KEY POINTS
- CNRL cuts gas drilling plans due to weak natural gas prices.
- Oil sands production and TMX pipeline expansion support growth.
- Recent Chevron asset acquisition strengthens CNRL’s portfolio.
Canadian Natural Resources Ltd (CNRL) has announced it will cut back on natural gas drilling in response to sustained low prices, despite better-than-expected profits from strong oil sands production in the third quarter.
Due to the challenging natural gas market, the Calgary-based business, which is Canada’s largest oil and gas producer, will now drill a net total of 74 wells in 2024, which is 17 fewer than its original goal.
Between July and September, natural gas prices in Western Canada fell to a two-year low as Alberta’s storage facilities filled up and some companies cut back on production. The existing state of the market supported CNRL’s August decision to postpone the construction of some wells.
Nevertheless, the company has maintained its natural gas production forecast of 2.12-2.23 billion cubic feet per day (bcf/d) for 2024, even after a 4.7 percent decline in third-quarter production to 2.05 bcf/d.
Strategic moves in oil sands and pipeline expansion
Despite the decline in natural gas, CNRL’s oil sands output is still a bright spot. In August, the company reached a record monthly production of 529,000 barrels per day (bpd) and reported an increase in synthetic crude production year over year to an average of 497,656 bpd.
Further supporting its oil sands plan is the company’s decision to raise contracted capacity on the recently expanded Trans Mountain pipeline (TMX) from 94,000 bpd to 169,000 bpd. PetroChina’s decision to back out of its obligation as a shipper on the TMX pipeline was followed by this expansion.
CNRL’s president Scot Stauth noted that the firm obtained beneficial conditions on the TMX expansion since it augments market for its oil sands crude especially in the western markets and Asia. Reuters quotes Stauth saying that as much as they require the expansion of pipeline infrastructure, the ultimate gain in returns on oil sands production is tied to enhanced market access.
Profit outlook and recent acquisitions
With net earnings of C$2.27 billion ($1.63 billion), or C$1.06 per share, CNRL’s third-quarter results demonstrated resiliency despite a modest decline from C$2.34 billion in the same period last year. Nevertheless, according to LSEG data, its operating net earnings of 97 Canadian cents per share were higher than analysts’ average projections of 90 cents.
CNRL recently announced a $6.5 billion acquisition of Chevron Corp.’s Canadian assets, including interests in the Duvernay light oil assets and the Athabasca oil sands projects, in a major attempt to expand its asset portfolio.
This purchase is in accordance with CNRL’s broad strategy of fortifying its profile in the CBD market amidst turbulent world oil prices and concern with China’s weakening appetite.
