Canadian Natural Resources beats analysts' expectations for the third quarter
Canadian Natural Resources Ltd. (CNRL) continues to beat analysts' expectations in the third quarter, producing 797,000 barrels of oil equivalent (boe) per day, up 13% from last year. The company reported a net income $1.04 billion in Q3, or $0.94 per share, down from $1.17 billion for Q3 2013. The drop in income was blamed on a 25-day outage at Horizon and a lower sale price for synthetic crude oil (SCO). CNRL provided the following update on their oil sands operations in northern Alberta:
HORIZON PHASE 1
- Q3 production was hurt by a 25-day shutdown of the upgrader required for coker tie-ins as part of the Phase 2A coker expansion project. October production at Horizon averaged 123,100 bpd, reflecting throughput improvements from the new coker tie-ins. Production targets through the end of the year are projected to be 127,000 bpd.
- Horizon began producing its own diesel in the third quarter, expected to ramp up to 1,500 bpd in the fourth quarter. The diesel will be consumed internally for vehicle refuelling and is expected to lower operating costs at the mining facility.
- Production at Horizon is expected to grow by 4% next year, projected to average between 111,000 to 121,000 bpd.
- Operating costs for their oil sands mining and upgrading operation was reported $37.13 per barrel of SCO (versus $38.31 for the same period last year). The lower operating cost was attributed to high production and lower natural gas prices.
- Average sale of SCO for Q3 was $103.91 per barrel, down slightly from the $108.58 price realized in Q3 of 2013. The lower price reflects the lower average price for West Texas Intermediate crude oil in Q3.
HORIZON PHASE 2/3
- Engineering and procurement for the Phase 2/3 expansion was reported at 68% complete by the end of Q3 with 68% of all construction contracts already awarded. About 85% of the contracts so far are lump-sum, which the company expects will allow for better cost certainty. Q3 activities were focused on various upgrading units, the water cooling tower, hydrotransport lines, froth treatment, trains 3 and 4 of the main extraction plant and the addition of tailings booster pumphouses.
- Tranche 2 of the expansion is 100% physically complete and will improve performance of the Gas Recovery Unit.
- $130 million was spent on meeting Directive 74 targets for fines capture in oil sands tailings. The project was reported 41% physically complete by the end of Q3.
- Phase 2B was reported at 42% physically complete and should add another 45,000 bpd by late 2016. This phase will expand the capacity of the hydrotreater, froth treatment facility and hydrogen plant.
- Phase 3 was reported at 38% physically complete. This phase will see the addition of new extraction trains which will expand capacity by another 80,000 bpd by late 2017.
- Capital expenditures for the Phase 2/3 expansion are projected at $2.45 billion in 2015. Construction is expected to be 70% complete by the end of 2015. Once all phases of expansion are complete, the company is projecting total Horizon production to reach 250,000 bpd by late 2017.
KIRBY NORTH & SOUTH
- Kirby South continues to ramp up, producing 22,000 bpd in October. Kirby South production is expected to continue to increase towards its nameplate capacity of 40,000 bpd.
- Kirby North Phase 1 has received all required regulatory permits and was reported at 33% complete by the end of Q3. 2015 construction will be focused on the central processing facility and initiate a drilling program. Total capital expenditures are estimated at $1.45 billion. The plant will have a total capacity of 40,000 bpd once fully operational. CNRL expects the project to be 70% complete by the end of next year and remains on track for first steam in Q4-2016.
- The company received approval from the AER (Alberta Energy Regulator) to implement a low pressure steamflood at Primrose East Area 1. The steamflood has already commenced and production is ramping up as expected.
- Another application was submitted to the AER for East Area 2. Remediation of the Primrose site continues after bitumen was first discovered to be seeping to the surface in mid-2013. Low pressure cyclic steam stimulation (CSS) is intended to slowly return the Primrose East facility back into normal production.
- Primrose South received approval for additional cyclic steam stimulation (CSS) on 4 pads in September. Pad developments are expected for 2015 with production expected to come online in 2016.
NORTH WEST REDWATER STURGEON REFINERY
- CNRL is partnered with North West Upgrading and maintains a 50% interest in the Surgeon Refinery. The company reported that site preparation and deep undergrounds work is progressing on plan and are expected to be completed by the end of this year. The refinery is located 45 km NE of Edmonton in Sturgeon County. Each phase of the refinery will have a capacity of 50,000 bpd for a total of 150,000 bpd once all phases are complete.
Total capital expenditures for 2015 are projected at $8.6 billion, slightly higher than 2014. The company expects capital expenditures will ramp down by 2018 when Horizon and Kirby major projects are completed. Cash flow projections for 2015 are estimated at $9.4 billion, assuming $80 per barrel for West Texas Intermediate.
The company expects to grow total production by 11% next year, adding another 89,000 boe/day; natural gas production is expected to grow by 16%, while crude oil and natural gas liquids (NGLs) are expected to increase by 9%. The company expects 2015 production from the oil sands to average 237,000 to 261,000 bpd.
Canadian Natural Resources is the largest producer of natural gas and heavy oil in Canada. CNRL accounted for 56% of the total Western Canada Select blend sold in the last quarter, contributing approximately 160,000 bpd to this heavy oil stream. The company's total production is approximately 35% natural gas and 65% crude oil and NGLs. CNRL stock (TSX:CNQ) currently yields a 2.5% dividend.