CNRL delivers another solid quarter and charts a path to major growth

CNRL delivers another solid quarter and charts a path to major growth

Canadian Natural Resources (CNRL) reported a first quarter profit of $245 million, much improved from a loss of $105 million for the same time last year. 

Funds from operations were reported at $1.639 billion, exceeding capital expenditures by $800 million. Over $500 million of that amount was put towards debt reduction. By the end of the first quarter, the company's debt-to-book ratio was 38%.

Total production expanded 4% annually to 876,907 boe/day:

  • Natural gas production declined 6% y/y to 1.673 Bcf/day blamed on an outage of a 3rd party pipeline. 
  • Liquids production increased 9% y/y to 598,113 bbl/day, attributed to continued ramp-up of Horizon's Phase 2B expansion and a 9% increase from in-situ operations.


Horizon achieved record Q1 production of 192,491 bbl/day of upgraded synthetic crude (SCO), 8% higher than the previous quarter and 50% higher than Q1/2016. 

Production at Horizon exceeded 200,000 bbl/day in February but took a step back in March and April due to unplanned repairs performed at the Phase 1 diluent recovery unit.

Operating costs at the oil sands facility declined 17% y/y to $22.08/bbl of SCO. 

Phase 3 expansion was reported at 92% complete and is expected to be brought online by the end of this year. CNRL expects to spend $1.05 billion in capital to complete this final phase of expansion, adding another 80,000 bbl/day of SCO production capacity. Phase 3 tie-ins will be completed during a 24-day maintenance turnaround planned for the third quarter.

The company continues to evaluate options to further debottleneck the upgrader. The project would involve optimizing throughput yields from the coker unit and fractionation tower, at an estimated cost of about $70 million. CNRL previously estimated the project would extend the Q3 shutdown period from 24 to 45 days but add another 5,000 to 15,000 bbl/day of SCO capacity. The full scope of the work required should be confirmed by the end of the second quarter. 

Work related to Horizon's tailings management (required under AER Directive 085) was reported 69% physically complete.

The price of SCO averaged US$51.45/bbl in Q1/2017, an increase of 52% from the first quarter of 2016. Annual production guidance for Horizon was left unchanged at 170,000 to 184,000 bbl/day of SCO.


CNRL's thermal in-situ facilities produced 128,372 bbl/day in Q1, down slightly from the previous quarter:

  • The Kirby South in-situ facility produced 37,311 bbl/day in Q1, up 8% y/y. Including energy costs, operating costs declined 13% to $9.12/bbl while the plant's steam-to-oil ratio (SOR) came in at 2.7.
  • The Primrose in-situ facility produced 91,061 bbl/day in Q1, up 9% y/y. Operating costs were reported at $12.55/bbl including energy.

Planned maintenance turnarounds will be completed at both Primrose and Kirby South in the second quarter. Kirby South is targeted to be down for 21 days. Primrose will be operating at reduced rates for about 2 months.

Total thermal in-situ production is expected to average 105,000 to 115,000 bbl/day this year, reflecting the shutdowns at both facilities.

CNRL contributed 194,000 bbl/day of heavy crude into the Western Canadian Select (WCS) blend in Q1, representing 44% of total WCS volumes. Volumes are sourced from the company's thermal in-situ facilities, as well as non-thermal heavy oil from Pelican Lake. 


CNRL also says it expects its recent acquisition of oil sands and heavy oil assets from Shell to close sometime in the second quarter. The company filed for the transfer of licences and approvals for both Muskeg River and Jackpine this week as part of its plans to take-over operation of both mining facilities.

CNRL has yet to provide guidance on impacts of the acquisition to the company's cash flow and production.

Despite the strong Q1 results, earnings, cash flow and production were all slightly below analysts' expectations.

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