Fourth Quarter 2005
CALGARY, Jan. 25 /CNW/ - Shell Canada Limited announces record annual
earnings of $2,014 million or $2.44 per common share in 2005, up more than
50 per cent from $1,286 million or $1.56 per common share in 2004. The
earnings increase was primarily driven by strong commodity prices and refining
margins, and a strong contribution from the Athabasca Oil Sands Project.
Fourth-quarter earnings were $614 million or $0.74 per common share, more
than triple the $182 million or $0.22 per common share for the corresponding
period in 2004.
Cash flow from operations reached a record $3,056 million in 2005, up
over 40 per cent from $2,129 million in 2004.
Capital, exploration and predevelopment expenditures reached
$1,715 million compared with $951 million for 2004 due to higher investment in
all three of the Company's businesses.
"Shell Canada achieved record production in 2005, which enabled it to
take advantage of strong commodity prices and deliver record earnings and cash
flow. Breaking through the $2 billion barrier was a tremendous achievement,"
said Clive Mather, President and Chief Executive Officer, Shell Canada
Limited. "There were many exciting milestones including sustained Oil Sands
production above design rates and launching our new unconventional gas
business. The company also laid the foundations for long-term growth with
major land acquisitions, and record graduate and experienced hires."
<<
Earnings ($ millions)
Q4 04 Q1 05 Q2 05 Q3 05 Q4 05
182 417 526 457 614
Cash Flow ($ millions)
Q4 04 Q1 05 Q2 05 Q3 05 Q4 05
437 637 803 686 930
Capital Expenditures ($ millions)
Q4 04 Q1 05 Q2 05 Q3 05 Q4 05
325 269 327 410 709
SHELL CANADA LIMITED
MANAGEMENT'S DISCUSSION AND ANALYSIS
Total Company
Shell Canada Limited earnings for 2005 were $2,014 million compared with
$1,286 million for 2004. Record volumes supported by strong commodity prices
and refining margins more than offset higher costs. The impact of the
Company's Long Term Incentive Plan (LTIP) resulted in a $173 million charge to
earnings due to strong appreciation in the share price during the year. The
use of non-capital losses increased earnings by $164 million in 2005 and,
along with higher proceeds from insurance settlements, outweighed the effect
of the higher LTIP charge.
Earnings for the fourth quarter of 2005 were $614 million, up
$432 million from $182 million for the corresponding period in 2004. Higher
volumes and continuing strong commodity prices and refining margins
contributed to the results. Fourth-quarter results included a favourable
adjustment of $65 million related to the use of non-capital losses from the
acquisition of an affiliated company, and a $27 million charge relating to the
LTIP.
Total investment in 2005 was $1,715 million, up from $951 million in
2004. Investments included more than $350 million in new land purchases at
Crown land sales to acquire more than 250,000 net acres in key strategic areas
of Western Canada. Total hydrocarbon production surpassed all previous years
and reached a record 228,700 barrels of oil equivalent per day (boe/d), up
from 219,700 boe/d in 2004.
Exploration & Production
In 2005, Exploration & Production (E&P) delivered record earnings of
$665 million, up $216 million from $449 million for 2004. The positive impact
of strong commodity prices was partially offset by increased expenses, and
lower volumes due to natural field decline, plant turnarounds, and adverse
weather conditions. Results in 2005 reflected positive tax adjustments of
$39 million and an insurance settlement of $12 million, offset by a charge of
$50 million related to the LTIP. Exploration and predevelopment expenses in
2005 were below those of 2004, with lower dry hole expenses partially
offsetting higher exploration expenses. During 2005, the Company's E&P
investment included the acquisition of almost 200,000 net acres at Crown land
sales in Alberta and British Columbia. These purchases were in addition to the
previously announced 20 per cent interest the Company acquired in eight
exploration licenses in the Orphan Basin earlier in the year.
E&P earnings in the fourth quarter of 2005 were $263 million, up
$190 million from $73 million for the corresponding period in 2004. Gains from
strong commodity prices combined with lower exploration and lower LTIP charges
were partially offset by higher operating costs. A $32 million charge due to
predevelopment expenses on the Mackenzie Gas Project negatively impacted
fourth-quarter results in 2004. Fourth-quarter results in 2005 included LTIP
charges of $8 million compared with $24 million in 2004.
Total natural gas production for the fourth quarter of 2005 was on par
with the same period of 2004, despite plant turnaround activities that
extended into October. Increased fourth-quarter production from the Sable
Offshore Energy Project (SOEP) along with new production from Tay River and
basin-centered gas (BCG) more than offset natural field decline. As a result,
gas production was higher at year-end 2005 than at year-end 2004.
In the Foothills region, installation of an additional unit to increase
sulphur recovery at the Jumping Pound facility was completed in October.
Re-tubing of the Tay River well was also completed in October and the result
has exceeded expectations with sustained total production rates (raw gas) of
more than 95 million cubic feet per day (mmcf/d). Foothills natural gas
production for both November and December exceeded 2004 rates for the same
months.
At SOEP, strong gas production from the Alma and South Venture fields
largely offset natural field decline in 2005 and SOEP production in the second
half was higher than in the same period of 2004. Production from a new well in
the Venture field began late December and a third well in the Alma field will
be drilled in the first quarter of 2006. In addition, a compression project is
expected to come on-stream in the fourth quarter of 2006.
BCG production began in November 2005 from four wells. Because of a lack
of processing infrastructure, production was limited to 17 mmcf/d. Land
acquisitions of over 140,000 net acres in 2005 more than tripled the Company's
BCG landholdings and, together with encouraging drilling results, provide the
basis for a substantial future expansion of drilling and production
operations. The BCG drilling program will employ four dedicated rigs
throughout 2006. Evaluation of infrastructure options continues, including a
possible new gas plant, to accommodate anticipated production increases over
the next five years.
Significant progress was made during the second half of 2005 regarding
clarity of the Mackenzie Gas Project (MGP) regulatory process, the negotiation
of benefits and access agreements with northern aboriginal groups, and fiscal
framework discussions with governments. The MGP public hearings will start in
the first quarter of 2006.
Peace River bitumen volumes for the fourth quarter of 2005 were up from
the corresponding period of 2004, mainly due to steam cycle phasing. Drilling
of two additional well pads continues and the resulting new production is
expected to come on stream in late 2006. Effective January 1, 2006, the Peace
River business was transferred from E&P to the Oil Sands business unit.
Oil Sands
Oil Sands generated record earnings of $790 million in 2005, more than
double the $378 million in 2004 due to higher volumes and prices. The earnings
increase also reflects higher proceeds from insurance settlements in 2005,
offset by higher LTIP charges and reduced contributions from tax adjustments.
Total LTIP charges were $29 million in 2005.
Oil Sands earnings in the fourth quarter of 2005 were $196 million, up
significantly from $13 million in the fourth quarter of 2004 when planned and
unplanned maintenance activities impacted operations. The increase was due to
higher volumes, higher prices and lower unit costs. Fourth-quarter earnings
included charges of $5 million related to the LTIP in 2005 compared to
$11 million in 2004.
The Company's share of bitumen production in the fourth quarter of 2005
averaged 106,800 barrels per day (bbls/d) compared with 65,900 bbls/d for the
same period in 2004 when operations were restricted to a single train. Total
bitumen production reached a new record in the fourth quarter of 2005,
averaging 178,000 bbls/d, and the Scotford Upgrader also achieved new
production records. For the full year 2005, total bitumen production was
159,900 bbls/d, above the 155,000 bbls/d design rate. High bitumen production
during the fourth quarter at times prompted the blending and sale of
additional heavy synthetic product at the upgrader.
In the fourth quarter of 2005, commodity prices and the average synthetic
crude oil price were down somewhat from the preceding quarter, but
considerably higher than in the fourth quarter of 2004. Heavy oil market
differentials widened during the fourth quarter and were higher than in the
same period of 2004. As a result, the average synthetic crude oil price
differential relative to Edmonton light crude was wider than in both the third
quarter of 2005 and the fourth quarter of 2004. Compared with the prior year,
Edmonton light crude prices were up 31 per cent, heavy oil market
differentials increased by more than 50 per cent and the average synthetic
crude oil price rose by 29 per cent.
Unit cash operating costs in the fourth quarter of 2005 were $23.87 per
barrel. This was down $0.38 per barrel from the preceding quarter, and down
significantly from the fourth quarter of 2004 when high maintenance costs and
low volumes heavily influenced unit costs. Unit cash operating costs for 2005
averaged $23.16 per barrel, down slightly versus 2004. Improved reliability
and production offset increased costs for energy, materials and services in
the high commodity price environment.
During the fourth quarter, the Company's investment in Oil Sands
continued with the acquisition of three additional Athabasca oil sands leases
with mining potential. In 2005, the Company acquired seven leases with a
combined area of about 69,000 acres through Alberta Crown land sales. Core
hole drilling will be required to determine the resource potential of these
lands and its impact on the long-term growth of the Oil Sands business.
The first major planned turnaround of the Athabasca Oil Sands Project
(AOSP) is scheduled to start in the second quarter of 2006. Both trains at the
Muskeg River Mine and the Scotford Upgrader will be down for maintenance. It
is expected that operations will be interrupted for approximately eight weeks
before returning to normal at mid-year.
The use of tax pools created during construction of the AOSP has resulted
in no cash taxes being payable on operating income thus far. The Company
expects that these tax pools will be exhausted during the first quarter of
2006, at which time Oil Sands operations will become cash taxable.
Reserves
Additions to gross proved natural gas reserves essentially replaced
production in 2005. After production of 187 billion cubic feet (bcf), gross
proved natural gas reserves were 1,592 bcf for 2005 compared with 1,595 bcf
for 2004. Reserve additions of 184 bcf from extensions and discoveries, and an
acquisition of 9 bcf in the Burmis region, were partially offset by net
downward technical and economic revisions of 9 bcf that resulted from the
annual review process. Extensions and discoveries included an additional
74 bcf for Tay River and a booking of 52 bcf for the Company's early
investment position in BCG. After 2005 production of 14 million barrels, gross
proved natural gas liquids reserves decreased by just 7 million barrels from
2004 mainly as a result of net positive technical and economic revisions.
In 2005, 28 million gross proved barrels of Peace River bitumen reserves
were re-booked. In 2004, adherence to United States Securities and Exchange
Commission reserve reporting rules and related guidance prescribing the use of
constant year-end pricing and costs for proved reserves determination resulted
in the Company de-booking all proved Peace River bitumen reserves.
Over 2005, Shell Canada developed a new strategy for development of the
Peace River lease, which includes plans for a proposed expansion project. The
28 million barrels re-booked for 2005 is solely the reserve portion
attributable to the existing and currently-drilling wells, and existing
facilities. Progression of the engineering and regulatory work for the
expansion will continue over the next two years before reaching a final
investment decision. Once this key project milestone is reached, the Company
expects that the expansion project will incorporate the booking of further
reserves to the asset.
In 2005, the Company's gross proved mineable bitumen reserves increased
to 808 million barrels from 621 million barrels in 2004. Core-hole drilling
activity resulted in the reclassification of 222 million barrels from the
probable to proved category, partially offset by production of 35 million
barrels of bitumen. Total gross proved and probable mineable bitumen reserves
decreased by the 35 million barrels produced, from 971 million barrels in 2004
to 936 million barrels for 2005.
Shell Canada's 2005 Annual Report will provide full gross and net
reserves information.
Oil Products
Oil Products 2005 annual earnings were $438 million, down slightly from
record earnings of $451 million for 2004. Strong refining margins and improved
refinery light oil yields contributed to earnings but were more than offset by
lower refinery utilization and higher expenses. Expenses increased in 2005
versus 2004 due to higher refinery maintenance costs, high costs for purchased
product and higher LTIP charges. However, the increase over 2004 was partially
offset by a charge in 2004 relating to a provision for the AIR MILES(R) reward
miles program. LTIP charges in 2005 were $51 million. Planned maintenance work
at the Scotford Refinery and unplanned maintenance at the Montreal East
Refinery (MER) resulted in reduced utilization during the second half of the
year. High spot prices for purchased products compounded the impact of these
maintenance activities. Periods within the year were marked by supply
disruptions and fuel price volatility in North America following the hurricane
activity. However, the Company was able to maintain a reliable supply to
customers at competitive prices throughout.
Oil Products earnings in the fourth quarter were $106 million compared
with $109 million for the same period in 2004. Stronger refining and marketing
margins were offset by lower prices for benzene, lower refinery utilization
and higher expenses. Higher maintenance and insurance costs, project related
expenses and commodity price-related costs were offset by lower LTIP charges
of $6 million in 2005, compared to $30 million in 2004. Fourth-quarter results
were further reduced by a negative tax adjustment of $8 million.
At the Montreal East and Scotford Refineries, construction has been
completed on two new diesel hydrotreater units that will produce ultra-low-
sulphur diesel (ULSD). The $400 million investment is on schedule and budget
and will be commissioned in the first quarter, ahead of legislative
requirements that are currently scheduled to take effect June 1, 2006.
Oil Products will be making arrangements to purchase other feedstock for
the Scotford Refinery to replace supplies that will not be available in the
second quarter of 2006 due to planned maintenance at the Scotford Upgrader.
The Sarnia refinery also has a major turnaround planned for late in the third
quarter of 2006.
----------------------------------
(R) Trademark of AIR MILES International Trading B.V. Used under license
by Loyalty Management Group Canada Inc. and Shell Canada Products.
Corporate
Corporate earnings for 2005 were $121 million compared with earnings of
$8 million for 2004. Results were improved by $164 million due to the use of
non-capital losses and were reduced by $43 million due to the LTIP charge.
Corporate earnings for the fourth quarter of 2005 were $49 million
compared with negative earnings of $13 million for the corresponding period in
2004. The increase was mainly due to the use of non-capital losses available
to the Company resulting from the acquisition of an affiliated company, Coral
Resources Canada ULC, in the fourth quarter of 2004. Fourth-quarter earnings
also include an $8 million charge related to the LTIP, compared to $6 million
in 2004.
Cash Flow and Financing
In 2005, cash flow from operations was a record $3,056 million, up from
$2,129 million in 2004. Cash flow from operations was $930 million for the
fourth quarter of 2005, up from $437 million for the same quarter last year.
These increases are largely attributable to higher volumes and prices.
The Consolidated Statement of Cash Flows reflects certain items,
primarily exploration expense and pension contributions, as reductions of cash
from operating activities. These items were reflected in 2004 as investing
activities. The reclassification of these 2004 items reflects exploration
costs of $70 million (Q4 - $16 million) in earnings from continuing
operations, and a pension contribution of $68 million (Q4 - $77 million) as a
movement in working capital. In addition, the Company reclassified certain
LTIP expenses of $151 million in 2004 (Q4 - $151 million) as a reduction of
cash flow from operations offset by a change in working capital.
Capital, exploration and predevelopment expenditures were $1,715 million
for 2005 and $709 million for the fourth quarter. This compares with
$951 million and $325 million for the same periods in 2004 respectively. The
main reasons for the increases were investments in land, drilling, and the
ULSD projects at the refineries.
During 2005, the Company paid off all remaining long-term borrowings and
terminated its accounts receivable securitization program. The combined
reduction of long-term debt and accounts receivable sales in 2005 amounted to
$285 million. Corporate debt on the balance sheet is now limited to
$210 million for the mobile equipment lease. Continued strong cash flows
during the fourth quarter further strengthened Shell's financial position and
helped to build up a substantial year-end cash balance. The year-end cash
balance of $1,083 million has been invested in short-term money market
investments.
Shell Canada's normal course issuer bid, which began May 4, 2004, and
expired May 3, 2005, was used to counter dilution resulting from the issuance
of common shares under the LTIP. 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 included $34 million of shares purchased in 2005.
The Company paid $302 million in dividends on its common shares in 2005.
Dividends paid in the fourth quarter were $0.11 per common share totaling
$91 million. This reflected a 22 per cent increase over the dividend per share
paid in the third quarter and an increase of 32 per cent over the dividend
paid in the fourth quarter of 2004.
Outstanding Shares
At January 15, 2006, the Company had 825,107,812 common shares and 100
preference shares outstanding (October 15, 2005 - 825,074,112 common shares
and 100 preference shares) and there were 20,833,983 employee stock options
outstanding, of which 9,512,120 were exercisable or could be surrendered to
exercise an attached share appreciation right (October 15, 2005 - 21,544,416
outstanding and 10,163,103 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 the Company's
profile at www.sedar.com and www.sec.gov.
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, the use of tax pools, drilling,
development and expansion plans, construction activities, maintenance
turnaround schedules, the submission of regulatory applications, project
schedules, oil and gas production levels, resources and reserves estimates.
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 schedules and execution, labour availability, material and equipment
shortages, 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 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. The forward-looking statements contained in this document are
expressly qualified by this cautionary statement.
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 is 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.
Reserves estimates are prepared by the Company's internal qualified
reserves evaluators. 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
2005 2004 2005 2004
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Earnings 614 182 2 014 1 286
Revenues 4 043 3 076 14 394 11 288
Cash flow from operations(1)
(Note 3) 930 437 3 056 2 129
Return on average common
shareholders' equity (%) - - 27.3 21.3
Per common share (dollars)
(Note 4)
Earnings - basic (Note 5) 0.74 0.22 2.44 1.56
Earnings - diluted (Note 5) 0.73 0.22 2.41 1.55
Dividends paid 0.110 0.083 0.367 0.313
Results by Segment
Earnings
Exploration & Production 263 73 665 449
Oil Sands 196 13 790 378
Oil Products 106 109 438 451
Corporate 49 (13) 121 8
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Total 614 182 2 014 1 286
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Revenues
Exploration & Production 834 582 2 611 2 198
Oil Sands 855 445 3 148 2 072
Oil Products 2 985 2 380 10 779 8 535
Corporate 2 4 63 55
Inter-segment sales (633) (335) (2 207) (1 572)
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Total 4 043 3 076 14 394 11 288
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Cash flow from operations(1)
(Note 3)
Exploration & Production 367 201 1 056 855
Oil Sands 358 72 1 388 686
Oil Products 218 181 533 580
Corporate (13) (17) 79 8
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Total 930 437 3 056 2 129
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Capital, exploration and
predevelopment expenditures
(Note 3)
Exploration & Production 349 128 873 451
Oil Sands 160 38 343 179
Oil Products 191 158 484 313
Corporate 9 1 15 8
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Total 709 325 1 715 951
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Return on average capital
employed (%)(2)
Exploration & Production - - 37.2 28.3
Oil Sands - - 29.4 12.7
Oil Products - - 19.9 21.3
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Total - - 26.8 19.9
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SHELL CANADA LIMITED
Operating Highlights
(unaudited)
Fourth Quarter Total Year
2005 2004 2005 2004
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EXPLORATION & PRODUCTION
Production
Natural gas (mmcf/d)
Western Canada natural gas 407 414 393 415
Sable natural gas 121 116 119 125
---------------------------------------------
Total natural gas - gross 528 530 512 540
- net 428 445 413 449
Ethane, propane and butane
(bbls/d) - gross 23 600 25 500 23 300 25 100
- net 18 600 20 200 18 600 19 900
Condensate (bbls/d) - gross 15 600 15 200 15 300 15 200
- net 12 000 12 000 11 800 11 800
Bitumen (bbls/d) - gross 8 900 6 300 8 900 8 100
- net 8 600 6 200 8 700 7 900
Sulphur (tons/d) - gross 5 600 5 500 5 300 5 600
- net 5 000 4 900 4 800 4 900
Sales(3) - gross
Natural gas (mmcf/d) 520 523 510 536
Ethane, propane and butane
(bbls/d) 41 400 44 400 38 200 44 000
Condensate (bbls/d) 26 700 21 000 20 700 19 600
Bitumen products (bbls/d) 12 300 9 600 11 800 11 500
Sulphur (tons/d) 12 300 12 600 11 700 11 300
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OIL SANDS
Production
Bitumen (bbls/d) - gross 106 800 65 900 95 900 81 300
- net 105 700 65 300 95 000 80 500
Sales(3)
Synthetic crude sales
excluding blend stocks
(bbls/d) 112 300 69 400 99 400 83 700
Purchased upgrader blend
stocks (bbls/d) 42 900 37 600 37 100 38 200
---------------------------------------------
Total synthetic crude sales
(bbls/d) 155 200 107 000 136 500 121 900
Unit Costs(4)
Cash operating cost -
excluding natural gas
($/bbl) 16.72 27.35 17.08 17.79
Cash operating cost -
natural gas ($/bbl) 7.15 6.12 6.08 5.53
---------------------------------------------
Total cash operating cost
($/bbl) 23.87 33.47 23.16 23.32
Depreciation, depletion
and amortization ($/bbl) 5.14 7.68 5.77 5.59
---------------------------------------------
Total unit cost ($/bbl) 29.01 41.15 28.93 28.91
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OIL PRODUCTS
Sales(3)
Gasolines (m3/d) 20 900 21 600 21 000 20 900
Middle distillates (m3/d) 22 900 20 500 21 000 19 200
Other products (m3/d) 7 300 8 500 7 100 7 400
---------------------------------------------
Total Oil Products sales
(m3/d) 51 100 50 600 49 100 47 500
Crude oil processed by Shell
refineries (m3/d)(5) 41 500 46 800 44 900 45 100
Refinery utilization
(per cent)(6) 80 92 87 89
Earnings per litre (cents)(7) 2.3 2.4 2.4 2.6
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Prices
Natural gas average plant
gate netback price ($/mcf) 11.53 6.72 8.23 6.49
Ethane, propane and butane
average field gate price
($/bbl) 44.41 32.24 34.79 28.71
Condensate average field
gate price ($/bbl) 68.30 55.70 66.76 50.46
Synthetic crude average
plant gate price ($/bbl) 56.99 44.53 57.55 44.67
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Ethane, Propane
Natural Gas Avg. and Butane Condensate Synthetic Crude
Price (Plant Avg. Price Avg. Price Avg. Price
Gate Netback) (Field Gate) (Field Gate) (Plant Gate)
($/mcf) ($/bbl) ($/bbl) ($/bbl)
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Q4 04 6.72 32.24 55.70 44.53
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Q1 05 6.36 30.26 63.45 51.46
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Q2 05 6.89 29.87 63.98 54.44
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Q3 05 7.98 33.63 72.98 66.37
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Q4 05 11.53 44.41 68.30 56.99
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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. See note 3 to the Consolidated
Financial Statements.
(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 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 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 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
$201 million in 2005 and $69 million in the fourth 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 were written off over the first three
years of the project life (2003-2005), and account for $1.59 per
barrel of the total unit DD&A cost in 2005, $1.40 per barrel in the
fourth quarter of 2005.
(5) Crude oil processed by Shell refineries includes upgrader feedstock
supplied to Scotford Refinery.
(6) Refinery utilization equals crude oil processed by Shell refineries
divided by total capacity of Shell refineries, including capacity
uplifts at Scotford Refinery due to processing of various streams
from the upgrader.
(7) Oil Products earnings per litre equals Oil Products earnings after-
tax divided by total Oil Products sales volumes.
SHELL CANADA LIMITED
Consolidated Statement of Earnings and Retained Earnings
($ millions, except as noted)
(unaudited)
Fourth Quarter Total Year
2005 2004 2005 2004
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Revenues
Sales and other operating
revenues 4 025 3 061 14 171 11 197
Dividends, interest and other
income 18 15 223 91
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Total revenues 4 043 3 076 14 394 11 288
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Expenses
Cost of goods sold 2 197 1 775 7 900 6 068
Operating, selling and
general 644 646 2 400 2 048
Transportation 84 78 331 309
Exploration and predevelopment 37 100 184 230
Depreciation, depletion,
amortization and retirements 216 196 782 722
Interest on long-term debt 2 2 8 16
Other interest and financing
charges - 2 3 10
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Total expenses 3 180 2 799 11 608 9 403
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Earnings
Earnings before income tax 863 277 2 786 1 885
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Current income tax 161 85 602 617
Future income tax 88 10 170 (18)
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Total income tax 249 95 772 599
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Earnings 614 182 2 014 1 286
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Per common share (dollars)
(Notes 4 and 5)
Earnings - basic 0.74 0.22 2.44 1.56
Earnings - diluted 0.73 0.22 2.41 1.55
Common shares outstanding
(millions - weighted average) 825 826 825 826
-------------------------------------------------------------------------
Retained Earnings
Balance at beginning of
period 7 167 5 923 6 011 5 045
Earnings 614 182 2 014 1 286
-------------------------------------------------------------------------
7 781 6 105 8 025 6 331
Common shares buy-back
(Note 7) - 25 33 61
Dividends 91 69 302 259
-------------------------------------------------------------------------
Balance at end of period 7 690 6 011 7 690 6 011
-------------------------------------------------------------------------
SHELL CANADA LIMITED
Consolidated Statement of Cash Flows
($ millions)
(unaudited)
Fourth Quarter Total Year
2005 2004 2005 2004
-------------------------------------------------------------------------
Cash from Operating Activities
Earnings 614 182 2 014 1 286
Exploration and predevelopment
(Note 3) 19 84 99 160
Non-cash items
Depreciation, depletion,
amortization and retirements 216 196 782 722
Future income tax 88 10 170 (18)
Stock based compensation
(Note 3) - (25) - (10)
Other items (7) (10) (9) (11)
-------------------------------------------------------------------------
Cash flow from operations 930 437 3 056 2 129
Movement in working capital
and operating activities
Accounts receivable
securitization program
(Note 8) - - (150) (431)
Other working capital and
operating items (Note 3) 415 315 155 417
-------------------------------------------------------------------------
1 345 752 3 061 2 115
-------------------------------------------------------------------------
Cash Invested
Capital, exploration and
predevelopment expenditures
(Note 3) (709) (325) (1 715) (951)
Movement in working capital
from investing activities 53 8 69 (7)
-------------------------------------------------------------------------
Capital expenditures and
movement in working capital (656) (317) (1 646) (958)
Proceeds on disposal of
properties, plant and
equipment 1 2 6 4
Investments and other (Note 3) - 1 - -
-------------------------------------------------------------------------
(655) (314) (1 640) (954)
-------------------------------------------------------------------------
Cash from Financing Activities
Common shares buy-back (Note 7) - (26) (34) (63)
Proceeds from exercise of
common share stock options - 8 6 37
Dividends paid (91) (69) (302) (259)
Long-term debt and other - (238) (135) (600)
Short-term financing - - - (149)
-------------------------------------------------------------------------
(91) (325) (465) (1 034)
-------------------------------------------------------------------------
Increase in cash 599 113 956 127
Cash at beginning of period 484 14 127 -
-------------------------------------------------------------------------
Cash at December 31(1) 1 083 127 1 083 127
-------------------------------------------------------------------------
Supplemental disclosure of
cash flow information
Dividends received 5 4 15 14
Interest received 8 3 42 28
Interest paid 2 4 12 28
Income tax paid 123 44 683 303
(1) Cash comprises cash and highly liquid short-term investments.
SHELL CANADA LIMITED
Consolidated Balance Sheet
($ millions)
(unaudited)
Dec. 31, Dec. 31,
2005 2004
-------------------------------------------------------------------------
Assets
Current assets
Cash and short-term investments 1 083 127
Accounts receivable 1 821 1 213
Inventories
Crude oil, products and merchandise 535 501
Materials and supplies 92 83
Prepaid expenses 71 85
Future income tax 316 314
-------------------------------------------------------------------------
3 918 2 323
Investments, long-term receivables and other 671 549
Properties, plant and equipment (Note 2) 9 066 8 034
-------------------------------------------------------------------------
Total assets 13 655 10 906
-------------------------------------------------------------------------
Liabilities
Current liabilities
Accounts payable, accrued liabilities and other 2 242 1 683
Income and other taxes payable 687 657
Current portion of asset retirement and other
long-term obligations 26 35
Current portion of long-term debt (Note 2) 11 136
-------------------------------------------------------------------------
2 966 2 511
Asset retirement and other long-term obligations 545 417
Long-term debt (Note 2) 200 1
Future income tax 1 730 1 448
-------------------------------------------------------------------------
Total liabilities 5 441 4 377
-------------------------------------------------------------------------
Shareholders' Equity
Capital stock
100 4% preference shares 1 1
825 102 612 common shares (2004 - 825 727 686) 523 517
Retained earnings 7 690 6 011
-------------------------------------------------------------------------
Total shareholders' equity 8 214 6 529
-------------------------------------------------------------------------
Total liabilities and shareholders' equity 13 655 10 906
-------------------------------------------------------------------------
SHELL CANADA LIMITED
Segmented Information
($ millions)
(unaudited)
Fourth Quarter
Exploration
Total & Production Oil Sands
2005 2004 2005 2004 2005 2004
-------------------------------------------------------------------------
Revenues
Sales and other
operating revenues 4 025 3 061 789 551 386 229
Inter-segment sales - - 44 27 469 215
Dividends, interest
and other income 18 15 1 4 - 1
-------------------------------------------------------------------------
Total revenues 4 043 3 076 834 582 855 445
-------------------------------------------------------------------------
Expenses
Cost of goods sold 2 197 1 775 - - 243 139
Inter-segment
purchases - - 61 41 83 67
Operating, selling
and general 644 646 139 150 177 173
Transportation 84 78 84 78 - -
Exploration and
predevelopment 37 100 34 100 3 -
Depreciation,
depletion,
amortization and
retirements 216 196 99 89 53 49
Interest on
long-term debt 2 2 - - - -
Other interest and
financing charges - 2 - - - -
-------------------------------------------------------------------------
Total expenses 3 180 2 799 417 458 559 428
-------------------------------------------------------------------------
Earnings (loss)
Earnings (loss)
before income tax 863 277 417 124 296 17
-------------------------------------------------------------------------
Current income tax 161 85 165 89 (6) (11)
Future income tax 88 10 (11) (38) 106 15
-------------------------------------------------------------------------
Total income tax 249 95 154 51 100 4
-------------------------------------------------------------------------
Earnings (loss) 614 182 263 73 196 13
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Fourth Quarter
Oil Products Corporate
2005 2004 2005 2004
-------------------------------------------------------
Revenues
Sales and other
operating revenues 2 857 2 281 (7) -
Inter-segment sales 120 93 - -
Dividends, interest
and other income 8 6 9 4
-------------------------------------------------------
Total revenues 2 985 2 380 2 4
-------------------------------------------------------
Expenses
Cost of goods sold 1 957 1 640 (3) (4)
Inter-segment
purchases 489 227 - -
Operating, selling
and general 304 296 24 27
Transportation - - - -
Exploration and
predevelopment - - - -
Depreciation,
depletion,
amortization and
retirements 63 58 1 -
Interest on
long-term debt - - 2 2
Other interest and
financing charges - - - 2
-------------------------------------------------------
Total expenses 2 813 2 221 24 27
-------------------------------------------------------
Earnings (loss)
Earnings (loss)
before income tax 172 159 (22) (23)
-------------------------------------------------------
Current income tax 11 16 (9) (9)
Future income tax 55 34 (62) (1)
-------------------------------------------------------
Total income tax 66 50 (71) (10)
-------------------------------------------------------
Earnings (loss) 106 109 49 (13)
-------------------------------------------------------
-------------------------------------------------------
SHELL CANADA LIMITED
Segmented Information (continued)
($ millions)
(unaudited)
Total Year
Exploration
Total & Production Oil Sands
2005 2004 2005 2004 2005 2004
-------------------------------------------------------------------------
Revenues
Sales and other
operating revenues 14 171 11 197 2 433 2 105 1 373 938
Inter-segment sales - - 152 84 1 643 1 102
Dividends, interest
and other income 223 91 26 9 132 32
-------------------------------------------------------------------------
Total revenues 14 394 11 288 2 611 2 198 3 148 2 072
-------------------------------------------------------------------------
Expenses
Cost of goods sold 7 900 6 068 - - 790 544
Inter-segment
purchases - - 225 159 281 283
Operating, selling
and general 2 400 2 048 511 422 639 542
Transportation 331 309 331 309 - -
Exploration and
predevelopment 184 230 168 230 16 -
Depreciation,
depletion,
amortization and
retirements 782 722 367 357 209 171
Interest on
long-term debt 8 16 - - - -
Other interest and
financing charges 3 10 - - - -
-------------------------------------------------------------------------
Total expenses 11 608 9 403 1 602 1 477 1 935 1 540
-------------------------------------------------------------------------
Earnings (loss)
Earnings (loss)
before income tax 2 786 1 885 1 009 721 1 213 532
-------------------------------------------------------------------------
Current income tax 602 617 407 385 45 16
Future income tax 170 (18) (63) (113) 378 138
-------------------------------------------------------------------------
Total income tax 772 599 344 272 423 154
-------------------------------------------------------------------------
Earnings 2 014 1 286 665 449 790 378
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Total assets 13 655 10 906 3 489 2 853 4 041 3 786
Capital employed(1) 8 425 6 666 2 052 1 523 2 519 2 860
Total Year
Oil Products Corporate
2005 2004 2005 2004
-------------------------------------------------------
Revenues
Sales and other
operating revenues 10 343 8 128 22 26
Inter-segment sales 412 386 - -
Dividends, interest
and other income 24 21 41 29
-------------------------------------------------------
Total revenues 10 779 8 535 63 55
-------------------------------------------------------
Expenses
Cost of goods sold 7 108 5 525 2 (1)
Inter-segment
purchases 1 701 1 130 - -
Operating, selling
and general 1 133 1 029 117 55
Transportation - - - -
Exploration and
predevelopment - - - -
Depreciation,
depletion,
amortization and
retirements 204 193 2 1
Interest on
long-term debt - - 8 16
Other interest and
financing charges - - 3 10
-------------------------------------------------------
Total expenses 10 146 7 877 132 81
-------------------------------------------------------
Earnings (loss)
Earnings (loss)
before income tax 633 658 (69) (26)
-------------------------------------------------------
Current income tax 296 249 (146) (33)
Future income tax (101) (42) (44) (1)
-------------------------------------------------------
Total income tax 195 207 (190) (34)
-------------------------------------------------------
Earnings 438 451 121 8
-------------------------------------------------------
-------------------------------------------------------
Total assets 4 685 4 041 1 440 226
Capital employed(1) 2 280 2 130 1 574 153
(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 and note 3.
Certain other information provided for prior periods has been
reclassified to conform to the current presentation.
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
December 31, 2005, Consolidated Balance Sheet is an increase in accounts
receivable of $16 million, an increase in property plant and equipment of
$170 million, a decrease in accounts payable of $28 million and an
increase in debt of $210 million. Adoption of this standard did not have
a material impact on the Corporation's Consolidated Statement of Earnings
and Retained Earnings.
3. Accounting Reclassification
The Consolidated Statement of Cash Flows reflects certain items,
primarily exploration expense and pension contributions, as reductions of
cash from operating activities. These items were reflected in 2004 as
investing activities. The reclassification of these 2004 items reflects
exploration costs of $70 million ($16 million in the fourth quarter) in
earnings from continuing operations, and a pension contribution of
$68 million ($77 million in the fourth quarter) as a movement in working
capital. In addition, the Corporation reclassified certain Long Term
Incentive Plan expenses of $151 million in 2004 ($151 million in the
fourth quarter) as a reduction of cash flow from operations offset by a
change in working capital.
4. Common Shares Split
On June 21, 2005, the common shares of the Corporation were split on a
three-for-one basis for shareholders of record on June 23, 2005. Common
share data and per share information have been restated to reflect the
impact of the share split.
5. Earnings Per Share
Fourth Quarter Total Year
2005 2004 2005 2004
-------------------------------------------------------------------------
Earnings ($ millions) 614 182 2 014 1 286
Weighted average number of
common shares (millions) 825 826 825 826
Dilutive securities (millions)
Options under Long Term
Incentive Plan 10 7 9 6
Basic earnings per share
($ per share) 0.74 0.22 2.44 1.56
Diluted earnings per share
($ per share) 0.73 0.22 2.41 1.55
6. 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:
Fourth Quarter
($ millions) Pension Benefits Other Benefits
2005 2004 2005 2004
-------------------------------------------------------------------------
Current service cost 10 8 - -
Employee contributions - (2) - -
Interest cost 31 30 3 3
Expected return on plan assets (35) (33) - -
Amortization of transitional
(asset) obligation (9) (9) 1 1
Amortization of net actuarial
loss 17 18 - -
-------------------------------------------------------------------------
Net (income) expense 14 12 4 4
Defined contribution segment 5 4 - -
-------------------------------------------------------------------------
Total 19 16 4 4
-------------------------------------------------------------------------
Total Year
($ millions) Pension Benefits Other Benefits
2005 2004 2005 2004
-------------------------------------------------------------------------
Current service cost 37 32 2 1
Employee contributions (3) (3) - -
Interest cost 127 118 10 11
Expected return on plan assets (137) (129) - -
Amortization of transitional
(asset) obligation (36) (36) 2 2
Amortization of net actuarial
loss 71 69 - 2
-------------------------------------------------------------------------
Net (income) expense 59 51 14 16
Defined contribution segment 15 13 - -
-------------------------------------------------------------------------
Total 74 64 14 16
-------------------------------------------------------------------------
7. 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 common shares (adjusted for the share split) were
repurchased and cancelled at market prices for a total cost of
$88 million, which includes $34 million of shares purchased in 2005.
8. Accounts Receivable Securitization Program
During 2005, the remaining $150 million balance under the accounts
receivable securitization program was reduced to zero and the Corporation
elected to terminate the program. This contributed to the increase in
accounts receivable on the Consolidated Balance Sheet as at
December 31, 2005.
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