Exploration division gains, for once

Natural Gas and Petroleum Resources on pace for $6.5M net earnings this year

For the first time in five years, the city’s energy exploration division is budgeted to gain in value over the course of the year, but it’s largely on paper and due to addition by subtraction.

Mid-year financial statements presented Tuesday show that net earnings for Natural Gas and Petroleum Resources division could be $6.5 million at year end.

That’s compared to a Jan. 1 forecast of a $38.7-million loss for 2017 once operating results are combined with depreciation and liabilities.

If the forecast holds, this would be first positive net earnings since 2011, after which the division recorded five straight yearly net losses totalling $218 million.

“Traditionally we’ve been cashflow positive but depletion has taken a toll,” said corporate services commissioner Brian Mastel after Tuesday’s audit committee meeting.

“We’ve taken assets off the books, (so) you take the related liabilities off, and add in cash proceeds. It’s a $30-million accounting gain for the dispositions.”

The difference is due mainly to the early year sale of 1,500 wells, mostly in Saskatchewan, as part of a plan to get relatively highcost, low-production gas out of the city’s well inventory.

The sale to Canadian Natural Resources Ltd was for “very little cash,” according to division officials, but will cut operating expenses by $10.8 million by the end of the year.

According to the June 30 financial statement though, the biggest factor is avoiding $27.1 million for depreciation and how the city accounts for depleting its reserves.

There are a number of factors across the division contributing to results. Gains related to the Saskatchewan properties are not broken out in the statements, which also say some revenue changes are due to lower gas prices, and unrelated to lower oil production.

The updated whole-year forecast for revenue is $66 million, about $20.2 million below budget.

The expense outlook is nearly cut in half however. An early projection of $125 million is now $60.4 million for 12 months.

Last year, the division booked a $24.3-million net loss while contributing no dividend to the city’s municipal coffers — factored in after net profit or loss is calculated.

The worst year was in 2012 when the net loss was $67 million.

In 2011, NPGR earned $17.4 million but recorded losses in 2010 and 2009 of about $21.8 million each year. In three years prior to that, total net earnings were $136.7 million.

Net earnings and loss do not account for dividends paid to city reserves.

Over the past five years, the division has also charged a total of $200 million in impairments — a procedure meant to account for decreased value of the city’s in-ground reserves as commodity prices remain low.