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at the bell

A Canadian Natural Resources pump jack in AlbertaTODD KOROL

Canada's oil and gas producers have delivered a mixed bag of quarterly results this season, tripped up by operational issues, pricing discrepancies and even miscalculated reserve estimates.

On Thursday, Canadian Natural Resources Ltd. will likely report strong growth in output, revenue, profit and cash flow for the fourth quarter. But investors will be listening keenly for more details on the unplanned shutdown of the Calgary-based company's Horizon oil sands plant, and hoping for further clarity about rising development costs, the growing oil glut in the West and the outlook for natural gas.

Three weeks ago, the country's biggest independent oil explorer said it had shut down its Horizon facility in Northern Alberta until the end of March for repairs. The temporary closure will result in an 11 per cent cut in this year's production at Horizon, CNRL said.

Analysts reacted by trimming their price targets and earnings estimates, while investors sent the stock price down about 4 per cent.

Phil Skolnick, an analyst with Canaccord Genuity Corp., calculates that the shutdown will translate into a 1.7 per cent reduction to the company's production guidance and reduce cash flow by $220-million this year.

On their own, those figures aren't too disturbing. But the Street wants to know more details about what went wrong at the facility and what repairs will cost.

"There is a lack of clarity ... on what the actual issue is," Mr. Skolnick wrote in a report. "Consequently, we believe the market will start to place a higher risk factor on Horizon and start questioning the reliability of the project."

Nervous investors will also want CNRL officials to give an update on how they are handling rising costs in the oil sands, where prices for everything from steel to labour are on the rise. Oil sands projects already have some of the highest costs per barrel in the world – an issue that becomes especially important in light of the discount Canadian oil is carrying these days relative to benchmarks in the U.S. and overseas.

The price discrepancy comes as the U.S. boosts oil output, from Louisiana to North Dakota, and as unexpected refinery outages and pipeline bottlenecks restrict the ability of Canadian producers to get their oil to refining hubs in the U.S.

Last month, Cenovus Energy Inc. shipped oil to a Chinese customer for the first time, bypassing North American infrastructure problems and getting a higher price for the crude than it would have locally. But few believe that making relatively small shipments overseas will solve the current pricing problem.

"With the Canadian producers relatively more exposed not only to North American heavy oil, but also to North American natural gas, we believe investors will look for management comments on the flexibility of capital spending in 2012 in the event of sustained weakness in inland North American crude oil pricing," Katherine Minyard, an analyst with JPMorgan Chase & Co., wrote in a research note.

During the quarter, CNRL president Steve Laut said the company expects to raise its energy output by 17 per cent this year and spend $7-billion to boost capacity, including drilling new wells in the North Sea and off Ivory Coast. That is part of a larger plan to double oil production to one million barrels a day in the next decade.

There are no plans, however, to raise natural gas production any time soon given low prices for the commodity, which Mr. Laut said he expects will remain an issue for the next five to 10 years.

CNRL is the second largest producer of natural gas in Western Canada and the largest heavy oil producer. Greg Pardy, of RBC Dominion Securities Inc., forecasts that crude oil will account for 69 per cent of the company's production this year, up from 65 per cent in 2011. He also estimates that Canadian oil will trade at an average 1.3 per cent discount to U.S. oil this year, increasing to a 6 per cent gap next year.