Canadian Natural Resources Ltd. (CNRL) and its partner have begun probing deep water 175 kilometres off the coast of South Africa in search of crude in a zone chief executive Steve Laut said is a “very good, Big E” exploration prospect.
“That carries lots of risk but also has lots of rewards,” he said in an interview Thursday. “It has a 30-per-cent chance of success. It’s very much a high-impact exploration well.”
A unit of French energy giant Total SA last year paid Calgary-based Canadian Natural $250-million (U.S.) for a 50-per-cent working interest in exploration block 11B/12B in the region’s Outeniqua Basin. The tract covers roughly 19,000 square kilometres off South Africa’s southern coast with water depths of between 200 to 1,800 metres. As part of the deal, Total E&P South Africa BV agreed to cover up to $150-million of gross drilling costs on the well, which the companies estimate will take 120 days to complete. Drilling began July 21. Total is the operator.
The partners are drilling in one of five subsea structures each with prospective resource of up to one billion barrels of oil, Mr. Laut said. The first well could easily be a dry hole, he said. Still, he said interest in the prospect was strong before Canadian Natural teamed up with Total last September.
“There’s many other, I would say, large, well-respected exploration companies in the world globally that were interested in this prospect. That tells you something about the ranking of it within [their] global portfolios.”
Canadian Natural, which operates assets from Alberta’s oil sands to the North Sea, has long maintained a foothold off the coast of Ivory Coast in West Africa. It pumped an average of roughly 13,000 barrels of oil a day in the three months ended June 30 from the region, down from an average of about 18,000 bpd in the year-ago period.
The joint exploration program with Total holds potential to open a new frontier for the company on the continent.
“If this first well is successful it will be a potential growth area,” Canaccord Genuity analyst Phil Skolnick said. “There’s five structures there, each a billion-barrel-type size, so it’s pretty material.”
In Alberta, Canadian Natural continues to grapple with the aftermath of bitumen leaks at its Primrose oil sands property. The company on Thursday chopped its guidance for steam-driven bitumen production for 2014 by 8 per cent, pushing overall production guidance down 1.2 per cent. It attributed the oil sands change to delays implementing a new steaming method at Primrose as well as mechanical issues at its Kirby South site. Fixes to steam-generation components at Kirby South will cost “less than $4-million or $5-million [Canadian],” Mr. Laut said.
The Alberta Energy Regulator last month fingered the company’s method of injecting super-hot bursts of steam at high pressures in closely spaced wells as a “fundamental cause” of the long-running bitumen surface leaks at Primrose. Mr. Laut on Thursday reiterated the company’s view that leaks resulted from a “mechanical failure” of old well bores in the region.
As part of mitigation efforts, he said Canadian Natural last week applied to start steam-flooding the troubled oil sands zone, a method of production the company said would reduce the likelihood of future leaks because it operates at lower pressures.
In the second quarter, Canadian Natural posted a net profit of $1.07-billion, or 98 cents per share, up from a profit of $476-million a year earlier, or 44 cents a share. Overall production averaged 817,471 oil-equivalent barrels per day, up 31 per cent from 623,315 in the year-ago period. Cash flow from operations, an indication of the company’s ability to fund development, soared to $2.6-billion, from $1.6-billion in 2013.