Strong 2Q Earnings Boost PanCanadian's E&P Budget

With the news that its second-quarter net income doubled from the same period last year, Calgary-based PanCanadian Petroleum Ltd. said Tuesday it would boost its capital budget almost 51% through the rest of the year, with 26% targeted toward high impact exploration. The increase, said the company, would allow it to take advantage of "new opportunities and pursue an aggressive plan of delivering further growth."

With an initial C$1 billion investment, PanCanadian's greatest North American opportunities for growth have been directed toward its Deep Panuke natural gas field offshore Nova Scotia, where it has already begun engineering design work. Production from the field is expected to ramp up initially with 400 MMcf/d begin in the first quarter of 2005, with plans to eventually recover up to 1 Tcf from the field (see NGI, March 5).

Net income for the second quarter doubled to C$432 million, or C$1.69 a share, compared with C$213 million, or C$0.84 per share for the same period of 2000. Cash flow increased 32% to C$678 million, or C$2.65 a share, compared with C$514 million, or C$2.04 a share a year earlier. A "substantial increase" in natural gas production and strong commodity prices for natural gas propelled the earnings, said the company.

In the second quarter, natural gas production increased 17% to average 1,056 MMcf/d, up from 899 MMcf/d for the same period in 2000. Production of crude oil and natural gas liquids dropped 8% to average 111,680 bbl/d, down from 121,930 bbl/d a year ago, and PanCanadian said the decline was related to its sale of some oil properties in the second half of 2000 and the first quarter of 2001.

PanCanadian has hedged a "significant portion" of its natural gas production through October 2001, including 450 MMcf/d at an average of $8.66/Mcf to October, and approximately 128 MMcf/d at an average of $6.72/Mcf from November 2001 to October 2002.

The capital budget increase for the rest of the year, which excludes acquisitions, will direct about C$210 million to E&P in the Western Basin. About 26% of the C$418 million increase will go toward marketing and midstream activities, and the remaining 5% will be spent on corporate activities.

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