Management's Discussion and Analysis
Second Quarter 2005
CALGARY, July 21 /CNW/ - Shell Canada Limited announces record quarterly
earnings of $526 million or $0.64 per common share in the second quarter of
2005, up $241 million from $285 million or $0.35 per common share (adjusted
for the June 2005 share split) for the same period in 2004. Earnings for the
first six months of 2005 are $943 million compared with $653 million for the
same period in 2004. Continuing strong commodity prices and refining margins
contributed to the results. The second quarter included an after-tax insurance
settlement of $82 million and a $40 million favourable adjustment related to
the use of non-capital losses available to the Company. The quarterly impact
of the Company's Long Term Incentive Plan (LTIP) resulted in a $38 million
charge to earnings due to strong appreciation in the share price.
Cash flow from operations reached new records of $823 million for the
quarter and $1,477 million for the first six months of 2005, up $296 million
and $398 million respectively from the same periods in 2004.
Capital, exploration and pre-development expenditures were $347 million
for the second quarter and $633 million for the first six months of 2005
versus $218 million and $368 million respectively for 2004.
"All three business units contributed to Shell Canada's record earnings
for the second quarter of 2005. Oil Sands and Oil Products each delivered a
record performance and Oil Sands achieved a new milestone with production
averaging above design for the quarter," said Clive Mather, President and
Chief Executive Officer, Shell Canada Limited. "These excellent results will
help our Company to pursue its growth agenda."
<<
Earnings ($ millions)
Q2 04 Q3 04 Q4 04 Q1 05 Q2 05
285 451 182 417 526
Cash Flow ($ millions)
Q2 04 Q3 04 Q4 04 Q1 05 Q2 05
527 667 604 654 823
Capital Expenditures ($ millions)
Q2 04 Q3 04 Q4 04 Q1 05 Q2 05
218 312 341 286 347
SHELL CANADA LIMITED
SEGMENTED INFORMATION
Exploration & Production
Exploration & Production earnings in the second quarter of 2005 were
$114 million compared with earnings of $91 million reported for the same
period in 2004. The positive impact of strong commodity prices was partially
offset by lower volumes due to planned turnarounds and regional flood damage
that curtailed production at some Shell and third-party facilities in the
central Alberta Foothills. Expenses in the quarter include an after-tax charge
of $11 million related to the LTIP. Exploration and pre-development expenses
were lower when compared to the same quarter of 2004, which included the
Weymouth dry hole writeoff. In the quarter, the Company also recorded a
favourable tax settlement of $22 million related to prior year returns. Due to
strong commodity prices and a favourable tax adjustment offset by lower
volumes and higher costs, Exploration & Production earnings for the first half
of 2005 were $245 million compared with $247 million in 2004.
Natural gas production volumes in Western Canada and the Sable Offshore
Energy Project (SOEP) were lower than in the second quarter of 2004 due to
normal field decline and turnaround activity. Production from the Tay River
discovery came on stream May 6, 2005, but was curtailed during the quarter due
to a turnaround at the third-party operated Ram River gas plant. Re-tubing of
the Tay River well late in the third quarter is expected to increase total
production rate to in excess of 50 million cubic feet per day from 30 million
cubic feet per day. At SOEP, the second and third wells in the South Venture
field came on stream in the second quarter and will help to offset field
decline.
In the second quarter of 2005, Peace River volumes were up from the same
period of 2004 due mainly to the plant turnaround completed in 2004. Drilling
of two additional well pads in Peace River will begin in the third quarter
with new production expected to come on stream late 2006.
At the end of April, the Mackenzie Gas Project (MGP) halted project
execution activities due to a lack of progress on key commercial and
regulatory issues. The project owners continue to work with governments,
Aboriginal communities and other stakeholders to resolve these key issues.
Shell remains committed to the MGP and to successfully addressing these areas
of concern so that the project can proceed through the regulatory review
process.
Oil Sands
Oil Sands achieved record quarterly earnings of $264 million in the
second quarter of 2005, compared with $96 million for the same period in 2004.
Earnings in the second quarter of 2005 include $82 million related to the
previously announced insurance settlement and an after-tax charge of
$6 million related to the Company's LTIP. Even without these items, second-
quarter earnings were up significantly over both the second quarter 2004 and
the prior quarter due to higher prices, higher volumes and lower unit costs.
Oil Sands earnings for the first half of 2005 were $367 million compared with
$192 million in 2004 due to the same factors.
Both absolute commodity prices and heavy oil market differentials affect
average synthetic crude price realizations. In the second quarter of 2005,
commodity values continued to strengthen and were considerably higher than in
the same period last year. However, heavy oil market differentials increased
more significantly year-over-year and were higher than in the prior quarter.
The average synthetic crude oil price in the second quarter of 2005 increased,
but the differential versus Edmonton light crude was much wider than last year
and up from the first quarter of 2005.
Shell's share of bitumen production averaged 98,500 barrels per day
(bbls/d) in the second quarter of 2005, up 16 per cent from 85,200 bbls/d in
the same period of 2004 and 25 per cent over the prior quarter. Total bitumen
production averaged 164,200 bbls/d in the second quarter of 2005, which was
above the design rate of 155,000 bbls/d and set a new quarterly production
record.
Unit cash operating costs in the second quarter of 2005 averaged $20.46
per barrel. This was $3.75 per barrel below the preceding quarter and down
$0.53 per barrel versus the same period last year due to the higher production
volumes. High costs for energy, materials and services plus LTIP charges are
offsetting initiatives to further reduce unit operating costs.
In June, Shell Canada achieved final settlement with insurance
underwriters on the loss-of-profit claim related to the January 6, 2003, fire
at the Muskeg River Mine. The settlement resulted in an after-tax earnings
contribution of $82 million in the second quarter. Physical damage claims
related to the fire were previously settled and the Company has no further
claims against insurers with respect to the January 2003 fire.
Oil Products
Oil Products achieved record quarterly earnings of $128 million. Earnings
for the same period in 2004 were $110 million. The improvement was due mainly
to increased yield and utilization at the Montreal East Refinery, which
underwent a major turnaround during the same period last year. The Scotford
Refinery also made a strong contribution due to more upgrader feed and higher
light oil production. Refining margins remained strong in the second quarter
of 2005 with distillate offsetting weaker gasoline margins. Second-quarter
results also included a $12 million after-tax charge related to the LTIP. Oil
Products earnings for the first half of 2005 were $251 million compared with
$228 million in 2004 with improved refinery yield and utilization, and sales
volumes partially offsetting higher commodity price related costs.
Light oil volumes were seven per cent higher than in the second quarter
of 2004 reflecting improvement in all marketing channels. Operating expenses
increased over the same quarter last year mainly due to the LTIP charges and
higher advertising expenses for the launch of Shell V-Power(TM) gasoline,
offset in part by lower refinery turnaround costs. A planned turnaround
scheduled in September will affect production at the Scotford Refinery.
(TM) Trademark of Shell Canada Limited. Used under licence by Shell
Canada Products
Corporate
Corporate earnings for the second quarter of 2005 were $20 million
compared with negative earnings of $12 million for the same period in 2004.
The increase was due to the use of the non-capital losses available to the
Company from the acquisition of an affiliated company, Coral Resources Canada
ULC, in the fourth quarter of 2004. Second-quarter earnings also included a
$9 million after-tax charge related to the LTIP. Corporate earnings for the
first half of 2005 were $80 million, compared with negative earnings of
$14 million in 2004 due to the use of the non-capital losses totalling
$99 million.
Cash Flow and Financing
Second-quarter cash flow from operations was $823 million. Sales under
Shell's accounts receivables securitization program were held constant at
$150 million. Continued strong cash flow during the quarter resulted in cash
on hand of $296 million, which is invested in short-term money market
instruments.
On May 3, 2005, Shell Canada's normal course issuer bid expired. On April
30, 2004, the Company announced its intention to make a normal course issuer
bid to repurchase for cancellation up to one per cent of its issued and
outstanding common shares as at April 27, 2004. The bid, which began May 4,
2004, was used to counter dilution resulting from the issuance of common
shares under Shell Canada's LTIP. At May 3, 2005, a total of 3,557,241 common
shares (adjusted for the share split) had been repurchased and cancelled at
market prices for a cost of $88 million, which includes $34 million of shares
purchased in 2005.
Outstanding Shares
At Shell Canada's Annual and Special Meeting of Shareholders held on
April 29, 2005, shareholders approved a three-for-one division, or share
split, of the Company's authorized common shares. The share split took place
on June 21, 2005, and was effective for shareholders of record on June 23,
2005. The numbers quoted below have been adjusted for the share split. At July
15, 2005, the Company had 824,992,312 common shares and 100 preference shares
outstanding (April 22, 2005 - 824,903,895 common shares and 100 preference
shares) and there were 22,340,611 employee stock options outstanding, of which
10,939,801 were exercisable or could be surrendered to exercise an attached
share appreciation right (April 22, 2005 - 22,835,994 outstanding and
11,425,434 exercisable).
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 Shell Canada's
profile at www.sedar.com and www.sec.gov.
This document contains "forward-looking statements" based upon current
expectations, estimates and projections of future production, project startup
and future capital spending. Forward-looking statements include, but are not
limited to, references to future capital and other expenditures, drilling
plans, construction activities, the submission of regulatory applications,
refining margins, oil and gas production levels, resources and reserves
estimates.
Readers are cautioned not to place undue reliance on forward-looking
statements. Forward-looking statements involve numerous risks and
uncertainties that could cause actual results to differ materially from those
anticipated by the Corporation. These risks and uncertainties include, but are
not limited to, the risks of the oil and gas industry (including operating
conditions and costs), demand for oil, gas and related products, disruptions
in supply, project schedules, the uncertainties involving geology of oil and
gas deposits, the uncertainty of reserves estimates, fluctuations in oil and
gas prices and foreign currency exchange rates, general economic conditions,
commercial negotiations, changes in law or government policy, and other
factors, many of which are beyond the control of the Corporation.
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 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.
SHELL CANADA LIMITED
Financial Highlights
($ millions, except as noted)
(unaudited)
Second Quarter First Half
2005 2004 2005 2004
-------------------------------------------------------------------------
Earnings 526 285 943 653
Revenues 3 390 2 640 6 395 5 154
Cash flow from operations(1) 823 527 1 477 1 079
Return on average common
shareholders' equity (%) - - 23.6 19.0
Per common share (dollars)
(Note 3)
Earnings - basic (Note 4) 0.64 0.35 1.14 0.79
Earnings - diluted (Note 4) 0.63 0.34 1.13 0.79
Dividends paid 0.083 0.073 0.167 0.146
Results by Segment
Earnings
Exploration & Production 114 91 245 247
Oil Sands 264 96 367 192
Oil Products 128 110 251 228
Corporate 20 (12) 80 (14)
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Total 526 285 943 653
-------------------------------------------------------------------------
Revenues
Exploration & Production 537 530 1 107 1 057
Oil Sands 883 490 1 420 1 002
Oil Products 2 516 2 013 4 842 3 847
Corporate 11 - 31 19
Inter-segment sales (557) (393) (1 005) (771)
-------------------------------------------------------------------------
Total 3 390 2 640 6 395 5 154
-------------------------------------------------------------------------
Cash flow from operations(1)
Exploration & Production 226 231 471 469
Oil Sands 415 180 628 352
Oil Products 149 128 265 272
Corporate 33 (12) 113 (14)
-------------------------------------------------------------------------
Total 823 527 1 477 1 079
-------------------------------------------------------------------------
Capital, exploration and
predevelopment expenditures
Exploration & Production 231 135 406 234
Oil Sands 19 24 70 54
Oil Products 95 58 154 76
Corporate 2 1 3 4
-------------------------------------------------------------------------
Total 347 218 633 368
-------------------------------------------------------------------------
Return on average capital
employed (%)(2)
Exploration & Production - - 23.7 25.8
Oil Sands - - 19.3 7.3
Oil Products - - 21.5 18.0
-------------------------------------------------------------------------
Total - - 22.1 16.0
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SHELL CANADA LIMITED
Operating Highlights
(unaudited)
Second Quarter First Half
2005 2004 2005 2004
-------------------------------------------------------------------------
EXPLORATION & PRODUCTION
Production
Natural gas (mmcf/d)
Western Canada natural gas 372 401 387 414
Sable natural gas 115 129 115 134
---------------------------------------------
Total natural gas - gross 487 530 502 548
- net 393 436 405 452
Ethane, propane and butane
(bbls/d) - gross 23 500 24 000 23 900 24 200
- net 18 600 19 500 18 900 19 300
Condensate (bbls/d) - gross 14 900 14 600 15 000 15 100
- net 11 200 11 400 11 400 11 800
Bitumen (bbls/d) - gross 8 500 6 000 7 700 7 300
- net 8 300 5 900 7 500 7 100
Sulphur (tons/d) - gross 5 000 5 400 5 200 5 600
- net 4 200 4 300 4 500 4 700
Sales(3) - gross
Natural gas (mmcf/d) 481 538 497 544
Ethane, propane and butane
(bbls/d) 35 800 36 700 38 500 42 400
Condensate (bbls/d) 17 000 21 000 21 300 19 500
Bitumen products (bbls/d) 10 300 9 400 9 800 10 700
Sulphur (tons/d) 12 500 11 600 11 600 11 100
-------------------------------------------------------------------------
OIL SANDS
Production
Bitumen (bbls/d) - gross 98 500 85 200 88 800 83 400
- net 97 500 84 300 87 900 82 500
Sales(3)
Synthetic crude sales
excluding blend stocks
(bbls/d) 102 300 84 800 92 000 86 000
Purchased upgrader blend
stocks (bbls/d) 39 900 34 700 35 500 38 100
---------------------------------------------
Total synthetic crude sales
(bbls/d) 142 200 119 500 127 500 124 100
Unit Costs(4)
Cash operating cost -
excluding natural gas
($/bbl) 15.84 14.92 16.91 15.90
Cash operating cost -
natural gas ($/bbl) 4.62 6.07 5.20 5.78
---------------------------------------------
Total cash operating cost
($/bbl) 20.46 20.99 22.11 21.68
Depreciation, depletion
and amortization ($/bbl) 5.52 5.23 6.21 5.10
---------------------------------------------
Total unit cost ($/bbl) 25.98 26.22 28.32 26.78
Second Quarter First Half
2005 2004 2005 2004
-------------------------------------------------------------------------
OIL PRODUCTS
Sales(3)
Gasolines (m3/d) 21 300 20 300 20 800 20 100
Middle distillates (m3/d) 19 100 17 400 20 400 18 500
Other products (m3/d) 7 300 6 600 6 600 6 300
---------------------------------------------
Total Oil Products sales
(m3/d) 47 700 44 300 47 800 44 900
Crude oil processed by Shell
refineries (m3/d)(5) 46 500 39 000 46 600 42 500
Refinery utilization
(per cent)(6) 90 78 90 85
Earnings per litre (cents)(7) 3.0 2.7 2.9 2.8
-------------------------------------------------------------------------
Prices
Natural gas average plant
gate netback price ($/mcf) 6.89 6.44 6.62 6.49
Ethane, propane and butane
average field gate price
($/bbl) 29.87 24.70 30.08 26.76
Condensate average field
gate price ($/bbl) 63.98 50.04 63.67 47.14
Synthetic crude average
plant gate price ($/bbl) 54.44 44.68 53.13 42.42
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Natural Gas Ethane, Propane Synthetic
Avg. Price and Butane Condensate Crude
(Plant Gate Avg. Price Avg. Price Avg. Price
Netback) (Field Gate) (Field Gate) (Plant Gate)
($/mcf) ($/bbl) ($/bbl) ($/bbl)
-------------------------------------------------------------------------
Q2 04 6.44 24.70 50.04 44.68
-------------------------------------------------------------------------
Q3 04 6.24 28.70 51.94 48.95
-------------------------------------------------------------------------
Q4 04 6.72 32.24 55.70 44.53
-------------------------------------------------------------------------
Q1 05 6.36 30.26 63.45 51.46
-------------------------------------------------------------------------
Q2 05 6.89 29.87 63.98 54.44
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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 the last four quarters'
earnings plus after-tax interest expense on debt divided by the
average of opening and closing common shareholders' equity plus
preferred 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, including unit cash operating and unit depreciation,
depletion and amortization (DD&A) costs, for Oils Sands is a non-GAAP
measure. Unit cash operating cost for Oil Sands 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. Cash cost items included in COGS are
$84 million in the first half of 2005 and $44 million in the second
quarter of 2005.
Unit DD&A cost for Oil Sands is defined as: DD&A cost divided by
synthetic crude sales excluding blend stocks. Unit DD&A cost includes
preproduction costs, which are being written off over the first three
years of the project life (2003-2005), and account for $1.73 per
barrel of the total unit DD&A cost in the first half of 2005, $1.55
per barrel in the second quarter of 2005.
(5) Crude oil processed by Shell refineries includes upgrader feedstock
supplied to Scotford Refinery.
(6) Refinery utilization equals crude oil processed by Shell refineries
divided by total capacity of Shell refineries, including capacity
uplifts at Scotford Refinery due to processing of various streams
from the upgrader.
(7) Oil Products earnings per litre equals Oil Products earnings
after-tax divided by total Oil Products sales volumes.
SHELL CANADA LIMITED
Consolidated Statement of Earnings and Retained Earnings
($ millions, except as noted)
(unaudited)
Second Quarter First Half
2005 2004 2005 2004
-------------------------------------------------------------------------
Revenues
Sales and other operating
revenues 3 238 2 633 6 221 5 094
Dividends, interest and
other income 152 7 174 60
-------------------------------------------------------------------------
Total revenues 3 390 2 640 6 395 5 154
-------------------------------------------------------------------------
Expenses
Cost of goods sold 1 766 1 362 3 434 2 639
Operating, selling and
general 583 497 1 062 919
Transportation 86 81 165 159
Exploration and predevelopment 46 72 88 83
Depreciation, depletion,
amortization and retirements 181 173 363 347
Interest on long-term debt 2 5 4 10
Other interest and financing
charges 1 2 2 6
-------------------------------------------------------------------------
Total expenses 2 665 2 192 5 118 4 163
-------------------------------------------------------------------------
Earnings
Earnings before income tax 725 448 1 277 991
-------------------------------------------------------------------------
Current income tax 128 170 251 353
Future income tax 71 (7) 83 (15)
-------------------------------------------------------------------------
Total income tax 199 163 334 338
-------------------------------------------------------------------------
Earnings 526 285 943 653
-------------------------------------------------------------------------
Per common share (dollars)
(Notes 3 and 4)
Earnings - basic 0.64 0.35 1.14 0.79
Earnings - diluted 0.63 0.34 1.13 0.79
Common shares outstanding
(millions - weighted average) 825 825 825 825
-------------------------------------------------------------------------
Retained Earnings
Balance at beginning of
period 6 333 5 343 6 011 5 045
Earnings 526 285 943 653
-------------------------------------------------------------------------
6 859 5 628 6 954 5 698
Common shares buy-back
(Note 6) 7 12 33 21
Dividends 68 60 137 121
-------------------------------------------------------------------------
Balance at end of period 6 784 5 556 6 784 5 556
-------------------------------------------------------------------------
SHELL CANADA LIMITED
Consolidated Statement of Cash Flows
($ millions)
(unaudited)
Second Quarter First Half
2005 2004 2005 2004
-------------------------------------------------------------------------
Cash from Operating Activities
Earnings 526 285 943 653
Exploration and predevelopment 46 72 88 83
Non-cash items
Depreciation, depletion,
amortization and retirements 181 173 363 347
Future income tax 71 (7) 83 (15)
Other items (1) 4 - 11
-------------------------------------------------------------------------
Cash flow from operations 823 527 1 477 1 079
Movement in working capital
and operating activities
Sales of accounts
receivable securitization - (150) - (366)
Other working capital items 44 14 (349) (69)
-------------------------------------------------------------------------
867 391 1 128 644
-------------------------------------------------------------------------
Cash Invested
Capital, exploration and
predevelopment expenditures (347) (218) (633) (368)
Movement in working capital
from investing activities (32) 7 (24) (39)
-------------------------------------------------------------------------
Capital expenditures and
movement in working capital (379) (211) (657) (407)
Proceeds on disposal of
properties, plant and equipment 1 2 5 2
Investments, long-term
receivables and other (20) (3) (7) 12
-------------------------------------------------------------------------
(398) (212) (659) (393)
-------------------------------------------------------------------------
Cash from Financing Activities
Common shares buy-back
(Note 6) (7) (12) (34) (21)
Proceeds from exercise of
common share stock options 1 7 4 19
Dividends paid (68) (60) (137) (121)
Long-term debt and other 10 (104) (133) (109)
Short-term financing (109) (4) - (13)
-------------------------------------------------------------------------
(173) (173) (300) (245)
-------------------------------------------------------------------------
Increase in cash 296 6 169 6
Cash at beginning of period - - 127 -
-------------------------------------------------------------------------
Cash at June 30(1) 296 6 296 6
-------------------------------------------------------------------------
Supplemental disclosure of
cash flow information
Dividends received 4 4 7 5
Interest received 14 - 30 17
Interest paid 3 6 7 17
Income tax paid 111 57 436 207
(1) Cash comprises cash and highly liquid short-term investments.
SHELL CANADA LIMITED
Consolidated Balance Sheet
($ millions)
(unaudited)
Jun. 30, 2005 Dec. 31, 2004
-------------------------------------------------------------------------
Assets
Current assets
Cash and short-term investments 296 127
Accounts receivable 1 498 1 213
Inventories
Crude oil, products and merchandise 693 501
Materials and supplies 88 83
Prepaid expenses 92 85
Future income tax 250 314
-------------------------------------------------------------------------
2 917 2 323
Investments, long-term receivables and other 562 549
Properties, plant and equipment (Note 2) 8 394 8 034
-------------------------------------------------------------------------
Total assets 11 873 10 906
-------------------------------------------------------------------------
Liabilities
Current liabilities
Accounts payable, accrued liabilities and other 1 808 1 683
Income and other taxes payable 511 657
Current portion of asset retirement and other
long-term obligations 34 35
Current portion of long-term debt 1 136
-------------------------------------------------------------------------
2 354 2 511
Asset retirement and other long-term obligations 419 417
Long-term debt (Note 2) 217 1
Future income tax 1 577 1 448
-------------------------------------------------------------------------
Total liabilities 4 567 4 377
-------------------------------------------------------------------------
Shareholders' Equity
Capital stock
100 4% preference shares 1 1
824 982 312 common shares (2004 - 825 727 686) 521 517
Retained earnings 6 784 6 011
-------------------------------------------------------------------------
Total shareholders' equity 7 306 6 529
-------------------------------------------------------------------------
Total liabilities and shareholders' equity 11 873 10 906
-------------------------------------------------------------------------
SHELL CANADA LIMITED
Segmented Information
($ millions)
(unaudited)
Second Quarter
Exploration
Total & Production Oil Sands
2005 2004 2005 2004 2005 2004
-------------------------------------------------------------------------
Revenues
Sales and other operating
revenues 3 238 2 633 510 510 309 210
Inter-segment sales - - 25 19 443 280
Dividends, interest and
other income 152 7 2 1 131 -
-------------------------------------------------------------------------
Total revenues 3 390 2 640 537 530 883 490
-------------------------------------------------------------------------
Expenses
Cost of goods sold 1 766 1 362 - - 205 102
Inter-segment purchases - - 51 37 61 74
Operating, selling and
general 583 497 124 102 147 125
Transportation 86 81 86 81 - -
Exploration and
predevelopment 46 72 42 72 4 -
Depreciation, depletion,
amortization and
retirements 181 173 86 87 51 40
Interest on long-term debt 2 5 - - - -
Other interest and
financing charges 1 2 - - - -
-------------------------------------------------------------------------
Total expenses 2 665 2 192 389 379 468 341
-------------------------------------------------------------------------
Earnings (loss)
Earnings (loss) before
income tax 725 448 148 151 415 149
-------------------------------------------------------------------------
Current income tax 128 170 51 83 52 11
Future income tax 71 (7) (17) (23) 99 42
-------------------------------------------------------------------------
Total income tax 199 163 34 60 151 53
-------------------------------------------------------------------------
Earnings (loss) 526 285 114 91 264 96
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Second Quarter
Oil Products Corporate
2005 2004 2005 2004
---------------------------------------------------------
Revenues
Sales and other operating
revenues 2 422 1 913 (3) -
Inter-segment sales 89 94 - -
Dividends, interest and
other income 5 6 14 -
---------------------------------------------------------
Total revenues 2 516 2 013 11 -
---------------------------------------------------------
Expenses
Cost of goods sold 1 550 1 259 11 1
Inter-segment purchases 445 282 - -
Operating, selling and
general 282 259 30 11
Transportation - - - -
Exploration and
predevelopment - - - -
Depreciation, depletion,
amortization and
retirements 44 46 - -
Interest on long-term debt - - 2 5
Other interest and
financing charges - - 1 2
---------------------------------------------------------
Total expenses 2 321 1 846 44 19
---------------------------------------------------------
Earnings (loss)
Earnings (loss) before
income tax 195 167 (33) (19)
---------------------------------------------------------
Current income tax 90 83 (65) (7)
Future income tax (23) (26) 12 -
---------------------------------------------------------
Total income tax 67 57 (53) (7)
---------------------------------------------------------
Earnings (loss) 128 110 20 (12)
---------------------------------------------------------
---------------------------------------------------------
SHELL CANADA LIMITED
Segmented Information
($ millions)
(unaudited)
First Half
Exploration
Total & Production Oil Sands
2005 2004 2005 2004 2005 2004
-------------------------------------------------------------------------
Revenues
Sales and other operating
revenues 6 221 5 094 1 042 1 010 534 431
Inter-segment sales - - 62 45 754 540
Dividends, interest and
other income 174 60 3 2 132 31
-------------------------------------------------------------------------
Total revenues 6 395 5 154 1 107 1 057 1 420 1 002
-------------------------------------------------------------------------
Expenses
Cost of goods sold 3 434 2 639 - - 331 247
Inter-segment purchases - - 111 73 122 142
Operating, selling and
general 1 062 919 221 177 284 250
Transportation 165 159 165 159 - -
Exploration and
predevelopment 88 83 80 83 8 -
Depreciation, depletion,
amortization and
retirements 363 347 172 178 103 80
Interest on long-term debt 4 10 - - - -
Other interest and
financing charges 2 6 - - - -
-------------------------------------------------------------------------
Total expenses 5 118 4 163 749 670 848 719
-------------------------------------------------------------------------
Earnings (loss)
Earnings (loss) before
income tax 1 277 991 358 387 572 283
-------------------------------------------------------------------------
Current income tax 251 353 142 186 52 14
Future income tax 83 (15) (29) (46) 153 77
-------------------------------------------------------------------------
Total income tax 334 338 113 140 205 91
-------------------------------------------------------------------------
Earnings (loss) 943 653 245 247 367 192
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Total Assets 11 873 10 107 2 973 2 831 3 973 3 747
Capital Employed(1) 7 524 6 839 1 942 1 839 2 792 2 944
First Half
Oil Products Corporate
2005 2004 2005 2004
---------------------------------------------------------
Revenues
Sales and other operating
revenues 4 642 3 651 3 2
Inter-segment sales 189 186 - -
Dividends, interest and
other income 11 10 28 17
---------------------------------------------------------
Total revenues 4 842 3 847 31 19
---------------------------------------------------------
Expenses
Cost of goods sold 3 091 2 387 12 5
Inter-segment purchases 772 556 - -
Operating, selling and
general 511 472 46 20
Transportation - - - -
Exploration and
predevelopment - - - -
Depreciation, depletion,
amortization and
retirements 87 89 1 -
Interest on long-term debt - - 4 10
Other interest and
financing charges - - 2 6
---------------------------------------------------------
Total expenses 4 461 3 504 65 41
---------------------------------------------------------
Earnings (loss)
Earnings (loss) before
income tax 381 343 (34) (22)
---------------------------------------------------------
Current income tax 203 159 (146) (6)
Future income tax (73) (44) 32 (2)
---------------------------------------------------------
Total income tax 130 115 (114) (8)
---------------------------------------------------------
Earnings (loss) 251 228 80 (14)
---------------------------------------------------------
---------------------------------------------------------
Total Assets 4 451 3 646 476 (117)
Capital Employed(1) 2 199 2 223 591 (167)
(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 dated December 31, 2004, except as
described in note 2.
2. Change in Accounting Policy
Variable Interest Entities
Effective January 1, 2005, the Corporation adopted Accounting Guideline
15, "Consolidation of Variable Interest Entities." The standard mandates
that certain entities should be consolidated by the primary beneficiary.
Accordingly, the Corporation has consolidated a lease arrangement for
large mobile equipment (trucks, scrapers and shovels) used at the
Athabasca Oil Sands Project's Muskeg River Mine.
The standard has been applied retroactively without prior period
restatement of the financial statements. The impact of this change on the
June 30, 2005, Consolidated Balance Sheet is an increase in accounts
receivable of $14 million, an increase in property plant and equipment of
$183 million, a decrease in accounts payable of $24 million and an
increase in long-term debt of $217 million. Adoption of this standard
did not have a material impact on the Corporation's Consolidated
Statement of Earnings and Retained Earnings.
3. Common Shares Split
On June 21, 2005, the common shares of the Corporation were split on a
three-for-one basis for shareholders of record on June 23, 2005. Common
share data and per share information have been restated to reflect the
impact of the share split.
4. Earnings Per Share
Second Quarter First Half
2005 2004 2005 2004
-------------------------------------------------------------------------
Earnings ($ millions) 526 285 943 653
Weighted average number of
common shares (millions) 825 825 825 825
Dilutive securities (millions)
Options under Long Term
Incentive Plan 8 6 8 6
Basic earnings per share
($ per share) 0.64 0.35 1.14 0.79
Diluted earnings per share
($ per share) 0.63 0.34 1.13 0.79
5. Employee Future Benefits
The Corporation's pension plans are described in the notes to the
Consolidated Financial Statements dated December 31, 2004. The components
of the total net benefit costs included in total expenses in the
Consolidated Statement of Earnings are as follows:
Second Quarter
($ millions) Pension Benefits Other Benefits
2005 2004 2005 2004
-------------------------------------------------------------------------
Current service cost 9 8 - -
Employee contributions (1) (1) - -
Interest cost 32 30 3 3
Expected return on plan assets (34) (32) - -
Amortization of transitional
(asset) obligation (9) (9) 1 1
Amortization of net actuarial
loss 18 17 - -
-------------------------------------------------------------------------
Net (income) expense 15 13 4 4
Defined contribution segment 3 3 - -
-------------------------------------------------------------------------
Total 18 16 4 4
-------------------------------------------------------------------------
First Half
($ millions) Pension Benefits Other Benefits
2005 2004 2005 2004
-------------------------------------------------------------------------
Current service cost 18 16 1 -
Employee contributions (2) (1) - -
Interest cost 64 59 5 6
Expected return on plan assets (68) (64) - -
Amortization of transitional
(asset) obligation (18) (18) 1 1
Amortization of net actuarial
loss 36 34 - 1
-------------------------------------------------------------------------
Net (income) expense 30 26 7 8
Defined contribution segment 6 6 - -
-------------------------------------------------------------------------
Total 36 32 7 8
-------------------------------------------------------------------------
6. Common Shares Buy-Back
On April 30, 2004, Shell Canada Limited announced its intention to make a
normal course issuer bid, to repurchase for cancellation up to one per
cent of its issued and outstanding common shares as at April 27, 2004.
The bid began on May 4, 2004, and expired on May 3, 2005. The bid was
used to counter dilution resulting from the issuance of common shares
under the Corporation's Long Term Incentive Plan. Under this bid, a total
of 3,557,241 shares were repurchased and cancelled at market prices for a
total cost of $88 million, which includes $34 million of shares purchased
in 2005.
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