A one-time income tax recovery, which inflated financial results in last year’s second quarter, sent Canadian Natural Resources Ltd.’s quarterly earnings this year plunging 51%, but the lower profit did not deter the Calgary-based producer from showing off strong growth in oil and natural gas production.

Some of the oil and gas production gains were driven by asset acquisitions, but Canadian Natural’s quarter also was boosted by a strong winter drilling season, which pulled production up 12% over the same period of 2003. Natural gas production jumped 10% to 1.5 Bcf/d before royalties, while crude and gas liquids jumped 14% to 275,000 bbl/d. Together, production for the quarter stood at 517,000 boe/d.

With strong results to date, Chairman Allan Markin said that for 2004, “we expect average annual production growth of 11-14% and entry-to-exit growth in excess of 15%.”

Most of Canadian Natural’s gas regions are winter-access only, and its gas drilling is concentrated in the winter months. The spring and summer program is typically comprised of heavy crude oil drilling and shallow natural gas drilling in southern Alberta, Markin said.

In North America, gas output increased to average 1,389 MMcf/d, an increase of 13%, or 159 MMcf/d sequentially over 1Q2004, and 9%, or 111 MMcf/d, over 2Q2003. Through acquisitions alone since a year ago, Canadian Natural boosted output by 68 MMcf/d.

Because its gas drilling is concentrated in the first six months, the company said summer gas drilling may not be enough to “offset normal production declines from winter access fields in other core regions; hence the company is expecting lower third quarter volumes when compared with second quarter natural gas production levels.”

For 2004, the producer is forecasting production levels, before royalties, to average 1,371-1,393 MMcf/d of gas and 279,000-290,000 bbl/d of oil and liquids.

On the earnings side, income tax changes in Canada over the past year sent profit down to C$259 million (C97 cents/share), compared with C$525 million (C$1.96) in 2Q2003. Boosting the results in last year’s second quarter was a C$140 million recovery on future income taxes, compared with C$84 million this year. Quarterly revenue was C$1.87 billion, up from C$1.5 billion. Cash flow grew 22% to C$930 million (C$3.47/share) versus C$762 million (C$2.84) in 2Q2003.

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