CNRL holds off on expansion plans, until new pipelines are up and running
Canadian Natural Resources (CNRL) laid out its plans for 2019 this week, taking the time to blast Enbridge and praise the Alberta government for its mandated 325,000 bbl/day cut in the province's total oil output.
Plans for thermal oil sands
Total thermal in situ production is expected to average between 104,000 and 124,000 bbl/day next year, up 7% from this year's average.
Much of those gains will come from the Kirby North Steam Assisted Gravity Drainage (SAGD) project, currently under construction. The facility is expected to begin steaming sometime in Q3/2019, with first oil expected before the end of next year. Output will ramp up throughout 2020, eventually reaching its nameplate capacity of 40,000 bbl/day in the first half of 2021. The company says the project is tracking on budget and ahead of schedule, about one quarter earlier than originally planned.
New pads drilled at Primrose this year will come online in 2019, adding about 26,000 bbl/day within the first year of production. CNRL says additional volumes out of its in-situ operations are designed to coincide with the completion of Enbridge's Line 3 replacement at the end of 2019, which will add another 370,000 bbl/day of takeaway capacity.
Total thermal oil sands output averaged about 112,000 bbl/day in the third quarter of this year.
An update on Horizon and AOSP
Production from both the Horizon and Scotford upgraders is expected to rise about 2% next year, to between 415,000 and 450,000 bbl/day of synthetic crude (SCO). Those figures include two maintenance turnarounds at each facility.
A 40,000 to 50,000 bbl/day Paraffinic Froth Treatment (PFT) expansion at Horizon is also still in the planning phase. The expansion will take advantage of excess capacity in Horizon’s upstream equipment, producing a diluted bitumen that will not require upgrading. CNRL says it plans to use excess naphtha and SCO as a diluent for pipeline transport, avoiding the purchase of condensate. The project has an estimated capital cost of $1.4 billion, which may be sanctioned at the end of next year, depending on market conditions. If all goes according to plan, first oil could come online by 2024. The project is currently awaiting regulatory approval from the Alberta Energy Regulator.
There are several other small expansions planned at the Horizon Upgrader, aimed at increasing capacity and improving reliability. The four mini-projects (Stages 1B/2A/2B/2C), have the potential to add another 45,000 bbl/day of SCO.
CNRL also says it is advancing its autonomous trucking pilot at the Jackpine mine. The $75 million pilot will test 18 trucks by 2022, with the long term goal of eventually converting its entire 140+ vehicle fleet at all three mines (Horizon, Muskeg River and Jackpine).
The company's recently acquired Joslyn lease will allow it to defer North Pit relocation costs and extend operations at the South pit, saving it about $500 million.
Total SCO production volumes from both Horizon and Scotford averaged 394,000 bbl/day in Q3/2018. Operating costs, including mining and fuel, are expected to fall below $25/bbl this year.
A "dysfunctional pipeline nomination process"
CNRL once again criticized Enbridge's nomination process on its Mainline network, Canada's largest export pipeline, accounting for about two-thirds of all crude exports to the US.
The Mainline network does not have binding contracts with shippers, and instead asks producers to nominate volumes to be shipped each month. Enbridge then rations those barrels to meet the line's total capacity, depending on demand.
Last November, CNRL vice chair Steve Laut accused fellow producers of over-inflating nominations, paying for empty "air barrels" in order to secure sufficient capacity. The government had agreed to review the nomination process, calling it a "topic of discussion." Enbridge denies shipping empty barrels, claiming its Mainline network is "essentially full."
Sharing the burden in reducing output
CNRL was one of many producers in Western Canada forced to cut back production due to an obscenely wide differential between Canadian crude and the US West Texas Intermediate (WTI) benchmark. The company had been pushing the NDP government to force all other producers to reduce output.
The Western Canadian Select (WCS) discount to WTI hit a peak of US$47 at the end of October, while the Canadian Light differential maxed out at US$37 in early November. Since Alberta announced its production cuts last weekend, the WCS and Canadian Light discounts have narrowed by about US$6 and US$9 a barrel, respectively. An end to refinery maintenance season in the US Midwest has also helped restore demand for Canadian crude.
Guidance for 2019
CNRL says it plans to spend about $3.7 billion in capital next year, down 20% from the current year forecast. Most of those funds, about $3.1 billion, are allocated towards maintenance capital. The company plans to drill just 97 net producer wells next year, down from 419 wells drilled in 2018.
Production guidance is forecasted at 1.03 to 1.12 million boe/day next year (weighted 76% liquids), little changed from 2018. Gains out of the oil sands will offset small declines expected in natural gas and conventional oil production.
The company also says it may adjust its 2019 capital spending plans depending on the price of WCS and progress on both Keystone XL and the Trans Mountain Expansion Project. So far, Enbridge Line 3 is the only pipeline expansion in the works. The company has set aside as much as $700 million in additional spending for next year if the outlook improves.
CNRL INSTITUTIONAL INVESTOR PRESENTATION
CNRL 2019 BUDGET
CNRL 2019 GUIDANCE
OSM CNRL APPLIES FOR DILBIT PRODUCTION AT HORIZON, SANS UPGRADING