CNRL: 'Good business sense" to curb heavy oil output while prices are low

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CALGARY - Canadian Natural Resources Ltd. says it will slow down its heavy oil output whenever the price gap between that type of crude and its lighter counterpart widens substantially.

President Steve Laut said Thursday it's a new strategy to work around the volatile light-heavy differential, which has caused headaches for industry and the provincial government alike.

In December — when the differential was at 40 per cent — Canadian Natural (TSX:CNQ) cut heavy oil production by just over 10,500 barrels per day, assuming the gap would narrow in the new year.

Canadian Natural's prediction proved right, with the differential shrinking to 31 per cent in January, 19 per cent in February and 21 per cent in March so far, Laut said.

Some difference between light and heavy crude is normal because of differences in quality and transportation costs.

Withholding some production in anticipation of better market conditions was "good business sense," Laut told conference call with analysts.

"We're creating significant value for shareholders doing that, and that's what we're going to do going forward."

Also Thursday, Canadian Natural provided an update on a bitumen leak at its Primrose oilsands site in eastern Alberta, which began last spring.

The company said it has finished cleaning up three of four sites where an emulsion of bitumen and water was oozing up to the surface, with the last set to be completed before the ground thaws.

At Primrose, Canadian Natural pumps steam underground and allows it to soak into the reservoir before drawing the crude to the surface, a process known as high-pressure cyclic steam stimulation, or HPCSS.

Canadian Natural is seeking approval from the Alberta Energy Regulator to start steaming in the area this month or next, causing alarm amongst environmental groups.

Laut said the steam will be pumped at pressures so low that it would be "impossible" for there to be problems.

Pembina Institute analyst Erin Flanagan said Canadian Natural shouldn't be allowed to use HPCSS near the site of last year's blowout until the regulator has completed its investigation, the results have been made public and the recommendations have been opened to public comment.

"It is premature to debate additional production until this report is complete and has been subject to public review," she said.

"CNRL has made claims that steaming can be resumed safely, but has not backed up those claims by making public the findings of any recent investigations."

On the call, Laut reiterated the company's view that the Primrose issues are "solvable" and that faulty wellbores are to blame. So far, the regulator has not come to the same conclusion. Following a similar event in 2009, it flagged geologic weaknesses as a potential cause.

Earlier Thursday, Canadian Natural raised its dividend by 12.5 per cent or 2.5 cents to 22.5 cents per share — the second hike in three months.

The increase came as the company reported a fourth-quarter profit of $413 million or 38 cents per share on $3.95 billion in revenue, up from a profit of $352 million or 32 cents per share on $3.70 billion in revenue a year earlier.

Adjusted for one-time items, profits were $563 million, or 52 cents per share — missing the average analyst estimate of 56 cents per share, according to estimates compiled by Thomson Reuters.

For the full year, Canadian Natural earned $2.27 billion or $2.08 per share on $16.15 billion in revenue. That compared with a profit of $1.89 billion or $1.72 per share on $14.59 billion in revenue in 2012.

Total production for the full year averaged 671,162 barrels of oil equivalent per day, representing an increase of three per cent over 2012.

The company credits greater reliability of its huge Horizon oilsands mine and strong production at its Pelican Lake oil pool in Alberta.

John Stephenson, portfolio manager at First Asset Funds, said Canadian Natural's story is improving — and a lot of that has to do with Horizon.

"I think really for the company, the big issue is how is Horizon tracking, how is it looking? And it’s looking pretty good," he said.

"And not only is it looking pretty good in terms of production but it’s looking good in that the capital expenditures going to fall."

Last month, Canadian Natural announced it would buy Devon Canada's conventional energy business, which includes a lot of natural gas production, for more than $3 billion.

That was a change of direction for CNRL, which had said in early 2013 that it trying to sell off its own natural gas acreage in British Columbia's Montney formation — an attempt it abandoned in January.

— with files from Malcolm Morrison

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