* Q4 net rises 121 pct
* Cuts capital spending budget by 20 pct
* Horizon oil sands project starts up
* Shares rise 5.2 pct (Recasts with details and comments)
By Scott Haggett
CALGARY, Alberta, March 5 (Reuters) - Canadian Natural Resources Ltd (CNQ.TO) reported on Thursday that its quarterly profit more than doubled and said its C$9.7 billion ($7.5 billion) Horizon oil sands project has started operating, months behind schedule and billions of dollars over budget.
The company, Canada’s No. 2 independent oil exploration and production firm, also said it would reduce capital spending this year to C$3.2 billion, an C$800 million cut, freeing up capital to repay debt.
“That cut will provide them some breathing room on debt coming due in October,” said Phil Skolnick, an analyst at Genuity Capital Markets.
Like most of its rivals in northern Alberta’s oil sands, Canadian Natural is retrenching to cope with oil prices that have plunged more than $100 a barrel since July, and natural gas prices that are touching multi-year lows as the recession and financial turmoil cut demand.
The company said it will cope with the downturn by keeping an eye on costs. It said it could cut another C$1 billion from capital spending if needed. It also said it would use free cash to pay down its C$13.02 billion debt, boost production from high return projects, buy back shares and raise dividends.
It may also look to acquire promising properties if the downturn forces other producers to liquidate assets.
Canadian Natural said Horizon, the fourth major mining project to be launched in Alberta’s oil sands region, began operating at the end of February, producing 55,000 barrels per day (bpd). The company said Horizon will ramp up to full capacity of 110,000 bpd by late April.
However, the company said it doesn’t expect to be able to sustain full production until late in 2009 as it works through start up problems at its upgrader, which converts tar-like bitumen stripped from sand into refinery-ready crude.
Like all major oil sands projects, Horizon was subject to massive cost overruns because of rising material costs and expensive labor, with the final tally 43 percent above Canadian Natural’s original C$6.8 billion budget estimate.
However, the company said it is still satisfied with the project given the rising costs faced by all the region’s producers.
“Horizon will add steady, reliable production for 40 years,” Steve Laut, Canadian Natural’s president, said on a conference call. “We have spent considerable time ... bringing the first phase on stream during what, in hindsight, has been one of the most highly inflationary times in memory.”
Canadian Natural posted fourth-quarter net income of C$1.77 billion, or C$3.27 a share, up from a year-earlier C$798 million, or C$1.48 a share.
Excluding items, it earned C$697 million, or C$1.29 a share, for the fourth quarter, up 127 percent from the year-earlier quarter and well ahead of the average 86 Canadian cents per share estimate of analysts surveyed by Reuters Estimates.
Cash flow, a glimpse into an oil company’s ability to fund its projects, was C$1.57 billion, or C$2.90 a share, up 6 percent from a year earlier.
Revenue, before royalties, fell 21 percent to C$2.51 billion.
Production in the quarter averaged 547,399 barrels of oil equivalent a day, down 9 percent from a year earlier.
Canadian Natural shares rose C$2.00, or 5.2 percent, to C$40.54 on Thursday afternoon on the Toronto Stock Exchange. The shares had dropped 51 percent over the past 12 months.
$1=$1.29 Canadian Additional reporting by Ajay Kamalakaran; Editing by Peter Galloway