Canadian Natural Eyes West African Crude Output Growth

Dow Jones Newswires

CALGARY Aug 18, 2006 (Dow Jones Newswires)

Canadian Natural Resources Ltd. (CNQ), Canada's No. 2 producer of crude oil and natural gas, said Thursday it may consider pursuing production growth in its West African operations through acquisitions in Gabon.

Canadian Natural is seeking to use its Olowi field, located off the coast of Gabon, as a base for expansion in the country, Barry Duncan, vice-president of finance at CNR International, Canadian Natural's international arm, told Dow Jones Newswires in an interview.

"There are significant opportunities in Gabon," Duncan said. "Now that we have a presence in the country, we can look to grow organically and through acquisitions."

Canadian Natural purchased a 90% interest in the Olowi field in October 2005 and is looking to make a decision whether to proceed with development by year-end. The field is expected to produce 20,000 b/d from late 2008.

West Africa is an increasingly important supplier of crude to global markets, supplying nearly 15% of the U.S.'s crude imports. However, the region isn't always a reliable supplier. For example, output from Nigeria, the region's main producer, has been severely disrupted by militants protesting against oil companies' activities in the country.

Canadian Natural has a history of snapping up assets in maturing oil basins, both in Canada and in the North Sea, and squeaking out every last drop of crude from them. Given that experience, a move to expand in Gabon - a country with declining oil production - makes sense, Duncan said.

"Operating in a mature environment is one of our strengths," he said. "But it's important that we'd be able to get control via a high percentage working interest in any field we acquired."

Stabilizing In Cote d'Ivoire

However, any concrete buys in Gabon seem a long way off. In the short term, Canadian Natural is looking to stabilize its output in Cote d'Ivoire, on the south coast of the western bulge of Africa, where its net production is currently 31,000-35,000 barrels a day.

Its output has been reduced by sand filtering problems at the Baobab oilfield, located offshore in the Gulf of Guinea, which was brought on stream in 2005. While the field is eventually expected to produce 70,000 barrels of crude a day, 64% of which is net to Canadian Natural, two of the field's 10 wells have been shut in and two others are operating at reduced rates, curtailing the company's output by around 12,500.

Canadian Natural is looking to install equipment to the wells and the field's offshore collection vessel in order to resolve the problems. However, due to a shortage of deepwater rigs, the wells may not be permanently repaired by late 2007 or even 2008, Duncan said.

"From an operational and production point of view, it's very disappointing," he said. "However, the reserves are robust, and we will still be able to deliver the crude from this field."

Elsewhere in Cote d'Ivoire, the company has managed to increase its output by bringing the nearby West Espoir oil field on stream last month. The field is expected to produce 13,000 barrels a day by early 2007.

"Our near-term target is to restore Baobab production and bring West Espoir up to peak output," Duncan said. "In the medium term, we have plans for further infill drilling at Baobab and will continue to evaluate exploration opportunities in the area." Infill drilling refers to the drilling of more wells in a field that's already operating in order to boost production.

"Production will grow by 60% in 2006, despite the Baobab problems," he said. "It's an important growth area that will continue to deliver value."

Operating Environment A Concern

Cote d'Ivoire's operating environment does offer some cause for concern, given the instability that's prevailed in the country since September 2002, when rebels seized the northern half of the country after a failed coup attempt. A series of peace deals has failed to restore unity to the country, which before another coup in 1999 was viewed as an example of relative stability in the Gulf of Guinea region.

The unrest has forced Canadian Natural to use the Ghanaian port of Takoradi as a base for some of its development, rather than Cote d'Ivoire's Abidjan. However, operations haven't been affected, Duncan said.

"We have seen some sporadic unrest, which we continue to monitor, and we have stringent contingency plans in place," he said. "We haven't had any disruption to our operations so far."

The crude produced by Canadian Natural from the Baobab field, which is being marketed by trading firm Glencore, is slightly acidic, at 23 degrees API, and trades at a discount to lighter, sweeter crudes.

But there's been no shortage of bidders for it, Duncan said.

"We've had nine different buyers for it already, from Europe, North America and China," he said.

Copyright (c) 2006 Dow Jones & Company, Inc.