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WCS-WTI gap will return to historic levels: CNRL boss

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March 08, 2012

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Damage to a fractionation unit at Canadian Natural Resource’s Horizon oil sands project was found to be “significantly more severe than anticipated” following a shutdown early last month, company president and chief executive Steve Laut said today.

Production at the oil sands project averaged 103,000 barrels daily through the fourth-quarter of 2011, an 11 per cent increase from the same period in 2010, CNRL reported today.

The company bumped its quarterly dividend to $0.105 per share from $0.09, a 17 per cent increase. Quarterly cash flow from operations increased 31 per cent year-on-year and 22 per cent from the third-quarter to $2.16 billion. The company earned $832 million in the fourth-quarter. That compares with a loss of $309 million for the same period in 2010.

CNRL attributed the jump in cash flow from the third-quarter of 2011 to a combination of higher crude oil prices and sales of natural gas liquids, as well as the return of production at Horizon. Production at the oil sands plant was sidelined last year by a coking fire, and was suspended again Feb. 5 to allow for repairs to a damaged fractionating unit. The cost for the latest repair is estimated at $35 million. Production is scheduled to resume later this month.

Horizon production averaged 81,000 barrels per day through January 2012 before the shutdown, which CIBC economists estimated last month could shave 0.3 per cent from Canada’s gross domestic product for the quarter.

CNRL says the wide differential that has clobbered heavier slates of crude oil in recent weeks narrowed from 20 per cent in the third-quarter of 2011 to 11 per cent in the fourth-quarter, allowing the company to realize a better price for the 162,000 barrels per day of heavy oil it contributed in 2011 to the Western Canada Select blend.

A series of unplanned refinery outages in the U.S. and transportation-related constraints have weighed on heavy oil prices. WCS slid to $34.50 under the benchmark West Texas intermediate this week. In a call with analysts, Laut described the phenomenon as a “short-term situation” that the proposed Seaway pipeline reversal and expansion would help alleviate.

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