Canadian Natural’s Profit Falls on Lower Oil Prices (Update5)
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By Sonja Franklin
Nov. 5 (Bloomberg) -- Canadian Natural Resources Ltd., which earlier this year started up the Horizon oil-sands project, said third-quarter profit fell 77 percent on lower crude and natural-gas prices.
Net income dropped to C$658 million ($618 million), or C$1.21 a share, from C$2.84 billion, or C$5.25, a year earlier, the Calgary-based company said in a statement today. Earnings per share were 5 cents lower than the average of 14 analyst estimates compiled by Bloomberg. Revenue after royalties declined 35 percent to C$2.58 billion.
New York crude futures were 42 percent lower on average in the quarter than a year earlier, while gas prices dropped 62 percent. Almost 40 percent of Canadian Natural’s output is gas, making it the country’s largest producer of the heating fuel, after EnCana Corp. Before hedging, Canadian Natural’s oil sold for an average of C$62.90 a barrel, a 39 percent drop from a year earlier. Its gas before hedging sold for an average of C$3.80 per thousand cubic feet, down 57 percent.
“The conventional business where they have been starving it of capital continues to suffer,” said Ben Dell, an analyst at Sanford C. Bernstein & Co. in New York who rates the shares “market perform” and doesn’t own any.
Canadian Natural fell 89 cents to C$67.71 on the Toronto Stock Exchange. The shares have 12 buy ratings and 11 holds from analysts.
Oil Output
Oil production before royalties rose 17 percent to 359,269 barrels a day on higher volumes from Horizon and African fields, partly offset by planned maintenance in the North Sea and a temporary curtailment of the Primrose East field in Canada. Gas output slipped 13 percent to 1.29 billion cubic feet a day as the company shifted capital to crude production.
Canadian Natural started output of synthetic crude from the C$9.7 billion Horizon project in February. Horizon, in northeastern Alberta, produced an average of 66,907 barrels a day in the third quarter, up 12 percent from the previous three- month period. The project is designed for a capacity of 110,000 barrels a day.
The ramp-up remains below Canadian Natural’s expectations because some equipment in parts of the upgrading plant failed prematurely. The company also ran into difficulty processing the oil-sands ore as it found a higher-than-expected amount of clay in the mine and lacked blending materials.
Blending Issue
While Canadian Natural has “largely resolved” the equipment and plant-reliability constraints, it will probably take until the end of the second quarter to fully resolve the ore-blending issue, the company said in today’s statement.
Horizon will probably reach capacity of 110,000 barrels by the middle of next year, Canadian Natural President Steve Laut said in a telephone interview today.
“Horizon has been a classic upstream project,” said Sanford C. Bernstein’s Dell. “It’s been slower to come through and more expensive than expected and it has not been without challenges during the ramp-up. Very few projects in the upstream industry are simple, and very few of them ramp up without additional complications.”
Canadian Natural said it plans to begin engineering work on its Kirby oil-sands project this quarter and expects to sanction it in late 2010. The company is awaiting regulatory approval for the project, which would have the capacity to produce about 45,000 barrels of oil a day.
Production in 2010 is seen increasing 7 percent to the equivalent of 586,000 to 643,000 barrels of oil equivalent a day, the company said.
Capital Spending
Capital spending in 2010 is expected to rise 26 percent to C$3.9 billion, boosted by oil projects, gas drilling in British Columbia and C$600 million for optimizing production at Horizon and preparing future expansions of the project.
Some “80 percent of our capital is going to oil,” Laut said. “We feel more confident about oil than gas, and on gas we are quite uncertain.” He said as result of that, the percentage of oil production will probably gradually increase to two-thirds from about 60 percent currently.
To contact the reporter on this story: Sonja Franklin in Calgary at sfranklin6@bloomberg.net
Last Updated: November 5, 2009 16:22 EST
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