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CNR’s Horizon oilsands project yields first barrels of oil
UPDATED: 2009-03-05 13:48:23 MST
By MARKUS ERMISCH, Sun Media

Canadian Natural Resources has reached a major milestone as first oil started flowing from its Horizon oilsands project, the most expensive undertaking in the company’s history.

The Calgary energy giant’s enthusiasm for the government’s latest tweak of the royalty burden, however, was more muted.

CNR announced yesterday that on Feb. 28, the $9.7-billion Horizon oilsands mine near Fort McMurray, a project plagued by budget overruns, has pumped out the first barrels of synthetic oil.

Steve Laut, CNR’s chief operating officer, said he was proud of this achievement because the company pushed the project through a period of high inflation that was followed by an economic downturn, the likes of which Alberta hasn’t seen since the 1980s.

But despite the start of the recession last year, CNR’s profits during the last three months of 2008 rose to $1.8 billion, up from $800 million one year ago.
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Laut, in discussing the company’s financial results, also said CNR is trimming its 2009 capital budget by $800 million to $3.2 billion.

Rather than expand operations, Laut said CNR will look at buying new assets because low commodity prices make it “much cheaper to buy than to develop reserves.”

CNR would need natural gas prices of at least $6.50 per Mcf, more than $2 higher than current prices, before it would make economic sense to drill new wells in Alberta, he said, noting that the government’s incentive package to boost drilling won’t significantly spur activity.

“It is only a one-year program, and with the low prices, you will not see us change our activity based on that,” Laut said.

CNR executive Lyle Stevens said the incentive package, which Alberta Energy announced this week, is a “short-term fix” that will improve the economics of only a few wells.

Calgary analyst Peter Linder said that while the drilling incentive is a positive step, it doesn’t allow the industry any long-term planning.

Energy Minister Mel Knight had said the province may extend the program by the end of this year, but Linder said the lighter royalty burden should right away have been stretched over five to 10 years.

Linder said that once the government releases its competitiveness study later this year, Alberta Energy will likely tweak the royalty framework again.

markus.ermisch@sunmedia.ca