* Aims for Horizon's problems to be solved by mid-year
* Q4 EPS C$0.85 vs C$3.27 year ago
* Increases quarterly dividend by 43 pct
* Shares up C$0.58 to C$72.34
By Jeffrey Jones
CALGARY, March 4 (Reuters) - Canadian Natural Resources Ltd (CNQ.TO), the country's biggest independent oil explorer, is struggling with reliability issues at its Horizon oil sands project one year after it began producing.
Output at the C$9.7 billion ($9.4 billion) development has fluctuated widely since October as Canadian Natural dealt with such issues as high clay content in the ore and mechanical problems at the upgrading plant.
The company does not see the project's reliability as a major concern yet.
Canadian Natural, which reported a 4 percent dip in adjusted profit on Thursday, aims to have bugs ironed by midyear so it can hammer down design and costs for the next expansion stage.
The plant has operated at times at or above its 110,000-barrel-a-day capacity.
"We do, however, struggle with maintaining plant reliability as we continue to work on operational kinks, equipment failures and the compounding effect that cold weather in December and January had on our ability to quickly recover from equipment failures," President Steve Laut told analysts.
In October Horizon produced 71,000 barrels a day and in subsequent months pumped 97,000, 42,000, 72,000, then 84,000.
The December low-point was caused by reliability problems at the upgrader's hydrogen plant and an extended shutdown of the furnace at the coker, equipment that turns the tar-like crude from the oil sands into refinery-ready oil.
"I don't think it's a concern yet," Laut told Reuters. "Obviously we'd like to be at full capacity on a steady basis right out of the chute, but the positive thing is that most of the things that are happening are first-time events and once you get them solved they're behind you."
Investors did not appear to be panicked. Canadian Natural shares were up 58 Canadian cents at C$72.34 on the Toronto Stock Exchange, up 88 percent from a year ago.
The company also raised its quarterly dividend 43 percent to 15 Canadian cents a share.
Overall, it expects company-wide production of about 1.2 billion cubic feet a day of gas and 372,000-409,000 barrels a day of oil this year.
It has cut gas spending dramatically as prices have weakened. Laut said he does not expect a recovery until at least 2011.
In the fourth quarter, net income fell 74 percent to C$455 million, or 85 Canadian cents a share, from year-earlier C$1.77 billion, or C$3.27.
Adjusted profit, excluding one-time and non-cash items, slipped 4 percent to C$667 million, or C$1.23 a share, from C$697 million, or C$1.29 a share.
The adjusted result lagged average analyst profit estimate of C$1.36 a share, according to Thomson Reuters I/B/E/S.
Cash flow, an indicator of its ability to pay for new projects and drilling, rose 8 percent to C$1.70 billion, or C$3.14 a share, from C$1.57 billion, or C$2.90 a share, in the fourth quarter of 2008.
Canadian Natural benefited from rising oil prices, which averaged $76.13 per barrel, 29 percent above the year-prior period, though a 23 percent fall in gas prices, to $4.93 per million British thermal units, offset the gain.
$1=$1.03 Canadian Additional reporting by Abhiram Nandakumar in Bangalore; Editing by Frank McGurty