Sherritt's Cuban oil, power operations swing to profit

Canada's Sherritt International saw a return to profit in its oil operations in Cuba on the back of a 58% increase in revenues attributed to a 100% rise in oil prices, despite a decline in production.

Earnings from oil operations were Cdn$11mn (US$8mn), a swing into the black from a loss of Cdn$8.7mn in 1Q16, the company said in its latest financial results.

The company's gross working interest oil production in the quarter, all from Cuba, totaled 15,213b/d, down 8% from a year before, reflecting natural reservoir declines, but an improvement on 4Q16 due to well optimization.

Oil revenues in Q1 totaled Cdn$35.3mn, up 58%, while recovery costs were down 46% due to the combination of lower spending and higher oil prices. Unit operating costs dropped 9% from 1Q16 to Cdn$8.66/b.

In March the company had reported preliminary results for offshore exploration well LT-100 at block 10 in Cuba, where Sherritt has a production-sharing contract. Drilling failed to reach the target Lower Veloz formation because of wellbore instability arising from unexpected geological complexities.

"Any future capital in block 10 will be contingent upon success in this well, and expected capital spending for the year will be revised when the well has been completed and results disclosed," the company stated in its results.

Sherritt's production guidance for 2017 of 11,500-12,500b/d of gross working interest is not impacted by the results of LT-100, the company said, adding it has budgeted some US$50mn for oil and gas activities in Cuba this year.

ELECTRIC POWER

The company's power business in Cuba swung to a profit of Cdn$2.8mn against a Cdn$200,000 loss in 1Q16, despite a 14% drop in revenues to Cdn$13.4mn, attributed to revenue in last year's quarter having been boosted by construction on the Puerto Escondido-Yumuri pipeline under a service concession arrangement that was completed in 2016.

Unit operating costs in the first quarter declined 5% from a year before to Cdn$15.50/MWh, mainly due to the strengthening of the Canadian dollar.

Electricity generation remained stable at 217GWh, while the average realized price dropped 3% to Cdn$56.30/MWh