Canadian Natural Resources Sees Happy Ending to 2011 as Crude Oil Hits Record Production

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Researched by Industrial Info Resources (Sugar Land, Texas)--Canadian Natural Resources Limited (NYSE:CNQ) (CNR) (Calgary, Alberta) finished fiscal year 2011 on a strong note, as the company drilled a record number of crude oil wells and saw a record quarterly production of more than 657,000 barrels of oil equivalent per day. CNR also benefited from production at natural gas facilities that were acquired during 2010 and 2011. Net earnings were reported to be $832 million for the quarter, compared with a $309 million loss in fourth-quarter 2010, and $2.64 billion for the year, a 57.98% increase from 2010.

Total product sales stood at $4.22 billion for the quarter, a 25.69% increase from the same period in 2010, and $13.79 billion for the year, a 6.91% increase from 2010. CNR drilled 783 net primary heavy crude oil wells during the year and produced a quarterly record for the company. Compared with fourth-quarter 2010, natural gas production increased 2.24% to 1.28 billion metric cubic feet per day, while crude oil and natural gas liquids production increased 1.24% to 444,286 BBL/d. For the full year, natural gas production increased 1.13% to 1.26 billion metric cubic feet per day, but crude oil and natural gas liquids production decreased 8.45% to 389,053 BBL/d.

"In 2011, we were selective in our approach to developing our natural gas assets, and focused primarily on liquids-rich plays in northeast British Columbia and northwest Alberta," said Allan Markin, the chairman of CNR, in a conference call.

The company's fourth quarter benefited from the resumption of synthetic crude oil production at the company's Horizon Oil Sands Mine in Fort McMurray, Alberta. A fire at Horizon's primary upgrading coking plant on January 6, 2011, suspended all synthetic crude oil production until August 26, when the company resumed operations. As a result, production averaged 40,434 BBL/d for the full year, which is less than half of the production in 2010. However, production in fourth-quarter 2011 averaged 102,952 BBL/d, an 11.02% increase from fourth-quarter 2010. For more information, see January 28, 2011, article - Canadian Natural Resources Extends Unplanned Horizon Upgrader Shutdown.

CNR also reported a $900 million increase in capital expenditures for 2012. The jump was attributed partly to the record numbers in CNR's heavy crude oil drilling program, which involved a strong increase in well drilling and completion. North America accounted for more than three-quarters of the company's total capital expenditures for the year, excluding the company's oil sands mining and upgrading programs, compared with 83% in 2010.

Industrial Info is tracking more than $33 billion in active projects involving CNR, including the first phase of construction for the Kirby South Steam-Assisted Gravity Drainage Oil Production Plant in Lac La Biche, Alberta. The $1.35 billion project involves constructing a bitumen production field and processing plant with a capacity of 45,000 BBL/d to produce bitumen-utilizing oil sands resources. Drilling has been completed on the second of seven pads and has begun on a third. CNR executives say that the project remains on budget and on schedule, with completion targeted for November 2013.

CNR also is planning to serve as project director on $8.95 billion in upgrades and additions at the Redwater Upgrader, which is owned by North West Upgrading Incorporated (Calgary), in Redwater, Alberta. Additions include a crude and vacuum unit, a sulfur recovery unit, a diluents recovery unit, a multi-purpose gasification unit, a residual hydrocracker unit, and a gas oil hydrotreater/hydrocracker unit, as well as additions that will be made to offsite utilities. The additions are set to kick off in September 2012 and be completed in September 2015. A bitumen upgrader is to be expanded in two phases; the first, two-year phase is set to begin in April 2016, and the second, two-and-a-half-year phase is set to begin in March 2021.

For the first quarter of 2012, CNR executives are forecasting between 1.3 billion and 1.32 billion metric cubic feet per day of natural gas, and between 367,000 and 400,000 BBL/d of crude oil and natural gas liquids. For the full year, they are forecasting between 1.25 billion and 1.3 billion metric cubic feet per day of natural gas, and between 440,000 and 480,000 BBL/d of crude oil and natural gas liquids. As a result of lower-than-expected natural gas prices, CNR has reduced its natural gas capital expenditures for 2012 by $170 million, while natural gas drilling will be reduced to 45 wells, as the company plans to reduce natural gas production by about 20 million metric cubic feet per day.

"Today, with strong oil prices and low gas prices, CNR continues to allocate capital disproportionately to oil projects," said Steve Laut, the president of CNR, in the conference call. "In 2012, we will deliver significant production growth. Light-oil NGLs in Canada will grow by 17%, heavy oil will grow by 16%, and thermal in-situ oil will grow by 10%. And though we stumbled out of the gate, we expect solid Horizon production for the remainder of the year."

Expansion activities at Horizon are continuing on schedule, at or below cost estimates. A third ore-preparation plant and an associated hydro-transport unit are ready for operations and are expected to strengthen production reliability in fiscal 2012. Full production of synthetic crude oils is set to resume in March, following an unplanned, $35 million maintenance on the fractionation unit that began on February 5. CNR officials said that the outage will affect the company's full-year production by less than 2%.

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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