Canadian Natural Resources Ltd. (CNQ, CNQ.TO) reported Thursday a sharp fall in third-quarter profit due to a plunge in revenues impacted by weak natural gas prices as well as the absence of prior year's hefty risk management gain. The Calgary, Canada-based crude oil and natural gas explorer also provided production forecasts for the fourth quarter and fiscal years 2009 and 2010. Separately, Canadian Natural said its Board of Directors has declared a quarterly cash dividend.
Third-quarter net earnings were C$658 million or C$1.21 per share, much lower than prior year's C$2.84 billion or C$5.25 per share.
The latest quarter results included stock-based compensation expense of C$126 million, and unrealized risk management loss of C$217 million, offset by unrealized foreign exchange gain of C$343 million. Meanwhile, prior year results included stock-based compensation recovery of C$221 million and a hefty unrealized risk management gain of C$1.75 billion, partly offset by unrealized foreign exchange loss of C$99 million.
Adjusted net earnings from operations, excluding items, were C$658 million or C$1.21 per share, compared to C$963 million or C$1.78 per share in the prior year quarter.
Revenue, before royalties, declined to C$2.82 billion from C$4.58 billion in the same period last year.
The company produced approximately 575 thousand barrels of oil equivalent per day, or boe/d, in the quarter, higher than prior year's about 555 thousand boe/d. The quarterly production comprised of approximately 38% natural gas and 62% crude oil, with approximately 93% of production located in G8 countries.
Total crude oil and NGLs production was 359,269 barrels per day, or bbl/d, an increase of 17% from 306,970 bbl/d last year, driven by production increases from Horizon Oil Sands Mining and Upgrading, Baobab and Olowi, offset by the temporary curtailment of steaming/production at Primrose East and planned maintenance in the North Sea.
Natural gas production averaged 1,293 mmcf/d, down 13% from 1,490 mmcf/d last year, reflecting the continuing reallocation of capital towards higher return crude oil projects.
Quarterly cash flow from operations was C$1.51 billion, down 17% from the previous year, reflecting lower crude oil and natural gas price realizations, partially offset by higher crude oil production.
Canadian Natural pointed out that crude oil prices and the heavy oil differential remained favorable, and along with the company's hedging program, helped to mitigate the impact of weak natural gas prices.
Commenting on the results, Canadian Natural's Chairman, Allan Markin, stated, "The third quarter was strong for Canadian Natural as we met all of our production targets, with the exception of Horizon, which encountered certain unexpected challenges during the ramp-up of its production levels. The challenges at Horizon are manageable and our teams are doing a great job in identifying and mitigating these issues. We continue to execute our defined growth plan in 2010, with all areas providing positive free cash flow in the range of C$2.6 to C$3.0 billion while still delivering 7% production growth."
In its preceding second quarter, Canadian Natural reported net earnings of C$162 million or C$0.30 per share, compared to a loss of C$347 million or C$0.65 per share in the year-ago period, helped mainly by lower expenses associated with risk management activities. Adjusted second-quarter net earnings from operations declined to C$637 million or C$1.18 per share from C$960 million or C$1.78 per share in the previous year. Revenue for the quarter plummeted to C$2.750 billion from C$5.112 billion in the previous year.
For the nine months of fiscal 2009, Canadian Natural's net earnings fell to C$1.13 billion or C$2.07 per share from C$3.22 billion or C$5.95 per share a year ago. Adjusted net earnings from operations declined to C$2.02 billion or C$3.73 per share from C$2.80 billion or C$5.17 per share in the previous year. Nine-month revenue, before royalties, plunged to C$7.76 billion from C$13.66 billion a year ago.
Looking ahead, Canadian Natural said its fourth-quarter production before royalties is projected to average between 1,213 and 1,243 mmcf/d of natural gas and between 359,000 and 390,000 bbl/d of crude oil and NGLs.
For fiscal 2009, production levels before royalties are estimated to average between 1,305 and 1,314 mmcf/d of natural gas and between 352,000 and 363,000 bbl/d of crude oil and NGLs.
Further, the company said its equivalent production target for fiscal 2010 would be between 586,000 and 643,000 boe/d before royalties, representing a midpoint increase of 7% from the midpoint of 2009 estimate.
Fiscal 2010 crude oil and NGLs production target of 400,000 to 445,000 bbl/d before royalties, represents a midpoint increase of 18% from the midpoint of 2009 forecast. Natural gas production target for the year is 1,117 to 1,185 mmcf/d before royalties, representing a midpoint decrease of 12% from the midpoint of 2009 projection.
Cash flow from operations for the year 2010 is targeted to be between C$6.5 billion and C$6.9 billion, or C$12.00 to C$12.70 per share, and capital spending in 2010 is budgeted at C$3.9 billion, a 26% increase over 2009. Free cash flow is projected between C$2.6 billion and C$3.0 billion based on October 27, 2009 forward strip pricing, the company noted.
Canadian Natural's Vice-Chairman, John Langille, continued, "Looking to 2010, overall budget capital spending will be increased over 2009 levels but remains well within targeted cash flow, resulting in even further balance sheet strength."
Separately, Canadian Natural said its Board of Directors has declared a quarterly cash dividend of C$0.105 per share. The dividend will be payable January 1, 2010 to shareholders of record at the close of business on December 11, 2009.
CNQ closed Wednesday's regular trading session at US$64.45, up US$0.01, on a volume of 3.5 million shares.
CNQ.TO settled at C$68.60 on Wednesday, down C$0.40, on a volume of 1.8 million shares.
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