July 28, 2011 / 5:03 PM / 7 years ago

WRAPUP 2-Canadian oil profits marred by production woes

* Suncor, Imperial, Talisman report higher Q2 profits

* High crude prices boost results

* Production problems, turmoil cut output

* Shares drop despite profit gains (Adds analyst, executive comments. In U.S. dollars unless noted)

By Scott Haggett and Jeffrey Jones

CALGARY, Alberta, July 28 (Reuters) - Three of Canada’s biggest oil companies said on Thursday that strong oil prices boosted their quarterly profit, but production problems, maintenance, pipeline outages and political turmoil clouded the results.

Suncor Energy Inc’s (SU.TO) production was held back by scheduled maintenance at its Alberta oil sands venture and the shutdown of operations in war-torn Libya.

Talisman Energy Inc TLM.TO lowered its output forecast because of slower than expected progress on three projects.

Imperial Oil Ltd (IMO.TO) had to deal with the closure of a key pipeline serving an oil field in northern Canada.

“There was a lot of maintenance, and you’ve got the Rainbow pipeline outages and forest fires. It’s a really, really messy quarter operationally, no question about it,” Edward Jones analyst Lanny Pendill said.

The 187,000 barrel a day Rainbow oil pipeline in northern Alberta suffered a rupture at the end of April on its northern leg, and the southern portion was shut in May as wildfires swept the province, wreaking havoc among producers.

Pendill said few of the problems appeared to be chronic, pointing out that Suncor plans for a lighter maintenance schedule in coming months and Talisman’s production target miss is hopefully a one-off event for Chief Executive John Manzoni, who has pledged to be meticulous in meeting forecasts.

Benchmark North American crude prices CLc1 averaged $103.49 a barrel in the quarter, 32 percent higher than a year earlier. Natural gas NGc1 averaged $4.38 per million British thermal units, up just about 3 percent from last year.


Suncor, Canada’s largest oil company, said net income rose 4.1 percent to C$562 million ($592 million), or 36 Canadian cents a share, up from year-earlier C$540 million, or 35 Canadian cents a share.

Operating income, which excludes most unusual items, rose 17 percent to C$980 million, or 62 Canadian cents, shy of the average analyst estimate of 68 Canadian cents, according to Thomson Reuters I/B/E/S.

The company’s oil and gas production fell 27 percent to 460,000 barrels of oil equivalent a day.

The Libyan unit, which had been producing about 35,000 barrels a day, has been shut down since February, when the country’s civil war flared up. Suncor wrote down the value of its Libyan holdings by C$514 million.

“You have to think about where this whole situation in Libya will go, and how quickly, if at all, Western governments lift sanctions,” Rick George, Suncor’s chief executive, said on a conference call. “We obviously cannot go back to work until sanctions are lifted.”

After the writedown, Suncor said its Libyan assets have a book value of C$400 million. If the force majeure in Libya lasts more than two years, Suncor’s production-sharing agreement with the government will be terminated.

The company said it still forecasts overall 2011 production to average between 520,000 and 570,000 boed.


Imperial Oil, Canada’s No. 2 integrated oil producer, reported a 2.7 percent cut in output in the quarter, to 292,000 boed a day, even as output at its Cold Lake oil sands project in northern Alberta surged 13 percent to a record 158,000 bpd.

The company, 69.6 percent owned by Exxon Mobil Corp (XOM.N), said the shortfall came on lower output from its share of Syncrude Canada Ltd’s oil sands production.

Conventional oil production fell to 16,000 bpd from 24,000 as the company was forced to close its Norman Wells oil field in the Northwest Territories after the Rainbow pipeline ruptured. It remains closed.

Despite lower output, Imperial’s second-quarter profit surged 40 percent to C$726 million, or 85 Canadian cents, up from a year-earlier C$517 million, or 60 Canadian cents.

“Upstream results were very good despite challenges in delivering conventional crude oil volumes from our Norman Wells operations as a result of third-party pipeline reliability issues in the quarter,” Bruce March, Imperial’s chief executive, said in a statement.


Talisman, Canada’s No. 4 independent oil producer, said strong oil prices spurred a 22 percent rise in profit to $698 million, or 68 cents a share, from $572 million, or 56 cents a share, a year earlier.

Earnings from operations rose 14 percent to $168 million, or 16 cents a share.

But Talisman warned that production will lag expectations for the year due to several problems. It pushed back the planned startup of the Yme project in the Norwegian sector of the North Sea due to delays in constructing the platform.

Other North Sea volumes dropped due to maintenance and declining output at maturing fields.

The company also experienced three months of delays in lifting output at the Eagle Ford shale play in Texas.

Talisman now expects annual output to average 430,000-440,000 boed, down from its previous estimate of 450,000 to 470,000 boed.

“It is, nonetheless, below our minimum expectation of 5 percent absolute growth for the year and I am very disappointed to miss our own target for the first time since I joined the company,” CEO Manzoni said in a statement.

The Yme field, designed to pump at a peak of 40,000 bpd, is now expected to start up by the end of next June, instead of the previous target of year-end 2011.

Manzoni said he was frustrated by shoddy construction work by the contractor for the platform, which forced the delay.

“As we were inspecting and looking and preparing that platform we were uncovering frankly appalling construction work, which has to be redone,” he told analysts. “It’s been quite difficult to identify the full scope of that work, which is why the timeframe has now moved backwards.”

Talisman shares sank 79 Canadian cents, or 4 percent, to C$17.96 on the Toronto Stock Exchange, while Suncor dropped C$1.10, or 3 percent, to C$37.04. Imperial was off 33 Canadian cents at C$42.60.

$1=$0.95 Canadian Editing by Peter Galloway and Rob Wilson

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