Canadian Natural advances Horizon

Canadian Natural Resources (CNQ-T) has big plans for its Horizon oilsands project, located north of Fort McMurray, Alta., in the Athabasca region.

The country’s largest independent oil producer has budgeted nearly $2 billion this year to advance its plan to boost Horizon’s sweet synthetic crude oil (SCO) production capacity to 250,000 barrels per day, up from the current 110,000 barrels per day, and then ultimately to 500,000 barrels a day, Steve Laut, the company’s president, said on a recent conference call.

The company has broken up the expansion into five categories with 46 parts to “ensure cost control and capital flexibility.” It has capped annual spending at Horizon at $2.5 billion.

“At this point, our strategy is working well and we are on track, with capital costs running slightly under our cost estimates,” Laut said on the call.

“We expect this strategy of breaking into smaller pieces, stopping and redefining scope and rebidding, if necessary, will continue to pay dividends going forward, even as market conditions potentially heat up.”

For now, the company has scaled back its construction labour force at Horizon to a maximum of 5,500. It had 10,000 workers on the site during the peak of the first phase of construction.

First Natural spent $9.7 billion to build and start-up the project’s first phase, with costs swelling 43% above the original estimate of $6.8 billion in 2004.

The company’s board sanctioned the project in early 2005, and after years of planning and construction, in early February 2009, Horizon produced its first barrel of oil.

The project consists of an open-pit mine and bitumen extraction facilities to recover the bitumen – a thick, sticky form of crude oil – which is then upgraded into a sweet SCO using delayed coking and hydro-treating technologies, the company outlines on its website.

For the year ended December 31, 2010, production averaged 90,867 barrels a day. However, by the end of 2011, average output tumbled to 40,434 barrels per day thanks to a fire at Horizon’s primary upgrading coking plant on Jan. 6, 2011. As a result, the company halted all SCO production until mid-August of that year.

In early February 2012, the company again ceased operations owing to an unplanned maintenance at the primary upgrading plant’s fractionating unit.

While production resumed in mid-March, the five-week outage caused Canadian Natural to trim its production guidance for the year. Horizon is expected to generate 93,000 to 103,000 barrels per day, down from its initial annual 2012 target of 105,000 to 115,000 barrels per day.

In April, Horizon averaged 11,500 barrels per day. This rise in production resulted from the start-up of the third ore preparation plant (OPP) in March, which increased availability to 98% in April, up from the preceding quarter’s availability of 81%.

For the first quarter ended March 31, 2012, Horizon averaged 46,090 barrels per day, down from the preceding quarter’s output of 102,952 barrels per day, due to the recent outage.

During the first three months of 2012, Canadian Natural’s profits grew nearly ten fold compared to the comparable quarter last year, but adjusted earnings per share missed estimates.

The company earned $427 million, or 39¢ per share, compared to 46 million, or 4¢ per share a year ago.

Adjusted earnings, excluding one-time items, were $300 million, or 27¢ per share, up from $228 million, or 21¢ per share. This fell short of analysts’ predictions of 44¢ a share.

The company’s earnings were partially impacted by lower natural gas prices and the recent outage at Horizon.

Quarterly cash flow from operations was $1.28 billion, slightly above the $1.07-billion generated a year ago, thanks to higher sales volumes from the company’s North America crude oil and natural gas liquids and oilsands operations. 

In total, the company produced 612,279 barrels of oil equivalent (BOE) per day, up from 566,231 BOE a year ago.

Canadian Natural has operations in Western Canada, the U.K. portion of the North Sea and offshore West Africa.