Canadian Natural dives
The Toronto stock market turned thumbs-down to capital spending cuts at Canadian Natural Resources Ltd. announced Thursday and higher costs for the Horizon integrated oilsands project, trimming 11.6 per cent from its share price.
Stock in the Calgary company fell $7.01, winding up at $53.40, while the TSX/S&Penergyindex slipped 6.8 per cent, the price of oil sank$4.33 to$60.77 US a barrel on fears that economic softness would undercut global demand. As well, the Alberta government tabled new royalty legislation in the legislature.
Canadian Natural raised for the third time the estimated cost of Phase 1 of its Horizon project –by $411 million to $9.7 billion –created by a further delay of about a month for the project to produce first synthetic crude.
And it announced its capital budget would be $3.6 billion smaller in 2009 than in 2008.
Analyst Martin Molyneaux, managing director of institutional research for FirstEnergy Capital Corp., said the company remains a top pick with a target price of $100,but its decision not to divert money from oilsands to conventional playstosupportproduction was disappointing.
“I think people were a little bit taken aback that they took their (capital expenditure) down –they spend $7.6 billion in 2008 and they’re taking that all the way down to $4 billion in 2009,” he said. “The biggest delta is obviously Horizon . . . still, given oil prices and the rest of it I think most people thought it would be higher. We were looking for them to spend $5.1 billion.”
Chris Feltin, analyst for Tristone Capital Corp., said the oilsands setbacks helped sink the share price.
“It’s a couple of issues. They released disappointing news from Horizon . . . on a day when there’s a pretty steep decrease in oil prices. I think the other issue at play here is their guidance for 2009 is lower than street expectations on production growth.”
Bothagreed Canadian Natural’s financial results from the third quarter of 2008, when it had net income of $2.8 billion, were sterling.
Income quadrupled the $700 million made in the same periodof2007.Excludinghedging, stock-based compensation and fluctuations in foreign exchange, Canadian Natural had adjusted net earnings of$963 million, comparedwith$ 644millioninthethird quarter of 2007.
Steve Laut, president and chief operating officer, said in a conference call the company will spend less on the oilsands next year and “reprofile” spending so expenditures relating to phases two and three of Horizon are made when construction costs are lowest, even if that means a longer timeline.
There are five phases planned.
“In2009,wewill rampupPhase 1 production, focus on reliability, focusonreducingoperatingcosts, and reduce capital costs in our future expansions,”he said, adding $574 million is in the capital budget for Horizon in 2009.
“Our business rationale at Horizon is we are not going to build in a high-cost environment.”
Laut said it will likely take at least a year for costs to moderate at Fort McMurray. He said a recent example of cost escalation is a diversion dike project Canadian Natural estimated last spring would cost $20 million. But the bids it received were for between $40 million and $75 million.
“We reprofiled it–really what that means is we didn’t do it,”he said, adding a contractor between other jobs bid $14 million this fall to do it and it’s now under construction.
LautsaidCNRLhashadanenviable recordwithitsmajorprojects this year, with the exception of the biggest one.
“We have been on time and on budget,”he said, referring to projects that include the $700-million, 40,000 bpd Primrose East field in Alberta that produced first oil in October, ahead of its first-quarter 2009 schedule.
“At Horizon it’s been a different story. We are not on time and we are not on budget.”
Analysts said Canadian Natural’sthird-quarterresultsmatched expectations. It’s cash flow per share of $3.35 beat the consensus of $3.08.
It posted cash flow from operationsof$ 1.815billion, downslightly from the second quarter, but up 15 per cent from $1.577 billion in the third quarter of 2007.
Total crude oil and natural gas liquids production for the quarter was 306,970 barrels per day, off eight per cent from the same period in 2007, due mainly to the transitionbetweensteamandproduction cycles for the Primrose thermal wells, conversion of Pelican Lake wells to polymer injection and turnarounds in the North Sea and offshore West Africa.
Natural gas production for the quarter averaged 1,490 million cubic feet per day, down two per cent from the second quarter and 10 per cent from the third quarter of 2007 as the company switched capital to higher return crude oil.
Drilling has started at Baobab in offshore Ivory Coast and first oil is expected in the first quarter of 2009 at its other West Africa play, the Olowi project offshore Gabon.
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