Horizon slow to resume production; damages may hit $400 million
By Shaun Polczer, Calgary Herald
March 4, 2011
CALGARY - Canadian Natural Resources on Thursday said it will take longer than expected to get its fire-damaged Horizon oilsands project back to full production.
The company now expects to restore half its production in the second quarter before ramping back up to full rates in the summer, which means the company will experience at least one full quarter of lost oilsands production. The mine, which suffered an explosion on Jan. 6, is rated for 110,000 barrels per day (bpd) of synthetic crude.
Total damages, excluding lost production, are expected to cost as much as $400 million, the company said in a news release, up from previous estimates of $250 million. On a conference call to discuss fourth-quarter results, company officials said insurance will cover the physical damage to the site as well as a portion of the lost volumes under a business interruption clause that will cover up to $30 a barrel of operating costs.
President Steve Laut said the company would continue to maintain its previously announced capital budget despite the Horizon fire.
“Clearly the fire at Horizon will result in a temporary hit to production and cash flow,” he said. “I firmly believe that Canadian Natural will come out of this incident a much stronger and effective company.”
Horizon’s synthetic crude sold for $83.14 in the three months ended Dec. 31, 2010. Canadian Natural produced a company high of 647,441 barrels of oil equivalent per day in the quarter, up sharply from 574,857 in the fourth quarter of 2009 but still below street estimates of 650,000 bpd.
In a research report, UBS analyst Andrew Potter said the increase in production was almost entirely due to addition of volumes from the Horizon mine.
Meanwhile, one-time items bit into CNRL’s bottom line, which resulted in substantial fourth-quarter losses.
The Calgary-based oil and gas producer said its net loss was $416 million or 38 cents per share, compared with a profit of $455 million or 42 cents per share in the same period of 2009.
Included in the total were almost $1 billion of hedging losses and currency adjustments due to the strong Canadian dollar.
In addition, the company wrote down the carrying value of its West African oil assets, which
Laut described as a “disappointment.”
Adjusted operating earnings came in at $618 million or 57 cents per share compared with $667 million or 61 cents per share in the prior year’s quarter.
Thomson Reuters analysts expected 64 cents per share after one-time items.
Although the results missed expectations, they exceeded UBS analyst George Toriola’s forecast of 56 cents a share, although his “buy” rating on the stock is currently under review. “Variance from our estimates can be attributed to better than forecasted operating costs,” he said in a report.
Despite the loss, the company hiked its dividend by 20 per cent to nine cents a share.
With the earnings announcement, CNRL capped off the reporting season for the senior independent producers, which posted a 20 per cent increase in full-year profits in 2010.
The group, which includes Encana, Cenovus, Nexen and Talisman, posted combined operating profits of $11.3 billion in 2010 compared to $9.2 billion in 2009.
Canadian Natural’s shares (TSX:CNQ) fell sharply at the opening bell and stayed in negative territory for the entire session, losing $1.76 or four per cent to close at $47.97 on the Toronto Stock Exchange.
spolczer@calgaryherald.com
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