Canadian Natural Resources Q2 profit declines on risk management losses - Update

(RTTNews) - Thursday, Calgary, Canada-based oil and gas company Canadian Natural Resources Ltd. (CNQ, CNQ.TO) reported a fall in second quarter earnings hurt by risk management losses. However, adjusted earnings increased benefiting from higher product prices. The company reduced its estimate of crude oil and NGLs production and increased gas production estimate for the full year. A quarterly dividend of C$0.10 per share was also announced.

For the quarter, the company posted a net loss of C$347 million, or C$0.65 per share, compared to a net income of C$841 million, or C$1.56 per share, a year-ago, and C$727 million, or C$1.35 per share, in the prior year quarter.

Among the competitors, EnCana Corp. (ECA, ECA.TO) reported a second quarter profit that declined from last year, hurt by unrealized mark-to-market losses on risk management activities, while Petro Canada (PCZ, PCA.TO), which operates in both the upstream and downstream sectors of the industry in Canada and internationally reported increased profit for the second quarter helped by higher operating earnings. Suncor Energy, Inc. (SU, SU.TO), also reported an increase in second-quarter net income, benefiting from higher realizations on its oil sands products.

Canadian Natural's adjusted net earnings from operations rose to C$960 million, or C$1.78 per share in the quarter from C$595 million, or C$1.10 per share, reported in the same quarter last year and from C$872 million, or C$1.61 per share, in the prior quarter.

Revenue before royalties increased to C$5.112 billion in the quarter from C$3.967 billion in the comparable period last year.

Cash flow from operations increased to C$1.895 billion, or C$3.44 per share, in the quarter from C$1.513 billion, or C$2.81 per share, a year ago and from C$1.725 billion, or C$3.19 per share, in the first quarter.

Year-to-date, the company posted net income of C$380 million, or C$0.70 per share, down from C$1.110 billion, or C$2.06 per share, in the corresponding period last year. Adjusted earnings from operations rose to C$1.832 billion, or C$3.39 per share from C$1.216 billion, or C$2.25 per share in the previous year. Revenue before royalties surged to C$9.079 billion from C$6.270 billion a year ago.

The company whose crude oil and natural gas operations are focused in western Canada, the United Kingdom portion of the North Sea, and offshore West Africa said its daily production before royalties for natural gas declined to 1,526 mmcf/d from 1,722 mmcf/d a year ago and sequentially from 1,538 mmcf/d.

Crude oil and NGLs daily production also declined to 319,077 bbl/d from 327,494 bbl/d a year ago, and sequentially from 327,217 bbl/d.

Natural gas production volumes in the second quarter represented 44% of the total production of the company, and averaged 1,526 mmcf/d, 11% lower than 1,722 mmcf/d a year ago, and down slightly from 1,538 mmcf/d in the first quarter. The company attributed the decrease in volumes to continued reallocation of capital towards higher return projects in crude oil.

Total crude oil and NGLs production slipped 3% from the year-ago, 2% sequentially and was at 319,077 bbl/d.

Construction and commissioning of the Horizon Oil Sands Project, the largest single capital project in Canadian Natural's history, continued in the quarter with first bitumen crude oil production targeted for early September, partially upgraded crude oil production targeted for the end of September, and first 34 degrees API, light sweet synthetic crude oil production in the fourth quarter.

Regions

North America natural gas production decreased 11% from the year-ago period, and marginally from the first quarter due to a drop in base production and the company's strategic decision to reduce spending on natural gas drilling. North America crude oil and NGLs production decreased 2% from the prior-year period.

North Sea crude oil production declined 8% in the quarter sequentially as a result of a planned shutdown for maintenance at Ninian.

Offshore West Africa crude oil production declined 4% sequentially.

Outlook

Canadian Natural Resources announced that it is committed to ship 120,000 bbl/d of heavy crude oil for 20 years on the proposed Keystone pipeline US Gulf Coast expansion from Hardisty, Alberta to Port Arthur, Texas. And also committed to a 100,000 bbl/d heavy crude oil supply agreement with a major US refiner to supply refineries in the Gulf Coast at market prices for 20 years.

The company estimates third quarter production before royalties to average between 1,466 and 1,490 mmcf/d of natural gas and between 299,000 and 316,000 bbl/d of crude oil and NGLs. For fiscal 2008, the company has projected production levels before royalties to average between 1,482 and 1,511 mmcf/d of natural gas and between 308,000 and 350,000 bbl/d of crude oil and NGLs.

Earlier, the company had predicted production levels before royalties to average between 1,429 and 1,513 mmcf/d of natural gas and between 316,000 and 366,000 bbl/d of crude oil and NGLs.

CNQ is trading on NYSE up 3.04 or 4.02% at $79.69 on a volume of about 3.26 millions shares. In the 52-weeks range, the shares traded between $57.07 and $109.32.

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