November 6, 2008 / 12:17 PM / 10 years ago

UPDATE 4-Canadian Natural slashes spending in shaky markets

* Q3 adjusted profit beats estimates

* Horizon oil sands project costs jump C$441 mln

* 2009 capex cut by 47 percent to C$4 billion

* Stock falls 10 percent (New throughout with executive, analyst comments)

By Jeffrey Jones

CALGARY, Alberta, Nov 6 (Reuters) - Canadian Natural Resources Ltd (CNQ.TO), facing slumping oil prices and another jump in costs at its new oil sands project, said on Thursday it will slash spending by 47 percent in one of the most austere 2009 budgets detailed in the industry to date.

While releasing better than expected quarterly results, Canada’s No. 2 independent oil explorer said its spending will fall to C$4 billion ($3.4 billion) next year, from C$7.6 billion in 2008.

The reduction affects Canadian Natural’s Horizon oil sands project in Alberta, which is in start-up mode, and its conventional North American natural gas operations.

Canadian Natural shares fell C$6.41, or more than 10 percent, to C$54 on the Toronto Stock Exchange. That’s a 46 percent drop from the beginning of the third quarter.

In that time, oil prices have been more than halved and were just above $60 a barrel on Thursday.

“They’re wary, or even worried, about a whole bunch of the noncontrollables around them, so they’re coming out with what I would say is a hyper-conservative capex program,” FirstEnergy Capital Corp analyst Martin Molyneaux said. “They want to get their debt down and they want to get their flexibility up.”

The budget will likely influence other large North American energy firms as they announce spending over the next two months amid shaky energy and credit markets, Molyneaux said.

Canadian Natural said stubborn delays have boosted Horizon’s construction costs by C$441 million, bringing the first phase of the development to C$9.7 billion.

It is the third time this year it has had to increase the estimate, as it copes, along with the rest of the oil sands industry, with poor labor productivity due to a stretched workforce as well as higher costs for materials.

“For Canadian Natural, Horizon does not meet our criteria for success. We continue to set the bar higher,” President Steve Laut told analysts. “That being said, Horizon will still create tremendous value for all stakeholders and is a world-class asset.”

Production at the first phase of the mining and synthetic crude operation, Canada’s fourth, is expected to climb toward its 110,000 barrel a day capacity through 2009.

Other developers, including Suncor Energy Inc (SU.TO), Petro-Canada PCA.TO and Nexen Inc NXY.TO, have in recent weeks announced delays, or potential delays, in their oil sands plans to cope with the meltdown in energy and financial markets and still-high costs.

Laut said Canadian Natural is not deferring Horizon’s next phase, but will take its time working on it and wait for prices on various parts of the complex operation to drop.

“We’re not in megaproject mode any more, and we can do this bit by bit and get better control on our costs,” he said.

The company is also cutting Western Canadian natural gas drilling to deal with weak returns, partly blaming Alberta’s new royalty regime. Gas output will fall 12 percent as a result, it said.

However, it has the ability to boost activity quickly if conditions improve, Laut said.

In the third quarter, Canadian Natural’s net income quadrupled to C$2.8 billion, or C$5.25 a share, from year-earlier C$700 million, or C$1.30 a share.

On an adjusted basis, it earned C$1.78 a share. Analysts expected profit of C$1.46 a share, excluding items, according to a Reuters Estimates.

Cash flow, a glimpse into its ability to fund its projects, rose 15 percent to C$1.82 billion, or C$3.36 a share.

Oil production fell 8 percent to 306,970 barrels a day, and natural gas output fell 10 percent to 1.49 billion cubic feet a day.

$1=$1.18 Canadian Additional reporting by Anurag Kotoky, Ka Yan Ng and Richard Valdmanis; editing by Rob Wilson

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