CALGARY (CP) -- Petro-Canada [NYSE:PCZ; TSX:PCA] has rolled out a C$5.3 billion capital spending program for 2008 - a 28% increase over a 2007 - that will focus more on international exploration and less on its assets in Western Canada.
The Calgary-based oil and gas heavyweight will bump up its 2008 spending on growth projects, exploration and new venture developments by 50% to C$3.6 billion.
''Our business plan sees us move into a period of unprecedented growth as we continue to develop the suite of long-life assets,'' Petro-Canada CEO Ron Brenneman said in a conference call.
The company also expects to invest C$1.2 billion to replace reserves in core areas, C$430 million to enhance existing assets and to improve profitability in the base business, and C$105 million to comply with new regulations.
Over the next few years, Petro-Canada said it expects its capital spending program to be in the C$6 billion- to C$7 billion-range.
Its spending in Western Canada will be C$415 million in 2008 compared to C$540 this year.
On Wednesday, rival EnCana [NYSE:ECA; TSX:ECA] also announced an overall increase in its capital spending, but with C$500 million less going into Alberta.
''Although this strategic shift away from Western Canada was already planned, it's fair to say that it's been accelerated by factors like the changes to Alberta's royalty structure,'' Brenneman said, referring to the Alberta government's decision in October to start taking an additional C$1.4 billion in royalties a year from the industry in 2009.
''The royalty changes essentially make full cycle exploration in the basin pretty marginal and even uneconomic in a lot of cases ... If you're not filling the pipeline with exploration success then that tends to go downhill fairly quickly.''
He said the company will be hanging onto so-called half-cycle projects in Western Canada, where it's just a matter of developing the reserves it already has.
Meanwhile, the company is focused on pursuing growth projects abroad.
On Monday, Petro-Canada announced it had reached a C$7 billion, 30-year agreement with Libya's state-run oil company to invest in exploration and development in the North African country's prolific fields.
The company also expects to bring on gas production from its Syrian assets in 2010 and is looking to pursue a range of low-to-high risk drilling activities in the North Sea, Trinidad and Alaska.
Brenneman says Petro-Canada is also turning its focus to huge natural gas deposits in the U.S. Rockies in the short term. But ''longer term we're looking at supply opportunities north of 60,'' he said.
Earlier in the month he said he was particularly excited at the prospect of tapping into huge natural gas fields in the Eastern Arctic.
The company's upstream production guidance range for 2008 is between 390,000 and 420,000 barrels of oil equivalent per day - a slight decrease from 2007. The dip would be due primarily to natural declines in Western Canada and in the East Coast assets, but is expected to be offset by production from its North Sea and oilsands operations.
''In 2007, we took our base rate of production to a new level, and we will see that again when our next big upstream projects come on,'' Brenneman said. ''In the meantime, our two refining conversion projects (in Edmonton and Montreal) will boost earnings and cash flow significantly in the near term.''
The 2008 capital expenditure program is expected to be funded primarily from cash flow and additional debt if it's required.
Petro-Canada expects to get government approval to expand its MacKay River oilsands operation shortly, but is putting off developing it as it mulls its economics.
''While this is great progress, we're going to delay the project sanction decision by several months. The economics for in situ oilsands projects have always been challenging. On top of that, these projects have been hit with carbon costs, the loss of the accelerated capital cost allowance, high capital costs and now royalty increases,'' Brenneman said.
''Let's take some time and see if we can't find some ways that we can improve the economics by rescoping the project and perhaps integrating it into the Fort Hills infrastructure a little more.''
Petro-Canada has a 60% stake in the C$26 billion Fort Hills oilsands project in Alberta's Athabasca region. The company expects that project to get government approval in the middle of next year.
Petro-Canada shares closed up 26 cents - or half a percent - to C$51.90 on the Toronto Stock Exchange Thursday. The company's capital spending plans were announced after stock markets had closed.
(c) The Canadian Press 2007
