CALGARY, Alberta (Reuters) - Canadian Natural Resources Ltd (CNQ.TO) is reinitiating its Kirby North thermal project, the company said on Thursday, becoming the first oil sands producer to re-sanction a deferred major project since the global oil price slump began in 2014.
The 40,000 barrel per day (bpd) Kirby North project in northern Alberta was paused in 2015 as crude prices tumbled, along with nearly 20 other high-cost oil sands projects belonging to other producers.
Since dropping to a multi-year low of $26 a barrel in February, benchmark U.S. crude CLc1 prices have recovered to around $45 a barrel, a level at which Canadian Natural president Steve Laut said Kirby North creates value for shareholders.
The company has already sunk C$700 million ($522.66 million) into the project and expects another C$650 million is needed to complete it, which is C$100 less than previously forecast.
Canadian Natural also raised its 2016 capital spending by 18 percent to C$4.4 billion, mainly due to expenses associated with an expansion at its Horizon oil sands project.
Horizon is currently producing 175,000 bpd and would “imminently” meet its targeted production rate of more than 182,000 bpd, the company said.
“This increased capital expenditure is driven by greater confidence in both oil and gas prices, continued improvement in both capital and operating cost structures, and confidence in Horizon production coming on onstream on schedule and on budget,” Laut said on a third-quarter earnings call.
New oil sands projects carry some of the highest full-cycle breakeven costs in the world, in part due to their remote location. But since 2014, prices of labor and materials have fallen, helping producers cut costs by around 30 percent, and making new projects viable at lower oil prices.
TD Securities analyst Menno Hulshof said the Kirby North decision appeared to be driven by the capital already sunk into it, and he expected Cenovus Energy’s (CVE.TO) deferred Christina Lake Phase G project to be sanctioned next.
Canadian Natural reported an adjusted quarterly loss of C$355 million, or 32 Canadian cents per share, due to lower prices and maintenance turnarounds in the oil sands.
Analysts had on average expected a loss of 25 Canadian cents per share, according to Thomson Reuters I/B/E/S.
The company raised its quarterly dividend to 25 Canadian cents from 23 Canadian cents.
Additional reporting by Anet Josline Pinto in Bengaluru; Editing by Bernadette Baum