CALGARY - Canadian Natural Resources Ltd. scaled back its oilsands production expectations and reported a sharp drop in third-quarter profit on Thursday as it and partner North West Upgrading Ltd. also announced they'll go ahead with building a new bitumen refinery near Edmonton.
The major Calgary-based oil producer (TSX:CNQ) said it took the "conservative" step of running its Horizon oilsands operations near Fort McMurray, Alta., at reduced rates during the third quarter in preparation for a planned maintenance outage in October.
The outage was to take place earlier in the year, but Canadian Natural delayed it so it could add some more maintenance tasks meant to protect the equipment during the winter months.
The downtime affected production volumes during the third quarter, and is expected to also do so during the fourth quarter as well. But chief operating officer Steve Laut says it's the right thing to do.
"Although these actions impacted production in Q3 and Q4, it is the right decision to make as it increases our reliability going forward, especially as we head into the winter months and will result in greater yearly production volumes as we go forward," he told a conference call with analysts.
Canadian Natural has been working to improve its oilsands operations after fire wrecked a coking unit at the Horizon upgrader in early 2011, leading to seven months of downtime, and separate issues earlier this year took down the facility for five weeks.
Horizon churned out 99,200 barrels per day during the third quarter, an improvement from 50,345 barrels per day during the same period a year earlier, when it was still recovering from the fire.
For the fourth quarter, Canadian Natural expects production to dip to between 85,000 and 95,000 barrels of oil per day from Horizon and finish off 2012 with a total average rate of between 87,000 and 95,000 barrels of oil per day.
As recently as Oct. 26, Canadian Natural had pegged full 2012 production guidance at 90,000 to 98,000 barrels per day from Horizon, but it encountered some issues after restarting the facility that crimped output.
Also Thursday, Canadian Natural and its partner, North West Upgrading Inc., said their respective boards had given their formal blessing to the first phase of the Sturgeon refinery in Alberta's Industrial Heartland.
The project is expected to cost $5.7 billion and will process 50,000 barrels per day of bitumen from Alberta oilsands once the first phase starts up. It can be expanded in two more phases to up to 150,000 barrels per day.
The refinery will take about three years to build and above-ground construction is set to begin in the spring.
The Alberta government will supply 75 per cent of the bitumen to the refinery as part of a program to help support the province's oilsands processing industry, while Canadian Natural will supply the rest.
The facility will capture 1.2 million tonnes of carbon dioxide, which will be sold to oil companies who can use the gas to increase pressure in mature reservoirs and boost production.
Canadian Natural shares fell nearly four per cent to $27.83 in afternoon trading on the Toronto Stock Exchange as investors took in the company's lower quarterly results.
For the quarter, Canadian Natural's net income fell to $360 million, or 33 cents per share, or $836 million, or 76 cents per share a year earlier.
Adjusted for unusual items, the company's fourth-quarter earnings would have been $353 million, or 33 cents per share, compared to $719 million, or 65 cents per share a year earlier.
Revenue after royalties was $3.54 billion, up from $3.29 billion.
Canadian Natural is one of Canada's biggest energy companies. Most of its production comes from Western Canada, but it also has operations in the North Sea and West Africa.
The company has said keeping costs in check and ensuring quality will be more important when embarking on an expansion to its Horizon oilsands mine in northern Alberta than sticking to strict schedules. It has allowed itself the flexibility to stop and start construction as circumstances warrant.
It's a view fellow oilsands miner Suncor Energy Inc. (TSX:SU) has also taken, as industry players look to avoid some of the pitfalls that led to major cost overruns in the years leading up to the recession. Suncor has pushed back startup of its Fort Hills mine by a year and has said it might not go ahead with that and other projects if the economics don't work.
Note to readers: This is a corrected story; An earlier version had the incorrect 2011 results