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Facilities at Canadian Natural Resources’s Primrose Lake oil sands project is seen near Cold Lake, Alta., in 2013.

Dan Riedlhuber/Reuters

Canadian Natural Resources Ltd. halted expansion plans at a major oil sands project and slashed $2.4-billion from its 2015 budget to cope with plunging crude prices.

CNRL, one of Canada's biggest energy companies, cut its 2015 budget to $6.2-billion from its original projection of $8.6-billion. The spending cutback affects conventional oil operations as well as the company's Kirby North oil sands expansion project, where CNRL said it plans to spend just $105-million on the first phase this year, down 82 per cent from its original estimate of $575-million.

The decision to stall an oil sands project just two years away from producing crude demonstrates how even the healthiest energy companies must bend with the dramatic drop in oil over the past seven months. A growing number of Alberta companies have pulled back spending plans in the oil sands – decisions that will mean job losses, reduced revenue for Canada's provincial and federal coffers and less business for energy-related industries.

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Corey Bieber, CNRL's chief financial officer, said the firm does not know when expansion plans at Kirby North might be reignited. Spending decisions, he said, will be based not on the price of oil but on CNRL's ability to meet its target return on investment of 15 per cent.

For years, Alberta energy companies faced soaring costs for materials, equipment and labour for big projects. Now, with oil prices plunging, Mr. Bieber said he hopes supply-chain economics will shift in favour of producers.

"It is going to take us a little while for us to get our costs back in line for the new reality," Mr. Bieber said in an interview Monday.

Over the past 10 years, "costs throughout the business have increased significantly. And if we're headed back to a $50 or $60 world, it takes a little while for contractors, and effectively the whole infrastructure, to accommodate that lower price structure."

In total, CNRL cut spending on its oil sands in-situ projects – including its Kirby plans – to $460-million from $1.135-billion, a 59-per-cent drop.

"With the lower commodity price, we have to make sure our balance sheet remains strong," Mr. Bieber said. "We're ensuring we're only doing the most economic projects."

Oil closed at $46.07 (U.S.) a barrel Monday. The price has more than halved since June.

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Cenovus Energy Inc. has slowed spending on some of its undeveloped oil sands properties, such as its Narrows Lake, Telephone Lake and Grand Rapids projects. In December, Baytex Energy Corp. and MEG Energy Corp. trimmed their previously announced 2015 budgets. The pair run oil sands and heavy oil projects. Before the worst of oil's drop, Norway's Statoil ASA in September shelved its Corner oil sands project – another undeveloped effort. France's Total SA did the same with its $11-billion Joslyn mine last year.

CNRL, however, remains committed to expanding its Horizon oil sands mine. The company now plans to spend $3.025-billion there in 2015, down 10 per cent from its initial plan of $3.36-billion.

CNRL's revised budget was not a complete surprise. When it released its original budget for 2015, CNRL said it could quickly cut $2-billion if necessary. However, CNRL's new budget is $2.4-billion smaller than its original plan.

"This budget is far better suited to the current environment with respect to balancing cash flow generation and spending," Menno Hulshof, an analyst at Toronto-Dominion Bank, said in a note.

The Canadian energy company, which has operations around the world, expects to produce between 840,000 and 887,000 barrels of oil equivalent a day in 2015. It previously projected production between 869,000 and 916,000 barrels of oil equivalent a day.

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