Independent oil and gas explorer Canadian Natural Resources Ltd. (CNQ) has resumed sales of Synthetic Crude Oil (“SCO”) from its ‘Horizon’ project in the Athabasca oil sands play of northern Alberta.
On January 6, 2011, Canadian Natural experienced a fire at the coker unit of the facility following which production was suspended at the oil sands plant. Last week, the company restarted operations at the repaired site – located near Fort McMurray, Alberta. The overall cost of repairs is believed to be in the range of $400-$450 million.
Volumes have been averaging approximately 75,000 barrels per day (Bbl/d) since then with ramp-up to full capacity – 110,000 barrels of synthetic crude per day – expected shortly. First pipeline deliveries began on August 18, 2011.
To date, Horizon is the company’s most prominent initiative. Canadian Natural achieved first synthetic crude oil production from the $8.3 billion project in February 2009. Output of SCO from the project was approximately 90,867 Bbl/d for the year ended December 31, 2010.
The Calgary, Alberta-based operator expects annual production eventually ramping up to 500,000 Bbl/d by the next decade, thereby significantly augmenting Canadian Natural’s long-term production growth profile.
The Canadian oil sands, with their estimated 200 billion barrels of recoverable reserves, are the only oil resource to rival that of Saudi Arabia. The company’s estimates indicate 6-8 billion net recoverable barrels for its Horizon acreage.
Calgary, Alberta-based Canadian Natural Resources Ltd. is engaged in the acquisition, development and exploitation of crude oil and natural gas properties. It is one of the largest independent exploration and production (E&P) companies in Canada, with extensive heavy crude oil and natural gas developments.
Canadian Natural, which competes with other Canadian behemoths like EnCana Corp. (ECA) and Suncor Energy Inc. (SU) — currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.
The company’s large, diversified oil and gas asset bases, together with international exposure and a well-balanced blend of conventional and unconventional prospects, provides a buffer against sectoral uncertainties. Other positives in the Canadian Natural Resources story include its active hedging policy, competitive cost structure, strong balance sheet and robust free cash flow.
However, the company’s exposure to the inherently cyclical and volatile E&P sector offsets these strengths and remains a key area of concern, in our view. Operational challenges, continued weakness in natural gas prices and a fresh round of cost inflation in the oil sands regions have also held back the stock.
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