CALGARY, Alberta (Reuters) - Canadian Natural Resources Ltd (CNQ.TO) shares surged more than 5 percent on Thursday as record operating profits offset concerns over new cost overruns and delays at its massive Horizon oil sands project.
A day after announcing that costs for the Horizon project had risen to C$9.27 billion ($8.8 billion) -- 6 percent above its last estimate and more than a third higher than the 110,000 barrel-per-day project's original C$6.8 billion budget -- Canadian Natural said synthetic crude production at Horizon could begin at reduced rates in the fourth quarter.
Also, Steve Laut, the company's chief operating officer, said in an interview that major construction is nearly complete and full output could come by early 2009.
"There are just little things left," he said. "It's all small things but they take a tremendous amount of time and productivity is very low."
Budget overruns and project delays have become almost routine in Canada's oil sands, the largest oil reserves outside of the Middle East.
Every major project in the region has exceeded its budget because of labor shortages and rising prices for steel and other materials as oil firms rush to exploit the resource.
However, the cost increases and delays are unlikely to hurt Canadian Natural, an analyst said, as its earnings are rising on high oil prices and its 40,000 barrel per day Primrose East heavy oil development is ahead of schedule.
Oil from the new development is expected to flow in the fourth quarter instead of early 2009, Canadian Natural said.
"Primrose is very positive and it looks like it may help offset the slight delay from Horizon," said Chris Feltin, an analyst at Tristone Capital.
Canadian Natural, Canada's No. 2 exploration and production company, said on Thursday its adjusted earnings, which exclude hedging losses and other one-time items rose to a record C$960 million, or C$1.78 a share, in the second quarter from C$595 million, or C$1.10 a share, in the year-before quarter, mainly due to higher energy prices.
Canadian Natural had been expected to post operating earnings of C$1.38 a share, the average of analysts' forecasts compiled by Reuters Estimates.
A hefty noncash charge for unrealized hedging losses of C$997 million and other one-time items pushed Canadian Natural to a net loss of C$347 million, or 65 Canadian cents a share, in the quarter, compared with a profit of C$841 million, or C$1.56 a share, the year before.
Its second-quarter cash flow, an indicator of its ability to pay for new projects and drilling, rose 23 percent to C$1.86 billion, or C$3.44 a share, from C$1.51 billion, or C$2.81, a year earlier.
Results at Canadian Natural and its oil-industry peers have been buoyed by crude prices that soared 90 percent to a record quarterly average of $123.80 a barrel. Natural gas prices in Canada also surged, averaging C$9.68 per gigajoule, a 44 percent gain from 2007.
Canadian Natural said output of oil and natural gas liquids averaged 245,616 barrels per day in the quarter, up 2 percent from 240,420 bpd a year earlier.
Natural gas production fell 11 percent to 1.53 billion cubic feet per day.
Canadian Natural's revenue before royalties in the quarter was C$5.1 billion, up from C$3.2 billion.
The company also announced a slight cut to its production targets for the year. It expects to pump out between 308,000 and 350,000 barrels of oil per day this year, down from a previous estimate of between 316,000 and 366,000 bpd.
Gas production will range from 1.48 billion to 1.51 billion cubic feet a day instead of the previous range of 1.43 to 1.51 bcf.
The company's shares rose C$4.37, or 5.5 percent, to C$83.65 on the Toronto Stock Exchange on Thursday. The shares have risen 20 percent over the past 12 months.
Reporting by Scott Haggett and John McCrank; Editing by Peter Galloway