* Q2 adjusted C$1.18 per share vs C$1.12 expected
* Crude and natural gas liquids production up 15 pct
* Horizon start-up going well
* Shares fall 2.9 pct as oil prices flag (Recasts to add comment and detail; updates shares)
By Scott Haggett
CALGARY, Alberta, Aug 6 (Reuters) - Canadian Natural Resources Ltd (CNQ.TO) said on Thursday that an improving performance by its C$9.7 billion ($9 billion) Horizon oil sands project partly offset weak oil and natural gas prices as the company returned to a second-quarter profit.
Canadian Natural, the country’s No. 2 independent oil explorer, said the recently opened oil sands mining and upgrading project posted average output of 59,599 barrels per day in the quarter and even exceeded its design capacity of 110,000 barrels per day on occasion.
Canadian Natural said the production rate for Horizon, opened in March, shows its design for the project works, but doesn’t expect to often exceed capacity.
“We’ve had days where we’ve run up just over 120,000 barrels a day,” Steve Laut, the company’s chief operating officer, said on a conference call. “Admittedly the sun, moon and all of the stars all lined up on this ... and it is unexpected.”
Net income came in at C$162 million, or 30 Canadian cents per share, after a loss of C$347 million, or 65 Canadian cents, in the second quarter of 2008 on a hefty charge for unrealized hedging losses.
Adjusted profit in the quarter, which excludes most one-time and non-cash items, fell 34 percent on low oil and gas prices to C$637 million or C$1.18 a share, down from C$960 million, or C$1.78.
The adjusted result beat the average analyst profit forecast of C$1.12 per share but Canadian Natural’s shares still dropped.
The stock dropped C$2.00, or 2.9 percent, to C$66.00 early afternoon on Thursday on the Toronto Stock Exchange, with most energy issues down on weakening oil prices.
“I‘m scratching my head on why the stock is down,” said Martin Molyneaux, an analyst at FirstEnergy Capital. “It appears to be a really solid quarter.” OIL PRODUCTION RISES
Oil prices have plunged over the past year as the recession cut demand, with the average price during the second quarter falling more than half to just under $60 a barrel.
Natural gas prices have also wilted, with benchmark prices dropping two-thirds to average $3.80 per million British thermal units over the quarter.
Cash flow, a key indicator of the company’s ability to pay for new projects and drilling, fell 26 percent to C$1.37 billion, or C$2.52 per share, from C$1.86 billion, or C$3.44, in the year-ago quarter.
Total crude oil and natural gas liquids production in the quarter averaged 365,672 barrels a day, up about 15 percent from the year before on Horizon and additional production from its offshore West Africa fields.
Natural gas output average 1.35 billion cubic feet a day, down 11 percent as the company cut spending on new wells because of weak prices. ($1=$1.08 Canadian) (Additional reporting by Ajay Kamalakaran; Editing by Frank McGurty)