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Canadian Natural Cuts Capex, But Has Mixed Plans in Oilsands

Canadian Natural Resources Ltd., citing world crude oil prices, said it will cut capital expenditures (capex) for 2015 by more than one-fourth, but it has mixed plans in Canada's oilsands region in Alberta -- deferring spending on thermal in situ projects, but moving forward with the expansion of a plant that produces light sweet synthetic crude oil (SCO).

Calgary-based Canadian Natural said Monday that its original capex budget for 2015, C$8.6 billion, would have resulted in an 11% increase in production over midpoint 2014 production guidance levels. But the company will now utilize C$2.4 billion of capital flexibility and spend C$6.2 billion on capex in 2015, a 28% reduction. With the change, the company expects production to grow 7% above the 2014 midpoint.

"The capital reductions primarily relate to reduced drilling activity and related facility capital for North America and international conventional operations," Canadian Natural said. "Additionally, [we] will defer capex of approximately C$470 million related to the Kirby North Phase 1 thermal in situ project, until such time as commodity prices stabilize at levels that justify such capex."

The company cut overall capex for thermal in situ oilsands from about C$1.14 billion to just C$460 million. That includes a cut to the Kirby North Phase 1 project, from C$575 million to C$105 million.

"Capital flexibility to quickly increase or decrease activity in the conventional operations remains an option for [us], depending on the economic and pricing environment," the company said.

But Canadian Natural said its Horizon Oil Sands project, and the expansion of its SCO plant, is the "major component of [its] transition" to a "longer life, lower decline asset base." The company said it plans to add an additional 125,000 b/d of SCO production capacity over the next two years -- 45,000 b/d by late 2016, and 80,000 b/d by late 2017.

Canadian Natural added that once the expansion at Horizon is completed in late 2017, the all-in operating costs at Horizon should range from C$25/bbl to C$27/bbl.

The company said the Horizon expansion was about 55% complete at the end of 2014, and that about C$7 billion had been spent on the project to date. Canadian Natural said it plans to spend an additional C$6 billion over the next three years to complete the project, including about C$3.03 billion in 2015. The company originally planned to spend C$3.36 billion on Horizon in 2015.

Canadian Natural holds leases north of Fort McMurray, AB, to support Horizon. According to the company's website, its leases are estimated to contain "approximately 14.4 billion bbl of bitumen initially in place, with best estimate contingent resources other than reserves of 4.1 billion bbl of bitumen and 3.3 billion bbl of proved and probable SCO reserves." Horizon produced 82,012 b/d of SCO during 3Q2014, the most recent quarter with available figures.

The company also revised its full year production guidance for 2015. Its original production guidance ranged from 896-916 boe/d, but the revised range declined to 840-887 boe/d. Nearly all of the cut in production came from North America -- 292-302 boe/d originally, cut down to 274-284 boe/d.

Last February, Devon Energy Corp. agreed to sell most of its conventional portfolio in Canada to Canadian Natural for US$2.8 billion (see Daily GPIFeb. 19, 2014). The assets included proved reserves of about 170 million boe. The company holds assets in North America, the North Sea and in offshore Africa.

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