CALGARY (CP) -- Canadian Natural Resources Ltd. [NYSE:CNQ; TSX:CNQ] plans to drill as much as 50% fewer natural gas wells next year because of Alberta's planned royalty increases, which were announced last week and go into effect in early 2009.
''The new royalty program will have a negative impact on our development plans in 2008 and onward, the extent of which we are still attempting to fully define. As a result we will continue to adjust our activity to ensure that we are optimizing our plan,'' CNQ chairman Allan Markin said in a conference call Thursday.
''One of our greatest strengths is our flexibility and, in the light of the pending changes to the royalties, this flexibility and breadth of options has become even more important to maintain our focus on maximizing returns to our shareholders.''
The Calgary-based company also reported that third-quarter profit fell to C$700 million from a year-earlier C$1.1 billion, hurt by lower natural gas prices and a high Canadian dollar.
At the beginning of the year, the Canadian dollar was trading around 85.5 cents U.S. and by the end of September, the loonie was about on par with the greenback. On a cash-flow basis, the company said that amounted to a difference of C$600 million and cut about 50 cents a share from earnings.
Because of the Alberta royalty hikes, planned to begin in 2009, ''in the current pricing and cost environment, the biggest reduction in the company's Alberta activity will be experienced in the conventional natural gas business,'' the firm said in a release.
''The number of natural gas wells to be drilled in Alberta by the company in 2008 and years beyond will be approximately 30% to 50% less than the number of such wells that would have otherwise been drilled in the absence of such royalty changes.''
Soft natural gas markets have also been hampering Canadian Natural's production.
''North American natural gas production, as expected, declined in the quarter and will continue to decline for the remainder of the year, reflecting our reduced capital spending in 2007 due to the lower returns currently being generated in the natural gas part of the business,'' Steve Laut, the company's president and chief operating officer, said in a release.
Light oil drilling will be down 50% from what it would have been if not for the royalty changes, Laut told investors in a conference call.
''Regardless of the uncertainty caused by this revised royalty program, we are certain on the strength of our asset base,'' he said.
Alberta Premier Ed Stelmach announced last week that royalty increases should bring in an extra C$1.4 billion a year, short of the C$2 billion recommended by a government panel.
Canadian Natural's earnings for the quarter ended 30 September amounted to C$1.30 a share and compared with C$2.08 per share a year ago, the firm reported. Analysts' consensus forecast was for earnings of C$1.02 per share, before one-time items, according to Thomson Financial.
Cash flow from operations rose to C$1.58 billion from C$1.3 billion.
''Warmer weather has dictated the soft market for natural gas, along with increasing liquefied natural gas imports to the United States,'' Vice Chairman John Langille said in a release.
''Given that crude oil and natural gas realized prices are tied to U.S. reference prices, the strengthening of the Canadian dollar relative to the U.S. dollar has also had a negative impact on industry cash flows, lessening the impact of higher WTI (West Texas Intermediate crude oil) pricing.''
The average currency exchange rate in the third quarter was 95.65 cents U.S. per Canadian dollar, compared with 89.19 cents U.S. a year earlier.
Markin said that with the Horizon oilsands project 84% complete, ''we remain on track for targeted first oil in the third quarter of 2008 and maintain our focus on execution.''
Canadian Natural announced Wednesday that the cost of its Horizon project would go over the budgeted C$6.8 billion cost by eight to 14% - about $1 billion more than expected.
''We are disappointed that we're over,'' Laut said.
''We face many challenges, not unlike the challenges we've faced already and overcome. It will not get any easier from this point on. However, we're very confident we will continue to be successful in overcoming these impairments as we move forward.''
An analyst from Desjardins said Canadian Natural Resources' production figures came in lower than expected, but earnings were slightly higher than anticipated because of lower-than-expected taxes.
Canadian Natural shares were down 1.65% to C$77.26 on the Toronto Stock Exchange in early afternoon trading.
(c) The Canadian Press 2007