- Lower costs in the quarter help offset slump in oil prices
- Second phase of Horizon project targeted to start in October
Canadian Natural Resources Ltd., the nation’s largest heavy-oil producer, reported a narrower second-quarter loss as lower costs helped offset the slump in crude prices.
The loss was C$339 million ($259 million), or 31 cents a share, compared with a loss of C$405 million, or 37 cents, a year earlier, the Calgary-based company said in a statement on Thursday. Excluding one-time items, the 19-cent per-share loss was smaller than the 27-cent average of 18 analysts’ estimates compiled by Bloomberg. Production came in 2.3 percent lower than the average analyst forecast because of unplanned outages.
Canadian Natural has stayed committed to expansions of its Horizon oil-sands mining project this year and next even as a crude market slump that began in 2014 has it focused on cutting costs, slowing drilling and turning off oil and natural gas wells unprofitable at low prices. A major turnaround at Horizon is now largely complete, with start of the second phase of the project planned for October and full output in November, delivering additional sustainable production and cash flow, it said in the statement.
The company will put the extra cash generated from the 2B expansion toward paying down debt first, then developing its resources further, returning cash to shareholders and finally, looking at acquisitions, executives said on a conference call. Capital expenditures are expected to fall significantly when the work is complete, the company said.
“We don’t have any gaps in our portfolio, so there’s no driving need to do acquisitions,” Steve Laut, the company’s president, said in a phone interview. Assets coming across his desk for consideration represent a “mixed bag” of quality. “I wouldn’t say there are a lot of high-quality properties out there at this point.”
Falling oil prices and lower production in the quarter pushed down the company’s cash flow from operations by 38 percent to C$938 million, or 85 cents a share. Costs per equivalent barrel of oil fell 14 percent from the prior year to C$13.73. Cost savings in the first half of the year amounted to about C$430 million compared to a year earlier, according to the statement.
Gas production in the second quarter fell 5 percent because of unforeseen third-party pipeline and facility outages, causing the company to lower its gas output target for the year by 2 percent. Canadian Natural also had minor production interruptions at Horizon due to unplanned upgrader repairs and at the Primrose heavy-oil project as it mended pipeline cracks. Production fell 2.7 percent to 783,988 equivalent barrels of oil a day. U.S. crude averaged $45.64 a barrel, down 21 percent from the same period in 2015.
The results were “slightly negative,” as unplanned outages explained most of the lower-than-expected production, Menno Hulshof, an analyst at TD Securities Inc. in Calgary, wrote in a note. However, the company’s cost savings have been significant, he said.
Canadian Natural released the results before the start of regular trading on North American markets. The stock, which has 18 buy and seven hold recommendations from analysts, increased 0.3 percent to C$39.54 at 2:28 p.m. in Toronto, erasing earlier losses amid a 2.7 percent gain in U.S. crude prices. The shares have risen 32 percent this year.