Sherritt's Q2 losses deepen as Cuba oil output falls

Canadian metals and energy firm Sherritt International saw a drop in Cuban oil production in Q2 but increased electric power revenue, as its quarterly losses widened.

The company reported Cdn$204mn (US$155mn) in total revenues in Q2, down from Cdn$268mn a year earlier.

Sherritt said in February it would reduce capital spending on Cuban oil and gas projects 22% this year as it winds up drilling commitments for existing production-sharing contracts.

The Toronto-based company recorded an adjusted net loss of Cdn$116mn in Q2, compared with a net loss of Cdn$75.2mn a year earlier.

Oil and gas revenues from the company's operations in Cuba slumped 45% year-on-year to Cdn$28.3mn, while revenues for H1 were down 46% on 1H15 to Cdn$50.7mn. Adjusted Ebitda for Q2 was down 70% to Cdn$8.9mn.

Gross working interest (GWI) during the second quarter was 16,200b/d, down from 18,607b/d in 2Q15, a 13% drop. The average realized price was Cdn$28.16/b, down 38% on 2Q15, while unit operating costs were Cdn$9.30/b, down 8% on a year earlier.

Cuba GWI exceeded expectations because of better- than-expected performance from existing wells, helped by a successful workover in the quarter, the company said in a report.

With the better than expected production and a revaluation of the balance of the year, Sherritt's outlook for Cuba GWI production has been increased to 15,000b/d from the original guidance of 14,500b/d.

"On a three and six month basis, the oil business has been free cash flow neutral even in the current oil price environment; however, most of the capital expenditure this year is expected to fall in the second half as Block 10 drilling is expected to commence in the third quarter," the firm said. "The outlook for capital spending in 2016 has been reduced to the current US$27mn from US$34mn at the end of the first quarter, as exploration spending on future development outside of Block 10 has been deferred."

Electric power revenue in Cuba totaled Cdn$14.9mn in Q2, up 17% on 2Q15 while electricity generation increased by 3GWh year-on-year to 227GWh.

Electric power generation has been consistent on both a quarter-on-quarter and year-on-year basis, and average realized prices remained consistent, excluding the impact of a weaker Canadian dollar in H1 compared with 1H15, the company said.

Among its strategic priorities for 2016, Sherritt identified the extension of the life of its Cuban energy business, allocating capital to new drilling on Block 10, with future drilling contingent on results from 2016 activities.

Sherritt, as well as operating in the energy sector, is the world leader in the mining and refining of nickel from lateritic ores with operations in Canada, Cuba and Madagascar.