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CNRL triples earnings, boosts dividend and cuts management pay by 10%

CNRL triples earnings, boosts dividend and cuts management pay by 10%

Market darling Canadian Natural Resources released third quarter results today and, as usual, beat all analysts' expectations. The company reported $2.4 billion in cash flow from operations for the fourth quarter, up from $1.8 billion for the same period in 2013. Crude oil and NGLs (natural gas liquids) production in the last quarter rose to 572,000 bbl/d, up 20% from the Q4-2013. Net earnings rose to $1.2 billion, an increase of almost 300% from the previous year. The company credited higher North American sales volume and a weaker Canadian dollar for the significant increase. The company also boosted its proved plus probable reserves to 8.89 billion BOE (barrels of oil equivalent), representing a reserve life of approximately 31 years.

Production Numbers

  • Canadian Natural boosted its crude oil and NGLs production to 531,000 bbl/d in 2014, up 11% from the previous year.
  • Including natural gas, total production rose to 790,410 BOE/day, up 18% from the previous year. The company credited the gains on a successful drilling program and strong production gains across all its North American divisions.
  • Cash flow from operations increased to $9.6 billion in 2014, up from $7.7 billion in 2013. Net earnings for 2014 was reported at $3.9 billion, up from $2.3 billion in the previous year.
  • The company contributed approximately 167,000 bbl/day of its heavy oil stream to the Western Canadian Select (WCS) blend in 2014, representing 56% of total Canadian WCS sales.

Thermal In-Situ Oil Sands Operations

  • Thermal in-situ production volumes averaged approximately 107,800 bbl/day in 2014, a 12% increase from the previous year.
  • Production in the fourth quarter was almost 119,000 bbl/day, up from 78,000 bbl/day in Q4-2013. A majority of the gains were attributed to the recommencement of steaming at Primrose East Area 1 and improved volumes at Kirby South.
  • The company received approval from the Alberta Energy Regulator (AER) to implement low-pressure steamflooding at Primrose East Area 1 and cyclic steam stimulation (CSS) at Area 2.
  • The Kirby South operation averaged 22,200 bbl/day in the fourth quarter and continues to ramp up towards its 40,000 bbl/day design capacity. Steam-to-oil ratios (SOR) at Kirby have been averaging 2.4 in the past 2 months. The Kirby facility employs steam-assisted gravity drainage (SAGD) for bitumen extraction from the oil sands.

Horizon Oil Sands Mine

  • Horizon production for 2014 reached a record 110,600 bbl/day of SCO, up 10% from the previous year.
  • The company successfully completed expansion of the Coker plant in Q3 of last year, 8 months ahead of schedule.
  • Utilization rates at Horizon were 96% in 2014. Fourth quarter production reached a quarterly record level of 128,100 bbl/day SCO.
  • Through completion of the Phase 2A expansion, Horizon’s nameplate capacity has increased to 133,000 bbl/day. Optimization of the mine plan and changes made to Extraction and Upgrading has further boosted capacity to 137,000 bbl/day. The company averaged 136,000 bbl/day for the past 3 months (December, January and February), representing a 99% utilization rate for the facility.
  • As a result of the improved equipment performance, the 35 day turnaround originally planned for late-2015 has now been reduced to just 6 days, with the remaining maintenance work deferred to May 2016. The 6-day turnaround is planned for the fall of 2015.
  • Tie-ins for the Phase 2B expansion will also be completed during the May 2016 turnaround, which will ultimately boost production volumes by 45,000 bbl/day.  Phase 2B was reported at 49% physically complete and is expected to be fully commissioned by the end of 2016.
  • Phase 3 was reported at 44% physically complete and will include additional extraction trains, which will increase production capacity by 80,000 bbl/day by late 2017.
  • Overall, the Phase 2/3 expansion was reported 56% complete by the end of last year. Over 70% of the construction contracts have already been awarded with 85% of those contracts being lump sum.
  • Operating costs at Horizon averaged $37.18 per barrel in 2014, down 8% from the previous year. Fourth quarter operating costs were reported at $34.34 per barrel, down 12% from the Q4-2013. The lower operating costs were attributed to improved operating efficiencies and higher production volumes. The facility now produces its own diesel for internal consumption, primarily used for refuelling the mining fleet. 
  • In 2015, Horizon is expected to produce somewhere between 121,000 to 131,000 bbl/day of SCO. The company also expects to further reduce operating costs to a range of $32 to $35 per barrel. Capital spending at Horizon for 2015 was revised from $2.45 to $2.22 billion.

Capital Expenditures

  • Total capital expenditures for 2014 amounted to $11.7 billion, up from $7.3 billion in 2013.
  • The 2015 budget has been cut by 2% this year (or $150 million), and is expected to be about $6 billion. The $150 million in savings will come from reducing the scope of the Horizon turnaround, which was scheduled for later this year.
  • The company noted it expects to see significant capital savings this year due to weaker oil prices and still has flexibility to reduce expenditures further, should it be warranted by market conditions.
  • Due to sagging commodity prices, Canadian Natural’s Management Committee and the Board of Directors have agreed to a 10% pay reduction. 

2015 Guidance

  • For 2015, the company expects production levels to average between 562,000 and 602,000 bbl/day of crude oil and NGLs and between 1730 and 1770 MMcf/day of natural gas.
  • Canadian Natural is forecasting an average WTI price of US$65/barrel in 2015 and C$60.50/barrel for Western Canadian Select. Natural gas prices are expected to average US$3.25/MMBtu.

In today’s conference call, the company also suggested it would sell or spin-off its royalty assets by the end of this year. Canadian Natural’s royalty assets are worth an estimate $2B.

Canadian Natural stock (TSX:CNQ) was up 5% in trading today, closing at $38.64/share. The company boosted its quarterly dividend to 23 cents per share, reflecting a 2.3% yield. This is the 14th consecutive year of dividend increases for the stock. 

Canadian Natural Resources is one the best performing Canadian energy stocks and is well loved by Canadian and US analysts. A total of 19 out of 25 analysts that cover the stock have a Buy rating for the company. The full fourth quarter press release can be found on their website [click here for link].

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