In its final quarterly earnings report before completing its merger with Suncor Energy Inc., Petro-Canada Corp. said Thursday continuing effects of the economic recession led it to a 91% quarterly earnings tumble, with 2Q2009 earnings of C$99 million (20 cents/share), compared with C$1.15 billion ($2.38/share) in 2Q2008.
“We continued to manage our business in a prudent manner during the second quarter as the downturn persisted,” said CEO Ron Brenneman. “Staying the course we charted for ourselves at the beginning of this year has us in a strong position heading into our merger with Suncor.”
In March Suncor and Petro-Canada announced plans to merge in an all-share transaction worth about C$19.6 billion, which would create Canada’s largest energy company (see Daily GPI, March 24). The transaction, which includes around C$2.66 billion in assumed debt, would give Suncor shareholders 60% of the merged company, which would operate under the Suncor name. Petro-Canada shareholders would hold 40% of the company, receiving around 1.28 common shares of the merged company for each Petro-Canada common share they own; Suncor’s shareholders would receive one share of the new company for each share of Suncor they own. Combined, the merged companies would achieve an estimated C$300 million in operating synergies and an additional $1 billion in capital synergies by sharing infrastructure.
Petro-Canada and Suncor expect the merger to be completed on Saturday (Aug. 1). Shareholders of both Calgary-based companies overwhelmingly approved the deal earlier this summer (see Daily GPI, June 5).
Under a consent agreement recently approved by Canada’s Competition Board, Petro-Canada and Suncor agreed to take steps to maintain retail and wholesale competition in Ontario, which includes divesting 104 retail locations and entering into supply and throughput arrangements in Ontario for 10 years.
Petro-Canada, which has assets spread across the globe, has long been a major North American gas explorer, and it also markets natural gas in North America. In 2Q2009 Petro-Canada’s production was 374,999 boe/d, down from 414,000 boe/d in 2Q2008, reflecting decreased North American natural gas, East Coast Canada and international production, while oilsands production was relatively unchanged, Brenneman said. Petro-Canada expects full-year production of 355,000-375,000 boe/d. The 2009 capital and exploration expenditure program is expected to be C$3.2 billion, down C$200 million from the prior guidance of C$3.4 billion.
The refining business will face tough times for the rest of the year, Brenneman said.
“Normally in our downstream we would expect about C$100-120 million a quarter, and we came in at minus C$18 million, so we’re off considerably from what we would have expected…this is really the supply-demand situation for products in the whole North American refining market and you’re seeing that across all of the refining businesses,” he said.
Suncor is considered by some to be strictly an oilsands producer, but it also develops gas projects throughout western and central Alberta and in northeastern British Columbia. It also has substantial investments in renewable energy projects.
Suncor recently reported a 2Q2009 loss of C$51 million (6 cents/share) compared with earnings of C$829 million (89 cents/shared) in 2Q2008. The decrease in earnings was primarily due to significantly lower benchmark commodity prices and higher operating expenses at oilsands because of increased production and sales, Suncor said. Increased production at Suncor’s oilsands business segment, reduced natural gas royalty expenses due to lower benchmark commodity prices and increased refined product sales in its downstream business segment all helped to partially offset the earnings decline, the company said.
Suncor’s total upstream production was 336,100 boe/d in 2Q2009, compared with 212,300 boe/d in 2Q2008, led by a 42% increase in oilsands production, which was 301,000 b/d in 2Q2009, compared with 174,600 b/d in 2Q2008.
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