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CALGARY, Jan. 24 /CNW/ - Shell Canada Limited announces annual earnings of $1,738 million or $2.11 per common share in 2006 compared with $2,001 million or $2.43 per common share in 2005(1). The decrease was largely due to the first major scheduled turnaround of the Athabasca Oil Sands Project, together with lower natural gas prices.
Fourth-quarter earnings were $223 million compared with $611 million for the same period in 2005(1). The decrease was mainly due to lower commodity prices and a charge for the Long Term Incentive Plan.
Cash flow from operations was $2,614 million in 2006, down $422 million from 2005(1), due to the same factors that impacted full year earnings.
Capital and predevelopment expenditures amounted to $2,426 million in 2006, excluding the acquisition of BlackRock Ventures Inc. (BlackRock), compared with $1,715 million in 2005. The difference was due to increased investment in growth activities in unconventional oil and gas.
"Strong production from our oil sands operations following the scheduled turnarounds, and record earnings in Oil Products, underpinned our 2006 results," said Clive Mather, President and Chief Executive Officer, Shell Canada Limited. "Expansions of our mining, in situ and unconventional gas businesses are now all in full swing. With the acquisition of BlackRock and other strategic land positions, we have built a strong platform for future growth."
Earnings(footnote 1) ($ millions)
Q1 05 Q2 05 Q3 05 Q4 05 Q1 06 Q2 06 Q3 06 Q4 06
416 524 450 611 451 476 588 223
Cash Flow(footnote 1) ($ millions)
Q1 05 Q2 05 Q3 05 Q4 05 Q1 06 Q2 06 Q3 06 Q4 06
635 799 676 926 729 530 917 438
Capital Expenditures(footnote 2) ($ millions)
Q1 05 Q2 05 Q3 05 Q4 05 Q1 06 Q2 06 Q3 06 Q4 06
269 327 410 709 404 492 592 938
(1) Prior periods restated
(2) Excludes BlackRock purchase price
SHELL CANADA LIMITED
MANAGEMENT'S DISCUSSION AND ANALYSIS
Total Company
Shell Canada Limited earnings in 2006 were $1,738 million, down from
$2,001 million(1) in 2005. Earnings were lower in 2006 due to the first major
scheduled turnaround of the Athabasca Oil Sands Project (AOSP), which resulted
in higher maintenance costs and lower production, together with lower natural
gas prices. These were offset by higher oil prices and refining light oil
margins, and a favourable adjustment in the second quarter of $222 million
resulting from changes to federal and Alberta corporate tax rates. Total Long
Term Incentive Plan (LTIP) charges were $44 million in 2006 compared to
$186 million in 2005. Earnings in 2005 also included a favourable adjustment
of $164 million related to the use of non-capital losses resulting from the
acquisition of an affiliated company, Coral Resources Canada ULC.
Earnings for the fourth quarter of 2006 were $223 million compared with
$611 million for the corresponding period in 2005. The decrease was mainly due
to significantly lower natural gas prices, a $135 million charge for the LTIP
compared with a charge of $30 million for the same period in 2005, and the
turnaround at the Sarnia Refinery. Earnings in the fourth quarter of 2005
included a favourable adjustment of $65 million related to the use of non-
capital losses from the acquisition of an affiliated company.
Total production for 2006 was 214,900 barrels of oil equivalent per day
(BOE/d), down from 228,700 BOE/d in 2005. The decrease was mainly due to a
belt tear at the mine in the first quarter and the scheduled turnaround at the
mine and upgrader at mid year, as well as lower natural gas liquids (NGL)
production. Total hydrocarbon production for the fourth quarter was a record
244,900 BOE/d.
(1) Prior periods restated as required by Shell Canada's adoption of
Emerging Issues Committee (EIC) Abstract 162 "Stock Based
Compensation For Employees Eligible to Retire Before The Vesting
Date" (See Note 2 to the Consolidated Financial Statements).
Exploration & Production
Exploration & Production (E&P) delivered earnings of $499 million in 2006 compared with $665 million in 2005. Lower natural gas prices and NGL production due to natural field decline were offset by lower LTIP charges and a positive tax gain of $47 million from changes to federal and Alberta corporate tax rates. Total LTIP charges were $12 million in 2006 compared to $54 million in 2005. Effective January 1, 2006, the Peace River business was transferred from E&P to the Oil Sands business unit. Prior period E&P earnings have been adjusted to exclude Peace River operations.
E&P earnings in the fourth quarter of 2006 were $53 million compared with earnings of $263 million for the same period in 2005. The decrease in earnings was predominately due to significantly lower prices, in addition to lower NGL volumes, higher dry hole write-off expenses, and an LTIP charge of $35 million.
Total natural gas production in 2006 increased to 523 million cubic feet per day (mmcf/d) from 512 mmcf/d in 2005, with increases from the Foothills and basin-centred gas (BCG) businesses.
During the quarter, the Company received Alberta Energy and Utilities Board approval for a downspacing application in the Chinook Ridge region in the BCG business. Approval for downspacing will allow the Company to drill four wells per section and utilize a pad drilling program to reduce costs and environmental impacts. The first four wells on Shell Canada's pad drilling program have been successfully drilled. The BCG program produced natural gas volumes of 23 mmcf/d for the fourth quarter of 2006, up from 8 mmcf/d for the same period in 2005. The BCG program remains on target to deliver production of 100 mmcf/d by the end of 2007.
The Sable Offshore Energy Project compression platform commenced operations in the fourth quarter. Natural gas production capacity is expected to increase over the next several weeks and the project will help to offset natural decline rates from the producing fields over the longer term.
The Great Barasway deepwater exploration well in the Orphan Basin offshore Newfoundland continued drilling in the fourth quarter. Drilling is taking longer than anticipated and is now expected to conclude during the first quarter of 2007.
The Mackenzie Gas Project is experiencing upward cost pressure, influenced by regional and global energy industry activity. In addition, a recent Federal Court decision regarding Aboriginal consultation by the federal government on the proposed Mackenzie Valley pipeline has resulted in further uncertainty regarding the regulatory process for the project. The project proponents expect to file an updated cost estimate and schedule with regulators later in the first quarter of 2007.
Within the Foothills business, construction is progressing on the northeast British Columbia gas gathering system and dehydration facility, which is designed to connect several existing gas discoveries and increase production in 2007 from the Monkman Pass region. Two wells - a development well and an exploration well - were drilled in 2006 in the same area as the initial Tay River discovery. Neither well was successful in the main target zone.
Oil Sands
Oil Sands earnings in 2006 were $718 million compared with $783 million in 2005. Higher oil prices were offset by lower production due to the belt tear at the mine in the first quarter of 2006 and a major scheduled turnaround of both the mine and upgrader at mid year. The 2006 results included a favourable tax adjustment of $144 million resulting from changes to federal and Alberta corporate tax rates. Total LTIP charges were $8 million in 2006 compared to $30 million in 2005.
Oil Sands earnings in the fourth quarter of 2006 were $221 million, up from $193 million for the corresponding period in 2005. Increased in situ production, lower heavy oil differentials and an improved AOSP synthetic product mix were offset by lower crude prices in the quarter. Earnings for the quarter also included $21 million from AOSP Expansion 1 payments received from the other joint venture owners and an insurance settlement of $15 million from the June 30, 2006 fire at the BlackRock Seal battery. These earnings were offset by an LTIP charge of $29 million.
The Company's share of AOSP bitumen production in 2006 averaged 82,500 barrels per day (bbls/d), down from the average of 95,900 bbls/d achieved in 2005. The lower production was due to the belt tear at the mine in the first quarter of 2006 and a major scheduled turnaround of both the mine and upgrader at mid year. In the fourth quarter of 2006, average bitumen production was 106,600 bbls/d compared with 106,800 bbls/d for the same period in 2005.
Unit cash operating costs for the AOSP averaged $28.73 per barrel in 2006, an increase of $5.51 per barrel compared to 2005. The increase was largely due to the first major scheduled turnaround of the AOSP, which resulted in higher maintenance costs and lower production. Unit cash operating costs in the fourth quarter of 2006 were $24.26 per barrel compared with $23.88 for the same period in 2005. The Company realized an average synthetic crude price of $55.56 for the quarter.
During the quarter, the Company received Alberta Energy and Utilities Board approval for the Muskeg River Mine Expansion, an integral part of AOSP Expansion 1, a 100,000 bbls/d expansion of oil sands mining and upgrading facilities. Construction is well underway on both the upstream and downstream components of Expansion 1, and the project now employs 2,400 people.
Total average in situ production for the full year was 12,400 bbls/d compared to 8,900 bbls/d in 2005. In situ production for the fourth quarter was 20,400 bbls/d, up significantly from 8,900 bbls/d in the fourth quarter of 2005 due to new thermal production at Peace River and new volumes associated with the purchase of BlackRock Ventures Inc. (BlackRock). Year-end capacity was 30,000 bbls/d although, as previously disclosed, production volumes at Peace River continue to be reduced due to the apportionment on the Rainbow Pipeline.
Construction of the 10,000 bbls/d Orion steam-assisted gravity drainage (SAGD) project near Cold Lake is on track with a target start up in mid 2007. During the quarter, the Company filed its regulatory application for the in situ growth plan for a 100,000 bbls/d Peace River development.
Reserves
In 2006, gross proved natural gas reserves were 1,400 billion cubic feet (bcf) compared with 1,592 bcf for 2005, after production of 191 bcf. Natural gas reserve additions from extensions and discoveries of 133 bcf, including 95 bcf from continued drilling success in the BCG region, were offset by downward technical and economic revisions.
Gross proved natural gas liquids reserves decreased to 61 million barrels in 2006 after production of 12 million barrels and a small offset from net positive technical and economic revisions.
The Company's gross proved in situ bitumen reserves increased from 28 million barrels in 2005 to 96 million barrels in 2006, due mainly to the acquisition of BlackRock. Reserves additions resulting from infill drilling in the Peace River field were offset by production of 5 million barrels and minor technical revisions.
In accordance with U.S. SEC regulations, the Company booked proved reserves of 34 million barrels for Orion, reflecting only the approved first phase of the project. Reserves for the future phases of Orion will be booked upon final investment decision. Proved reserves for Orion of 95 million barrels previously reported by BlackRock were prepared according to Canadian reserve reporting regulations.
The Company's gross proved minable bitumen reserves increased by 60 per cent in 2006 to 1,292 million barrels from 808 million barrels in 2005. Following the final investment decision for AOSP Expansion 1, the Company booked 497 million barrels on a gross basis to reflect the project's full economic life of 38 years. Core-hole drilling activity at the Muskeg River Mine resulted in the reclassification of 17 million barrels from the probable to proved category. The additions were partially offset by production of 30 million barrels in 2006. Total gross proved and probable minable bitumen reserves increased from 936 million barrels in 2005 to 1,695 million barrels for 2006.
Shell Canada's 2006 Annual Report will provide full gross and net reserves information.
Oil Products
Oil Products 2006 annual earnings were a record $584 million, up significantly from earnings of $434 million for 2005. Stronger refining margins and a favourable second quarter adjustment of $43 million resulting from changes to federal and Alberta corporate tax rates were partially offset by lower refinery yield. Planned turnarounds at both the Montreal East and Sarnia refineries in 2006, as well as feedstock limitations at both the Scotford and Montreal East refineries, impacted refinery yield. Total LTIP charges were $13 million in 2006 compared with $56 million in 2005.
Oil Products earnings in the fourth quarter of 2006 were $22 million compared with $106 million for the same period in 2005. The decrease was mainly due to higher operating expenses, which included an LTIP charge of $36 million, lower refining and marketing margins, and lower refinery yield. The total impact of the planned turnaround at the Sarnia Refinery was $44 million. Refinery yield was also lower in the fourth quarter of 2006 due to feedstock limitations at Montreal East Refinery and lower benzene sales from Scotford.
In the fourth quarter, work progressed on designs for a new heavy oil refinery near Sarnia, Ontario. The team has begun to advance environmental impact assessments and ongoing discussions with various regulatory and community stakeholder groups.
Oil Products has planned a major turnaround for the Montreal East Refinery in the second quarter of 2007. The turnaround will impact a number of process units for approximately one month.
Corporate
Corporate incurred a loss of $63 million in 2006 compared with earnings of $119 million in 2005. Higher interest charges were offset by lower LTIP charges in 2006. Prior year earnings included a favourable adjustment of $164 million related to the use of non-capital losses available to the Company resulting from the acquisition of an affiliated company, Coral Resources Canada ULC. Total LTIP charges in 2006 were $12 million compared to $46 million in 2005.
Corporate incurred a loss of $73 million in the fourth quarter of 2006 compared with earnings of $49 million for the corresponding period in 2005. The change was mainly due to higher operating expenses, which included a $35 million LTIP charge, higher interest charges in 2006, and a favourable adjustment of $65 million in 2005 related to the use of non-capital losses available to the Company resulting from the acquisition of an affiliated company, Coral Resources Canada ULC.
Cash Flow and Financing
In 2006, cash flow from operations was $2,614 million, down from $3,036 million in 2005. The decrease is largely due to lower bitumen and NGL volumes, lower natural gas prices and higher expenses. These were partially offset by higher oil prices and refining light oil margins, and a favourable adjustment resulting from changes to federal and Alberta corporate tax rates. Cash flow from operations for the fourth quarter of 2006 was $438 million, down from $926 million for the same period in 2005. The decrease was mainly due to lower natural gas prices, higher LTIP charges and the turnaround at the Sarnia Refinery.
Capital and predevelopment expenditures amounted to $2,426 million for 2006 (excluding the BlackRock purchase price of $2.4 billion net of cash acquired) and $938 million for the fourth quarter, compared with $1,715 million and $709 million respectively for 2005. The difference was due to increased investment in growth activities in unconventional oil and gas.
Total debt outstanding at the end of 2006 was $1,435 million, which includes $1,036 million of commercial paper issued under the Company's $1.5 billion program, borrowings of $199 million against a $1-billion syndicated facility established in the second quarter of this year and $200 million for a mobile equipment lease. This compares with debt on the December 31, 2005 balance sheet of $211 million, mainly due to the mobile equipment lease. The Company also held $1,083 million in cash on December 31, 2005.
Dividends paid in the fourth quarter of 2006 were $0.11 per common share, totalling $91 million. This same level of dividend was paid in the third quarter of 2006 and the fourth quarter of 2005.
Share Information
At January 15, 2007, the Company had 825,662,514 common shares outstanding (October 15, 2006 - 825,541,514 common shares) with 21,365,238 employee stock options outstanding, of which 10,360,457 were exercisable or could be surrendered to exercise an attached share appreciation right (October 15, 2006 - 22,333,630 outstanding and 11,256,400 exercisable).
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Stock Trading Information
Fourth Quarter
2006 2005
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Share Prices (dollars)(1) - High 43.85 42.35
- Low 28.90 32.45
- Close (end of period) 43.51 42.05
Shares traded (thousands)(1) 85,578 23,719
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(1) Toronto Stock Exchange quotations
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Additional Information
Additional information relating to Shell Canada Limited filed with Canadian and U.S. securities regulatory authorities, including the Annual Information Form and Form 40-F, can be found online under the Company's profile at www.sedar.com and www.sec.gov.
Cautionary Note
This document contains "forward-looking statements" based upon management's assessment of the Company's future plans and operations. These forward-looking statements include references to the Company's plans for growth, future capital and other expenditures, drilling, development, construction and expansion plans, maintenance activities and schedules, resources and reserves estimates, future production of resources and reserves, the submission and receipt of regulatory applications, project costs and schedules, the impact of compression projects, the apportionment of pipeline capacity and oil and gas production levels.
Readers are cautioned not to place undue reliance on forward-looking statements. Although the Company believes that the expectations represented by such forward-looking statements are reasonable based on the information available to it on the date of this document, there can be no assurance that such expectations will prove to be correct. Forward-looking statements involve numerous known and unknown risks and uncertainties that could cause actual results to differ materially from those anticipated by the Company. These risks and uncertainties include, but are not limited to, the risks of the oil and gas industry (including operating conditions and costs), market competition, demand for oil, gas and related products, disruptions in supply, project start-up, schedules and execution, labour availability, material and equipment shortages, constraints on infrastructure, the uncertainties involving geology of oil and gas deposits and reserves estimates, including the assumption that the quantities estimated can be found and profitably produced in the future, the receipt of regulatory approvals, stakeholder engagement, fluctuations in oil and gas prices and foreign currency exchange rates, general economic conditions, changes in law or government policy, and other factors, many of which are beyond the control of the Company.
The forward-looking statements contained in this document are made as of the date of this document and the Company does not undertake any obligation to update publicly or revise any of the forward-looking statements contained in this document, whether as a result of new information, future events or otherwise, except as required by law. The forward-looking statements contained in this document are expressly qualified by this cautionary note.
Certain financial measures are not prescribed by Canadian generally accepted accounting principles (GAAP). These non-GAAP financial measures do not have any standardized meaning and, therefore, may not be comparable with the calculation of similar measures of other companies. The Company includes as non-GAAP measures return on average capital employed (ROACE), cash flow from operations and unit cash operating cost because they are key internal and external financial measures used to evaluate the performance of the Company.
The Company's reserves disclosure and related information are prepared in reliance on a decision of the applicable Canadian securities regulatory authorities under National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities (NI 51-101), which permits the Company to present its reserves disclosure and related information in accordance with the applicable requirements of the United States Financial Accounting Standards Board and the United States Securities and Exchange Commission. This disclosure differs from the corresponding information required by NI 51-101.
For 2006, reserves estimates associated with the BlackRock properties were prepared by an independent qualified reserves evaluator. Otherwise, the Company's reserves estimates are prepared by internal qualified reserves evaluators. With the exception of the BlackRock properties, no independent qualified reserves evaluator or auditor was involved in the preparation of the Company's reserves data.
Certain volumes have been converted to barrels of oil equivalent (BOE). BOEs may be misleading, particularly if used in isolation. A conversion of six thousand cubic feet of natural gas to one barrel of oil, as used in this document, is based on the energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.
SHELL CANADA LIMITED
Financial Highlights
($ millions, except as noted)
(unaudited)
Fourth Quarter Total year
2006 2005 2006 2005
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(restated) (restated)
Earnings 223 611 1 738 2 001
Revenues 3 581 4 043 14 806 14 394
Cash flow from operations(1) 438 926 2 614 3 036
Return on average common
shareholders' equity (%) - - 19.6 27.2
Per common share (dollars)
(Note 7)
Earnings - basic 0.27 0.74 2.11 2.43
Earnings - diluted 0.27 0.73 2.09 2.40
Dividends paid 0.110 0.110 0.440 0.367
Results by Segment (Note 3)
Earnings
Exploration & Production 53 263 499 665
Oil Sands 221 193 718 783
Oil Products 22 106 584 434
Corporate (73) 49 (63) 119
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Total 223 611 1 738 2 001
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Revenues
Exploration & Production 531 814 2 200 2 554
Oil Sands 1 024 909 3 363 3 356
Oil Products 2 641 2 985 11 367 10 779
Corporate 4 2 78 63
Inter-segment sales (619) (667) (2 202) (2 358)
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Total 3 581 4 043 14 806 14 394
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Cash flow from operations(1)
Exploration & Production 215 360 990 1 024
Oil Sands 239 363 843 1 411
Oil Products 78 216 831 527
Corporate (94) (13) (50) 74
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Total 438 926 2 614 3 036
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Capital and predevelopment
expenditures
Exploration & Production 270 319 828 796
Oil Sands 473 190 1 150 420
Oil Products 186 192 402 484
Corporate 9 8 46 15
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Total 938 709 2 426 1 715
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Return on average capital
employed (%)(2)
Exploration & Production - - 23.9 40.3
Oil Sands - - 16.6 27.8
Oil Products - - 24.0 19.8
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Total - - 18.2 26.7
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SHELL CANADA LIMITED
Operating Highlights
(unaudited)
Fourth Quarter Total year
2006 2005 2006 2005
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(restated) (restated)
EXPLORATION & PRODUCTION (Note 3)
Production
Natural gas (mmcf/d)
Western Canada natural gas 415 407 416 393
Sable natural gas 105 121 107 119
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Total natural gas - gross 520 528 523 512
- net 431 428 425 413
Ethane, propane and
butane (bbls/d) - gross 18 600 23 600 19 800 23 300
- net 14 800 18 600 15 900 18 600
Condensate (bbls/d) - gross 12 600 15 600 13 000 15 300
- net 9 600 12 000 10 100 11 800
Sulphur (tons/d) - gross 4 700 5 600 5 200 5 300
- net 4 700 5 000 5 000 4 800
Sales(3) - gross
Natural gas (mmcf/d) 507 520 514 510
Ethane, propane and
butane (bbls/d) 35 800 41 400 34 100 38 200
Condensate (bbls/d) 20 200 23 600 20 600 18 100
Sulphur (tons/d) 13 300 12 300 11 900 11 700
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OIL SANDS (Note 3)
Production
Bitumen (bbls/d) - gross
Minable 106 600 106 800 82 500 95 900
In situ 20 400 8 900 12 400 8 900
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Total 127 000 115 700 94 900 104 800
Bitumen (bbls/d) - net
Minable 105 600 105 700 81 700 95 000
In situ 20 100 8 600 12 000 8 700
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Total 125 700 114 300 93 700 103 700
Sales(3)
Synthetic crude sales excluding
blend stocks (bbls/d) 113 100 112 300 85 900 99 400
Purchased upgrader blend
stocks (bbls/d) 39 300 42 900 35 400 37 100
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Total synthetic crude
sales (bbls/d) 152 400 155 200 121 300 136 500
Bitumen product excluding
diluent (bbls/d) 22 500 10 200 13 100 9 900
Purchased diluent (bbls/d) 6 100 2 100 3 000 1 900
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Total bitumen products (bbls/d) 28 600 12 300 16 100 11 800
In situ condensate (bbls/d) 3 200 3 100 2 700 2 400
Unit Costs(4)
Mining and upgrading operations
Cash operating cost
- excluding natural
gas ($/bbl) 19.42 16.73 23.49 17.14
- natural gas ($/bbl) 4.84 7.15 5.24 6.08
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Total cash operating cost ($/bbl) 24.26 23.88 28.73 23.22
Depreciation, depletion
and amortization ($/bbl) 4.84 5.14 5.53 5.77
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Total unit cost ($/bbl) 29.10 29.02 34.26 28.99
Unit Costs(4)
In situ operations
Cash operating cost
- excluding natural gas ($/bbl) 11.87 12.04 14.02 13.65
- natural gas ($/bbl) 2.90 5.71 5.85 9.56
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Total cash operating cost ($/bbl) 14.77 17.75 19.87 23.21
Depreciation, depletion
and amortization ($/bbl) 7.61 6.45 7.85 5.11
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Total unit cost ($/bbl) 22.38 24.20 27.72 28.32
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OIL PRODUCTS
Sales(3)
Gasolines (m3/d) 20 800 20 900 20 800 21 000
Middle distillates (m3/d) 20 200 22 900 20 000 21 000
Other products (m3/d) 6 400 7 300 6 500 7 100
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Total Oil Products sales (m3/d) 47 400 51 100 47 300 49 100
Crude oil processed by
Shell refineries (m3/d)(5) 44 200 41 500 44 600 44 900
Refinery utilization (per cent)(6) 84 80 86 87
Earnings per litre (cents)(7) 0.5 2.3 3.4 2.4
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Prices
Natural gas average plant
gate netback price ($/mcf) 6.51 11.53 6.79 8.23
Ethane, propane and butane
average field gate price ($/bbl) 30.56 44.41 33.94 34.79
Condensate average field
gate price ($/bbl) 63.93 68.30 71.63 66.76
Synthetic crude average plant
gate price ($/bbl) 55.56 56.99 61.32 57.55
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(Financial Charts)
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Natural Gas Ethane, Propane Condensate Avg. Synthetic Crude
Avg. Price and Butane Price Avg. Price
(Plant Gate Avg. Price (Field Gate) (Plant Gate)
Netback) (Field Gate) ($/bbl) ($/bbl)
($/mcf) ($/bbl)
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Q4 05 11.53 44.41 68.30 56.99
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Q1 06 8.29 38.04 72.30 57.04
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Q2 06 6.53 31.84 76.78 67.72
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Q3 06 5.81 34.79 76.69 68.37
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Q4 06 6.51 30.56 63.93 55.56
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SHELL CANADA LIMITED
Financial and Operating Highlights
(unaudited)
Non-GAAP Measures
Certain financial measures are not prescribed by Canadian generally
accepted accounting principles (GAAP). These non-GAAP financial measures
do not have any standardized meaning and, therefore, may not be
comparable with the calculation of similar measures for other companies.
The Corporation includes as non-GAAP measures return on average capital
employed (ROACE), cash flow from operations and unit cash operating cost
because they are key internal and external financial measures used to
evaluate the performance of the Corporation.
Definitions
(1) Cash flow from operations is a non-GAAP measure and is defined as
cash flow from operating activities before movement in working
capital and operating activities.
(2) ROACE is a non-GAAP measure and is defined as earnings plus after-tax
interest expense on debt divided by the average of opening and
closing common shareholders' equity plus preference shares,
long-term debt and short-term borrowings.
(3) Exploration & Production and Oil Products sales volumes include sales
to third parties only. Oil Sands sales volumes include third-party
and inter-segment sales.
(4) Total unit cost for Oil Sands, including unit cash operating and unit
depreciation, depletion and amortization (DD&A) costs, is a non-GAAP
measure. Unit cash operating cost for Oil Sands mining and upgrading
is defined as: operating, selling and general expenses plus cash cost
items included in cost of goods sold (COGS), divided by synthetic
crude sales excluding blend stocks. Operating, selling and general
expenses associated with mining and upgrading were $725 million in
the year of 2006 and $199 million in the fourth quarter of 2006. Cash
cost items included in COGS were $176 million in the year of 2006 and
$53 million in the fourth quarter of 2006.
Unit cash operating cost for in situ operations is defined as:
operating, selling and general expenses plus inter-segment purchases
of natural gas, divided by bitumen product sales excluding diluent.
Operating, selling and general expenses associated with in situ
operations were $67 million in the year of 2006 and $24 million in
the fourth quarter of 2006. Inter-segment purchases of natural gas
were $28 million in the year of 2006 and $6 million in the fourth
quarter of 2006.
Unit DD&A cost for Oil Sands mining and upgrading is defined as: DD&A
cost divided by synthetic crude sales excluding blend stocks. Unit
DD&A cost includes preproduction costs, which were written off over
the first three years of the project life (2003-2005).
Unit DD&A cost for in situ operations is defined as: DD&A cost
divided by bitumen product sales excluding diluent.
Total mining unit cost includes long-term incentive plan (LTIP) costs
totalling $0.42/bbl in the year of 2006 (2005 - $1.32/bbl) and
$3.82/bbl for the fourth quarter of 2006 (2005 - $0.57/bbl).
Total in-situ unit cost includes LTIP costs totalling $0.47/bbl in
the year of 2006 (2005 - $2.25/bbl) and $2.14/bbl for the fourth
quarter of 2006 (2005 - $1.21/bbl).
(5) Crude oil processed by Shell refineries includes upgrader feedstock
supplied to Scotford Refinery.
(6) Refinery utilization equals crude oil processed by Shell refineries
divided by total capacity of Shell refineries, including capacity
uplifts at Scotford Refinery due to processing of various streams
from the upgrader.
(7) Oil Products earnings per litre equals Oil Products earnings
after-tax divided by total Oil Products sales volumes.
SHELL CANADA LIMITED
Consolidated Statement of Earnings and Retained Earnings
($ millions, except as noted)
(unaudited)
Fourth Quarter Total year
2006 2005 2006 2005
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(restated) (restated)
Revenues
Sales and other operating
revenues 3 506 4 025 14 651 14 171
Dividends, interest and
other income 75 18 155 223
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Total revenues 3 581 4 043 14 806 14 394
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Expenses
Cost of goods sold 1 970 2 197 8 627 7 900
Operating, selling and
general (Note 2) 880 648 2 494 2 419
Transportation 85 84 306 331
Exploration 45 22 131 120
Predevelopment 49 15 149 64
Depreciation, depletion,
amortization and retirements 232 216 822 782
Interest on long-term debt 3 2 10 8
Other interest and
financing charges 15 - 32 3
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Total expenses 3 279 3 184 12 571 11 627
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Earnings
Earnings before income tax 302 859 2 235 2 767
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Current income tax 88 161 518 602
Future income tax (9) 87 (21) 164
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Total income tax 79 248 497 766
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Earnings 223 611 1 738 2 001
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Per common share
(dollars) (Note 7)
Earnings - basic 0.27 0.74 2.11 2.43
Earnings - diluted 0.27 0.73 2.09 2.40
Common shares outstanding
(millions - weighted average) 826 825 825 825
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Retained Earnings
Balance at beginning of period 8 918 7 155 7 675 6 009
Earnings 223 611 1 738 2 001
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9 141 7 766 9 413 8 010
Common shares buy-back - - - 33
Dividends 91 91 363 302
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Balance at end of period 9 050 7 675 9 050 7 675
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SHELL CANADA LIMITED
Consolidated Statement of Cash Flows
($ millions)
(unaudited)
Fourth Quarter Total year
2006 2005 2006 2005
-------------------------------------------------------------------------
(restated) (restated)
Cash from Operating Activities
Earnings 223 611 1 738 2 001
Exploration and predevelopment 31 19 111 99
Non-cash items
Depreciation, depletion,
amortization and retirements 232 216 822 782
Future income tax (9) 87 (21) 164
Other items (39) (7) (36) (10)
-------------------------------------------------------------------------
Cash flow from operations 438 926 2 614 3 036
Movement in working capital
and operating activities
Accounts receivable
securitization program - - - (150)
Other working capital
and operating items (Note 2) 347 419 (117) 175
-------------------------------------------------------------------------
785 1 345 2 497 3 061
-------------------------------------------------------------------------
Cash Invested
Capital and predevelopment
expenditures (938) (709) (2 426) (1 715)
Acquisition of BlackRock
Ventures Inc. (Note 4) - - (2 428) -
Movement in working capital
from investing activities 148 53 309 69
-------------------------------------------------------------------------
Capital expenditures and
movement in working capital (790) (656) (4 545) (1 646)
Proceeds on disposal of
properties, plant and equipment 105 1 106 6
Investments and other 7 - (19) -
-------------------------------------------------------------------------
(678) (655) (4 458) (1 640)
-------------------------------------------------------------------------
Cash from Financing Activities
Common shares buy-back - - - (34)
Proceeds from exercise of
common share stock options 2 - 7 6
Redemption of preference
shares (Note 9) - - (1) -
Dividends paid (91) (91) (363) (302)
Long-term debt and other - - - (135)
Short-term financing (18) - 1 235 -
-------------------------------------------------------------------------
(107) (91) 878 (465)
-------------------------------------------------------------------------
(Decrease) Increase in cash - 599 (1 083) 956
Cash at beginning of period - 484 1 083 127
-------------------------------------------------------------------------
Cash at December 31(1) - 1 083 - 1 083
-------------------------------------------------------------------------
Supplemental disclosure of
cash flow information
Dividends received 4 5 13 15
Interest received 4 8 57 42
Interest paid 16 2 42 12
Income tax paid 142 123 743 683
(1) Cash comprises cash and highly liquid short-term investments.
SHELL CANADA LIMITED
Consolidated Balance Sheet
($ millions)
(unaudited)
Dec. 31, Dec. 31,
2006 2005
-------------------------------------------------------------------------
(restated)
Assets
Current assets
Cash and short-term investments - 1 083
Accounts receivable 1 940 1 821
Inventories
Crude oil, products and merchandise 523 535
Materials and supplies 100 92
Prepaid expenses 50 71
Future income tax 299 327
-------------------------------------------------------------------------
2 912 3 929
Investments, long-term receivables and other 741 671
Properties, plant and equipment 13 669 9 066
Goodwill (Notes 4 and 5) 234 -
-------------------------------------------------------------------------
Total assets 17 556 13 666
-------------------------------------------------------------------------
Liabilities
Current liabilities
Short-term borrowings (Note 6) 1 235 -
Accounts payable, accrued liabilities
and other (Note 2) 2 752 2 272
Income and other taxes payable 535 687
Current portion of asset retirement and
other long-term obligations 101 26
Current portion of long-term debt 3 11
-------------------------------------------------------------------------
4 626 2 996
Asset retirement and other long-term obligations 611 538
Long-term debt 197 200
Future income tax 2 542 1 733
-------------------------------------------------------------------------
Total liabilities 7 976 5 467
-------------------------------------------------------------------------
Shareholders' Equity
Capital stock
100 4% preference shares (Note 9) - 1
825 662 514 common shares (2005 - 825 102 612) 530 523
Retained earnings 9 050 7 675
-------------------------------------------------------------------------
Total shareholders' equity 9 580 8 199
-------------------------------------------------------------------------
Total liabilities and shareholders' equity 17 556 13 666
-------------------------------------------------------------------------
SHELL CANADA LIMITED
Segmented Information
($ millions)
(unaudited)
Fourth Quarter
Exploration
Total & Production Oil Sands
2006 2005 2006 2005 2006 2005
-------------------------------------------------------------------------
(restated) (restated) (restated)
(Note 3) (Note 3)
Revenues
Sales and other
operating revenues 3 506 4 025 459 740 545 435
Inter-segment sales - - 70 73 428 474
Dividends, interest
and other income 75 18 2 1 51 -
-------------------------------------------------------------------------
Total revenues 3 581 4 043 531 814 1 024 909
-------------------------------------------------------------------------
Expenses
Cost of goods sold 1 970 2 197 - - 267 243
Inter-segment
purchases - - 46 62 120 116
Operating, selling
and general 880 648 171 128 223 191
Transportation 85 84 85 84 - -
Exploration 45 22 45 22 - -
Predevelopment 49 15 7 8 32 7
Depreciation,
depletion,
amortization and
retirements 232 216 107 93 66 59
Interest on
long-term debt 3 2 - - - -
Other interest and
financing charges 15 - - - - -
-------------------------------------------------------------------------
Total expenses 3 279 3 184 461 397 708 616
-------------------------------------------------------------------------
Earnings (loss)
Earnings (loss)
before income tax 302 859 70 417 316 293
-------------------------------------------------------------------------
Current income tax 88 161 (5) 163 112 (4)
Future income tax (9) 87 22 (9) (17) 104
-------------------------------------------------------------------------
Total income tax 79 248 17 154 95 100
-------------------------------------------------------------------------
Earnings (loss) 223 611 53 263 221 193
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Fourth Quarter
Oil Products Corporate
2006 2005 2006 2005
-------------------------------------------------------
(restated) (restated)
Revenues
Sales and other
operating revenues 2 502 2 857 - (7)
Inter-segment sales 121 120 - -
Dividends, interest
and other income 18 8 4 9
-------------------------------------------------------
Total revenues 2 641 2 985 4 2
-------------------------------------------------------
Expenses
Cost of goods sold 1 706 1 957 (3) (3)
Inter-segment
purchases 453 489 - -
Operating, selling
and general 391 305 95 24
Transportation - - - -
Exploration - - - -
Predevelopment 10 - - -
Depreciation,
depletion,
amortization and
retirements 58 63 1 1
Interest on
long-term debt - - 3 2
Other interest and
financing charges - - 15 -
-------------------------------------------------------
Total expenses 2 618 2 814 111 24
-------------------------------------------------------
Earnings (loss)
Earnings (loss)
before income tax 23 171 (107) (22)
-------------------------------------------------------
Current income tax (6) 11 (13) (9)
Future income tax 7 54 (21) (62)
-------------------------------------------------------
Total income tax 1 65 (34) (71)
-------------------------------------------------------
Earnings (loss) 22 106 (73) 49
-------------------------------------------------------
-------------------------------------------------------
Total Year
Exploration
Total & Production Oil Sands
2006 2005 2006 2005 2006 2005
-------------------------------------------------------------------------
(restated) (restated) (restated)
(Note 3) (Note 3)
Revenues
Sales and other
operating revenues 14 651 14 171 1 977 2 253 1 782 1 553
Inter-segment sales - - 216 275 1 524 1 671
Dividends, interest
and other income 155 223 7 26 57 132
-------------------------------------------------------------------------
Total revenues 14 806 14 394 2 200 2 554 3 363 3 356
-------------------------------------------------------------------------
Expenses
Cost of goods sold 8 627 7 900 - - 1 024 790
Inter-segment
purchases - - 221 241 417 416
Operating, selling
and general 2 494 2 419 446 467 792 692
Transportation 306 331 306 331 - -
Exploration 131 120 131 120 - -
Predevelopment 149 64 36 38 92 26
Depreciation,
depletion,
amortization and
retirements 822 782 378 348 211 228
Interest on
long-term debt 10 8 - - - -
Other interest and
financing charges 32 3 - - - -
-------------------------------------------------------------------------
Total expenses 12 571 11 627 1 518 1 545 2 536 2 152
-------------------------------------------------------------------------
Earnings (loss)
Earnings (loss)
before income tax 2 235 2 767 682 1 009 827 1 204
-------------------------------------------------------------------------
Current income tax 518 602 153 411 195 41
Future income tax (21) 164 30 (67) (86) 380
-------------------------------------------------------------------------
Total income tax 497 766 183 344 109 421
-------------------------------------------------------------------------
Earnings (loss) 1 738 2 001 499 665 718 783
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Total assets 17 556 13 666 3 585 3 261 8 886 4 274
Capital employed(1) 11 015 8 410 2 292 1 884 5 982 2 680
Total Year
Oil Products Corporate
2006 2005 2006 2005
-------------------------------------------------------
(restated) (restated)
Revenues
Sales and other
operating revenues 10 870 10 343 22 22
Inter-segment sales 462 412 - -
Dividends, interest
and other income 35 24 56 41
-------------------------------------------------------
Total revenues 11 367 10 779 78 63
-------------------------------------------------------
Expenses
Cost of goods sold 7 599 7 108 4 2
Inter-segment
purchases 1 564 1 701 - -
Operating, selling
and general 1 153 1 139 103 121
Transportation - - - -
Exploration - - - -
Predevelopment 21 - - -
Depreciation,
depletion,
amortization and
retirements 229 204 4 2
Interest on
long-term debt - - 10 8
Other interest and
financing charges - - 32 3
-------------------------------------------------------
Total expenses 10 566 10 152 153 136
-------------------------------------------------------
Earnings (loss)
Earnings (loss)
before income tax 801 627 (75) (73)
-------------------------------------------------------
Current income tax 190 296 (20) (146)
Future income tax 27 (103) 8 (46)
-------------------------------------------------------
Total income tax 217 193 (12) (192)
-------------------------------------------------------
Earnings (loss) 584 434 (63) 119
-------------------------------------------------------
-------------------------------------------------------
Total assets 4 846 4 688 239 1 443
Capital employed(1) 2 599 2 275 142 1 571
(1) Capital employed is the total of equity, long-term debt and
short-term borrowings.
SHELL CANADA LIMITED
Notes to Consolidated Financial Statements
(unaudited)
1. Accounting Policies
These financial statements follow the same accounting policies and
methods of computation as, and should be read in conjunction with, the
Consolidated Financial Statements for the year ended December 31, 2005,
except as described in notes 2, 3 and 4.
Certain other information provided for prior periods has been
reclassified to conform to the current presentation.
2. Change in Accounting Policy
Shell Canada adopted Emerging Issues Committee (EIC) Abstract 162
"Stock Based Compensation For Employees Eligible to Retire Before The
Vesting Date" with prior period restatement as required. The EIC mandates
that employees who are eligible to retire at the grant date, or will
become eligible to retire during the vesting period, should have their
stock-based compensation awards recognized at the earliest eligible
retirement date.
The impact of this change resulted in a long-term incentive plan (LTIP)
reduction in expense of $10 million for the year ended December 31, 2006
(2005 - $13 million increase in expense). These changes will also result
in corresponding increases/decreases to the Cash from Operating
Activities section of the Consolidated Statement of Cash Flows. Earnings
per common share are increased by 0.01 for the period ended
December 31, 2006 (2005 -0.01 decrease). On a diluted basis, earnings per
common share are increased by 0.02 (2005 -0.01 decrease).
3. Segmented Information
Effective January 1, 2006, the Peace River business was transferred from
Exploration & Production to the Oil Sands business unit. Segmented
information for the relevant business units has been reclassified for the
prior periods.
4. Acquisition of BlackRock Ventures Inc.
On June 21, 2006, the Corporation acquired more than 92 per cent of the
outstanding common shares of BlackRock Ventures Inc. (BlackRock). The
original offer was extended to June 27, 2006, and again to July 10, 2006,
and additional common shares were acquired. The Corporation completed its
acquisition of BlackRock and acquired all of the remaining common shares
by way of compulsory acquisition on July 11, 2006. BlackRock was engaged
in the development and production of heavy oil in Western Canada.
The Corporation's total consideration for the transaction was
$2,570 million ($2,428 million net of cash acquired) including
acquisition costs of $12 million and working capital of $108 million. Of
the consideration paid, $3,092 million was allocated to oil and natural
gas properties and $234 million was allocated to goodwill.
The acquisition was accounted for based on the purchase method and the
allocation was supported by a third-party valuation. A summary of the
purchase equation is presented as follows:
Net assets acquired ($ millions)
Oil and natural gas properties 3 092
Goodwill(1) 234
Working capital(2) 108
Other assets 1
Asset retirement obligations (11)
Future income tax liability (854)
-----------
2 570
-----------
-----------
(1) The $234 million of goodwill has no tax basis and was allocated to
the Oil Sands business unit.
(2) Working capital acquired includes cash of $142 million.
5. Goodwill
The goodwill is entirely due to the timing difference created between the
tax basis of the assets compared to the fair value. Goodwill is not
subject to amortization, but is tested for impairment on an annual basis,
or more frequently if events occur that could result in impairment, by
applying a fair value-based test.
6. Short-term borrowings
The Corporation entered into a $1 billion revolving credit facility ("the
facility") during the second quarter of 2006. The facility was arranged
with a syndicate of banks and matures on June 15, 2008.
This facility, along with the already established $1.5 billion commercial
paper program, provided the Corporation with $2.5 billion of borrowing
capacity. At December 31, 2006, the outstanding balance on the revolving
credit facility was $199 million in the form of short-term borrowings
that had an effective interest rate of 4.44 per cent. At December 31,
2006, the outstanding balance on the commercial paper program was
$1,036 million at an effective interest rate of 4.39 per cent.
7. Earnings Per Share
Fourth Quarter Total Year
2006 2005 2006 2005
-------------------------------------------------------------------------
(restated) (restated)
Earnings ($ millions) 223 611 1 738 2 001
Weighted average number of common
shares (millions) 826 825 825 825
Dilutive securities (millions)
Options under Long Term Incentive
Plan 9 10 8 9
Basic earnings per share
($ per share) 0.27 0.74 2.11 2.43
Diluted earnings per share
($ per share) 0.27 0.73 2.09 2.40
8. Employee Future Benefits
The Corporation's pension plans are described in the notes to the
Consolidated Financial Statements for the year ended December 31, 2005.
The components of the pension expense in the Consolidated Statement of
Earnings are as follows:
Fourth Quarter
($ millions) Pension Benefits Other Benefits
2006 2005 2006 2005
-------------------------------------------------------------------------
Current service cost 12 10 - -
Employee contributions - - - -
Interest cost 32 31 3 3
Expected return on plan assets (37) (35) - -
Amortization of transitional
(asset) obligation (9) (9) 1 1
Amortization of net actuarial
loss 22 17 - -
-------------------------------------------------------------------------
Net expense 20 14 4 4
Defined contribution segment 5 5 - -
-------------------------------------------------------------------------
Total 25 19 4 4
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Total Year
($ millions) Pension Benefits Other Benefits
2006 2005 2006 2005
-------------------------------------------------------------------------
Current service cost 46 37 2 2
Employee contributions (3) (3) - -
Interest cost 128 127 11 10
Expected return on plan assets (147) (137) - -
Amortization of transitional
(asset) obligation (36) (36) 2 2
Amortization of net actuarial
loss 88 71 3 -
-------------------------------------------------------------------------
Net expense 76 59 18 14
Defined contribution segment 25 15 - -
-------------------------------------------------------------------------
Total 101 74 18 14
-------------------------------------------------------------------------
-------------------------------------------------------------------------
9. Redemption of Preference Shares
Effective September 30, 2006, the Corporation redeemed the previously
outstanding 100 preference shares for cash consideration in accordance
with their terms.