Canadian Natural Resources Expects $7.35 Billion in Capital Expenditures in 2012

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Researched by Industrial Info Resources (Sugar Land, Texas)--Canadian Natural Resources Limited (NYSE:CNQ) (CNR) (Calgary, Alberta) reported solid results for first-quarter 2012 as a well-maintained drilling program and renewed production at the Horizon Oil Sands Mine offset a sharp decline in natural gas prices. Net earnings for the quarter were reported to be $427 million, compared with $46 million in the first quarter of 2011.

Product sales totaled $3.97 billion, a 20.26% increase from the same period in last year. Total net capital expenditures for the quarter were $1.6 billion, a 5.79% decrease from the same period last year, which was attributed to fewer property acquisitions and less spending on well drilling and completion. Exploration and production programs accounted for 80% of capital expenditures, while North America accounted for more than three-quarters geographically when excluding the company's oil sands mining and upgrading programs.

CNR drilled 278 net primary crude oil wells in first-quarter 2012, only one less than in first-quarter 2011, and produced about 395,461 barrels per day (BBL/d), a 10.78% increase from the same period last year. The strengthened production is a result of success in the company's primary heavy crude oil and light crude oil drilling programs, as well as increased production from the Horizon Oil Sands Mine, which restarted earlier than anticipated on March 13, following more than a month of unplanned maintenance on the fractionating unit. CNR also saw stronger natural gas liquid (NGL) recoveries from the Septimus Gas Processing Plant south of Taylor, British Columbia. Production expenses for North American crude oil and NGL were substantially higher at $15.40 per barrel, due to increased service costs related to heavy crude oil production and seasonality.

Natural gas production increased 3.66% to 1.3 billion cubic feet per day, partly as a result of production properties acquired in 2011 and strong activity at the modest, liquids rich drilling program. However, because benchmark natural gas prices were 27% lower than they were in fourth-quarter 2011, CNR has cut its natural gas capital expenditures by $190 million and has lowered its full-year drilling target. Production expenses for North American natural gas increased to $1.33 per thousand cubic feet, attributed to cold weather and the acquisition of property with higher operating costs.

Industrial Info is tracking more than $24 billion in active CNR projects, including an $890 million expansion of the Horizon Oil Sands Mine and the $400 million addition of a sulfur recovery unit (SRU) in Fort McMurray, Alberta. The Horizon project involves expanding open pit mining operations and constructing a Tranche 2 ore preparation plant to increase production capacity by 5,000 BBL/d, as part of a four-tranche expansion to increase capacity from 110,000 to 250,000 BBL/d. The SRU addition involves the construction of a 600-ton-per-day SRU, including a tail gas treater, sour water stripper, and amine regenerator. The projects are expected to be completed in June and December 2012, respectively.

"We have come out of a challenging first quarter with even more conviction that our business strategy, plans and principles are right for our industry," said John Langille, Vice Chairman of Canadian Natural resources, in a conference call.

CNR executives aim to grow full-year 2012 production 10%, with more than half of the year's capital budget to go toward future production projects. For full-year 2012, production is expected to average 440,000 and 480,000 BBL/d of crude oil and NGL, and between 1.22 billion and 1.26 billion cubic feet per day of natural gas. For the second quarter alone, production is expected to average 453,000 and 482,000 BBL/d of crude oil and NGL, and between 1.25 billion and 1.27 billion cubic feet per day of natural gas. Steve Laut, the president of CNR, said in the conference call that the company expects natural gas prices to remain low for the next five to 10 years.

Total capital expenditures for 2012 are expected to be $7.35 billion. Production expenses for North American crude oil and NGL are expected to average between $11 and $13 per barrel, while production expenses for North American natural gas are expected average between $1.10 and $1.20 per thousand cubic feet. The company hopes to drill 815 net primary heavy crude oil wells in 2012, compared with 783 in 2011, and increase production 19%. CNR already is seeing better-than-expected results from Woodenhouse, a heavy crude oil production facility in Alberta.

"Today, with strong oil prices and low natural gas prices, CNR continues to allocate capital disproportionately to oil projects," Laut said in the conference call. "In 2012, we'll deliver significant production growth. Light-oil NGLs in Canada will grow 16%, heavy oil will grow 19%, and thermal in-situ will grow 8%. Horizon is back on, and we expect solid performance for the rest of the year."

For more information, visit Industrial Info's North American Oil and Gas Production Project Database, North American Petroleum Refining Project Database and North American Metals and Minerals Project Database.

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Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.