Canadian Natural Resources reports a record second quarter
Canadian Natural Resources Ltd. [TSX:CNQ] reported a record second quarter in 2014 - record earnings, record North American light crude oil production, record NGLs production (natural gas liquids), record heavy oil production and record cash flow. The company reported adjusted net earnings from operations of $1.15 billion last quarter, more than double from the same quarter last year. Cash flow was up to $2.6 billion in Q2, up from $1.67 billion in 2013. Total production for the quarter climbed to a record 817,500 barrels of oil equivalent per day.
Quarterly performance was boosted by strong energy prices, strong production in their oil sands operations and a lower Canadian dollar. The company reported larger than expected hedging losses and increased capital spending by 1% to approximately $12 billion.
CNRL provided the following updates on their heavy oil and oil sands operations:
HORIZON PHASE 1
- The Horizon Oil Sands Mine reported record production for the quarter; the facility produced 119,200 bpd, up 5% from the same time last quarter.
- Q2 operating expenses declined to $36.61/bbl, down 11% from the previous quarter and down 19% from the same quarter last year.
- Q3 production estimates were lowered to 82,000 bpd (from 119,000 bpd) due to a 25-day shutdown of the upgrader required for coker tie-ins. The shutdown was originally planned for 2015 but was moved to mid-August 2014. Once the tie-ins are complete, total capacity of the upgrader is projected to increase to 127,000 bpd.
HORIZON PHASE 2/3
- Overall, the Horizon expansion was reported at 42% physically complete.
- Tranche 2 is the first completed phase of expansion which is expected to improve reliability.
- A tailings management project is 27% complete and will enable Directive 74 compliance with respect to fines capture in the tailings plant.
- The Phase 2A coker expansion is 92% physically complete and will increase synthetic crude oil (SCO) production by 12,000 bpd.
- Phase 2B was reported at 33% physically complete 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 32% physically complete. This phase will see the addition of new extraction trains which will expand capacity by another 80,000 bpd by late 2017.
- Engineering and procurement for the overall Phase 2/3 expansion is 65% complete with 60% of the contracts already awarded. About 85% of the contracts so far are lump-sum, which the company expects will allow for better cost certainty. Once completed, the expanded Horizon plant should see improved reliability and lower operating costs.
KIRBY NORTH & SOUTH
- Kirby South experienced some mechanical failures which limited production last quarter. The facility produced an average of 15,000 bpd in Q2 and is expected to grow to 40,000 bpd by Q1-2015.
- Kirby North Phase 1 received all regulatory permits. Capital expenditures are estimated at $1.45 billion. Detailed Engineering for the Central Processing Facility is essentially complete with first steam targeted for Q4-2016. The plant will have a total capacity of 40,000 bpd once fully operational.
- Stronger than expected production was achieved at Primrose North. Operating costs at Primrose were reported at $10.20/barrel.
- Clean-up at the Primrose site continues after bitumen was first discovered to be seeping to the surface in Q3-2013.
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. 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.
Overall, production guidance for 2014 was lowered by 1% (or about 10,000 boe/day). There is growing speculation that CNRL may sell or spin off their royalty assets, following the success of Cenovus' PrairieSky IPO. This will improve cash flow and revenues in the upcoming quarters. The company is expecting to grow on average 9% over the next few years and will greatly benefit from any narrowing of the heavy oil differential.
CNRL also declared a quarterly dividend of $0.22 per common share.