(Corrects figure in first paragraph to seven months from eight)
* Horizon project returning to operations after fire
* Commissioning of repaired upgraders began Aug. 2
* Output seen ramping up in 2-3 weeks
* 140,000 bpd Horizon expansion to start in 2012
* Q2 EPS C$0.84 vs. C$0.60 (Adds details on Horizon start-up, expansion, spending)
By Jeffrey Jones
CALGARY, Alberta, Aug 4 (Reuters) - Canadian Natural Resources Ltd (CNQ.TO) is poised to restart its oil sands plant seven months after it went up in flames, and has earmarked C$2 billion ($2.1 billion) to begin its expansion next year, the country’s biggest independent oil explorer said on Thursday.
Canadian Natural, while reporting a better-than-expected 43 percent rise in second-quarter profit, said it began starting up the repaired units at its Horizon oil sands upgrader in northern Alberta this week, giving comfort to investors who had been worried about another delay.
The company was forced to push back its initial restart plans by about a month after smoke from wildfires that swept northern Alberta in the spring kept workers from the site, hampering productivity.
Commissioning should take two to three weeks and operations, located near Fort McMurray, Alberta, will be back at the 110,000 barrel a day capacity rate shortly after, the company said.
“The key things we were looking for were really twofold — first off was an update of whether the start-up of Horizon is on time, which it is. That’s fantastic news because you never know how those things are going to go,” Edward Jones analyst Lanny Pendill said. “The other part was the progress of future expansion, which seems to be well on track as well and that certainly shows up in the capex that they’re going to be spending for 2012.”
Following the costly January explosion and fire, which injured five workers, Canadian Natural’s board approved spending of C$2 billion in 2012 toward the 140,000 barrel a day expansion of Horizon.
It has said decisions on various aspects of the work will depend on market conditions rather than schedule as a way to avoid painful cost inflation that plagued the first phase amid an oil sands spending boom.
Company-wide spending is pegged at C$7 billion to C$8 billion in 2012, up from a budget of C$6.4 billion this year, and should stay in that range for the next several years as the Horizon expansion proceeds, President Steve Laut said.
Laut said turmoil rattling world economies and the oil market is not forcing changes to long-term expansion plans.
“We always run (the economics of) our projects at lower commodity prices for long-term value, so we’re quite a bit above what we think the long-term price will be,” he said in an interview. “At this point it hasn’t really affected us.”
Canadian Natural plots out its projects assuming an average oil price of $80 a barrel, he said. The U.S. crude price tumbled nearly 5 percent to $87.56 a barrel on Thursday and is down more than 12 percent in the past two months.
The cost of the repairs to Horizon are expected to be C$400 million to C$450 million. Canadian Natural received C$136 million in insurance recovery in the second quarter.
The outage at Horizon has been a big factor in rich premiums for the synthetic crude produced from the oil sands, as the market dealt with the drop in supply.
Despite the impending restart, and a strong financial showing, Canadian Natural stock was off 29 Canadian cents at C$36.54 on the Toronto Stock Exchange on Thursday afternoon. That was against a 3 percent fall on the broad market due to economic worries.
“It is an absolute bloodbath out there. I would attribute none of it to Canadian Natural’s results,” Pendill said. “The results were actually quite solid considering that Horizon was completely shut down. They still throw off a ton of cash.”
In the second quarter, Canadian Natural, also known for extensive oil and gas holdings in Western Canada, the North Sea and offshore West Africa, earned C$929 million, or 84 Canadian cents a share, up from year-earlier C$651 million, or 60 Canadian cents a share.
Excluding unusual items, it earned 56 Canadian cents a share, beating analysts’ average forecast of 46 Canadian cents a share, according to Thomson Reuters I/B/E/S.
The result was bolstered by sharply higher crude oil and gas liquids prices and smaller hedging losses, it said.
Cash flow, a glimpse into its ability to fund drilling, fell 5 percent to C$1.55 billion, or C$1.40 a share, from C$1.63 billion, or C$1.49 a share, due to the Horizon outage.
Overall production averaged 556,539 barrels of oil equivalent a day in the quarter, a 14 percent decrease.
The company said the output was within its target range, however, despite the impact of wildfires and flooding that made for difficult operating conditions in Western Canada.
$1=$0.97 Canadian Additional reporting by Bhaswati Mukhopadhyay; editing by Peter Galloway