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The precipitous drop in oil prices since last June has been bad financial news to oil companies big and small, some suffering lower profits in the fourth quarter of 2014 and others doing worse with losses. All have responded with various remedies ranging from cuts in dividends to lower spending to layoffs.
Then there's Canadian Natural Resources Ltd., Canada’s largest producer of heavy crude oil. It nearly tripled its profit in the fourth quarter to C$1.2 billion (US $965 million) over the C$413 million during the same period in 2013. As a result, Canadian Natural was able to increase dividend payments to investors by a half-penny to C23 cents per share.
Canadian Natural’s secret for success isn’t really a secret. It simply pumped more oil equivalent, producing an average of 860,920 barrels of equivalent a day during the fourth quarter of 2014, up from 677,242 barrels in the same period the year before.
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And Canadian Natural’s management agreed to 10 percent pay cuts and reduce its annual cash retainer by 10 percent. But amid these cuts, Canadian Natural isn’t punishing its lower-level employees.
“We’re not going to reduce salaries for the rest of the staff, just the senior leadership,” CNRL president Steve Laut told the Financial Post, and it won’t be laying off staff to keep costs low. “We don’t believe we’re overstaffed, so we’ll stick with the team we have,” he said.
The company simultaneously cut spending as it watched oil continue to drop during the second half of 2014. As recently as January it said it would cut its 2015 budget by fully 28 percent, and that it would cut an additional C$150 million by postponing for a year some maintenance operations that originally had been scheduled for 2015.
This tactic actually could benefit operations. By putting off maintenance, Canadian Natural said, the downtime at its Horizon oil-sands project will be reduced to only six days from 36 days and increase the production of oil equivalent in Alberta by 10,000 barrels per day.
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In a statement March 5 announcing its fourth-quarter performance, Canadian Natural said, “[W]e have been able to adapt quickly to the changing [oil pricing] conditions through our nimble, flexible capital allocation. With a disciplined business approach and a focus on operating and capital costs, our proven strategy allows us to withstand the current commodity price challenges 2015 is bringing.”
Canadian Natural’s Chief Financial Officer, Corey Bieber, added that the company’s flexibility helped maintain “a strong balance sheet and liquidity position. As a result … the quarterly cash dividend on common shares has once again been increased to [C] $0.23 per share, the 15th straight year of increases.”
Stewart Glickman, group head for energy at S&P Capital IQ, told the Financial Post that the price of Canadian Natural stock “is already trading at a premium to its historical averages,” and that he was maintaining a “hold” rating on it. He said the company’s fiscal discipline would maintain a positive cash flow in 2015, while its North American competitors struggle for cash.
By Andy Tully of Oilprice.com
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Andy Tully is a veteran news reporter who is now the news editor for Oilprice.com