August 9, 2012 / 5:48 PM / 5 years ago

Canadian Natural trims spending, shares jump

CALGARY, Alberta (Reuters) - Canadian Natural Resources Ltd (CNQ.TO) said on Thursday it would spend 10 percent less this year than earlier budgeted as a way to cope with chronically low natural gas prices, and it nudged its outlook for overall production higher.

Shares of Canadian Natural rose 5 percent after the country’s largest independent oil explorer and producer said it would chop 2012 capital spending by C$680 million ($687 million) to C$6.7 billion.

The cuts would come from its already-skimpy natural gas plans and from outlays on its oil sands mining project. It shifted some spending to higher-return heavy oil production projects.

The moves came as the company reported a 19 percent drop in second-quarter net income and 22 percent increase in overall production. Output a year earlier was reduced by a lengthy outage at its Horizon oil sands project in northern Alberta following a fire.

Canadian Natural shares were up C$1.50 at C$31.07 on the Toronto Stock Exchange. They had dropped more than 22 percent since the start of the year.

“Capital discipline -- that’s been kind of a cornerstone of Canadian Natural’s management and we continue to see signs of that again this quarter with further reductions in capex, a good chunk of that going to the gas side of the business where the economics just aren’t near as good as what we’re seeing on the oil side,” Edward Jones analyst Lanny Pendill said.

A smaller budget at Horizon reflects cost savings and the deferral of some spending, Canadian Natural President Steve Laut told analysts. The company’s strategy is to allow economics to dictate how fast it would expand the project toward an eventual 500,000 barrel a day, rather than sticking to deadlines.

Canadian Natural is “looking a lot like the old CNQ for the first time in a long time,” TD Securities analyst Menno Hulshof wrote in a note to clients. “Pricing discounts and Horizon reliability are obviously still a concern for many but at a minimum, this quarter should give the market a reason to start to believe in Horizon again.”

Production at the site north of Fort McMurray, Alberta, averaged 115,823 barrels a day in the quarter, slightly above the plant’s design capacity.

Company-wide output averaged 679,607 barrels of oil equivalent a day, up from 556,539 in the second quarter of 2011.

Net income fell to C$753 million, or 68 Canadian cents a share, from C$929 million, or 84 Canadian cents, a year earlier.

Adjusted earnings from operations were 55 Canadian cents a share. That beat an average estimate among analysts of 53 Canadian cents a share, according to Thomson Reuters I/B/E/S.

Cash flow, a glimpse into the company’s ability to fund drilling, rose 13 percent to C$1.75 billion, or C$1.59 a share, from C$1.55 billion, or C$1.40.

The company said it expects to produce 1.22 billion to 1.24 billion cubic feet a day of gas and 454,000 to 474,000 barrels a day of oil in 2012. The midpoint of the range represents a small increase in the forecast.

Laut said Canadian Natural has no current plans to join several companies that are considering multibillion-dollar liquefied natural gas plants on Canada’s West Coast as a way to wring higher returns for vast British Columbia gas reserves.

It could eventual embark on such a project, but can benefit from others developing the region’s new industry by waiting for them to work out operational bugs and as access to international markets raises North American gas prices, Pendill said.

Said Laut: “At this time we’re not looking at it, but we are, obviously, strong cheerleaders for everyone who is building an LNG plant.”

Additional reporting by Bhaswati Mukhopadhyay and Shounak Dasgupta; Editing by Roshni Menon; and Peter Galloway

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