May 9, 2019 / 10:05 AM / 16 days ago

UPDATE 2-Canadian Natural worried about changes to Enbridge pipeline system

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By Nia Williams

CALGARY, Alberta, May 9 (Reuters) - Canadian Natural Resources Ltd said on Thursday it is against proposed changes to shipping agreements on Enbridge Inc's Mainline pipeline system because it does not want to be "held hostage" to one delivery point for its crude.

The Enbridge Mainline system delivers 2.85 million barrels of crude per day from western Canada to the U.S. Midwest, an area known as Padd 2, where it connects to other pipelines stretching across North America.

Enbridge is proposing to shift away from a monthly allocation system to long-term, set-volume contracts. Reuters exclusively reported this week the pipeline company is seeking a minimum eight-year term, raising concerns among small producers that they will lose out to bigger players.

Canadian Natural, Canada's largest oil and gas producer by volume, told analysts on a quarterly earnings call it is worried about being locked into delivery in Padd 2.

"Preliminary ... we are not in favour of it," Steve Laut, Canadian Natural's executive vice chairman, said. "The issue we see is that by not having multiple exit points along the line we would be held hostage into that one area.

"We would love to have a pipeline with good access to the Gulf Coast where you have a competitive market and could sell your barrels a market price versus a discount."

Canada is the world's fourth-largest crude producer but its heavy oil trades at a discount to U.S. barrels because of congestion on export pipelines that can leave crude bottlenecked in storage tanks in Alberta.

Record discounts last year prompted the Alberta government to impose temporary production curtailments to help relieve the glut, a move Canadian Natural supports, saying it had helped normalize markets and save thousands of jobs.

The Calgary-based company reported a better-than-expected first-quarter profit, boosted by higher prices for its crude because of the curtailments.

Canadian Natural said production fell 8 percent to 1.04 million barrels of oil equivalent per day (boepd) and it realized C$53.98 per barrel of crude oil and natural gas liquids in the reported period. In the year-earlier quarter, average realized prices were C$43.06 per barrel.

Net earnings rose to C$961 million ($712.86 million), or 80 Canadian cents per share, in the first quarter ended March 31, from C$583 million, or 48 Canadian cents, a year earlier.

On an adjusted basis, the company earned 70 Canadian cents per share, beating analysts' estimates of 51 Canadian cents per share, according to IBES data from Refinitiv.

Canadian Natural shares were last down 0.9 percent on the Toronto Stock Exchange at C$37.57 ($1 = 1.3481 Canadian dollars) (Additional reporting by Debroop Roy in Bengaluru; Editing by Shounak Dasgupta and Bill Trott)

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