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CALGARY, Alberta, May 8 (Reuters) - First-quarter profit at Canadian Natural Resources Ltd CNQ.TO jumped 170 percent as surging oil prices more than made up for lower production, the country’s No. 2 independent oil explorer said on Thursday.
Canadian Natural, which is expected to open the 110,000 barrel per day Horizon oil sands project in August, earned C$727 million ($715 million), or $1.35 a share, up from year-earlier C$269 million, or 50 Canadian cents a share.
Adjusted earnings from operations, excluding hedging costs and foreign exchange losses, jumped 40 percent to C$872 million, or C$1.61 a share, from C$621 million, or C$1.15 a share.
The operating result handily beat the C$1.18 per share average profit forecast by analysts polled by Reuters Estimates.
Canadian Natural’s cash flow, an indicator of its ability to fund new projects, rose 6 percent to C$1.7 billion, or C$3.19 a share, from C$1.6 billion, or C$3.01 a share, in the first quarter of 2007.
Revenue was C$4 billion, up 27 percent.
Canadian Natural and its rivals have benefited from oil prices that averaged a record $97.82 in the quarter, up more than two-thirds from the year before. Crude has climbed even higher since, recently topping $124 a barrel.
The company has further benefited from a smaller discount for heavy-grade crude, which accounts for much of its Canadian output, as well as strong natural gas prices, it said.
Canadian Natural’s oil and gas production fell 5 percent to 583,488 barrels of oil equivalent per day.
It blamed the drop on the timing of injecting steam and polymers into northern Alberta’s oil sands and heavy crude reservoirs, and lower natural gas output as the company shifted spending to higher-return oil projects.
Canadian Natural is Canada’s No. 2 natural gas producer, but cut spending on exploring for the fuel because of low prices and worries that changes to the provincial royalty system in Alberta would cut profits.
Despite a recent run-up in natural gas prices to 28-month highs, Steve Laut, the company’s chief operating officer, said Canadian Natural was not yet ready to commit more funds to boosting natural gas output beyond the 1.54 billion cubic feet a day it averaged in the quarter.
Even with Canadian spot gas prices at a recent C$9.67 per gigajoule, up by a third over last year, Laut said the rise was still not enough to spark more drilling because of the increased government take in Alberta.
“We need prices probably north of C$12 before we start to get incentive to drill more,” Laut said at the company’s annual meeting on Thursday.
Canadian Natural also said it has revised its commodity-price hedging program as it nears completion of the Horizon project.
The company, which had locked prices for much of its oil production to ensure it had sufficient cash to build the C$6.8 billion project will only hedge up to 50 percent of production for up to a year, beginning in 200, down from the 75 percent it now locks in.
“Our policy ... is only to hedge to ensure we have the cash flow to fund our capital programs,” Laut said. “In 2009 you’ll see us do some hedging but very little because our cash flow will be very strong.”
The company posted a loss of C$76 million from its hedging program in the quarter, down from a loss of C$362 million in the year-prior period.
Canadian Natural shares jumped C$4.19, or nearly 5 percent, to C$96 on the Toronto Stock Exchange on Thursday, and they have gained more than a third so far this year. The company released its results after the market closed. ($1=$1.02 Canadian) (Reporting by Scott Haggett and Jeffrey Jones; editing by Rob Wilson)