10/29/2012 06:51 EDT | Updated 12/29/2012 05:12 EST

Canadian Oil Sands fourth-quarter income rises to $338 million, sales lower

CALGARY - Canadian Oil Sands Ltd. (TSX:COS) increased its 2012 cash flow guidance by 20 per cent after reporting third-quarter net income rose to $338 million as lower operating expenses offset a decline in revenues.

The Calgary-based oil producer said Monday income in the most recent quarter amounted to 70 cents per share, up from $242 million, or 50 cents per share, in the year-earlier quarter.

Analysts polled by Thomson Reuters were on average expecting earnings of 55 cents per share and revenue of $962.1 million.

Sales, however, fell to $941 million from $989 million in the 2011 quarter.

Canadian Oil Sands owns a 37 per cent stake in the Syncrude Canada oilsands mine north of Fort McMurray, Alta., the biggest such project of its kind in the world.

Synthetic crude oil production from Syncrude rose to 28.8 million barrels during the quarter compared with 27.5 million barrels in the third quarter of 2011.

Cash flow from operations decreased eight per cent to $470 million in the third quarter from $512 million in the same quarter of 2011.

The drop was largely due to a lower average realized selling price, partially offset by higher sales volumes.

Average selling prices fell by $8 year-over-year, to $89.89 per barrel in the most recent quarter from $97.89 in the third quarter of 2011.

Meanwhile, sales volumes averaged about 113,300 barrels per day in the third quarter of 2012, up from 109,300 barrels per day in the 2011 third quarter.

Expenses per barrel fell to $36.16 from $37.19 in the third quarter of 2011, mainly due to higher production volumes.

Canadian Oil Sands now expects an average realized selling price of $94 per barrel for the year — up $10 from its prior guidance.

As a result of stronger-than-expected synthetic crude oil pricing, the company increased its cash flow guidance for the year to about $1.7 billion. It expects to end the year with $1.6 billion in cash and about $0.2 billion in net debt.

"While we had expected to draw down on our cash balances this year, we were able to fund our capital expenditures and dividends essentially from internally generated cash flow," said Marcel Coutu, president and CEO.

"As such, we continue to be well-positioned to finance the remainder of our major project capital program while maintaining an attractive dividend. These projects are tracking to plan, and Syncrude's owners remain confident in the schedule and budget estimates."

The company announced it would maintain its quarterly dividend of 35 cents per share.

Syncrude's other owners include Imperial Oil Ltd. (TSX:IMO), Nexen Inc. (TSX:NXY), Suncor Energy Inc. (TSX:SU), China's Sinopec, Mocal Energy Ltd. and Murphy Oil Co. Ltd.

Earlier this month, the partners announced plans to extend the life of the Mildred Lake mine by about a decade, making use of existing equipment and environmental infrastructure at the site.

The Syncrude partners are currently working out the scope of the project. Assuming it receives regulatory approval, construction and spending would begin in the next 10 years.

"The recently announced MLX project further positions Syncrude very favourably amongst oil sands mining projects. Our Mildred Lake and Aurora North mines should operate into the 2030s and 2040s, respectively," Coutu said.

"The scope of the MLX project is of a much smaller scale than what is required to develop a new mine, with the majority of construction limited to a bridge and utilities. As a result, we believe this will be a highly economic project while also providing the opportunity to minimize new land disturbance by utilizing existing infrastructure."

The company also said it expects cash levels to decrease significantly from the current $1.5 billion as it funds major capital projects and repays the 2013 debt maturity. As a result, net debt levels should rise to $1 billion to $2 billion by the end of 2014.