UPDATE 2-Canadian Natural Resources lowers 2014 oil production guidance

Thu Aug 7, 2014 2:46pm EDT

(Adds detail of production guidance, CEO and analyst comment)

By Nia Williams

CALGARY, Alberta Aug 7 (Reuters) - Canadian Natural Resources Ltd, the country's No.2 oil and gas company, lowered its 2014 oil production guidance on Thursday as a result of issues at its Kirby South and Primrose oil sands projects in northern Alberta.

The company said it now expected oil production before royalties of between 531,000 barrels per day and 557,000 bpd this year, compared to a previous forecast of between 537,000 bpd and 574,000 bpd.

The lowered guidance came despite a rise in CNRL's overall oil and gas production in the second quarter.

The company said there had been design operating issues with steam generation facilities at its 19,000 bpd Kirby South project. Steam is used to heat bitumen deposits underground, enabling it to flow out through a wellbore.

Bitumen emulsion also has been seeping slowly to the surface at CNRL's Primrose project since June 2013, and restrictions on underground steaming remain in place.

CNRL is submitting a report to the Alberta Energy Regulator later this year and hopes to get approval for using steam flood extraction techniques, but the company said collecting data had taken longer than expected.

"The negatives from the update were some facilities issues at their new steam-assisted gravity drainage project in Kirby South and delayed steaming at Primrose," FirstEnergy Capital analyst Mike Dunn said.

"That's the main reason production guidance went down about 2 percent for their oil."

CNRL shares fell C$1.19, or 2.6 percent, to C$44.65 on the Toronto Stock Exchange.

Chief Executive Officer Steve Laut said he did not expect the issues to have a lasting impact on production.

"Overall both these issues are essentially timing issues and we expect strong performance from our operations going forward as we saw in Q2 with production exceeding guidance," Laut said.

HORIZON DRIVES HIGHER EARNINGS

The company is also completely shutting down production at its Horizon oil sands project for 25 days starting on Aug. 16 to undertake expansion work. Analysts, however, said that outage was factored into CNRL's previous annual production guidance.

Horizon's production averaged a record 119,200 bpd in the second quarter and it is expected to ramp up to 127,000 bpd once the expansion work is complete.

CNRL's overall oil and gas production averaged 817,471 barrels of oil equivalent per day (boepd) for the second quarter, up from 623,315 boepd a year earlier.

That rise was fueled by record production at Horizon and property acquisitions. CNRL bought much of Devon Energy Corp's natural gas properties in Canada in February.

CNRL's total product sales for the second quarter soared 44.5 percent to C$6.11 billion ($5.59 billion), while revenue jumped 42 percent to C$5.37 billion.

Net income rose to C$1.07 billion, or 97 Canadian cents per share, from C$476 million, or 44 Canadian cents, a year earlier. The company earned C$1.04 per share on an adjusted basis.

Cash flow, a key indicator of the company's ability to pay for new projects and drilling, rose 58 percent to C$2.6 billion. ($1 = 1.0923 Canadian dollar) (Additional reporting by Sneha Banerjee in Bangalore; Editing by Gopakumar Warrier, Joyjeet Das and Paul Simao)

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