Canadian Natural sees vicious oil sands cost cycle

By Jeffrey Jones

CALGARY, Alberta (Reuters) - Canadian Natural Resources Ltd (CNQ.TO) is concerned that oil sands producers will rush again to develop their deferred projects once oil prices rebound and costs ease, extending a vicious cycle, the company's president said on Thursday.

Stung by high costs, Canadian Natural is slowing down spending on the next phase of its Horizon oil sands project in northern Alberta as it ramps up output on the initial phase in 2009.

Canadian Natural's Steve Laut said he is not banking on the current round of project delays across the industry to produce a positive operating environment at Horizon.

"Say the environment does improve and the costs get better, then everybody sort wakes up and says, 'OK now we should go,'" Laut in an interview.

"What we're going to face there is, everybody goes at the same time and just creates the same issues."

The company said on Thursday it will spend C$574 million ($490 million) at Horizon in 2009 -- down from a previously estimated C$1.6 billion -- as it tries to control runaway costs that to forced overruns on the first phase this year. The cut is part of a 47 percent drop in company-wide capital expenditures to C$4 billion.

Canadian Natural has assumed a U.S. benchmark oil price of $69 a barrel for its 2009 budget, a far cry from the average third-quarter oil price of more than $118.

Laut said he does not expect a speedy rebound in oil as the financial maelstrom clips demand.

"There's a credit crisis, as you know, and that's going to ripple through the economy and could take a long time to get through the economy. I think it has a bigger impact than anybody realizes," he said.

($1=$1.17 Canadian)

(Editing by Peter Galloway)