Canadian Natural Resources Defers 2006 Gas Drilling Program

Dow Jones Newswires

CALGARY, Aug 02, 2006, Dow Jones Newswires

Canadian Natural Resources Ltd., Canada's third-largest natural gas producer, (CNQ) said Wednesday it has deferred the drilling of 308 gas wells that had been scheduled in the second half of 2006 due to high costs.

"We're seeing continued cost pressures across the board, especially in the gas sector," Canadian Natural Chief Operating Officer Steve Laut said during a conference call.

The company will reallocate the resources to its oil drilling program, with the majority of the extra drilling occurring in the Pelican Lake region, Laut said. The company hasn't reduced its land or seismic budget and is prepared for a normal winter drilling program.

Higher prices for Canadian heavy crude in 2006 - the result of pipeline reversals that have opened up more of the U.S. market to producers - are a strong driver behind the move, especially given weak natural gas prices over the second quarter of 2006, Laut said.

"It clearly makes sense to allocate as much capital from gas to crude as we can do in a reasonably cost-effective manner," he said.

The change effectively cuts by half the number of gas wells Canadian Natural will drill in the second half of 2006. About 25 million cubic feet a day of gas that was drilled in the first quarter won't be tied in until 2007, while the reduced gas drilling program will result in year-end output being 40-50 MMcf/d lower than expected, Laut said.

Making Room For More Crude

Conversely, the company's crude output, currently around 250,000 barrels a day, should be up 7% by the year-end due the increased drilling program. Canadian Natural will drill 28% more light oil wells, 10% more heavy oil wells and 42% more wells in the Pelican Lake region than previously expected.

Canadian Natural's total production reached record levels in the second-quarter, at 585,000 barrels of oil equivalent a day. Of that, crude and natural gas liquids production was 340,000 barrels a day, while gas output was 1.475 billion cubic feet a day.

The Calgary-based company is also seeking to increase its capacity to convert bitumen, which is heavy and difficult to refine, into lighter synthetic crude, Laut said. Not only has it committed some of its future production to an independent upgrader that's being developed, but Canadian Natural has also made progress on its own upgrader, with the first engineering stage under way.

Last year, the company said it was considering building a 125,000 b/d heavy oil upgrader near its Primrose oil sands development.

"An upgrader would allow us to capture a significant part of the heavy oil value chain and allow us to develop our 3 billion barrels of undeveloped crude resources," Laut said.

Problems Abroad

Canadian Natural is also experiencing problems with sand production at its Baobab wells in Cote D'Ivoire. Two of the company's 10 wells have been shut in because too much sand is being extracted, while two others are operating at reduced rates, curtailing output by around 12,000 b/d.

The company expects to install equipment to bring the wells back on line in the first quarter of 2007. However, it may not be able to implement a permanent solution to the problem until late 2007 or early 2008 as it is unlikely to secure the necessary deepwater rig necessary, Laut said.

Elsewhere in Cote D'Ivoire, the company began production at its West Espoir crude oil in July. Production is currently at 3,800 b/d and is expected to reach 13,000 b/d in early 2007.

In the North Sea, Canadian Natural will be shutting down more production than expected in the third quarter to complete repairs before the winter season. The company will complete turnaround maintenance at the Tiffany, Ninian, Banff and Kyle fields, while it will also shut down the Balmoral field to tie in extra production. Production will drop to 50,000-60,000 boe/d in the third quarter before returning to normal levels of 70,000 boe/d in the fourth quarter, Laut said.

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