quarters of both years were affected by upgrader coker turnarounds.
Largely the result of the lower volumes, operating expenses in the fourth quarter of 2011 averaged $46.88 per barrel compared with $35.81 in the same period of 2010.
Capital expenditures totalled $643 million in 2011 compared with $582 million in 2010. The Syncrude partners decided in late 2011 to push back expansion plans to fix reliability problems with current facilities. A target for the end of the decade to produce 600,000 barrels a day, up from the current capacity of 350,000 bpd, was postponed.
In 2012, Canadian Oil Sands said it expects to produce 113,000 bpd, an outlook that includes a turnaround of Coker 8-3 in the second quarter and maintenance on Coker 8-1 in early February.
It said capital expenditures are estimated to total $1.46 billion and net sales will be $3.8 billion, or $92 per barrel, providing cash flow of $1.8 billion, or $3.77 per share.
It said it would maintain its 30 cents per quarter dividend. Canadian Oil Sands said it paid royalties of $73 million or $8.64 per barrel in the fourth quarter of 2011, versus $75 million or $7.06 per barrel a year earlier.