CNRL reports another quarterly loss and blasts the provincial government
Heavy oil giant Canadian Natural Resources (CNRL) reported a second quarter loss of $405 million today, blamed mostly on a $575 million charge for the recent 20% increase in provincial taxes. The company warned that the higher tax rate will translate into reduced future investment for the company, which could potentially translate into 4,100 fewer person years of direct, indirect and induced employment
CNRL cut another $245 million from its capital spending program (about 4%) to $5.5 billion for the full year. The 2015 capital budget was initially pegged at about $8 billion late last year. The capital budget has been slashed several times through the year due to the slump in oil prices.
The company saw record natural gas production in the quarter, rising to 1.779 Bcf/d (billion cubic feet per day), a jump of 9% from the same time last year. Natural gas account for approximately 15-20% of total sales at the company.
Oil production was down significantly from the previous quarter. The drop was blamed on forest fires which took their Cold Lake thermal in-situ operations offline in late May and a longer than expected maintenance turnaround at the Horizon Mine.
Drilling activity is down 93% from last year and not expected to recover until oil prices improve.
HORIZON OIL SANDS MINE
Production at Horizon averaged 96,607 barrels per day (bpd) of Synthetic Crude Oil (SCO), down 28% from the first quarter of 2015 and down 19% from the same time last year. The drop was attributed to a 15 day maintenance turnaround and a slower than expected ramp-up after the re-start. The company will be deferring the planned third quarter maintenance turnaround to sometime in 2016 in order to maintain its full year production targets.
Expansion of the Horizon facility continues on plan and on budget. The Phase 2/3 plan of expansion was reported 67% physically complete by the end of the second quarter. Capital expenditures at Horizon in 2015 were revised to $2.765 billion split as follows:
- Directive 074: $40 million
- This phase was reported 55% physically complete.
- Phase 2A: $35 million
- This phase is essentially complete and brings the upgrader’s nameplate capacity to 137,000 bpd.
- Phase 2B: $1,230 million
- This phase was reported 62% physically complete and is expected to be operational by the end of 2016. Once complete, Phase 2B will add another 45,000 bpd of capacity.
- Phase 3: $560 million
- Phase 3 was reported 59% complete. This phase is expected to be completed by late 2017 and will add another 80,000 bpd to the total production.
About $330 million is being allocated to maintenance and reclamation activities in 2015.
Operating costs continue to decline at the oil sands mining operation. The company expects another 3% drop in yearly average operating costs, ranging from $30-33 per barrel. Operating costs at Horizon are down 20% from the same time last year.
Transportation costs rose to $1.98 per barrel, up from $1.53 per barrel for the second quarter of 2014.
Production was curtailed at Primrose and Kirby South in late May to early June due to encroaching forest fires near the Cold Lake area. Thermal in-situ production volumes averaged 105,019 bpd in the last quarter, down 28% from the first quarter and down 8% from the same period last year. Overall, thermal in-situ operating costs are expected to decline 13% year-over-year.
Primrose East Thermal In-situ
Low pressure steam flooding at Primrose East Area 1 continues and low pressure cyclic steam stimulation (CSS) continues at Area 2. Production volumes at Primrose East range from 15,000 to 20,000 bpd, which is exceeding the company’s expectations.
Production volumes increased to 26,193 bpd at Kirby South in the second quarter. Operation continues to ramp up to its full capacity of 40,000 bpd. For the month of July, production averaged 32,000 bpd. Steam-to-oil ratio averaged about 2.6 for the last quarter.
2015 FULL YEAR GUIDANCE
The company expects full year oil production to average 274,000 to 284,000 bpd, approximately unchanged from previous estimates. Capital expenditures were reduced by another $245 million to $5.5 billion for the full year. The company has allocated $2.765 billion to the Horizon operation and $350 million to thermal in-situ facilities. Total capital expenditures is down $3 billion from the initial 2015 guidance issued in December of 2014.
The company did not provide any details on the potential sale of its royalty lands, which have an estimated worth of $2 billion. During today's conference call, the company noted there was strong demand for the royalty lands and hinted the assets may be sold or spun-off by the end of the year.
SHARE PRICE PERFORMANCE
CNRL stock (TSX:CNQ) currently pays out a $0.23 per share quarterly dividend. CNQ stock is down 28% year-over-year and currently yields a 2.8% dividend.
Canadian Natural Resources is one of the largest producers of heavy oil in North America. The company is the largest contributor to the Western Canadian Select heavy crude oil blend, accounting for about half of total volumes.