Canadian Natural Resources aiming to boost Horizon oilsands output by 76%

Canadian Natural Resources Ltd. says it believes the output of its Horizon oilsands mine could be increased by 195,000 barrels per day of synthetic crude oil, a 76 per cent hike from the mine's current capacity of approximately 255,000 barrels per day.

The company, which is Canada's largest oil and gas producer by market capitalization, said the potential increase is a "long-term" opportunity that would depend on a number of conditions, including government support for carbon capture and storage as well as pipeline capacity.

"Our team has been working on expansion opportunities.… What's key to all of it is two front," said CNRL president Scott Stauth, on a conference call with analysts on Thursday.

"One is we need to ensure that we have a carbon policy in place.... That fiscal policy is absolutely key for us to be able to move any additional expansion volumes forward. And also what's important in terms of that would be securing and working on enhancing egress capacity as well out of the basin."

CNRL made the announcement the same day the company reported its first-quarter profit fell compared with a year ago as it realized lower prices for synthetic crude oil and natural gas.

The company reported it earned $987 million or 91 cents per diluted share for the quarter ended March 31, down from a profit of $1.80 billion or $1.62 per diluted share a year earlier.

But CNRL, which remains the darling among energy investors and analysts for its history of strong financial results, also said its latest quarter was the first since achieving its net debt target. The company is now returning 100 per cent of its free cash flow to shareholders.

"CNQ remains our favourite producer," RBC Capital Markets analyst Greg Pardy wrote in a note to clients Thursday.

Stauth said the company had previously talked about a potential 75,000 barrel per day expansion over the long-term at its Horizon mine north of Fort McMurray, Alta.

But he said CNRL now believes greater gains can be achieved through both its in-pit extraction process project — which aims to replace the traditional bitumen extraction process by processing the bitumen right at the mine face — and its paraffinic froth treatment system, which makes use of hydrocarbon solvents to reduce the amount of energy required to separate bitumen from surrounding sand and water.

Trans-Mountain pipeline expansion

CNRL's expansion plans were announced one day after the commercial start-up of the Trans Mountain pipeline expansion, on which the company has contracted shipping volumes of 94,000 barrels per day.

The long-awaited pipeline expansion has enabled rising oil production not just from CNRL, but from many Canadian oil producers.

Canada Energy Regulator data shows that in March, Alberta's oil production was four million barrels per day, up 4.8 per cent from the same month last year. For the first three months of 2024, the province's oil output hit a first-quarter record of 3.9 million barrels per day.

Alberta Premier Danielle Smith has said she wants to double the province's oil output long-term, but that goal has a number of question marks hanging over it.

Analysts have said the Trans Mountain pipeline expansion will likely be at capacity just a handful of years after opening, which will make egress capacity a barrier to oil company production growth in the future.

In addition, companies are under pressure from both government and investors to significantly reduce their greenhouse gas emissions.

CNRL is a member of the Pathways Alliance, a consortium of oilsands companies that are proposing to build a $16.5-billion carbon capture and storage network in northern Alberta, but Stauth said the group still needs more certainty around future carbon pricing and incentives before it can go ahead.

The federal government's promised cap on oil and gas sector emissions, which is expected to be finalized this year, could also be a limiting factor.

CNRL warned Thursday of potential negative consequences of the cap.

"The proposed oil and natural gas sector emissions cap is unnecessary, exceedingly complex and undermines the investor confidence required for large-scale, long-term emission reduction initiatives," the company said in a news release.