Major Canadian Bitumen Producer Sees Better Gas Opportunity
Canadian Natural Resources Limited (CNRL), long one of Canada’s major oil sands producers, said in its Q3 2020 earnings report November 5 it will direct more of its capital resources to natural gas opportunities.
In August, CNRL moved to acquire troubled Painted Pony Energy, which added a modest 270mn ft3/day to CNRL’s industry-leading 1.43bn ft3/day of natural gas production in Q2 2020, most of which is used to support its thermal bitumen operations.
More importantly, the acquisition gave CNRL added flexibility, especially in light of what has happened in global crude markets since Covid-19 wreaked havoc on petroleum demand. Natural gas has been much more resilient in the wake of the pandemic.
“A strategic advantage of Canadian Natural is its flexible portfolio of assets, allowing the company to allocate capital to its highest return projects, maximizing value for the company’s shareholders,” it said. “As a result of improved natural gas prices, Canadian Natural has strategically reallocated a portion of its capital program to its high value, liquids-rich natural gas…and the assets recently acquired as part of the Painted Pony acquisition.”
At current strip pricing, CNRL’s gas production – expected to average 1.6bn ft3/day in Q4 2020 compared to 1.34bn ft3/day in Q3 2020 – and associated liquids production is forecast to generate about C$1.2bn (US$920mn) in annualised operating cash flow.
To execute on that potential, CNRL drilled seven wells on its legacy Septimus lands in northeastern BC in the third quarter and an eighth well subsequent to the end of the quarter. All eight wells are expected to be on production in Q4 at a targeted rate of 41mn ft3/day.
And subsequent to the end of Q3, it started drilling the first of a seven-well program on the new Montney lands acquired from Painted Pony. All seven are expected to come on production in the first half next year, at a targeted initial rate of 54mn ft3/day of natural gas and 440 b/d of natural gas liquids.
In Q3 2020, CNRL reported net earnings of C$408mn, up from a loss of C$310mn in the previous quarter, but well below earnings of C$1.03bn in Q3 2019.