Canadian Natural sets $7.2-billion capital budget for 2012, Q3 earnings rise

CALGARY - Canadian Natural Resources Ltd. said Thursday it plans to spend $7.2-billion in 2012, a large portion of which can be reined back should economic conditions shift.

About $3 billion of next year's budget is considered "flexible," and much of it is earmarked for longer-term projects. The major oil and gas producer's 2011 budget was $6 billion.

"A lot of our budget we can pull back very quickly if we need to and, in these economic times, it's probably wise to make sure you have that flexibility," president and chief operating officer Steve Laut said in an interview after the company reported improved third-quarter results.

Shares in the Calgary-based company (TSX:CNQ) soared nine per cent, or $3.18, to $38.16 in afternoon trading on the Toronto Stock exchange.

Canadian Natural said it is looking at overall production growth of 17 per cent to between 675,000 and 726,000 barrels of oil equivalent per day.

Without the effects of an eight-month outage at its Horizon oilsands plant as a results of an explosion, that growth would be around six per cent.

About 70 per cent of next year's production will be from oil and natural gas liquids, with the rest coming from dry natural gas, a commodity Canadian Natural continues to view bearishly.

Earlier in the day, Canadian Natural said it earned $836 million or 76 cents per share in the third quarter, up from $596 million or 54 cents a year earlier.

Adjusted earnings increased to $719 million or 65 cents per share, up from $573 million or 52 cents per share. Analysts polled by Thomson Reuters were on average expecting earnings of 53 cents per share.

Sales revenues at the company jumped to nearly $3.7 billion from $3.34 billion.

Overall, daily production in the quarter fell to 612,575 oil equivalent barrels from 621,284 barrels a year earlier.

In January, an explosion badly damaged an upgrader at Canadian Natural's Horizon mine north of Fort McMurray, Alta.. Five workers were injured.

The company has attributed the fire to a valve opening at the top of a coking drum at the wrong time. Frigid temperatures in region at the time caused a great deal of freeze damage to the plant and forest fires throughout the region later in the spring slowed repair work.

After shutting the mine down for repairs, Horizon began churning out crude again in August.

Canadian Natural has previously estimated repair and rebuild costs of between $400 million and $450 million. The company has recouped much of that through insurance.

"I think we're running at higher levels of operations discipline than we had before," said Laut. "We're looking forward to a very solid and reliable 2012."

So far Canadian Natural isn't seeing meaningful cost inflation in Northern Alberta as it looks to expand the Horizon mine.

Consolidation over the past few years — Suncor's merger with Petro-Canada and joint-venture with Total SA are examples — has resulted in fewer oilsands miners competing for workers and materials. And those that are left are more disciplined than they were during the last boom four or five years ago, Laut said.

On underground steam-driven projects, it's a bit of a different story.

"On the primary heavy oil side, and some of the other oil sides, we're starting to see cost inflation there. We've been able to mitigate that by being better planned and more efficient, but we are starting to see pressure, mainly because there's been so much activity on the heavy oil side," Laut said.

Canadian Natural is one of Canada's biggest oil and natural gas producers, with the bulk of its operations in Western Canada. It also has holdings in the U.K. portion of the North Sea and off the coast of West Africa.

In the oilsands, Canadian Natural is planning a second phase to its Horizon mine and a new steam-driven oilsands project at Kirby.