Canadian Natural Resources Ltd. intends to process bitumen from its northern Alberta oil sands operations close to home instead of sending the gooey crude south of the border to be upgraded - something many of the company's peers are planning to do.
The price difference between the molasses-thick crude drawn from the oil sands and the lighter, easier-to-refine light variety has traditionally been between 30 and 40 per cent. However, it has since narrowed to around 10 to 15 per cent.
"We don't see that as sustainable," Canadian Natural chief operating officer Steve Laut told analysts on a conference call Thursday, after the company reported sharply lower fourth-quarter profits but higher revenues and raised its dividend substantially.
Mr. Laut added he sees the spread between light and heavy crudes widening to between 22 to 24 per cent in the longer term as refiners struggle with tight margins.
U.S. refiners have been thirsty for heavy and sour crudes as volumes from Mexico and Venezuela decline. Canadian pipeline firms have responded to building new conduits to ship oilsands crude to those markets.
Companies such as Imperial Oil Ltd., Suncor Energy Inc. and Canadian Oil Sands Trust, the lead partner in the Syncrude Canada Ltd. project, are forgoing plans to build costly upgraders in favour of sending their raw bitumen to U.S. hubs.
But Mr. Laut said building an upgrader for the next phase of its Horizon oil sands project makes sense, even if it is difficult and costly to do so.
"It's a volatile market and it does make sense to have some sort of natural hedge by having upgrading capacity," he said.
Having an upgrader close by can also lead to energy cost savings. Oil sands producers need huge amounts of natural gas to create heat and electricity, so anything that can reduce that major overhead cost is a benefit, Mr. Laut said.
"The upgrader actually generates waste heat. We're able to capture that waste heat from an upgrader and use it in the front-end of the extraction process. If you don't have them together, you aren't able to capture that waste heat," he said in an interview.
Canadian Natural also has plans to capture carbon dioxide emissions from a hydrogen plant on-site and inject the gas into tailings ponds, which contain toxic sludge left over from the extraction process.
The CO2 injection would cause the solids in the tailings to separate more quickly from the water than would otherwise be the case. So in addition to sequestering the greenhouse gases, the company would be able to recycle more water back into the plant, thereby reducing the need to draw from the Athabasca River.
"It shows you how much technology can be a game-changer," Mr. Laut said in the interview.
The move would also lead to smaller tailings ponds - an element of the oil sands industry that has garnered negative attention.
More than 1,600 birds died after landing on a tailings pond the size of 640 football fields at Syncrude's site nearly two years ago. Syncrude is currently on trial on federal and Alberta environmental charges for the incident.
Earlier Thursday, the Calgary-based company said it decided to raise its quarterly dividend by 43 per cent to 15 cents per common share.
Canadian Natural's board of directors will ask shareholders to approve splitting its common shares on a two-for-one basis at the firm's annual meeting in May.
Canadian Natural said its operations generated $1.7-billion in cash during the fourth quarter, up from $1.57-billion in the same 2008 period.
Canadian Natural's fourth-quarter revenue rose to $3.3-billion from $2.5-billion a year earlier.
However, the company's fourth-quarter net income fell to $455-million, or 85 cents per share, down from $1.77-billion, or $3.27 per share, a year before.
The big drop in net income was due to the impact of the company's risk-management or hedging contracts, fluctuations in foreign exchange rates and stock-based compensation.
Canadian Natural said it believes the higher cash flow it achieved in the fourth quarter is a better measure of its financial health and supports a higher dividend.
|CNQ-T Canadian Natural Resources||41.04||
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|SU-T Suncor Energy||36.65||
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|IMO-T Imperial Oil||50.71||
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