Canadian Natural Resources Ltd. has shut in an average 20 MMcf/d so far this year and now has 40 MMcf/d shuttered because of low natural gas prices, the Calgary producer said Thursday.
The second largest gas producer in Canada after Encana Corp. said it has reduced capital spending for 2012 by C$680 million from its capital budget for 2012, including C$110 million to be trimmed from gas operations. Most of the capital cuts are related to the Horizon oilsands mine expansion project, which has been delayed. Total capital spending now is set at C$6.69 billion.
"We've reduced our capital spending in 2012 by roughly C$700 million, a 10% reduction, and at the same time slightly increased our overall production guidance for 2012," said President Steve Laut during a conference call with analysts.
About 30% of the decrease in spending is from cost savings that the company has achieved by re-tendering contracts where bids came in too high, said Laut. Other spending cuts are from "strategic deferrals," in hopes of gaining better prices in the future, he said.
It's a "good thing to get better costs and let the schedule slip," Laut told analysts. "We're driven in all costs to costs, not schedule."
Among other things the drilling budget for 2012 has been cut in half from 71 wells planned to 36 wells. Ten drilled wells have been deferred for completion. An expansion planned in northeastern British Columbia at the Septimus liquids-rich gas field also has been delayed.
Canadian Natural had record production of 680,000 boe/d in 2Q2012, with nearly 70% weighted to oil and liquids. Output jumped 11% sequentially and was up 22% year/year.
Total oil and liquids production rose 34% in the latest period to 471,000 b/d in 2Q2012 as Horizon, which was shut down by a fire in 2Q2011, recorded higher-than-expected capacity at 115,000 b/d. More oil wells also were drilled in the latest quarter. Gas production in 2Q212 was up 1% from a year ago at 1.255 Bcf/d.
Liquids and oil output this year now is expected to be 454,000-475,000 b/d. Even with the gas production cutbacks and facility delays, output this year is forecast to average 1.22-1.235 Bcf/d.
Canadian Natural earned C$753 million in 2Q2012, down from C$929 million a year ago; Per-share earnings fell 19% to 68 cents/share. Adjusted net earnings from operations were C$606 million, up from C$621 million. The company generated cash flow from operations of C$1.75 billion, which was 13% higher than in 2Q2011.
Laut was pessimistic about the outlook for gas drilling in the near term. However, the company's forecast for liquids is much brighter.
"The economics for heavy oil have been very strong, and we believe we;re about to enter an outstanding era for heavy oil," Laut said. He pointed to the 300,000 b/d of refining capacity expected to come online from refinery upgrades in the United States in 2013, as well as the possibility for TransCanada Corp.'s Keystone XL pipeline, which would expand Canada oil markets to the U.S. Gulf Coast. Low natural gas prices help, too, said Laut, since they are cutting the cost of producing heavy oil.
"For the first time most, if not all, the key factors are in our favor," Laut said.
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