TORONTO, June 21 2007 — Good times continued for Canadian energy companies in 2006 with an increase in gross revenues, cash flows from operations and total assets as compared to 2005. According to the 2007 PricewaterhouseCoopers (PwC) Canadian Energy Survey average gross revenues for the top 100 exploration and production (E&P) companies in Canada in 2006 were $1.4 billion — an increase of 7% from 2005.
“2006 was once again a strong year for the industry,” says Angelo Toselli, PwC Partner and Energy and Utilities Practice Leader. “All sectors are still enjoying solid results — a trend we don’t see changing anytime soon.”
According to PwC, average total assets for the top 100 companies increased by 21% from $1.93 billion in 2005 to $2.34 billion in 2006. Average cash flow from operations increased 9% to $436 million in 2006, up from $400 million in 2005.
Valuation parameters for Canadian oil and gas transactions continued their positive trend, reaching new record highs in 2006. The median acquisition price for 2006 was $20.13/boe compared to $15.83 in 2005 — an increase of 27%, fuelled primarily by oil prices.
This year’s survey included a total of 32 income trusts in 2006 compared to 36 in 2005 as a result of merger and acquisition activity in 2006. Total market capitalization of the trusts increased by 4% from $69.9 billion in 2005 to $73.0 billion in 2006. The S&P/TSX Energy index did not match the broader S&P/TSX index, posting a net gain of only 3% in the year, while the S&P/TSX Energy Trust index posted a loss of 4%.
Toselli notes, “The big story for 2006 was the surprise announcement on October 31 by the Canadian federal government to change legislation to impose a new tax on income trusts, effectively ending their perceived favourable tax treatment. This announcement resulted in a significant loss in market value of the energy trust sector.”
The PwC survey also notes that it is anticipated that the federal government will soon announce short-term targets for reductions in greenhouse gas emissions and air pollutants from key industrial sectors. It is expected that a significant portion of the burden will rest on the shoulders of the energy industry.
Specific sector results are as follows:
Crude oil & natural gas:
Canadian crude prices continued to increase in 2006. The average par price for light sweet oil posted at Edmonton by the four Canadian refiners in 2006 of US$72.77/bbl was 6% higher than the 2005 average price of US$68.72/bbl. Prices peaked in July 2006 with an average monthly price of US$85.62/bbl.
As predicted in last year’s survey, natural gas prices did not follow the same trend as crude oil prices in 2006. Instead, lower winter heating demand, growth of onshore natural gas production and above average storage supplies led to a decrease in prices as compared to 2005.
“Given the projected growth in Asia and continued and escalating geo-political unrest in certain OPEC nations, commodity prices are expected to remain high for 2007. However, certain industry analysts and government agencies do expect oil prices to moderate,” says Cal Jacober, PwC Partner with the Canadian Energy and Utilities Practice. “Natural gas prices are also expected to be marginally higher for 2007 as a result of increased demand.”
Oil & gas services:
2006 was again a strong year for the industry with a record 22,127 wells drilled in Western Canada. The industry saw continued strong demand for services for a third year in a row in 2006, however, based on the reduction of activity in Q4 2006 and the weak 2007 first quarter drilling results (down 21% from Q1 2006) this trend is not expected to continue in 2007.
Oil sands:
The oil sands juggernaut continued to roll in 2006, with entries by several new participants. Throughout the year applications, hearings, approvals, and public announcements took place and construction progressed, or was initiated, on several existing and new projects. The geographic footprint of oil sands activity spread both west of existing areas and then further east into Saskatchewan.
The sale of oil sands development leases in the province hit a record high of approximately $2 billion, nearly five times higher than the previous year. Daily oil production for the year was 1.1 million barrels, close to a third of Canada’s 2006 overall liquids output.
Electricity:
Within the past year, key policy and regulatory issues were focused primarily on concerns related to the supply and demand of electricity. While Ontario and New Brunswick moved forward on a range of new generation and nuclear refurbishment activities in order to meet potential supply gaps, Newfoundland and Québec considered and initiated new generation capacity and transmission projects respectively in order to meet the demand of other jurisdictions. Overall, advancements on the generation front were strongly in favour of cleaner and renewable sources of electricity.
Survey methodology:
The annual PwC survey provides a summary of performance within numerous sectors of Canada’s energy industry including: crude oil, natural gas, oil and gas services, oil sands and electricity. The survey also summarizes financial and operating information of the top 100 Canadian public oil and gas companies and 32 oil and gas income trusts, as presented in their respective annual reports for the fiscal years ended in 2006.
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or visit www.pwc.com/ca/energy.
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