Canadian Natural Resources Limited Announces 2002 Second Quarter Results, Part 1 of 2.Business Editors CALGARY Calgary (kăl`gərē), city (1991 pop. 710,677), S Alta., Canada, at the confluence of the Bow and Elbow rivers. The largest city in Alberta and the fastest-growing major city in Canada, Calgary is a corporate, transportation, and financial , Alberta--(BUSINESS WIRE)--Aug. 7, 2002 Canadian Natural Resources Limited Canadian Natural Resources Limited TSX: CNQ NYSE: CNQ is an oil and natural gas exploration, development and production company based in Calgary, Alberta. Operations are focused in Western Canada, the North Sea and offshore West Africa. (NYSE NYSE See: New York Stock Exchange :CED (Capacitance Electronic Disc) An earlier videodisc technology from RCA that was released in 1981 and abandoned five years later. Like phonograph records, the analog disc contained grooves that a stylus rode over. )(TSX TSX Toronto Stock Exchange (TSE before April, 2002) TSX Transfer from Stack Pointer to Index TSX True Space Extension :CNQ CNQ Cost of Non Quality CNQ Canadian Trading & Quotation System Inc. CNQ Club Neon Quebec (Quebec Neon Club) .TO) Canadian Canadian (kənā`dēən), river, 906 mi (1,458 km) long, rising in NE New Mexico. and flowing E across N Texas and central Oklahoma into the Arkansas River in E Oklahoma. Natural Announces Seventh Consecutive Quarter of Increased Natural Gas Production and Continued Strong Cash Flow and Net Earnings In commenting on second quarter 2002 results, Canadian Natural's Chairman, Allan Markin Allan P. Markin is the chairman of Canadian Natural Resources Limited and one of the owners of the Calgary Flames ice hockey franchise of the National Hockey League based in Calgary, Alberta. , stated, "Over the last two years one of our major objectives was to balance our production mix and we are pleased to tell you that this has been accomplished. In fact, the second quarter of 2002 was our seventh consecutive quarter of natural gas production growth. Furthermore, as a result of our recent acquisition of Rio Alto Rio Alto (Portuguese for High River) is a small river in the Portuguese municipality of Póvoa de Varzim, whose source is located at the foot of São Félix Hill (in Laundos Parish). The river empties at Estela parish in Rio Alto Beach. Exploration Ltd. ("Rio Alto"), we now have a new core area for natural gas growth. We are very excited at the prospects and multi-zone potential of this new core area in Northwest For names and places containing the slightly longer word 'northwestern' (or variants), see . Northwest or north west is the ordinal direction halfway between north and west on a compass. It is the opposite of southeast. Alberta Alberta (ălbûr`tə), province (2001 pop. 2,974,807), 255,285 sq mi (661,188 sq km), including 6,485 sq mi (16,796 sq km) of water surface, W Canada. ." "Our asset base is strong with excellent development prospects in natural gas, heavy oil, Pelican Lake oil, International light oil and our world class Horizon Oil Sands Project. With current production balanced at approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. 1.5 billion cubic feet of natural gas per day and 205 thousand barrels of oil per day we will continue to achieve strong levels of cash flow." "During the quarter, we achieved another milestone “Milemarker” redirects here. For the American indie rock band, see Milemarker (band). A milestone or kilometre sign is one of a series of numbered markers placed along a road at regular intervals, typically at the side of the road or in a median. on the Horizon Oil Sands Project with the filing of regulatory reg·u·late tr.v. reg·u·lat·ed, reg·u·lat·ing, reg·u·lates 1. To control or direct according to rule, principle, or law. 2. submissions with the Alberta government. What makes this project so attractive is the ability to produce 230 thousand barrels per day Barrels per day (abbreviated BPD, bbl/d, bpd, bd or b/d) is a measurement used to describe the amount of crude oil (measured in barrels) produced or consumed by an entity in one day. of light synthetic Synthetic A financial instrument that is created artificially by simulating another instrument with the combined features of a collection of other assets. Notes: crude oil for more than 50 years, with no production declines. This asset nicely complements our conventional petroleum asset portfolio and adds substantial shareholder value." "With respect to the Rio Alto acquisition, the assets and team were fully integrated with our own only days after the closing of the acquisition, and the integration is going as well or even better than originally expected. Further, we would like to welcome the Rio Alto staff who have joined our team. We believe that the quality of our people and their belief in our mission statement is what makes our team so strong." HIGHLIGHTS OF THE SECOND QUARTER -- Natural gas sales volumes of 1,078 million cubic feet per day, an increase of 22% from the second quarter of last year and a 25 million cubic feet per day increase from the previous quarter. This represents the seventh consecutive quarter of natural gas production growth. -- Oil and liquids sales volumes of 189 thousand barrels per day. Production of primary heavy oil and thermal heavy oil accounted for 24% of production on a barrel of oil equivalent basis, similar to the previous quarter. -- Cash flow of $475 million ($3.86 per common share) compared with $528 million ($4.36 per common share) in the second quarter of 2001 and $359 million ($2.95 per common share) in the previous quarter. -- Net earnings of $145 million ($1.18 per common share) compared with $286 million ($2.37 per common share) for the second quarter of 2001 and $99 million ($0.81 per common share) in the previous quarter. -- As a result of lower price differentials for heavy oil production, the Company realized a 12% increase in the wellhead price for its oil and liquids sales over the corresponding quarter of 2001. -- Filed for regulatory approval to construct, operate and reclaim the proposed Horizon Oil Sands Project, located 80 kilometers north of Fort McMurray in Northeastern Alberta, which is expected to produce approximately 230 thousand barrels per day of light synthetic crude oil. -- Successfully completed the $2.3 billion acquisition of Rio Alto with closing effective July 1, 2002. This acquisition increases the Company's current natural gas production to approximately 1.5 billion cubic feet per day, resulting in one of North America's largest natural gas producers. -- Drilled three Slave Point natural gas exploration wells in Northeast British Columbia resulting in one successful well currently producing at 30 million cubic feet per day. -- Offshore Cote d'Ivoire, one additional producing well was brought on-stream at the Espoir field during the quarter with two more anticipated during the third quarter of 2002. Commercial development plans continued on the Baobab field and one additional exploration block was signed up with Canadian Natural owning a 90% working interest and operating the lease. -- Successfully continued the experimental Pelican Lake emulsion flood injection pilot, which has the potential to significantly increase the recoverable oil in the pool. Canadian Natural operated lands in this area are 100% owned and contain approximately 80% of the pool. OPERATIONS REVIEW Production The quarterly results show the strength of the Company's business approach to diversification Diversification A risk management technique that mixes a wide variety of investments within a portfolio. It is designed to minimize the impact of any one security on overall portfolio performance. Notes: Diversification is possibly the greatest way to reduce the risk. among commodities produced, namely natural gas, light oil, Pelican Lake oil, primary heavy oil and thermal thermal /ther·mal/ (ther´m'l) pertaining to or characterized by heat. ther·mal adj. 1. Of, relating to, using, producing, or caused by heat. 2. heavy oil. Second quarter 2002 natural gas production averaged 1,078 million cubic feet per day, an increase of 22% from the second quarter of 2001 and a 25 million cubic feet per day increase from the first quarter of 2002. Second quarter production included the benefit of the commissioning, in early March, of the Canadian Natural operated pipeline that connected the Ladyfern area to sales facilities in Alberta, and increased field take-away take·a·way n. 1. A concession, as in a lower level of health benefits, made by a labor union to a company in negotiating a new contract. 2. capacity. Natural gas production accounted for 49% of the Company's production this quarter. Production of oil and liquids in the second quarter of 2002 was lower than the previous quarter and the second quarter of last year, largely the result of decreases in North Sea production, the shut-down of the Kiame field in Angola Angola (ăng-gō`lə), officially Republic of Angola (2005 est. pop. 11,191,000), including the exclave of Cabinda, 481,351 sq mi (1,246,700 sq km), SW Africa. , and the proactive management of heavy oil supply and drilling activity. Decreases in North Sea production were primarily due to the effect of a first quarter property exchange, the implementation of reservoir reservoir (rĕz`əvôr, -vwär), storage tank or wholly or partly artificial lake for storing water. Building an embankment or dam to preserve a supply of water for irrigation is an ancient practice; India and Egypt have many old and management techniques designed to enhance the ultimate recovery factor from the Banff Banff, former county, Scotland Banff, former county, Scotland: see Banffshire. Banff (bămf, bănf), town (1991 pop. 5,688), SW Alta., Canada, in the Rocky Mts., on the Bow River and the Trans-Canada Highway. field and pipeline downtime The time during which a computer is not functioning due to hardware, operating system or application program failure. at the Kyle field History The beginning In the fall of 1904, Edwin Jackson Kyle, an 1899 graduate of Texas A&M and professor of horticulture, was named president of the General Athletics Association. Kyle wanted to secure and develop an athletic field to promote the school's athletics. . During the second quarter, a blockage blockage of intestine, urethra, etc. See obstruction under anatomical location, e.g. intestinal, urethral. blockage Wax, see there in the Kyle <noinclude></noinclude> ''This article or section is being rewritten at One derivation of the surname is from the Scottish Highland word caol, 'channel', or 'strait'. There are other possible derivations (see below). export natural gas pipeline resulted in restricted oil production in order to satisfy natural gas flaring flare v. flared, flar·ing, flares v.intr. 1. To flame up with a bright, wavering light. 2. To burst into intense, sudden flame. 3. a. restrictions that remained in effect. This blockage was repaired in early July July: see month. and production levels have increased accordingly. Light oil and Pelican Lake oil production together account for 27% of the Company's total equivalent production. Light oil production reflected lower North Sea output and the shut-down of the Kiame field partially offset by increased production in Canada Canada (kăn`ədə), independent nation (2001 pop. 30,007,094), 3,851,787 sq mi (9,976,128 sq km), N North America. Canada occupies all of North America N of the United States (and E of Alaska) except for Greenland and the French islands of due to minor acquisitions and at the Espoir field in Cote d'Ivoire, where one new producing well was brought on production in May. Recent increases in conventional heavy oil drilling are expected to lead to production increases in future quarters.
The Company's production composition is as follows:
Q2 2002 Q1 2002 Q2 2001
-------------------------------------------
mboe/d % mboe/d % mboe/d %
-------------------------------------------
Natural gas 179.6 49 175.6 48 147.5 41
Light oil and NGLs 70.1 19 72.2 20 80.6 22
Pelican Lake oil 30.8 8 26.6 7 34.1 10
Primary heavy oil 51.3 14 48.0 13 58.8 16
Thermal heavy oil 37.2 10 41.6 12 41.2 11
-------------------------------------------
369.0 100 364.0 100 362.2 100
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The Company expects production levels in 2002 to average 1,290 to
1,340 million cubic feet per day of natural gas (2001 - 918 mmcf/day)
and 205 to 215 thousand barrels per day of oil and liquids (2001 - 206
mbbls/day).
DRILLING ACTIVITY (number of wells)
SIX MONTHS ENDED JUNE 30
------------------------------
2002 2001
------------------------------
Gross Net Gross Net
------------------------------
Oil 223 193 202 182
Natural gas 136 123 340 287
Dry 24 20 28 25
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Subtotal 383 336 570 494
Injection/strat tests 415 407 251 249
------------------------------
Total 798 743 821 743
------------------------------
Success rate (excluding
injection/strat tests) 94% 95%
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Canadian Natural drilled 146 net oil wells and 28 net natural gas wells during the second quarter of 2002. These wells were concentrated in the Company's heavy oil areas of North Alberta/West Saskatchewan Saskatchewan, province, Canada Saskatchewan (səskăch`əwən, –wän', săs'–), province (2001 pop. 978,933), 251,700 sq mi (651,903 sq km), W Canada. , the light oil area of Southeast Southeast or south east is the ordinal direction halfway between south and east. It the opposite of northwest. Southeast or South East can refer to: The number of wells drilled during the first half of the year (excluding injection/stratigraphic test wells) decreased 32% from the prior year, comprised of a 57% reduction in natural gas well drilling Well drilling is the process of drilling a hole in the ground for the extraction of a natural resource such as ground water, natural gas, or petroleum. Drilling for the exploration of the nature of the material underground (for instance in search of metallic ore) is best described and a 6% increase in oil well drilling. The decrease in natural gas drilling reflects the Company's strategy of building an inventory of natural gas locations to offset future Ladyfern production declines and reflects its capital allocation The apportionment or designation of an item for a specific purpose or to a particular place. In the law of trusts, the allocation of cash dividends earned by a stock that makes up the principal of a trust for a beneficiary usually means that the dividends will be treated as policy which opportunistically has shifted additional capital into heavy oil drilling to take advantage of favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. market pricing. During the first six months of the year, the Company drilled 404 stratigraphic stra·tig·ra·phy n. The study of rock strata, especially the distribution, deposition, and age of sedimentary rocks. strat test wells on the oil sands leases in the Horizon Oil Sands Project and in North Alberta/West Saskatchewan. Pricing Netbacks received for Canadian Natural's heavy oil and Pelican Lake oil production improved significantly over the last year due to the narrowing of price differentials to WTI WTI West Texas Intermediate WTI Western Transportation Institute (Montana State University) WTI World Tribunal on Iraq WTI With The Idea (used in chess to point to the idea behind a specific move) in the first half of the year. Indications are that this will continue into the third quarter as seasonal demand increases and a heavy oil refinery in the US Midwest Midwest or Middle West, region of the United States centered on the western Great Lakes and the upper-middle Mississippi valley. It is a somewhat imprecise term that has been applied to the northern section of the land between the Appalachians reaches full capacity following a major fire in late August of last year. A comparison of the price received for the Company's North American North American named after North America. North American blastomycosis see North American blastomycosis. North American cattle tick see boophilusannulatus. production is as follows:
Pricing
Indications as
at Aug 5, 2002 Q2/02 Q1/02 Q2/01
------------------------------------------
WTI benchmark price (US $/bbl) $ 26.58 $ 26.26 $ 21.67 $ 27.96
Differential to LLB blend
(US $/bbl) $ 4.07 $ 6.04 $ 5.73 $ 11.70
Condensate benchmark price
(US $/bbl) $ 26.61 $ 26.36 $ 20.83 $ 33.04
NYMEX benchmark price
(US $/mmbtu) $ 2.68 $ 3.37 $ 2.40 $ 4.78
AECO benchmark price
(Cdn $/mmbtu) $ 2.79 $ 4.43 $ 3.35 $ 7.08
Canadian Natural's Wellhead
Price(1)
Light oil and NGLs (Cdn $/bbl) $ 33.59 $ 31.90 $ 27.83 $ 36.03
Pelican Lake oil (Cdn $/bbl) $ 32.75 $ 25.05 $ 21.89 $ 18.80
Primary heavy oil (Cdn $/bbl) $ 32.72 $ 24.54 $ 20.54 $ 16.74
Thermal heavy oil (Cdn $/bbl) $ 31.48 $ 23.73 $ 19.40 $ 14.53
Natural gas (Cdn $/mcf) $ 2.60 $ 3.72 $ 3.05 $ 5.99
----------------------------------------------------------------------
(1) Including financial instruments.
The Company believes that current natural gas prices are below levels necessary to sustain the industry over the long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. . This commodity price should increase to more economic levels as current North American storage levels return to normal, lower industry-wide North American natural gas drilling reduces supplies and normal weather patterns return. Furthermore, the Company believes that current price differentials between Alberta AECO AECO Aeromedical Evacuation Control Officer AECO Advance Engineering Change Order AECO Architecture, Engineering, Construction and Owner-operated pricing and US NYMEX See New York Mercantile Exchange. NYMEX See New York Mercantile Exchange (NYM). pricing are short-term Short-term Any investments with a maturity of one year or less. short-term 1. Of or relating to a gain or loss on the value of an asset that has been held less than a specified period of time. anomalies resulting from maintenance downtime on common carrier pipeline systems. The Company's natural gas price continues to be affected by the amount of natural gas sold through its British Columbia British Columbia, province (2001 pop. 3,907,738), 366,255 sq mi (948,600 sq km), including 6,976 sq mi (18,068 sq km) of water surface, W Canada. Geography facilities which have received a lower price this year and the higher cost of owning our own sale pipeline space.
ACTIVITY BY CORE REGION
Net Undeveloped Land Drilling Activity
as at Period ended
June 30, 2002 June 30, 2002
(thousands of net acres) (net wells)
----------------------------------------------
Northeast British Columbia/
Northwest Alberta 1,510 43
North Alberta/West Saskatchewan 3,722 391
Horizon Oil Sands 239 256
South Alberta 677 46
Southeast Saskatchewan 150 3
United Kingdom North Sea 292 1
Offshore West Africa 1,252 3
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North America North America, third largest continent (1990 est. pop. 365,000,000), c.9,400,000 sq mi (24,346,000 sq km), the northern of the two continents of the Western Hemisphere. Conventional At the Ladyfern field, Canadian Natural produced 201 million cubic feet per day during the second quarter compared with 165 million cubic feet per day of natural gas last quarter. July production levels are at approximately 200-210 million cubic feet per day. As a result of 2002's strong Ladyfern production increases, Canadian Natural has reduced current year natural gas drilling activity with a view to building prospect inventories in anticipation The performance of an act or obligation before it is legally due. In patent law, the publication of the existence of an invention that has already been patented or has a patent pending, of expected high Ladyfern declines. Additionally, the Company has an ongoing high impact natural gas exploration program in Northeast “Northeastern” redirects here. For the Boston college, see Northeastern University, Boston. Northeast or north east is the ordinal direction halfway between north and east. It is the opposite of southwest. See boxing the compass. British Columbia through 2002. During the quarter, the Company was successful on one of its three Slave Slave, river, c.310 mi (500 km) long, Northwest Territories, Canada. It comprises the middle sections of the Mackenzie River system. The river channels the waters of Lake Athabasca and the Peace River into Great Slave Lake at Fort Resolution. Point exploration wells. The C-18-H well in Northeast British Columbia, 100% owned by Canadian Natural, has been tied in to company owned pipeline facilities and is currently producing at 30 million cubic feet per day. Canadian Natural plans to continue its exploration program in deeper formations in Northeast British Columbia, including the Slave Point trend, where one additional well will be drilled in fall 2002 and additional wells will be drilled during the winter of 2002/03. The Slave Point horizon is technically complex making it a high-risk high-risk adjective Referring to an ↑ risk of suffering from a particular condition Infectious disease Referring to an ↑ risk for exposure to blood-borne pathogens, which occurs with blood bank technicians, dental professionals, dialysis unit exploration target. Canadian Natural exploration activities benefit from owning the area's largest database of 2-D and 3-D seismic information and from its extensive landholdings in the region. The experimental Pelican Lake emulsion emulsion: see colloid. emulsion Mixture of two or more liquids in which one is dispersed in the other as microscopic or ultramicroscopic droplets (see colloid). Emulsions are stabilized by agents (emulsifiers) that (e.g. flood flood, in hydrology flood, inundation of land by the rise and overflow of a body of water. Floods occur most commonly when water from heavy rainfall, from melting ice and snow, or from a combination of these exceeds the carrying capacity of the river continued to meet expectations during the second quarter, with injections continuing since early April 2002. If successful, this project will substantially increase the recovery factor from the thin Pelican Lake sands. This field contains approximately three billion barrels of original oil-in-place but is only expected to achieve a 6% recovery factor using primary technologies. Based upon positive laboratory testing, this project could double or triple recovery factors if the technology can be implemented in the field. Data will continue to be gathered on the success of this test throughout the last half of 2002. North America Horizon Oil Sands Project Regulatory submissions, including an Environmental Impact Assessment and Project Description, were completed and filed on June June: see month. 28, 2002 with approvals expected during the next 12-18 months. The proposed project will provide for a potential recovery of nearly six billion barrels of bitumen bitumen (bĭty  `mən) a generic term referring to flammable, brown or black mixtures of tarlike hydrocarbons, derived naturally or by distillation from petroleum. over an estimated 50-year life
span. The project will involve three major components: surface mining
and bitumen extraction extraction /ex·trac·tion/ (eks-trak´shun)1. the process or act of pulling or drawing out. 2. the preparation of an extract. , an upgrader and associated infrastructure. Construction is estimated to start in 2004, once necessary regulatory approvals are received and detailed engineering is approximately 80% completed. Commissioning and start-up Start-up The earliest stage of a new business venture. is expected in late 2007 at 110 thousand barrels per day of light synthetic crude oil, with full production capacity of 232 thousand barrels per day by 2011. Opportunities for up to an additional 70 thousand barrels per day of in-situ adj. 1. being in the original position; not having been moved or transferred to another location; as, an in-situ investigator s>. Adj. 1. bitumen recoveries are also possible from this lease. During the second quarter, the Company continued second phase project engineering, which included selection of and awarding of contracts to various engineering firms for each of extraction, utility and offsite, primary upgrading, secondary upgrading and upgrading support units. Licensing of the delay coking process and the hydroprocessing unit were also completed. Prequalification of potential contractors for design and construction of access roads was also accomplished. United Kingdom During the second quarter, Kyle field production was reduced to 2,380 barrels of oil equivalent per day due to a blockage in the Kyle export natural gas pipeline which resulted in restricted oil production in order to satisfy natural gas flaring restrictions that remained in effect. This production issue was rectified rectified refined; made straight. in July 2002. One additional well was drilled at the Kyle field during the second quarter and is now tied in and producing. Also during the second quarter, production at the Banff field was reduced in a proactive effort to maximize In a graphical environment, to enlarge a window to the full size of the screen. See Win Maximize windows. ultimate field recoveries and economics. During the quarter, Canadian Natural completed a property swap that increased its ownership in the Ninian Ninian refers to a variety of different people and locations: People
Offshore West Africa West Africa A region of western Africa between the Sahara Desert and the Gulf of Guinea. It was largely controlled by colonial powers until the 20th century. West African adj. & n. During the quarter, Canadian Natural continued the development of the 59% owned and operated Espoir field located offshore Cote d'Ivoire with the drilling of two additional production wells. One of these wells was completed and tied in during May with the second coming on-stream on-stream adv. & adj. In or into operation or production. during July. Additional producing wells are to be drilled in August and October October: see month. 2002. Production from Espoir wells is tied in to the floating production, storage and offtake Off´take` n. 1. Act of taking off; specif., the taking off or purchase of goods. 2. Something taken off; a deduction. 3. A channel for taking away air or water; also, the point of beginning of such a channel; a take-off. vessel VESSEL, mar. law. A ship, brig, sloop or other craft used in navigation. 1 Boul. Paty, tit. 1, p. 100. See sup. 2. By an act of congress, approved July 29, 1850, it is provided that any person, not being an owner, who shall on the high seas, willfully, with. ("FPSO FPSO Floating Production Storage and Off-loading (shipping & oil industry) FPSO Foster Parent Society of Ontario FPSO Fleet Publication Supply Office "), the "Espoir Ivoirien," which commenced operations in February February: see month. 2002. Evaluation work also continues on the Baobab baobab (bä`ōbăb', bā`ō–), gigantic tree of India and Africa, exceeded in trunk diameter only by the sequoia. The trunks of living baobabs are hollowed out for dwellings; rope and cloth are made from the bark and condiments discovery where drilling results, combined with additional geophysical ge·o·phys·ics n. (used with a sing. verb) The physics of the earth and its environment, including the physics of fields such as meteorology, oceanography, and seismology. and geological ge·ol·o·gy n. pl. ge·ol·o·gies 1. The scientific study of the origin, history, and structure of the earth. 2. The structure of a specific region of the earth's crust. 3. A book on geology. modelling, has resulted in Canadian Natural increasing its reserve estimates on the Baobab field close to one billion barrels of oil in place, with 200 million barrels being potentially recoverable. This field is now large enough to warrant stand alone development, and Canadian Natural is proceeding with development plans. While determination of optimum facilities size continues, it is anticipated that production in the range of 50-65 thousand barrels of oil per day to a new FPSO could commence in late 2004. Field development plans have been submitted to the Government with finalization Writing the table of contents (TOC) on a recordable CD or DVD disc. The finalization process ensures that the disc can be played back on most CD and DVD players. See disc-at-once. expected in the last quarter of this year. Canadian Natural has also acquired an interest in exploration Block CI-400 in deeper waters offshore Cote d'Ivoire. This block is located adjacent to the Baobab discovery. Block CI-400 comprises 176,075 acres and is located approximately 16 kilometers offshore in water depth ranging from 150 meters to 2,300 meters. Canadian Natural will operate Block CI-400 and retain a 90% working interest. Production from the Kiame field, offshore Angola, ceased in April 2002. This field was acquired as part of the Ranger Ranger Any of a series of unmanned probes launched from 1961 to 1965 by NASA. The project was NASA's earliest attempt to explore the Moon's surface. Ranger 4 (1962) became the first U.S. spacecraft to hit the Moon, crash-landing on its surface as planned. Oil acquisition during 2000 and at that time, it was expected that production would likely become uneconomic in 2001. Also in Angola, Canadian Natural honored hon·or n. 1. High respect, as that shown for special merit; esteem: the honor shown to a Nobel laureate. 2. a. Good name; reputation. b. a commitment through participation with a 25% interest in the Mariposa well located in offshore Block 19, which was dry and abandoned. Canadian Natural has also decided to exit from its position in the Aje AJE American Journal of Epidemiology AJE American Journal of Education AJE Association des Juristes de l'État (French; Quebec, Canada) AJE African Joint Effort field, located offshore Nigeria Nigeria (nījĭr`ēə), officially Federal Republic of Nigeria, republic (2006 provisional pop. 140,003,542), 356,667 sq mi (923,768 sq km), W Africa. . Since its appointment as technical advisor in late 2001, Canadian Natural has completed extensive rework re·work tr.v. re·worked, re·work·ing, re·works 1. To work over again; revise. 2. To subject to a repeated or new process. n. of seismic data and has determined that to continue the project would result in further expenditures which do not meet the Company's economic thresholds. FINANCIAL REVIEW Canadian Natural recognizes the need for a strong financial position in order to withstand volatile oil volatile oil n. A rapidly evaporating oil of plant derivation, especially an essential oil, that is capable of distillation and that does not leave a stain. Also called ethereal oil. and natural gas commodity prices and the operational risks inherent in the oil and natural gas business environment. Long-term debt Long-Term Debt Loans and financial obligations lasting over one year. Notes: For example debts obligations such as bonds and notes which have maturities greater than one year would be considered long-term debt. at June 30, 2002 amounted to $2.4 billion and reflected a 1.5x debt to cash flow ratio and a debt to book capitalization capitalization n. 1) the act of counting anticipated earnings and expenses as capital assets (property, equipment, fixtures) for accounting purposes. 2) the amount of anticipated net earnings which hypothetically can be used for conversion into capital assets. of 37.4%. Following completion of the Rio Alto acquisition on July 1, 2002, long-term debt amounted to $4.2 billion and reflected a 2.2x debt to pro forma As a matter of form or for the sake of form. Used to describe accounting, financial, and other statements or conclusions based upon assumed or anticipated facts. The phrase pro forma cash flow ratio and a debt to book capitalization of 47.8%. Canadian Natural has used its balance sheet to complete opportunistic opportunistic /op·por·tu·nis·tic/ (op?er-tldbomacn-is´tik) 1. denoting a microorganism which does not ordinarily cause disease but becomes pathogenic under certain circumstances. 2. acquisitions on three prior occasions and in each of those cases, the balance sheet was proactively managed to targeted levels. The Rio Alto acquisition will be no different. Canadian Natural maintains shelf prospectuses for the separate offering of medium term notes in Canada and debt securities in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. . The securities, if and when issued, will be unsecured Unsecured A loan or equity interest that is given without any guarantee of payment, performance, satisfaction or opportunity for return from the recipient. No property, interest or security is used as collateral in either a guarantee or a pledge. and will rank pari passu [Latin, By an equal progress; equably; ratably; without preference.] Used especially to describe creditors who, in marshalling assets, are entitled to receive out of the same fund without any precedence over each other. PARI PASSU. By the same gradation. with other senior unsecured indebtedness INDEBTEDNESS. The state, of being in debt, without regard to the ability or inability of the party to pay the same. See 1 Story, Eq. 343; 2 Hill. Ab. 421. 2. of Canadian Natural. Debt ratings, following announcement of the Rio Alto acquisition were reaffirmed as "Baa1" by Moody's Investors Service Moody's Investors Service A leading global credit rating, research and risk analysis firm. Moody's Investors Service A leading firm engaged in credit rating, risk analysis, and research of fixed-income securities and their issuers. , Inc., "BBB BBB A medium grade assigned to a debt obligation by a rating agency to indicate an adequate ability to pay interest and repay principal. However, adverse developments are more likely to impair this ability than would be the case for bonds rated A and above. +" by Standard & Poor's Corporation and "BBB (high)" by Dominion Bond Rating Service Dominion Bond Rating Service is a credit rating agency based in Toronto, Ontario. Founded in 1976, it is one of the largest credit rating agencies in Canada. It is one of five Nationally Recognized Statistical Rating Organizations in the United States, though significantly smaller Limited. Future offerings under the shelf prospectuses will provide flexibility to the Company's debt investment base, extend maturities and provide balance in fixed/floating interest rate ratios. In response to the expected demand for oil and natural gas, the related pricing and to protect capital expenditure programs, the Company has entered into several financial instruments to manage exposure to market volatility Volatility 1. A statistical measure of the tendency of a market or security to rise or fall sharply within a period of time. 2. A variable in option pricing formulas that denotes the extent to which the return of the underlying asset will fluctuate between now and the . The details of these positions are set out in note 6 to the consolidated financial statements Consolidated Financial Statements The combined financial statements of a parent company and its subsidiaries. Notes: Because consolidated financial statements present an aggregated look at the financial position of a parent and its subsidiaries, they enable you to gauge . The Company will continue to actively pursue additional hedging hedging, in commerce, method by which traders use two counterbalancing investment strategies so as to minimize any losses caused by price fluctuations. It is generally used by traders on the commodities market. opportunities. The regular third quarter dividend payment will occur on October 1, 2002 and will be made to shareholders of record at the close of business on September September: see month. 13, 2002. MANAGEMENT'S DISCUSSION AND ANALYSIS Management's discussion and analysis (MD&A) A report from management to shareholders that accompanies the firm's financial statements in the annual report. It explains the period's financial results and enables management to discuss topics that may not be apparent in the financial Management's discussion and analysis ("MD&A") of the financial condition and results of operations should be read in conjunction conjunction, in astronomy conjunction, in astronomy, alignment of two celestial bodies as seen from the earth. Conjunction of the moon and the planets is often determined by reference to the sun. with the unaudited interim consolidated financial statements for the six months ended June 30, 2002 and the MD&A and the audited consolidated financial statements for the year ended December December: see month. 31, 2001. Per barrel of oil equivalent The barrel of oil equivalent (bboe, sometimes BOE) is a unit of energy based on the approximate energy released by burning one barrel of crude oil. The US Internal Revenue Service defines it as equal to 5.8 × 106 BTU [1]. 5. ("boe") amounts have been calculated using a conversion rate of six thousand cubic feet of natural gas to one barrel barrel: see English units of measurement. of oil. ACQUISITION OF RIO ALTO EXPLORATION LTD. Effective July 1, 2002, the Company paid cash of $850.0 million and issued 10,008,000 common shares with an attributed value of $522.4 million to acquire all of the issued and outstanding common shares of Rio Alto Exploration Ltd. ("Rio Alto") by way of a plan of arrangement. The results of Rio Alto will be consolidated con·sol·i·date v. con·sol·i·dat·ed, con·sol·i·dat·ing, con·sol·i·dates v.tr. 1. To unite into one system or whole; combine: with the results of the Company commencing July 1, 2002, and are not reflected in the results of the Company for the six months ended June 30, 2002. The pro forma consolidated financial statements at June 30, 2002 are included in Appendix appendix, small, worm-shaped blind tube, about 3 in. (7.6 cm) long and 1-4 in. to 1 in. (.64–2.54 cm) thick, projecting from the cecum (part of the large intestine) on the right side of the lower abdominal cavity. A to the second quarter 2002 report.
THREE MONTHS ENDED SIX MONTHS ENDED
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JUNE 30 MARCH 31 JUNE 30 JUNE 30 JUNE 30
2002 2002 2001(1) 2002 2001(1)
----------------------------------------------
FINANCIAL HIGHLIGHTS ($ millions, except per share amounts)
Revenue $ 863 $ 718 $ 981 $ 1,581 $ 2,112
Cash flow from operations
attributable to common
shareholders(2) $ 475 $ 359 $ 528 $ 834 $ 1,157
Per share - basic $ 3.86 $ 2.95 $ 4.36 $ 6.82 $ 9.51
- diluted $ 3.70 $ 2.85 $ 4.17 $ 6.57 $ 9.11
Net earnings attributable
to common shareholders(3)$ 145 $ 99 $ 286 $ 244 $ 508
Per share - basic $ 1.18 $ 0.81 $ 2.37 $ 2.00 $ 4.18
- diluted $ 1.09 $ 0.79 $ 2.23 $ 1.89 $ 4.02
Capital expenditures,
net of dispositions $ 305 $ 459 $ 368 $ 764 $ 1,003
----------------------------------------------------------------------
(1) Restated for change in accounting policy (see consolidated
financial statement notes 1 and 2).
(2) After dividend on preferred securities.
(3) After dividend and revaluation of preferred securities.
THREE MONTHS ENDED SIX MONTHS ENDED
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JUNE 30 MARCH 31 JUNE 30 JUNE 30 JUNE 30
2002 2002 2001(1) 2002 2001(1)
----------------------------------------------
OPERATING HIGHLIGHTS
Oil and liquids ($/bbl, except daily production)
Daily production (bbls/d) 189,386 188,439 214,716 188,915 210,177
Sales price $ 28.27 $ 24.50 $ 25.32 $ 26.40 $ 23.73
Royalties 3.02 2.28 2.42 2.65 2.39
Production expense 7.95 7.81 7.57 7.88 7.86
---------------------------------------------
Netback $ 17.30 $ 14.41 $ 15.33 $ 15.87 $ 13.48
----------------------------------------------
Natural gas ($/mcf, except daily production)
Daily production (mmcf/d) 1,078 1,053 885 1,066 868
Sales price $ 3.68 $ 3.06 $ 5.93 $ 3.38 $ 7.57
Royalties 0.77 0.55 1.47 0.66 1.92
Production expense 0.57 0.58 0.50 0.58 0.50
----------------------------------------------
Netback $ 2.34 $ 1.93 $ 3.96 $ 2.14 $ 5.15
----------------------------------------------
Barrels of oil equivalent ($/boe, except daily production)
Daily production (boe/d) 369,022 363,990 362,154 366,520 354,809
Sales price $ 25.29 $ 21.58 $ 29.54 $ 23.46 $ 32.61
Royalties 3.79 2.78 5.03 3.29 6.12
Production expense 5.76 5.73 5.72 5.75 5.89
----------------------------------------------
Netback $ 15.74 $ 13.07 $ 18.79 $ 14.42 $ 20.60
----------------------------------------------------------------------
(1) Restated for change in accounting policy (see consolidated
financial statement note 1).
Cash flow and net earnings for the three and six months ended June
30, 2002 decreased from the comparable periods in 2001 due to lower
natural gas prices and decreased oil and liquids production. Cash flow
and net earnings increased in the second quarter compared to the first
quarter of 2002 due to increased production of natural gas and higher
product prices. Net earnings in the second quarter also increased due
to the strengthening Canadian dollar, resulting in unrealized foreign
exchange gains on the Company's US dollar denominated debt. These
increases were partially offset by the write off of certain
international properties.
THREE MONTHS ENDED SIX MONTHS ENDED
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JUNE 30 MARCH 31 JUNE 30 JUNE 30 JUNE 30
2002 2002 2001 2002 2001
----------------------------------------------
DAILY PRODUCTION
Oil and liquids (bbls/d)
North America 158,196 152,268 168,938 155,248 172,500
North Sea 25,685 30,910 41,556 28,283 34,422
Offshore West Africa 5,505 5,261 4,222 5,384 3,255
----------------------------------------------
Total 189,386 188,439 214,716 188,915 210,177
----------------------------------------------
Natural gas (mmcf/d)
North America 1,058 1,026 873 1,042 862
North Sea 20 27 12 24 6
----------------------------------------------
Total 1,078 1,053 885 1,066 868
----------------------------------------------
Product mix
Light oil and NGLs 19.0% 19.9% 22.3% 19.4% 20.5%
Pelican Lake oil 8.3% 7.3% 9.4% 7.8% 10.4%
Primary heavy oil 13.9% 13.2% 16.2% 13.6% 16.3%
Thermal heavy oil 10.1% 11.4% 11.4% 10.7% 12.0%
Natural gas 48.7% 48.2% 40.7% 48.5% 40.8%
----------------------------------------------------------------------
Oil and liquids production decreased from the comparable periods in 2001 due to the Company's focus on natural gas development opportunities. When compared to the same period last year, oil and liquids production decreased due to the curtailment Curtailment The act of contracting or reducing operations of a company in the hope of bringing it financial or operational stability. This management technique is often used when a company has grown too fast and is unable to effectively manage its operations. of 15,000 bbls/day of its North American heavy oil production in December 2001 and early 2002. Oil and liquids production also decreased due to the substantial reduction in the number of primary heavy oil wells that were drilled in the first quarter of 2002, as well as the extension of Primrose primrose, common name for the genus Primula of the Primulaceae, a family of low perennial herbs with species found on all continents, most frequently in north temperate regions. steam cycles and the resulting delay in associated oil recovery cycles. Oil and liquids production from the North Sea decreased from the previous quarter because operations at Kyle were impacted by a blockage in the export natural gas pipeline downstream From the provider to the customer. Downloading files and Web pages from the Internet is the downstream side. The upstream is from the customer to the provider (requesting a Web page, sending e-mail, etc.). of the Curlew curlew (kûr`l ), common name for large shore birds of both hemispheres, generally brown and buff in color and with decurved bills. floating
production, storage and offtake vessel. As a result of this blockage,
oil production from Kyle was restricted for most of the quarter in order
to satisfy natural gas flaring restrictions that remained in effect. The
pipeline blockage was rectified and production recommenced in early
July. In addition, oil and liquids production was reduced in the North
Sea due to the implementation of reservoir management techniques
designed to enhance the ultimate recovery factor from the Banff and Kyle
fields and as a result of property exchanges occurring in the first
quarter of 2002. Offshore West Africa oil and liquids production
increased from the comparable periods in 2001 as a result of production
commencing from the Company's operated Espoir field, located
offshore Cote d'Ivoire, in February 2002. The second producer well
came on production in mid-May n. 1. the middle part of May.Noun 1. mid-May - the middle part of May period, period of time, time period - an amount of time; "a time period of 30 years"; "hastened the period of time of his recovery"; "Picasso's blue period" 2002 and a third producer well was completed in early July. Production from this field is anticipated to increase over the next several months as additional wells are drilled during the first phase of development. As planned, production from the Kiame field in Angola ceased in April 2002. Natural gas production increased from the comparable periods in 2001 as a result of the focus of the 2001 capital expenditure program on natural gas development, which resulted in the development of the Ladyfern field. Production from the Ladyfern field increased over the prior periods due to the commissioning of the Ladyfern sales pipeline in March 2002, which increased take-away capacity. Natural gas production in the North Sea decreased from the previous quarter due to the curtailment of production from the Kyle field as a result of the pipeline blockage.
THREE MONTHS ENDED SIX MONTHS ENDED
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JUNE 30 MARCH 31 JUNE 30 JUNE 30 JUNE 30
2002 2002 2001 2002 2001
----------------------------------------------
PRODUCT PRICES
Oil and liquids ($/bbl)
North America $ 26.27 $ 22.18 $ 20.59 $ 24.27 $ 19.72
North Sea $ 39.36 $ 33.75 $ 43.07 $ 36.31 $ 42.27
Offshore West Africa $ 33.92 $ 37.61 $ 39.75 $ 35.71 $ 40.04
Company average $ 28.27 $ 24.50 $ 25.32 $ 26.40 $ 23.73
Natural gas ($/mcf)
North America $ 3.72 $ 3.05 $ 5.99 $ 3.39 $ 7.61
North Sea $ 1.80 $ 3.77 $ 1.74 $ 2.92 $ 1.74
Company average $ 3.68 $ 3.06 $ 5.93 $ 3.38 $ 7.57
Percentage of revenue
Oil and liquids 57.5% 58.9% 51.0% 58.1% 43.2%
Natural gas 42.5% 41.1% 49.0% 41.9% 56.8%
----------------------------------------------------------------------
The North American realized oil and liquids price increased from the comparable periods in 2001 due to lower heavy oil differentials. Heavy oil differentials averaged US $5.89 per bbl in the first half of 2002 compared to US $12.34 per bbl in the first half of 2001 due to supply and demand fundamentals as well as the recommencement Re`com`mence´ment n. 1. A commencement made anew. Noun 1. recommencement - beginning again resumption of a heavy oil refinery in the U.S. Midwest. North Sea oil and liquids prices decreased from the comparable periods due to lower WTI prices. Product pricing has increased from March 31, 2002 due to higher worldwide prices. Natural gas prices decreased from the comparable periods in 2001 due to lower demand in the North American market and warmer than average winter temperatures, which resulted in higher natural gas storage levels. Natural gas prices increased from the prior quarter due to an improvement in the economic outlook. The Company expects natural gas prices to increase due to the impact that reduced drilling levels will have on supply and as North American storage levels and weather patterns return to normal. Natural gas prices have also been impacted by the recent restrictions on export capacity out of Alberta due to temporary anomalies resulting from maintenance downtime on common carrier pipeline systems. Financial instruments are entered into by the Company to protect the downside Downside The dollar amount by which the market or a stock has the potential to fall. Notes: You might hear someone say that the downside on stock XYZ is $10. What that means is that the stock could fall by this amount if things got bad. prices received on the sale of a portion of its oil and natural gas production. The price realized from the sale of oil was reduced by $1.85 per bbl in the quarter ended June 30, 2002 ($0.50 per bbl and $0.43 per bbl reduction, respectively, in the quarters ended March 31, 2002 and June 30, 2001). The price realized from the sale of natural gas was decreased by $0.09 per mcf in the second quarter of 2002 ($0.08 per mcf increase and $0.31 per mcf reduction, respectively, in the quarters ended March 31, 2002 and June 30, 2001).
THREE MONTHS ENDED SIX MONTHS ENDED
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JUNE 30 MARCH 31 JUNE 30 JUNE 30 JUNE 30
2002 2002 2001 2002 2001
----------------------------------------------
ROYALTIES
Oil and liquids ($/bbl)
North America $ 3.29 $ 2.46 $ 2.51 $ 2.88 $ 2.40
North Sea $ 1.76 $ 1.54 $ 2.23 $ 1.64 $ 2.48
Offshore West Africa $ 1.11 $ 1.65 $ 0.65 $ 1.37 $ 0.43
Company average $ 3.02 $ 2.28 $ 2.42 $ 2.65 $ 2.39
Natural gas ($/mcf)
North America $ 0.79 $ 0.57 $ 1.49 $ 0.67 $ 1.93
Company average $ 0.77 $ 0.55 $ 1.47 $ 0.66 $ 1.92
Company average ($/boe) $ 3.79 $ 2.78 $ 5.03 $ 3.29 $ 6.12
Percentage of revenue
(excluding financial
instruments)
Oil and liquids 10.0% 9.1% 9.4% 9.6% 10.0%
Natural gas 20.4% 18.5% 23.6% 19.6% 23.7%
----------------------------------------------------------------------
Oil and liquids royalties Not to be confused with Royal family. Royalties (sometimes, running royalties) are usage-based payments made by one party (the "licensee") to another (the "licensor") for ongoing use of an asset, most typically an intellectual property (IP) right. in North America increased over the comparable periods in 2001 due to higher product prices. North America oil and liquids royalties have also increased due to some heavy oil projects reaching payout pay·out n. 1. The act or an instance of paying out. 2. A percentage of corporate earnings that is paid as dividends to shareholders. and no longer qualifying for reduced royalty Compensation for the use of property, usually copyrighted works, patented inventions, or natural resources, expressed as a percentage of receipts from using the property or as a payment for each unit produced. rates. North Sea oil and liquids royalties decreased from the comparable periods in 2001 due to lower world oil prices, but increased from the first quarter 2002 due to decreased production from the non-royalty paying Kyle field. Offshore West Africa royalties increased from the comparable periods in 2001 due to the Kiame field reaching payout in June 2001. The Kiame field was the only field on production in 2001 in this segment. Oil and liquids royalties decreased in the second quarter of 2002 compared to the first quarter 2002 as a result of production ceasing from the higher royalty rate Kiame field in April. North American natural gas royalties have changed from the comparable periods as a result of fluctuations in the sales price of natural gas.
THREE MONTHS ENDED SIX MONTHS ENDED
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JUNE 30 MARCH 31 JUNE 30 JUNE 30 JUNE 30
2002 2002 2001(1) 2002 2001(1)
----------------------------------------------
PRODUCTION EXPENSE
Oil and liquids ($/bbl)
North America $ 6.52 $ 6.97 $ 7.11 $ 6.74 $ 7.38
North Sea $ 15.72 $ 10.09 $ 8.42 $ 12.66 $ 8.73
Offshore West Africa $ 12.76 $ 18.62 $ 17.23 $ 15.61 $ 24.73
Company average $ 7.95 $ 7.81 $ 7.57 $ 7.88 $ 7.86
Natural gas ($/mcf)
North America $ 0.55 $ 0.56 $ 0.50 $ 0.56 $ 0.50
North Sea $ 1.90 $ 1.33 $ 0.61 $ 1.57 $ 0.61
Company average $ 0.57 $ 0.58 $ 0.50 $ 0.58 $ 0.50
Company average ($/boe) $ 5.76 $ 5.73 $ 5.72 $ 5.75 $ 5.89
----------------------------------------------------------------------
(1) Restated for change in accounting policy (see consolidated
financial statement note 1).
North American oil and liquids production expense decreased from the comparable periods in 2001 due to lower costs of natural gas, which is used to produce the steam to heat thermal heavy oil formations. Oil and liquids production expense decreased in North America from the prior quarter due to the allocation of fixed costs fixed costs, n.pl the costs that do not change to meet fluctuations in enrollment or in use of services (e.g., salaries, rent, business license fees, and depreciation). over greater production volumes. North Sea oil and liquids production expense increased over the comparable periods due to a combination of costs associated with the natural gas pipeline blockage and decreased oil production in 2002. Offshore West Africa oil and liquids production expense decreased from the comparable periods due to production ceasing from the higher production cost Kiame field and increased production from the Espoir field. Costs are expected to decline on a per barrel basis as production from the Espoir field increases. Natural gas production expense increased over the comparable periods in 2001 due to an increase in the toll rates and the percentage of natural gas produced through the gathering and processing system in British Columbia. Natural gas production expense is expected to decrease as a result of the commissioning of the Ladyfern sales pipeline and the expiry of the Ladyfern McMahon McMahon is the family name of the following persons:
THREE MONTHS ENDED SIX MONTHS ENDED
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JUNE 30 MARCH 31 JUNE 30 JUNE 30 JUNE 30
2002 2002 2001 2002 2001
----------------------------------------------
DEPLETION, DEPRECIATION AND AMORTIZATION(1)
Expense ($ millions) $ 289.3 $ 232.0 $ 216.3 $ 521.3 $ 423.5
$/boe $ 8.61 $ 7.08 $ 6.56 $ 7.86 $ 6.59
----------------------------------------------------------------------
(1) DD&A does not include midstream operations.
Depletion depletion n. when a natural resource (particularly oil) is being used up. The annual amount of depletion may, ironically, provide a tax deduction for the company exploiting the resource because if the resource they are exploiting runs out, they will no longer be able , depreciation and amortization ("DD&A") increased from the prior quarter and the comparable periods in 2001 due to higher finding and development costs associated with natural gas exploration. In Angola, following a technical review of the results of the Mariposa well where the Company held a 25% non-operated working interest, the Company is now pursuing an exit strategy from Block 19. All costs associated with Block 19, amounting to $37 million, have been written off. In addition, the revised depth structure of the Aje field in Nigeria showed the structural closure was greatly reduced. The reduction in likely oil-in-place and associated increase in risk means that the project fails to meet the Company's economic threshold The point at which a signal (voltage, current, etc.) is perceived as valid. . The Company has therefore decided to withdraw from its only interest in Nigeria and costs totalling $14 million have been written off.
THREE MONTHS ENDED SIX MONTHS ENDED
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JUNE 30 MARCH 31 JUNE 30 JUNE 30 JUNE 30
2002 2002 2001 2002 2001
----------------------------------------------
ADMINISTRATION EXPENSE
Net expense ($ millions) $ 12.3 $ 13.5 $ 7.9 $ 25.8 $ 16.2
$/boe $ 0.37 $ 0.41 $ 0.24 $ 0.39 $ 0.25
----------------------------------------------------------------------
The Company's administration expense increased from comparable
periods in 2001 due to higher overall costs including compensation
costs associated with increased staffing levels and lower capital
recoveries on reduced well drilling and associated capital spending.
THREE MONTHS ENDED SIX MONTHS ENDED
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JUNE 30 MARCH 31 JUNE 30 JUNE 30 JUNE 30
2002 2002 2001 2002 2001
----------------------------------------------
INTEREST EXPENSE
Interest expense
($ millions) $ 28.6 $ 28.7 $ 34.8 $ 57.3 $ 74.2
$/boe $ 0.85 $ 0.88 $ 1.05 $ 0.86 $ 1.16
Average effective
interest rate 4.36% 4.12% 5.63% 4.24% 5.94%
----------------------------------------------------------------------
Interest expense decreased from the comparable periods in the
prior year due to a lower average effective interest rate.
THREE MONTHS ENDED SIX MONTHS ENDED
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JUNE 30 MARCH 31 JUNE 30 JUNE 30 JUNE 30
2002 2002 2001 2002 2001
----------------------------------------------
MIDSTREAM ($ millions)
Revenue $ 13.5 $ 10.4 $ 7.7 $ 23.9 $ 17.5
Operating costs 3.4 3.1 2.9 6.5 7.0
----------------------------------------------
Cash flow 10.1 7.3 4.8 17.4 10.5
Depreciation 1.9 1.9 0.8 3.8 1.7
----------------------------------------------
Segment earnings
before taxes $ 8.2 $ 5.4 $ 4.0 $ 13.6 $ 8.8
----------------------------------------------------------------------
The Company's midstream mid·stream n. 1. The middle part of a stream. 2. The part of a course that is neither at the beginning nor at the end: the midstream of life. Noun 1. assets consist of the 100% owned and operated ECHO Echo, in Greek mythology Echo, in Greek mythology, mountain nymph. She assisted Zeus in one of his amorous adventures by distracting Hera with her chatter. For this Hera made her unable to speak except to repeat another's last words. pipeline, the 15% interest in the Cold Lake pipeline system, the 62% interest in the operated Pelican Lake pipeline and the 50% interest in the 80 megawatt meg·a·watt n. Abbr. MW One million watts. meg  a·watt co-generation system located in the
Primrose area. The midstream pipeline assets allow the Company to
transport its own production volumes as well as earn third party revenue
from excess capacity. Through these assets, the Company transports in
excess of 75% of its heavy oil to the international mainline mainline Drug slang verb To inject a drug liquid
pipelines. These midstream assets enhance the Company's ability to
control the full range of costs associated with the development and
marketing of its heavy oil.Revenue from midstream assets increased from the comparable periods in 2001 due to the expansion of the ECHO pipeline and the commencement of operations from the Cold Lake pipeline system in late December 2001. The increased pipeline revenues offset the decline in electricity revenue. Electricity revenues declined over the same period in 2001 due to lower prices received. Revenue from midstream assets increased in the second quarter of 2002 from the first quarter due to increased revenue from the Pelican Lake and Cold Lake pipeline systems.
THREE MONTHS ENDED SIX MONTHS ENDED
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JUNE 30 MARCH 31 JUNE 30 JUNE 30 JUNE 30
2002 2002 2001 2002 2001
----------------------------------------------
TAXES
Taxes other than income tax ($ millions)
Current $ 11.8 $ 13.5 $ 21.0 $ 25.3 $ 38.1
Deferred 1.6 1.4 (0.7) 3.0 0.1
----------------------------------------------
Total $ 13.4 $ 14.9 $ 20.3 $ 28.3 $ 38.2
----------------------------------------------
Current income tax ($ millions)
North Sea $ 2.3 $ 11.0 $ 25.2 $ 13.3 $ 35.0
Offshore West Africa 1.1 0.5 - 1.6 -
Large Corporations Tax 4.5 4.3 3.3 8.8 7.2
----------------------------------------------
Total $ 7.9 $ 15.8 $ 28.5 $ 23.7 $ 42.2
----------------------------------------------
Future income tax
($ millions) $ 107.9 $ 38.3 $ 64.5 $ 146.2 $ 219.7
Effective income tax rate 45.1% 35.0% 24.4% 41.3% 33.7%
----------------------------------------------------------------------
Taxes other than income tax consist of current and deferred petroleum revenue tax and other international taxes and provincial Provincial has several meanings and may refer to:
The decrease in current income tax expense from the comparable periods in 2001 is due to lower world oil prices and decreased oil and liquids production from the North Sea, resulting in lower taxable income Under the federal tax law, gross income reduced by adjustments and allowable deductions. It is the income against which tax rates are applied to compute an individual or entity's tax liability. The essence of taxable income is the accrual of some gain, profit, or benefit to a taxpayer. . Current income tax also decreased due to the UK Government increasing the first year capital allowance rate for plant and machinery expenditures to 100% from the previous rate of 25%. Future income tax expense increased from the prior quarter as a result of increased earnings before taxes, and due to the substantively sub·stan·tive adj. 1. Substantial; considerable. 2. Independent in existence or function; not subordinate. 3. Not imaginary; actual; real. 4. enacted supplementary charge of 10% on profits from North Sea oil and natural gas production. The supplementary charge is in addition to the current corporate tax rate of 30%. The supplementary charge took effect April 17, 2002 and excludes any deduction deduction, in logic, form of inference such that the conclusion must be true if the premises are true. For example, if we know that all men have two legs and that John is a man, it is then logical to deduce that John has two legs. for financing costs. The implementation of the supplementary charge resulted in a one-time one-time adj. 1. or one·time a. Occurring or undertaken only once: a one-time winner in 1995. b. increase in the UK future income tax liability of $34 million. The increase in future income tax expense was partially offset by a $21 million reduction in the future income tax liability as a result of a decrease in a Canadian province's corporate income tax rate. A similar reduction of $46 million occurred during the second quarter 2001. The Company's future income taxes payable and property, plant and equipment have been decreased by $26 million to provide for the exchange of non-tax base assets in the North Sea in the first half of 2002.
THREE MONTHS ENDED SIX MONTHS ENDED
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JUNE 30 MARCH 31 JUNE 30 JUNE 30 JUNE 30
2002 2002 2001(1) 2002 2001(1)
----------------------------------------------
CAPITAL EXPENDITURES ($ millions)
Expenditures on property,
plant and equipment
Net property
acquisitions $ 33.1 $ 35.3 $ 55.5 $ 68.4 $ 246.2
Land acquisition and
retention 19.2 27.8 21.5 47.0 49.2
Seismic evaluations 14.6 24.8 20.2 39.4 57.2
Well drilling, completion
and equipping 135.9 206.8 153.0 342.7 380.2
Pipeline and production
facilities 66.6 124.3 105.0 190.9 216.4
----------------------------------------------
Total net reserve replacement
expenditures 269.4 419.0 355.2 688.4 949.2
Project Horizon 16.6 22.3 4.8 38.9 13.9
Midstream 5.2 9.6 6.8 14.8 35.7
Abandonments 11.9 6.8 (0.2) 18.7 1.0
Head office 1.7 1.1 1.4 2.8 2.9
----------------------------------------------
Total net capital
expenditures $ 304.8 $ 458.8 $ 368.0 $ 763.6 $1,002.7
----------------------------------------------
By segment
North America $ 232.5 $ 420.1 $ 248.6 $ 652.6 $ 797.8
North Sea 13.2 (31.4) 16.5 (18.2) 31.3
Offshore West Africa 53.9 60.5 96.1 114.4 137.9
Midstream 5.2 9.6 6.8 14.8 35.7
----------------------------------------------
Total $ 304.8 $ 458.8 $ 368.0 $ 763.6 $1,002.7
----------------------------------------------------------------------
(1) Certain figures provided for prior periods have been reclassified
to conform to the presentation adopted in 2002.
North America capital expenditures include natural gas exploration that concentrated on larger outlying out·ly·ing adj. Relatively distant or remote from a center or middle: outlying regions. outlying Adjective far away from the main area Adj. 1. pools in the Ladyfern area. A total of 8 prospects were drilled in the first half of 2002, resulting in 2 successful wells. The second quarter saw the drilling of 106 heavy oil wells and 33 oil wells on the Pelican Lake properties. The Pelican Lake emulsion flood project began in April 2002. This experimental technique is expected to improve the recovery rate, the effectiveness of which will not be known until late 2002 or early 2003. The second quarter 2002 also saw the filing of an application for regulatory approval to construct, operate, and reclaim the proposed Horizon Oil Sands Project, located about 80 kilometers north of Fort McMurray Fort McMurray, town (1991 pop. 34,706), NE Alta., Canada, on the Athabasca and Clearwater rivers. Since the beginning of the mining of Alberta's oil sands in 1964, the town's population has grown from 1,200. , in Northeastern north·east n. 1. Abbr. NE The direction or point on the mariner's compass halfway between due north and due east, or 45° east of due north. 2. An area or region lying in the northeast. 3. Alberta's Regional Municipality A Regional Municipality (or Region) is a type of Canadian municipal government similar to and at the same municipal government level as a county, although the specific structure and servicing responsibilities may vary from place to place. of Wood Buffalo. Construction of the Horizon Project is expected to start in 2004, with production expected to begin in 2007 at 110,000 bbls/day of light synthetic crude oil. North Sea capital expenditures for the three months ended June 30, 2002, include the consolidation of interests in the Ninian field. In exchange for an additional 4.25% interest in Ninian and cash, the Company sold its 4.19% interest in the Claymore field. The Company now holds a 28.34% interest in the Ninian field. North Sea capital expenditures also include the drilling of wells at the Kyle and Columba Co·lum·ba n. A constellation in the Southern Hemisphere near Caelum and Puppis. Also called Dove. [Latin columba, dove.] Noun 1. E fields, as well as the ongoing infill in·fill n. 1. The use of vacant land and property within a built-up area for further construction or development, especially as part of a neighborhood preservation or limited growth program. 2. drilling program in the Ninian field. Offshore West Africa capital expenditures include the continued development of the Espoir field. During the second quarter 2002, another producing well and a water injection well were completed. A third producer well was completed in mid-July n. 1. the middle part of July. Noun 1. mid-July - the middle part of July period, period of time, time period - an amount of time; "a time period of 30 years"; "hastened the period of time of his recovery"; "Picasso's blue period" . During the remainder of 2002, the Company plans to drill two additional producer wells as part of the first development phase. The second quarter 2002 capital expenditures also include the awarding of the 90% owned and operated Block CI-400 in Cote d'Ivoire and the continuing work on the Baobab development plan.
PRO FORMA
JULY 1 JUNE 30 MARCH 31 DEC 31 JUNE 30
2002(1) 2002 2002 2001(2) 2001(2)
---------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES ($ millions, except ratios)
Working capital
deficit $ 220.9 $ 128.9 $ 84.5 $ 5.6 $ 113.9
Long-term debt 4,172.4 2,404.4 2,658.1 2,669.2 2,369.1
---------------------------------------------------
Total $ 4,393.3 $ 2,533.3 $ 2,742.6 $ 2,674.8 $ 2,483.0
---------------------------------------------------
Shareholders' equity
Preferred
securities $ 121.5 $ 121.5 $ 127.5 $ 127.4 $ 121.4
Share capital 2,278.6 1,756.2 1,739.2 1,698.3 1,683.9
Retained earnings 2,122.0 2,122.0 1,992.2 1,908.5 1,811.2
Foreign currency
translation
adjustment 30.3 30.3 69.2 72.8 -
---------------------------------------------------
Total $ 4,552.4 $ 4,030.0 $ 3,928.1 $ 3,807.0 $ 3,616.5
---------------------------------------------------
Debt to cash flow(3) 2.2x 1.5x 1.6x 1.4x 1.0x
Debt to book
capitalization 47.8% 37.4% 40.4% 41.2% 39.6%
Debt to market
capitalization 37.4% 27.1% 29.2% 34.9% 29.9%
After tax return on
average common
shareholders'
equity(3) n/a 10.3% 14.6% 18.7% 32.1%
After tax return on
average capital
employed(3) n/a 7.2% 9.7% 12.2% 19.1%
----------------------------------------------------------------------
(1) See note 8 to the consolidated financial statements, Acquisition
of Rio Alto Exploration Ltd. Pro forma cash flow is based on the
Company's trailing 12-month period, adjusted for interest expense
on additional debt incurred to acquire Rio Alto, and Rio Alto's
six months ended June 30, 2002 cash flow, adjusted to remove Rio
Alto Resources International Inc. and acquisition costs,
annualized.
(2) Restated for change in accounting policy (see consolidated
financial statement note 2).
(3) Based on trailing 12-month period.
The ratios above have been calculated with the outstanding preferred securities of the Company classified as equity. If the preferred securities were classified as long-term debt, debt to cash flow for the trailing 12-month period ended June 30, 2002, would be 1.6x (March 31, 2002 - 1.7x, December 31, 2001 - 1.5x, June 30, 2001 - 1.1x). Debt to book capitalization would be 39.3% at June 30, 2002 (March 31, 2002 - 42.3%, December 31, 2001 - 43.2%, June 30, 2001 - 41.6%) had the preferred securities been classified as long-term debt, while debt to market capitalization Market Capitalization A measure of a public company's size. Market capitalization is the total dollar value of all outstanding shares. It's calculated by multiplying the number of shares times the current market price. This term is often referred to as market cap. would be 28.5%, 30.6%, 36.6% and 31.5%, respectively. On a pro forma basis at July 1, 2002, and treating the preferred securities as long-term debt, debt to cash flow for the trailing 12-month period would be 2.3x, debt to book capitalization would be 49.2% and debt to market capitalization would be 38.5%. PRO FORMA SENSITIVITY ANALYSIS (1) Annualized annualized Of or relating to a variable that has been mathematically converted to a yearly rate. Inflation and interest rates are generally annualized since it is on this basis that these two variables are ordinarily stated and compared. sensitivities to certain factors, which would influence the Company's financial results, are estimated as follows:
Cash flow Cash flow
from from Net Net
operations(2) operations(2) earnings(2) earnings(2)
(per share) (per share)
($ millions) (basic) ($ millions) (basic)
------------------------------------------------------
Price changes
Oil - WTI
US $1.00/bbl(3)
Excluding
financial
derivatives $91 $0.68 $62 $0.47
Including
financial
derivatives $78-$88 $0.59-$0.66 $54-$60 $0.40-$0.45
Natural gas - AECO
Cdn $0.10/mcf(3)
Excluding
financial
derivatives $42 $0.32 $26 $0.20
Including
financial
derivatives $41-$42 $0.31-$0.32 $25-$26 $0.19
Volume changes
Oil - 10,000 bbls/d $52 $0.39 $20 $0.15
Natural gas - 10 mmcf/d $9 $0.07 $2 $0.02
Foreign currency
rate change
$0.01 change in
Cdn $ in relation
to US $(3)
Excluding
financial
derivatives $55 $0.41 $34 $0.25
Including
financial
derivatives $52-$53 $0.39-$0.40 $32-$33 $0.24-$0.25
Interest rate
change - 1% $33 $0.25 $20 $0.15
----------------------------------------------------------------------
(1) The sensitivities are calculated based on pro forma 2002 second
quarter results.
(2) Attributable to common shareholders.
(3) For details of financial instruments in place, see consolidated
financial statement note 6.
OTHER OPERATING HIGHLIGHTS
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------------------------------
JUNE 30 MARCH 31 JUNE 30 JUNE 30 JUNE 30
2002 2002 2001(1) 2002 2001(1)
----------------------------------------------
NETBACK ANALYSIS ($/boe, except daily production)
Daily production (boe/d) 369,022 363,990 362,154 366,520 354,809
Sales price $ 25.29 $ 21.58 $ 29.54 $ 23.46 $ 32.61
Royalties 3.79 2.78 5.03 3.29 6.12
Production expense 5.76 5.73 5.72 5.75 5.89
----------------------------------------------
Netback 15.74 13.07 18.79 14.42 20.60
Midstream contribution (0.30) (0.22) (0.15) (0.26) (0.16)
Administration 0.37 0.41 0.24 0.39 0.25
Interest 0.85 0.88 1.05 0.86 1.16
Foreign exchange loss 0.03 0.07 0.06 0.05 0.01
Taxes other than
income tax (current) 0.35 0.41 0.64 0.38 0.59
Current income
tax (North Sea) 0.07 0.33 0.76 0.20 0.55
Current income tax
(Offshore West Africa) 0.03 0.02 - 0.03 -
Current income tax
(Large Corporations Tax) 0.14 0.13 0.10 0.13 0.11
----------------------------------------------
Cash flow $ 14.20 $ 11.04 $ 16.09 $ 12.64 $ 18.09
----------------------------------------------------------------------
(1) Restated for change in accounting policy (see consolidated
financial statement notes 1 and 2).
SIX MONTHS ENDED JUNE 30, 2002
-------------------------------------------
North North Offshore
America Sea West Africa Total
-------------------------------------------
SEGMENTED NETBACK
Oil and liquids ($/bbl, except daily production)
Daily production (bbls/d) 155,248 28,283 5,384 188,915
Sales price $ 24.27 $ 36.31 $ 35.71 $ 26.40
Royalties 2.88 1.64 1.37 2.65
Production expense 6.74 12.66 15.61 7.88
-------------------------------------------
Netback(1) $ 14.65 $ 22.01 $ 18.73 $ 15.87
-------------------------------------------
Natural gas ($/mcf, except daily production)
Daily production (mmcf/d) 1,042 24 - 1,066
Sales price $ 3.39 $ 2.92 $ - $ 3.38
Royalties 0.67 - - 0.66
Production expense 0.56 1.57 - 0.58
-------------------------------------------
Netback(1) $ 2.16 $ 1.35 $ - $ 2.14
-------------------------------------------
Barrels of oil equivalent ($/boe, except daily production)
Daily production (boe/d) 328,949 32,187 5,384 366,520
Sales price $ 22.22 $ 34.06 $ 35.71 $ 23.46
Royalties 3.50 1.44 1.37 3.29
Production expense 4.95 12.27 15.61 5.75
-------------------------------------------
Netback(1) $ 13.77 $ 20.35 $ 18.73 $ 14.42
----------------------------------------------------------------------
(1) Netbacks do not include midstream operations.
JUNE 30 DECEMBER 31
2002 2001
------------------------
CONSOLIDATED BALANCE SHEETS
(millions of Canadian dollars)(unaudited)
ASSETS
Current assets
Cash $ 1.2 $ 15.0
Accounts receivable and other 570.2 509.0
------------------------
571.4 524.0
Property, plant and equipment (net) 8,597.9 8,442.9
------------------------
$ 9,169.3 $ 8,966.9
----------------------------------------------------------------------
LIABILITIES
Current liabilities
Accounts payable $ 303.3 $ 249.5
Accrued liabilities 381.8 264.2
Current portion of long-term debt (note 3) 15.2 15.9
------------------------
700.3 529.6
Long-term debt (note 3) 2,404.4 2,669.2
Future site restoration 187.3 193.8
Future income tax 1,847.3 1,767.3
------------------------
5,139.3 5,159.9
------------------------
SHAREHOLDERS' EQUITY
Preferred securities (note 2) 121.5 127.4
Share capital (note 4) 1,756.2 1,698.3
Retained earnings 2,122.0 1,908.5
Foreign currency translation adjustment 30.3 72.8
------------------------
4,030.0 3,807.0
------------------------
$ 9,169.3 $ 8,966.9
----------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
--------------------------------------------
2002 2001 2002 2001
--------------------------------------------
CONSOLIDATED STATEMENTS OF EARNINGS
(millions of Canadian dollars, except per share amounts)(unaudited)
Revenue (note 7) $ 862.8 $ 981.2 $1,580.3 $2,111.9
Less: royalties (127.3) (165.7) (218.3) (392.9)
--------------------------------------------
735.5 815.5 1,362.0 1,719.0
--------------------------------------------
Expenses
Production 196.9 191.3 387.8 385.4
Depletion, depreciation
and amortization 291.2 217.1 525.1 425.2
Administration 12.3 7.9 25.8 16.2
Interest 28.6 34.8 57.3 74.2
Foreign exchange (gain)
loss (note 2) (63.4) (32.3) (73.4) 5.1
--------------------------------------------
465.6 418.8 922.6 906.1
--------------------------------------------
Earnings Before Taxes 269.9 396.7 439.4 812.9
Taxes other than income tax 13.4 20.3 28.3 38.2
Current income tax 7.9 28.5 23.7 42.2
Future income tax 107.9 64.5 146.2 219.7
--------------------------------------------
Net Earnings 140.7 283.4 241.2 512.8
Dividend on preferred
securities (net of tax) (1.5) (1.5) (3.0) (2.9)
Revaluation of preferred
securities (note 2) 6.0 4.7 5.9 (1.5)
--------------------------------------------
Net Earnings Attributable
to Common Shareholders $ 145.2 $ 286.6 $ 244.1 $ 508.4
--------------------------------------------
Net Earnings per Common
Share Attributable to Common
Shareholders (note 5)
Basic $ 1.18 $ 2.37 $ 2.00 $ 4.18
Diluted $ 1.09 $ 2.23 $ 1.89 $ 4.02
----------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30
---------------------------
2002 2001
---------------------------
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(millions of Canadian dollars)(unaudited)
Balance - Beginning of Period
as Previously Reported $ 1,979.5 $ 1,406.0
Change in accounting policy -
foreign exchange (note 2) (71.0) (15.4)
---------------------------
Balance - Beginning of Period as Restated 1,908.5 1,390.6
Net earnings 241.2 512.8
Dividend on common shares (note 4) (30.6) (24.3)
Dividend on preferred securities (net of tax) (3.0) (2.9)
Revaluation of preferred securities (note 2) 5.9 (1.5)
Purchase of common shares (note 4) - (63.5)
---------------------------
Balance - End of Period $ 2,122.0 $ 1,811.2
----------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
----------------------------------------
2002 2001 2002 2001
----------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
(millions of Canadian dollars)(unaudited)
Operating Activities
Net earnings $ 140.7 $ 283.4 $ 241.2 $ 512.8
Non-cash items
Depletion, depreciation and
amortization 291.2 217.1 525.1 425.2
Deferred petroleum
revenue tax 1.6 (0.7) 3.0 0.1
Future income tax 107.9 64.5 146.2 219.7
Unrealized foreign
exchange (gain) loss (64.4) (34.1) (76.7) 4.2
----------------------------------------
Cash flow provided
from operations 477.0 530.2 838.8 1,162.0
Net change in non-cash
working capital 45.3 (58.3) (12.2) (26.3)
----------------------------------------
522.3 471.9 826.6 1,135.7
----------------------------------------
Financing Activities
(Repayment) increase
in bank credit facilities (172.0) 40.1 (822.5) (83.1)
Issue of US debt securities - - 641.5 -
Repayment of limited
recourse loan - (22.1) - (11.8)
Issue of capital stock 17.0 11.7 58.9 22.3
Purchase of common shares - (63.4) - (94.6)
Dividend on common shares (15.3) (12.2) (27.4) (12.2)
Dividend on preferred
securities (2.5) (2.6) (5.2) (5.1)
Net change in non-cash
working capital 6.9 (6.0) (0.2) (0.8)
----------------------------------------
(165.9) (54.5) (154.9) (185.3)
----------------------------------------
Investing Activities
Expenditures on property,
plant and equipment (306.6) (379.3) (821.7) (1,015.2)
Net proceeds on sale of
property, plant and equipment 1.8 11.3 58.1 12.5
----------------------------------------
Net expenditures on property,
plant and equipment (304.8) (368.0) (763.6) (1,002.7)
Net change in non-cash
working capital (86.6) (48.1) 78.1 56.3
----------------------------------------
(391.4) (416.1) (685.5) (946.4)
----------------------------------------
(Decrease) Increase in Cash (35.0) 1.3 (13.8) 4.0
Cash - Beginning of Period 36.2 30.7 15.0 28.0
----------------------------------------
Cash - End of Period $ 1.2 $ 32.0 $ 1.2 $ 32.0
----------------------------------------
Supplemental disclosure of
cash flow information
Interest paid $ 21.0 $ 38.9 $ 47.3 $ 73.2
Taxes paid $ 34.3 $ 28.0 $ 63.6 $ 80.7
----------------------------------------------------------------------
Continued in part 2 of 2. |
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