Unconventional Oil

[Arctec]

Canadian Natural Resources upgrader on hold

Wednesday, March 07, 2007
CALGARY — Canadian Natural Resources Ltd. has decided to put its heavy-oil upgrader project on hold until federal and provincial environmental laws gain clarity and service costs cool down, the oilpatch heavyweight said Wednesday.

The company decided to shelve temporarily the long-term plan to build an upgrader in northeastern Alberta after preliminary studies indicated the legislative and cost risks were too high.

“It's the prudent thing to do,” chief executive officer Steve Laut said during a conference call.

”We don't know what kind of greenhouse gas regulations are coming at us, and as you go into second phase of [planning], you start scoping out the size of the vessels, and of the flow, and we're not going to waste money designing something that may not be effective.”

The federal government has not made clear its position on how it will proceed with efforts to curb greenhouse gas emissions. And the government of Alberta, seat of the bulk of Canada's oil and gas industry, has also not put forth definite guidelines on emission control.

Canadian Natural Resources reported earlier an 18-per-cent drop in adjusted operating income for 2006, primarily due to sharply lower natural gas prices and high service costs.

Adjusted for the impacts of risk management, tax rate changes, foreign-exchange effects and stock-based compensation, the firm's 2006 earnings from operations declined to $1.66-billion, from $2.03-billion in 2005.

Fourth-quarter earnings fell 72 per cent to $313-million, or 58 cents per share, from $1.1-billion, or $2.06 per share the previous year, when the company made an $825-million risk management, or hedging, gain.

Adjusted quarterly operating profit slipped to $412-million from $470-million despite a 9-per-cent increase in production to 613,764 barrels of oil equivalent per day.

Revenue declined to $2.51-billion from $2.9-billion as CNQ's average fourth-quarter netback was down 27 per cent from a year earlier at $29.13 a barrel of oil equivalent amid natural gas prices barely half of year-ago levels.

At the Horizon oil sands project, 57 per cent complete at year-end, “our project management and construction teams continue to deliver,” Mr. Laut said earlier Wednesday, and “at present we continue to expect final phase one construction costs to not be materially different than our original $6.8-billion target cost with an on-schedule commissioning in the third quarter of 2008.”

Vice-chairman John Langille, added that “based upon current strip pricing and projected production levels, we would expect to generate 2007 cash flows in excess of $6 billion, above the high end of our original 2007 financial budget.”

Along with its financial results, CNQ announced a penny-per-share dividend increase to 8.5 cents quarterly.