ANNUAL REPORT 2011 - Connacher Oil and Gas

AR 2011
PG 27
SALES PRODUCT MIX (%)
Three months ended December 31 Year ended December 31
2011 2010 2011 2010
Gasoline 45 49 41 45
Diesel 22 17 18 16
Jet fuel 4 5 5 7
Asphalt 27 25 34 30
Other 2 4 2 2
Total 100 100 100 100
In Q4 2011 and YTD 2011, the total sales volumes of refined petroleum products increased by 14 percent and 11 percent compared to Q4 2010
and YTD 2010, respectively, primarily due to the improved stability of refining operations, more favorable weather conditions for road paving activities
that buoyed higher relative asphalt sales and increased demand for refined petroleum products in 2011.
COMMODITY PRICES
Three months ended December 31 Year ended December 31
2011 2010 % 2011 2010 %
Average benchmark prices
West Texas Intermediate (WTI) crude oil US$/barrel at Cushing $ 94.05 $ 85.16 10 $ 95.14 $ 79.51 20
Average realized crude oil input cost
Crude Oil – US$/bbl at Refinery 90.05 72.00 25 84.28 69.33 22
Average realized refined product prices (1)
Gasoline – US$/bbl 107.56 88.35 22 112.35 87.48 28
Diesel – US$/bbl 136.38 107.82 26 126.77 94.97 33
Jet fuel – US$/bbl 131.23 105.18 25 133.65 96.57 38
Asphalt – US$/bbl 87.77 79.22 11 87.99 81.49 8
Weighted average sales price – US$ per bbl $ 108.32 $ 89.13 22 $ 106.81 $ 86.02 24
Weighted average sales price, including realized gains/loss
on risk management contracts – US$/bbl $ 109.43 $ 89.13 23 $ 107.06 $ 85.88 25
(1) Before risk management contracts gains and losses and after transportation costs.
The Refinery operates in PADD IV and is exposed to niche-like markets that resulted in above average realized refined product prices in 2011. Sales
of refined petroleum products are generally made on sales contracts negotiated with wholesalers, retailers and large end-users for gasoline, jet fuel
and diesel and with construction contractors and road builders for asphalt. Frequently, sales contracts are for periods in excess of one month.
General and local economic conditions affect refined product demand and pricing. We anticipate they will continue to influence our downstream
financial results in the future. To mitigate some of the risk of lower future gasoline and diesel selling prices and margins, the company entered
into certain risk management sales contracts. In Q4 2011, the company recorded a realized and unrealized gain of $1.0 million and $5.3 million,
respectively (Q4 2010 - $nil). In YTD 2011, the company recorded a realized and unrealized gain of $1.0 million and $5.6 million, respectively (YTD
2010 - realized loss of $543,000). Currently, the following risk management contracts in place:
• Gasoline swap – January 1, 2012 – March 31, 2012 – 1,000 bbl/d at WTI per barrel plus US$27.50/bbl;
• Diesel swap – January 1, 2012 – December 31, 2012 – 1,000 bbl/d at WTI per barrel plus US$32.25/bbl;
• Gasoline swap – April 1, 2012 – June 30, 2012 – 1,000 bbl/d at WTI per barrel plus US$21.25/bbl;
• Gasoline swap – April 1, 2012 – June 30, 2012 – 815 bbl/d at WTI per barrel plus US$23.00/bbl.
DOWNSTREAM REVENUE
Three months ended December 31 Year ended December 31
2011 2010 2011 2010
Gross revenue (1) ($000) $ 107,010 $ 77,435 $ 441,143 $ 334,165
Transportation and handling cost (2) ($000) (1,899) (2,905) (12,282) (7,899)
Downstream revenue ($000) $ 105,111 $ 74,530 $ 428,861 $ 326,266
Weighted average sales price ($ per bbl) (3) $ 110.60 $ 90.32 $ 105.47 $ 88.68
(1) Includes intersegment sales of $3.8 million in Q4 2011 and $15.2 million in YTD 2011 ($3.8 million in Q4 2010 and $14.3 million in YTD 2010), which were transacted at prevailing market prices and have
been eliminated from the consolidated financial statements. The costs of these sales were $3.5 million in Q4 2011 and $13.7 million in YTD 2011 ($3.4 million in Q4 2010 and $13.0 million in YTD 2010).
(2) Transportation cost is deducted in calculating above revenue whereas it is included in expenses in the consolidated statements of operations.
(3) Per unit prices are calculated using revenue divided by volumes of refined products sold.