Canadian Natural Resources posts record oil sands production in the first quarter and lower operating costs
Canadian Natural Resources Ltd. (CNRL) grew its production to almost 900,000 barrels of oil equivalent per day (boe/d) in the last quarter. Continued growth of its oil sands operation and lower operating costs failed to offset a 50% drop in oil prices, resulting a narrow net loss for the quarter.
In an effort to get back to black, the company plans to further reduce its 2015 capital expenditures by another $300 million, with virtually all cuts focused on the Horizon Phase 2/3 Expansion. The company is also on track to further reduce operating costs by another $390 million. Cost reductions will be achieved through lower energy input costs, improved operating efficiency and improved production volumes.
The Primrose thermal in-situ facility had a record quarter, producing an average of 122,386 barrels per day (bpd). The facility is expected to produce approximately 106,000 to 115,000 bpd in the next quarter. Low pressure steamflood was commenced late last year at Primrose East Area 1, which is currently producing 11,000 bpd of heavy oil. The company began steaming Primrose East Area 2 in February, which should begin oil production later in the year. Primrose uses a combination of cyclic steam-stimulation (CSS) and steam-assisted gravity drainage (SAGD) to extract the bitumen in-situ. CNRL submitted its final report on the cause of the bitumen flow to surface which occurred at the site in 2013.
Kirby South also had a record first quarter, producing an average of 23,700 bpd. The facility has a design capacity of 40,000 bpd and continues to ramp up heavy oil production. The SAGD thermal in-situ operation was reported to have a steam-to-oil ratio of 2.4.
HORIZON OIL SANDS MINE
Horizon achieved a record quarterly production of 134,166 bpd of synthetic crude oil in the first quarter, representing a 19% increase year/year.
The facility now has a nameplate capacity of 137,000 bpd, thanks to improved Mine Planning and the recent installation of new equipment in its Extraction and Upgrading facilities. CNRL is now targeting a utilization rate of 92% to 96% and is expected to produce a 2015 average of 121,000 to 131,000 bpd.
The company credits steady operation and improved reliability for its 28% reduction in operating costs for the facility, as compared to last year. Operating costs fell to $29.73 per barrel, thanks in part to lower energy costs and higher production volumes. Full year guidance for operating costs was reduced to $31 to 34 per barrel. The Horizon upgrader began producing diesel for internal consumption, which also helped lower operating costs for the mine.
Horizon Phase 2/3 Expansion Progress
The company remains on track to complete its expansion by the end of 2017, which is progressing slightly ahead of schedule. Once fully operational, the newly expanded facility will have a nameplate capacity of 250,000 bpd. Operating costs are expected to be reduced to $25 to $27 per barrel.
- Phase 2/3 progress overall was reported at 60% complete by the end of the first quarter.
- The company is targeting an additional $300 million in cost reduction, without impacting the schedule. The new capital spending budget for Horizon was revised to $2.2 billion for the full year.
- Over 72% of the construction contracts have already been awarded, with 85% being lump sum commitments.
- Tailings work related to Directive 074 is on track and reported at 53% physically complete.
- Phase 2B was reported at 54% complete and remains on track for a late 2016 start-up. This phase includes expansion of froth treatment, the gas/oil hydrotreater and the hydrogen plant. Once operational, Phase 2B will add another 137,000 bpd to the overall nameplate capacity of the plant.
- Phase 3 is 51% complete and will see the installation of new Extraction trains. This will improve reliability and increase the plant's capacity by another 80,000 bpd when it comes online, which is expected to be late 2017.
Horizon is expected to undergo a major maintenance turnaround in June of this year, which will drop second quarter production to 107,000 to 113,000 bpd. However, full year 2015 guidance remains unchanged at 121,000 to 131,000 bpd.
The Horizon Mine and Upgrader produces high-quality synthetic crude oil, which sells almost on par with West Texas Intermediate. First quarter selling price for Horizon's SCO was reported at $56.75 per barrel, down from $107.82 for the same period last year. The company paid $1.01 per barrel in royalties, substantially lower than the $5.06 paid for the same period last year. Interestingly, transport costs are largely unchanged despite the lower oil prices. First quarter transport costs were reported at $1.83 per barrel, versus $1.96 for the first quarter of last year.
NWR STURGEON REFINERY
CNRL is partnered with the government of Alberta in the construction of the Redwater Upgrader/Refinery, located in Sturgeon Country, 45 km north east of Edmonton. CNRL has a 50% stake in the facility which will have a Phase 1 processing capacity of 50,000 bpd of raw bitumen (or 78,000 bpd of diluted bitumen).
Major vessels are currently being erected onto their foundations, which will continue through 2015. The 240 kV electrical transmission lines have been energized and tank farm construction is still ongoing. Offsite modules will continue to trickle into the facility which is expected to wrap up construction in the fourth quarter of 2017. Approximately 2,200 trades people are currently on-site. The project is striving to recycle 98% of the construction waste produced on site, with funds redirected to the community and other charitable endeavours.
Canadian Natural Resources is Canada's largest heavy oil producer. The company owns over $2 billion worth in royalty lands which it may sell or spin-off later in the year.
CNRL stock trades on both the TSX and NYSE (ticker: CNQ) and currently pays out a C$.023 quarterly dividend, yielding approximately 2.4%.