Canadian Natural slashes spending, blames royalty hike
JOHN PARTRIDGE
Tuesday, November 27, 2007
Canadian Natural Resources Ltd., one of the country's top energy producers, will slash its capital spending on conventional crude and natural gas by one-third to $1.7-billion next year and is blaming most of the reduction on the new royalty regime adopted last month by the Alberta government.
Putting hard numbers to an earlier threat, the Calgary company said early Tuesday that 78 per cent or $645-million of the $827-million reduction stems from the new regime, which is to take effect in 2009 and has set off a storm of criticism from the oil and gas industry.
“The new royalty regime ... will [absorb] the vast majority of any increases in natural gas prices for most of our natural gas wells,” John Langille, vice-chairman of the Calgary company, said in a news release Tuesday. “As such, the ability to increase natural gas drilling activity with increasing gas prices is severely impacted.”
The new royalties will raise levies on oil and gas producers across the board in Alberta.
Canadian Natural's shares fell as far as $64.99 on the Toronto Stock Exchange, but as midday approached they were trading at $65.86, down $5.19 or 7.3 per cent from Monday's close.
The company, founded and controlled by billionaire Murray Edwards, warned at the beginning of this month that it would radically cut plans for natural gas drilling in Alberta by 40 per cent in 2008 — down from a previous threat of a 67 per cent cut — and move production to British Columbia, West Africa and the North Sea.
It said Tuesday it has chopped planned natural gas drilling in Alberta by 44 per cent to 195 net wells next year, while increasing activity in B.C. and Saskatchewan by 8 per cent to 119 wells. This means it will drill a total of 314 net wells in 2008, down 31 per cent from its previous forecast.
It also warned more cuts are in Alberta likely down the road.
“The new Alberta royalty regime dramatically reduces drilling economics of certain play types at current and higher price forecasts in future years by extending the project payout period due to a front end loaded royalty structure,” Canadian Natural said. “As such, further cuts in both conventional and high productive rate deep natural gas wells are expected in future years as they would not benefit from first year production under the current regime.”
Company figures show that while it has increased its capital spending budget for West Africa offshore gas and conventional oil to $458-million next year from $159-million in 2007, the North Sea budget will fall to $231-million from $474-million.
The overall budget for North American natural gas, meanwhile, has been set at $617-million, down from $991-million this year.
Canadian Natural said it has set a natural gas production target of 1,429 mmcf/d to 1,513 mmcf/d, before royalties, about 12 per cent less than the midpoint of its 2007 guidance.
The company also said it has budgeted $689-million for international conventional crude oil and natural gas capital spending for 2008 and between $600-million and $1.02-billion for the completion of the first phase of the Horizon oil sands project.
Canadian Natural estimates that it will generate between $4.6-billion and $5.1-billion in cash from operations ($8.50 to $9.40 a share) based on a forecast average price of $73 (U.S.) a barrel for West Texas intermediate crude, a natural gas price of $7/mmbtu on the New York Mercantile Exchange and the Canadian and U.S. dollars being at parity.
© Copyright The Globe and Mail
Canadian Natural Resources
--------------------------------------------------------------------------------
Copyright © 2007 CTVglobemedia Publishing
Terms of Service | Privacy Policy | Legal Policy
Market Data 
Markets 
AI
