* Executives questioned on share price
* Horizon reliability seen as key to improvement
* Company breakup ruled out
* Third-quarter profit falls 57 pct to C$0.33/share
* Shares fall 3.2 percent
By Jeffrey Jones
CALGARY, Alberta, Nov 8 Canadian Natural
Resources Ltd gave the green light to a new C$5.7
billion ($5.7 billion) oil sands processing plant on Thursday,
but it failed to cheer investors after the company reported
weaker-than-expected third-quarter results, prompting a 3
percent drop in the shares.
Canadian Natural, the country's largest independent oil and
gas producer, faced unusually frank questions on a conference
call about its weakened stock price and its prospects. It is
dealing with low heavy oil and natural gas prices and is trying
to iron out operational problems at its Horizon oil sands plant
The company blamed a 57 percent drop in earnings on lower
realized oil and gas prices and it chopped capital spending by
C$230 million, bringing the year's budget cuts to C$910 million,
or 12 percent.
It and partner North West Upgrading also sanctioned the
first 50,000 barrel-a-day phase of their oil sands refinery near
Edmonton, a project set for completion in 2016.
Canadian Natural is the major investment of Calgary
financier Murray Edwards and has long been viewed as one of the
industry's most solid holdings due to a record of growth,
hands-on management of extensive assets and focus on cost
But on Thursday, participants on a conference call to
discuss the third-quarter results asked executives if a major
stock buyback might be in the offing, or even if they had given
thought to splitting the company up, to boost market value.
The stock closed down 93 Canadian cents at C$28.02 on the
Toronto Stock Exchange, well off its 52-week high of C$41.12 set
An analyst asked vice-chairman John Langille for his views
on the weakened price.
Langille said deeply discounted heavy oil prices had
pressured the shares, but coming expansions of pipeline capacity
to the U.S. Gulf Coast were expected to bring relief next year.
He also said Horizon production had been reduced by planned and
unplanned maintenance outages, as well as "pro-active" upkeep,
during the quarter. The operation was shut through much of 2011
following a devastating fire.
"I think we have to get some credibility back on running our
Horizon, our mining project," Langille said. "We have a very
good process in place to get to there and I think, again, we're
dealing with an asset that's going to last us 40-plus years and
we have to make sure that we do it right to make it last that
Langille said the company is not considering a split-up to
alert the market to the value of its assets, which also include
extensive natural gas properties and international holdings.
"We think in the long-term, it's better to have a
diversified portfolio and we will use our business model to
develop that portfolio over time and ultimately return a much
larger return to shareholders."
Reliability at the 115,000 barrel a day Horizon project is
the key to a rebound, Morningstar analyst David McColl said.
"That's the operational thing that is hanging on the stock. I'm
still looking for 12 to 18 months solid operation, and this
probably makes me want to reset the clock on that," McCool said.
PRODUCTION OUTLOOK TEMPERED
In the third quarter net income fell to C$360 million, or 33
Canadian cents a share, from year-earlier C$836 million, or 76
Canadian cents a share. Analysts, on average, had expected 50
Canadian cents according to Thomson Reuters I/B/E/S.
Cash flow, an indicator of the company's ability to pay for
its expansion plans, fell 19 percent to C$1.43 billion, or
C$1.30 a share, for the third quarter.
Production rose 9 percent to 667,616 barrels of oil
equivalent a day.
The company said it expects to produce 452,000-460,000
barrels a day of oil and gas liquids a day in 2012, down from
its previous forecast of between 454,000 and 474,000.
Canadian Natural also cut its output forecast for Horizon
due to the 12 days of maintenance last month.
Meanwhile, the company and privately held North West said
they intend to start building their oil sands facility next
The plant, which has been on the drawing board for eight
years, will process extra-heavy crude from the tar sands into
low-sulfur diesel fuel and other petroleum products. Capacity
could eventually be expanded to 150,000 barrels a day.
Canadian Natural and North West plan to produce ultra
low-sulfur diesel and other petroleum products at their
refinery, rather that just synthetic oil that would be shipped
to other North American refineries. That will help shield it
from some of the competition from surging light crude output
elsewhere, such as the North Dakota Bakken.
In addition, the Alberta government, as part of an
initiative to foster more valued-added processing within the
western Canadian province, will supply 75 percent of the
feedstock for the plant with crude it gets in lieu of cash
royalty payments. Canadian Natural will supply the rest from its
own production. The processing agreements have 30-year terms.