With its upstream production doing better than anticipated, Calgary-based Petro-Canada plans to increase its capital spending program for western Canada, the Mackenzie Delta and along the East Coast, where it has assets in White Rose and drilling prospects along the Scotian Shelf. Second quarter earnings were down from a year earlier, mostly on lower oil and gas prices, but its production more than doubled for the period, fueled by an international acquisition as well as its Terra Nova asset.

Earnings were C$321 million (C$1.22/share), compared with C$399 million (C1.50) for the second quarter a year ago. Cash flow was C$540 million (C$2.06), up from C$454 million (C$1.71) a year earlier. Petro-Canada first set its 2002 budget last November, but Monday announced it would increase it. Capital expenditures for 2002 are expected to total C$2.18 million, up from C$1 85 million previously announced. In the upstream business, the company’s capital expenditures for the year are expected to be C$1.68 million.

In western Canada, Petro-Canada expects to spend C$445 million, and it will spend C$90 million in the Mackenzie Delta. East Coast capital spending is expected to be C$350 million, up from its previous estimate of C$220 million because of investments in White Rose and improved drilling on the Scotian Shelf.

“Petro-Canada has delivered exceptional upstream growth,” said CEO Ron Brenneman. “Production in the quarter is double last year’s level, largely due to the acquisition of Veba’s (Oil & Gas) oil and gas operations and the impact of Terra Nova.” Brenneman said operations also performed well in the quarter, and that the company’s East Coast oil produced solid growth. “And our profitability focus is delivering results, evident by the strong performances of the downstream and western Canada gas.”

Petro-Canada completed its acquisition of Veba Oil & Gas, formerly of Essen, Germany, in May. Veba’s assets are mostly located in the North Sea, North Africa and northern Latin America.

Upstream Canada earnings from operations in the second quarter were C$174 million, down from C$230 million in the same period last year. Earnings in the quarter were impacted by lower natural gas and oil prices, but benefited from increased production at Terra Nova and Hibernia. Upstream international earnings from 60 days of operations in the quarter were C$58 million, reflecting the newly acquired international assets of Veba Oil and Gas. Downstream earnings from operations in the second quarter were C$73 million, compared with C$111 million in the second quarter of 2001. Refinery reliability and improved marketing margins were offset by weaker refining margins and a narrower light/heavy differential, the company said.

Petro-Canada’s western Canada natural gas business continued to perform well in the second quarter of 2002, supported by strong operating performance and plant reliability. Second quarter production averaged 736 MMcf/d, up from 685 MMcf/d for the same period of 2001. Western Canada natural gas production for the first half of the year averaged 734 MMcf/d, up from 713 MMcf/d a year earlier. First half 2001 production included 7 MMcf/d from non-core assets, which were subsequently sold.

Planned maintenance activities at non-operated gas facilities will lower Petro-Canada’s third quarter production, and volumes for the entire year are expected to average 715 MMcf/d. Maintenance shutdowns are scheduled for both Terra Nova and Hibernia in the third quarter. Terra Nova will be shutdown for three weeks in August, while Hibernia will be shutdown for two weeks in September.

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