Wednesday, January 14, 2015

Canadian Natural Resources Ltd. cuts $2.4B from 2015 capital spending plan

Alberta crude
Pumpjacks at work pumping crude oil near Halkirk, Alta., June 20, 2007. (Larry MacDougal / THE CANADIAN PRESS)
The Canadian Press
Canadian Natural Resources Ltd. is pausing one oilsands project while pressing ahead with another as the major oil and gas producer becomes the latest to slash its 2015 spending in the face of deteriorating oil prices.

The Calgary-based oil and gas giant (TSX:CNQ) built flexibility into the $8.6-billion budget it announced in November. Oil prices have fallen dramatically since then, so this year's spending now is expected to come in at $6.2 billion.

The company also expects to continue to grow output compared with 2014 but at a slower pace -- seven per cent, rather than the original target of 11 per cent.

North American benchmark crude has been trading below US$50 a barrel, less than half of where it was just six months ago.

The $1.45-billion Kirby North oilsands project in northeastern Alberta won't make its targeted 15 per cent return with crude prices at their current levels so "it only makes sense to defer," chief financial officer Corey Bieber said in an interview.

About $470 million in spending related to the steam-driven Kirby North project that had been planned for this year has been deferred until crude prices firm up enough to justify it.

Kirby North had been targeted to churn out 40,000 barrels per day, with first steam in late 2016. As of Canadian Natural's third-quarter financial report, construction was 33 per cent complete on the project near Lac la Biche, Alta.

It's a different situation at Canadian Natural's much larger Horizon project north of Fort McMurray, Alta., which, unlike Kirby, extracts bitumen through surface mining. Spending this year is expected to be $2.2 billion.

"Horizon economics are looking reasonable," said Bieber, adding the company is looking forward to taking advantage of lower costs as a result of the downturn.

"To stop a project like Horizon and then restart it at a later date would actually have some additional costs associated with it. So it's at a point in time that it makes sense to continue on as long as we can contain and control costs and potentially reduce costs."

By the end of 2014, $7 billion had been spent at the Horizon expansion, with another $6 billion to go over the next few years. The project is about 55 per cent complete.

Canadian Natural is planning to add 125,000 barrels of daily production to Horizon by 2017 in two stages.

Output from the existing Horizon development averaged a record 136,000 barrels per day in December.

Canadian Natural has frozen hiring, but it's not expecting any layoffs, said Bieber.

Its North American conventional business, which includes oil and natural gas assets in Western Canada, is also seeing spending cuts. While no production is being shut in, drilling new wells will slow substantially.

Spending on Canadian Natural's operations abroad -- offshore platforms in Africa and the U.K. -- is also being slashed.

"The U.K. basin, in particular, is a high cost basin," said Bieber.

It'll be tough to bring down costs, which are largely fixed, and the U.K.'s high taxes are also a hindrance, he added.

"I suspect that many of the assets in the North Sea are quite marginal at today's price."

Brent crude, a key international pricing benchmark, hasn't been faring better than its North American counterpart.

Canadian Natural says its dividend is sustainable in the current environment.

Canadian Natural shares were down more than four per cent at C$31.81, about the same as the energy sector overall on the Toronto Stock Exchange on Monday.

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