Canada’s largest integrated oil and natural gas company, Imperial Oil Ltd, failed to take advantage of record commodity prices in the second quarter, with profit falling 12%. The country’s number two integrated, Shell Canada, reported a huge earnings drop in its exploration and production (E&P) segment, but results were boosted with the ramp up of the Athabasca oil sands project in Alberta.

Toronto-based Imperial, which dominates the Canada’s oilsands and crude production, earned C$454 million (C$1.26/share), off from 2Q2003’s C$514 million (C$1.38). A year ago, quarterly results included gains of C$110 million because of tax cuts and C$55 million from the impact of the strong Canadian dollar on Imperial’s U.S. debt.

Imperial, whose majority owner is ExxonMobil Corp., said upstream earnings fell 8.5% to C$321 million because of lower production at the company’s Cold Lake, AB heavy oil project.

Imperial management said that “significant progress” has been made on the Mackenzie Gas Project, which involves a consortium of producers that also include ConocoPhillips, Shell Canada, ExxonMobil Canada and the Aboriginal Pipeline Group. Imperial is the project lead and operator for the gas-gathering system and the proposed Mackenzie Valley Pipeline.

Additional geotechnical fieldwork was completed in the second quarter, and Canada’s regulatory agencies announced that “they are prepared to receive applications on the project during the summer.” In June, a draft agreement for an environmental review of the Mackenzie project and draft terms of reference for the environmental impact statement were issued for public comment. In addition, Imperial said that through the end of the second quarter, 1.6 million work hours had been completed on the project without a lost-time or recordable safety incident.

Shell Canada, an arm of Royal Dutch/Shell Group, reported a 63% jump in its earnings for the second quarter following the start up of its Athabasca project. The company earned C$285 million (C$1.04/share), ahead of last year’s C$175 million (C64 cents). Most impressive were results from Shell’s oilsands division, which earned C$96 million in the quarter compared with a C$68 million loss in 2Q2003. Bitumen development from the project more than doubled in the quarter to 85,200 bbl/d.

However, Shell’s E&P segment earnings fell more than 50% to C$91 million, compared with C$200 million a year earlier. The company blamed a C$28 million writeoff of its unsuccessful Weymouth deepwater well off the Scotian coast, and the costs of giving up offshore licenses there. Shell also reported decreased volumes resulting from natural field decline and planned plant turnarounds.

However, despite falling natural gas production volumes in the quarter, Shell said it would continue to invest in E&P in western Canada to offset the field declines. Shell said it also was assessing “opportunities for unconventional gas in Alberta and British Columbia,” and said it would drill initial evaluation wells during the second half of this year.

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