Tickers in this Article: CNQ, CVX, MRO, RDS, DVN
Canadian Natural Resources (NYSE:CNQ) has long-term plans for a major expansion of the productive capacity of its oil sands project in Canada. The company anticipates significant free cash flow from this project after the expansions are completed.

TUTORIAL: The Industry Handbook: The Oil Services Industry

Canadian Natural Resources operates the Horizon oil sands project in Alberta. The company estimates that the properties hold 14.3 billion barrels of bitumen initially in place, and proved and probable gross reserves of 2.9 billion barrels of synthetic crude oil.

In 2010, Canadian Natural Resources reported average daily production of about 91,000 barrels per day from the Horizon project, and spent $449 million in capital for maintenance and expansions. (For related reading on oil, see Peak Oil: What To Do When The Wells Run Dry.)

Horizon Fire
In January 2011, the Horizon oil sands project was seriously damaged by a fire that started in the coker unit. Canadian Natural Resources estimates that repairing the damage at the project will cost between $350 million and $450 million. The company believes that it can restart operations in the third quarter of 2011 and that production here will average between 43,000 and 55,000 barrels per day in 2011.

Canadian Natural Resources has various expansions planned that will increase productive capacity from the Horizon oil sands project to 500,000 barrels per day.

These expansions are already underway and the company estimates that it will spend between $715 million and $820 million in 2011 on various components of the project. This figure includes maintenance capital of $275 million during the year.

The first series of expansions will increase capacity from 110,000 barrels per day to between 232,000 and 250,000 barrels per day at the project. Canadian Natural Resources estimates that the yearly capital requirements for the first phase will range from $2 billion to $2.5 billion annually. The final expansion at the Horizon oil sands project will add another 250,000 barrels per day of capacity.

After the substantial capital requirements of these expansions are over, Canadian Natural Resources expects to receive substantial cash flow from the Horizon project. This projection assumes that oil prices stay at the current elevated levels. (For related reading, see Peak Oil: Problems And Possibilities.)

Other Players
The oil sands deposits in Canada have attracted many operators and has many projects either producing or under construction. Devon Energy (NYSE:DVN) is involved with the Jackfish project in Alberta, which started operations in 2007. The company is currently constructing Jackfish 2 and has also applied for regulatory approval to begin work on Jackfish 3.

Royal Dutch Shell (NYSE:RDS) owns 60% of the Athabasca Oil Sands Project, which started up operations in 2003. The company is expanding capacity at this project, which is 20% owned by Chevron (NYSE:CVX) and 20% owned by Marathon Oil (NYSE:MRO).

The Bottom Line
Canadian Natural Resources plans a large expansion of the company's Horizon oil sands project in Alberta, and hopes to see significant free cash flow once the substantial capital requirements of these expansions are complete. (For related reading, see Oil: A Big Investment With Big Tax Breaks.)

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