Petro-Canada's Profit Rises 61% on Higher Oil Prices

By Dan Lonkevich

Oct. 23 (Bloomberg) -- Petro-Canada, the country's third- largest oil company, said third-quarter profit rose 61 percent from a year earlier on higher prices, beating analyst estimates.

Net income climbed to C$1.25 billion ($990 million), or C$2.56 per diluted share, from C$776 million, or C$1.58 diluted, the Calgary-based company said today in a statement. Petro- Canada was expected to earn C$2.29 per share, the average estimate of 15 analysts surveyed by Bloomberg. Revenue climbed 51 percent to C$8.29 billion.

Profit gained as oil advanced more than 57 percent in the quarter from a year earlier and gas rose 44 percent. About 72 percent of Petro-Canada's daily output comes from oil wells. The increase in prices helped counter project delays and higher costs, said Mark Gilman, an analyst at Benchmark Co. LLC in New York.

``It's project execution,'' according to Gilman, who has a ``sell'' rating on the shares and doesn't own any. ``The Fort Hills project is a prima facie case,'' he said, referring to the Alberta oil-sands venture that may cost 50 percent more than the company's previous forecast.

Fort Hills is a Canadian oil-sands project in which Petro- Canada has a 60 percent stake. The project targets production of 280,000 barrels of crude a day by 2015. The company expects total output of 420,000 barrels of oil equivalent a day this year. In September, Petro-Canada's partner UTS Energy Corp. raised the cost estimate to C$23.8 billion from C$14.1 billion.

Petro-Canada Chief Executive Officer Ronald Brenneman said today on a conference call that while the company may go ahead with the bitumen mine at Fort Hills, the decision whether to proceed with the upgrader may be delayed. A decision is expected in the fourth quarter, Brenneman said. The company may buy an upgrader, used to process the tar-like oilsands, rather than build one, he said.

Other Projects

Andrea Ranson, a spokeswoman for Petro-Canada, said yesterday in an interview that the company's Terra Nova and MacKay River projects have been operating near full capacity. She said, however, that the projects have had a history of delays.

No ``major turnarounds'' are planned for the rest of 2008 at North American natural-gas and oil-sands projects, or at the East Coast Canada and refining units, the company said today in the statement.

Oil prices averaged $118.22 a barrel in the third quarter. They have fallen more than 50 percent since touching an all-time high of $147.27 on July 11, because of concern that a global recession will slash demand for oil. The Organization of Petroleum Exporting Countries, which produces 40 percent of the world's oil, will ``most probably'' decide to trim output at its meeting in Vienna tomorrow, OPEC's president, Chakib Khelil, said.

Output Drops

Petro-Canada's output dropped 3 percent to 424,000 barrels of oil equivalent a day in the third quarter. The company's oil fetched C$114.11 a barrel, 54 percent more than a year ago, while its gas sold for C$8.68 per thousand cubic feet, up 64 percent.

Petro-Canada rose 93 cents to C$67.68 at 9:32 a.m. in Toronto trading. Before today, the stock had dropped 30 percent this year.

Imperial Oil Ltd., 70 percent-owned Exxon Mobil Corp., is Canada's largest oil company by 2007 sales, followed by EnCana Corp.

To contact the reporter on this story: Dan Lonkevich in New York at dlonkevich@bloomberg.net.