Canadian Natural Resources Ltd, or CNRL, says it will drop its output this spring as bottlenecks in crude transportation in Canada continue to pressure oil prices.  CNRL photo.

CNRL shares down 2 per cent Thursday

Canadian Natural Resources Ltd, or CNRL, said on Thursday that it will produce less crude than expected this spring due to lower oil costs as a result of bottlenecks associated with the transportation of crude.

Earlier in the year, Canadian crude producers struggled to get their oil to market.  Production rose, but pipelines were operating at capacity and rail companies were focussed on transporting agricultural goods instead of oil.

As a result, Canadian crude was trading at a heavy discount compared to US West Texas Intermediate.  The crude transportation crunch has eased recently and the discount is closer to average levels.

However, shipments to the US Gulf Coast are still being impacted by a regulator-mandated reduction in capacity on TransCanada’s Keystone pipeline following a leak late last year in Marshall County, North Dakota.

Analysts with GMP First Energy say “At this stage, we are of the view that the pipeline will be allowed to return to full operating pressure by the end of the second quarter of 2018.”

CNRL projects production in the second quarter to reach 1.054 million barrels of oil equivalent per day, down from analysts’ average estimate of 1.134 million, according to investment bank Tudor, Pickering, Hold & Co.

Despite the decline, this forecast output would exceed 2017 production.

“We are in a very strong, enviable position to be able to curtail natural gas and heavy oil volumes when pricing anomalies arise due to Western Canada’s pipeline constraints,” CNRL President Tim McKay said on a conference call.
Downtime at CNRL’s Horizon mine is also a factor in the company’s production declines.  Eight Capital said in a note that CNRL is conducting debottlenecking work to raise capacity at the mine, located about 70 Km north of Fort McMurray.
On Thursday, CNRL shares dropped 1.79 per cent to $45.65.
On Wednesday, Suncor CEO Steve Williams said his company would not invest in more oil sands projects until crude transportation bottlenecks were addressed.  And Cenovus, another oil sands producer, is operating at lower capacity this year.
In March, Kinder Morgan suspended non-essential work on its Trans Mountain pipeline expansion project, citing opposition from the BC government.  The company says it will decide on May 31 if it will continue with the project.
Suncor’s Steve Williams said on Wednesday that he believes the pipeline and the Line 3 expansion project will be completed.
“I don’t think in the last five years I’ve had a higher degree of confidence that these lines are going to be built,” said Williams. “So I’m greatly encouraged.”