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Lower operating costs narrow first quarter losses at Canadian Natural Resources

Lower operating costs narrow first quarter losses at Canadian Natural Resources

Calgary-based Canadian Natural Resources (CNRL) reported a narrower than expected loss in the first quarter, slightly better than analysts were expecting. Improved cost controls helped the company reduce its losses to $105 million for the first 3 months of the year despite a decline in production. Bucking the trend in the energy patch, Canadian Natural steered clear of mass layoffs across its operations, instead opting to reduce salaries for staff and management. The company has also slowed drilling and shut-in some unprofitable natural gas wells.

Q1 BY THE NUMBERS

  • Revenue from operations: $2.26 billion versus $3.23 billion in Q1/15 (down 30%)
  • Cash flow from operations: $657 million versus $1.37 billion in Q1/15 (down 52%)
  • Net earnings/loss: -$105 million versus -$252 million in Q1/15
  • Capital expenditures: $1.04 billion versus $1.41 billion in Q1/15 (down 26%)
  • Total production: 844,531 boe/day versus 898,053 boe/day in Q1/15 (down 6%)

The 6% drop in overall production (yr/yr) was blamed on natural declines and a 46% cut in drilling and exploration activities.

THERMAL IN-SITU PRODUCTION

  • Total in-situ production: 118,044 bbl/day versus 145,733 bbl/day in Q1/15 (down 19%)
    • Primrose Q1 average: 83,475 bbl/day
    • Kirby South Q1 average: 34,570 bbl/day
  • Operating costs: $10.60/bbl versus $10.64 in Q1/15 (down 0.4%)

The drop in production volumes were blamed on lower drilling at Primrose and a temporary shutdown required to repair pipeline cracks discovered at the Primrose East facility. Primrose is expected to be back at full capacity in May. 

A power outage also damaged 3 evaporators at the Kirby South facility, decreasing production for the quarter. Kirby is now back to the more normal level of 38,000 bbl/day with a steam-to-oil ratio (SOR) of 2.7.

Thermal in-situ production presently accounts for about 15% of CNRL's total production.

HORIZON OIL SANDS MINE & UPGRADER

  • Production: 127,909 bbl/day of upgraded synthetic crude oil (SCO) versus 134,166 bbl/day in Q1/15 (down 5%)
  • Operating costs: $26.55/bbl of SCO versus $29.73 in Q1/15 (down 11%)
  • Transportation costs: $2.07/bbl versus $1.83 (up 13%)
  • Capital expenditures: $585 million versus $569 million (up 2%)
  • 2016 full year guidance revisions:
    • Production: reduced to between 120,000 to 132,000 bbl/day
    • Operating costs: $27 to $30/bbl
    • Capital expenditures: $1.89 to $1.99 billion

Production costs at Horizon hit a record low in the first quarter thanks to better reliability and a reduction in costs for service contracts.

Phase 2B expansion was reported 84% complete so far. Certain sections of the expansion became operational in March. The whole facility, including the upgrader, will undergo a 35 day maintenance turnaround in July, where other components will be tied-in. All sections of Phase 2B should be operational by October which will add another 45,000 bbl/day of capacity to the oil sands facility. By the end of 2016, Horizon's nameplate capacity will increase to 182,000 bbl/day.

About $1 billion in capital is being allocated to completing Phase 3 in 2017, which involves the addition of extraction trains to the upstream bitumen production facility and additional hydrotreating capacity on the upgrading side. Phase 3 was reported 79% complete by the end of the first quarter.

The Phase 3 expansion is the last sanctioned expansion at Horizon at this time and will add another 80,000 bbl/day of capacity. Once completed, nameplate capacity will increase to 250,000 bbl/day and production costs are expected to fall below $25/bbl.

CNRL-PRODUCTION-PROFILE.jpg

CNRL accounts for 52% of Western Canadian Select (WCS) volumes sold, or 226,000 bbl/day, making it the largest contributor of the heavy oil stream. CNRL's debt-to-capitalization ratio is 38%. The company expects to be able to grow its dividend after capital expenditures at Horizon begin to wind down post 2018.

ALL FIGURES REPORTED ARE IN CANADIAN DOLLARS • ALL GRAPHICS COURTESY CANADIAN NATURAL RESOURCES
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