CNQ forecast cutting gas drilling by 65% next year & paring oil drilling by 15%...
Canadian Natural May Cancel Some Oil-Sands Projects By Ian McKinnon and Eduard Gismatullin
Oct. 9 (Bloomberg) -- Canadian Natural Resources Ltd., the largest heavy-oil producer in Alberta, said it may cancel oil- sands projects worth as much as C$7 billion ($7.08 billion) if the government boosts royalties.
The company said it may halt the Gregoire Lake, Kirby and Birch Mountain tar-sands projects if the government adopts recommendations released last month that include a new tax on such developments. The four projects combined would boost the company's production by as much as 235,000 barrels of oil a day in the next 15 years, Calgary-based Canadian Natural said.
The developments, which extract an extra-heavy crude from the tar sands called bitumen, need oil prices of about $85 a barrel to be economically attractive if the panel's suggestions are adopted, Chris Feltin, an analyst with Calgary brokerage Tristone Capital Inc., said today in a telephone interview.
``You'd be hard pressed to make the economics go around at $70 a barrel for a bitumen project,'' said Feltin, who rates the company's stock as ``market perform'' and owns none. ``I wouldn't view this as a threat at all. I think this is a realistic challenge that they're going to have to overcome.''
Crude oil futures in New York rose to $80.65 a barrel at 12:34 p.m. today, 34 percent higher than a year ago.
The recommendations by the government-appointed panel, released on Sept. 18, would reduce returns for oil and gas wells in Alberta, Canadian Natural said. The company forecast cutting gas drilling by 65 percent next year and paring oil drilling by 15 percent if the recommendations are enacted.
Royalties can rise if oil and gas prices follow suit, Canadian Natural President Steve Laut said today in a telephone interview. The panel's suggested changes don't ensure adequate returns to investors and alter the rules after companies have spent years and billions developing oil-sands projects, he said.
``That's a little tough to swallow, said Laut, 50. ``I don't think anybody would think that would be fair.''
Other producers including EnCana Corp., Talisman Energy Inc. and ConocoPhillips's Canadian unit have said they will cut next year's spending in Alberta if the recommendations are adopted.
Canadian Natural's shares fell 64 cents to C$73.15 at 1:16 p.m. in Toronto Stock Exchange trading. The stock has climbed 18 percent this year.
Projects to Proceed
Higher royalties will not affect Canadian Natural's Horizon oil-sands project currently under construction, the company said.
The project's first stage, estimated to cost C$7.62 billion, is under construction and scheduled to start operating in 2008 and produce 110,000 barrels a day of refinery-ready crude. The second and third phases, forecast to raise daily output to 232,000 barrels a day, would likely go ahead, the statement said.
Canadian Natural applied last month for regulatory approval for Kirby, scheduled to produce 45,000 barrels a day of heavy crude by 2011. The project's price was pegged at C$620 million, and most of the spending is forecast to occur in 2009 and 2010, the company has said previously.
Reduced spending by Canadian Natural will lead to 3,900 job losses, the company forecast. The company relied on ratios that measure spending impact used by the government and an industry association to derive its estimate, Laut said.
Canadian Natural could deploy money from Alberta into projects in West Africa and offshore the U.K, said Tristone's Feltin.
The panel's recommendations would boost Alberta's share of oil-sands revenue to 64 percent from