08/08/2013 06:07 EDT | Updated 10/08/2013 05:12 EDT

Canadian Natural Q2 profits dip, sees no long-term impact from Primrose leak

CALGARY - Canadian Natural Resources Ltd. on Thursday reported lower second-quarter profits and said it doesn't expect an ongoing bitumen spill at its Primrose oilsands project to have a long-term impact on production.

The oil and gas explorer posted net earnings of $476 million, or 44 cents per share, compared to $753 million, or 68 cents per share a year earlier.

Stripped of one-time items, adjusted net earnings were $462 million, or 42 cents per share — coming in just a penny below what analysts had on average been expecting, according to Thomson Reuters.

Revenue dipped slightly to $3.74 billion from $3.83 billion.

Daily production averaged 623,315 barrels per day, down from 679,607 a year earlier.

An emulsion of bitumen and water has been seeping onto the Cold Lake Air Weapons Range in northeastern Alberta because of what Canadian Natural calls "mechanical failures" on old wells at its Primrose East property.

The company has been ordered to limit the amount of steam it pumps into the Primrose reservoir while the Alberta Energy Regulator investigates.

As a result, production next year is expected to be about 10,000 barrels per day lower than originally targeted.

But company president Steve Laut said he's not concerned about any longer-term impact on production at Primrose, as he's confident the company can either repair problematic wellbores or adjust its steaming strategy to work around them.

Having a small amount of stranded resource at Primrose would be the "very worst case," Laut told a conference call with analysts.

"But the most likely case is when we go by these wellbores, we adjust the steaming strategy. We'll get the reserves, but it may take longer to get the reserves out versus the existing optimized strategy."

Last week, Canadian Natural said almost a million litres of bitumen had leaked into the bush and muskeg at Primrose. The damage is now contained to a 13.5-hectare area and a "substantial" amount of oil has been recovered.

Bitumen is still oozing to the surface, but at "ever-declining" rates, said Laut.

The company estimates less than 20 barrels — nearly 3,200 litres — is currently seeping from four locations per day.

"The seepage is contained and collected on a regular basis," said Laut. "There is effectively little to no additional environmental damage to manage the ever declining seepage going forward in this manner."

To extract bitumen at Primrose, Canadian Natural uses a method called high pressure cyclic steam stimulation, sometimes described as "huff and puff.'' It involves injecting steam into a reservoir through a well, letting it soak for a while and then drawing the softened bitumen to the surface through the same well.

The extraction method, which companies have used for decades, involves fracturing the rock to let the steam through, but not so much that it allows bitumen to flow to the surface.

An investigation by Alberta's energy watchdog into a similar 2009 leak at Primrose said a potential cause could have been "geologic weaknesses in combination stresses induced by high-pressure steam injection."

But Canadian Natural has said it's unlikely damaged caprock was behind that spill and more recent one.

"Canadian Natural is confident the cause of the bitumen emulsion seepage is due to wellbore mechanical failures in the vicinity of impacted locations and we have a pretty good idea of the likely wellbores," said Laut

So far, 27 birds, 23 small animals and 77 amphibians have died as a result of the bitumen leak.

"We're responsible for this incident and we are very sorry that this incident has happened," said Laut.

Canadian Natural, one of Canada's biggest energy companies, has several heavy oil operations throughout western Canada and operates the massive Horizon oilsands mine north of Fort McMurray, Alta.

It has vast natural gas holdings in western Canada and will launch a formal process later this month to sell some of its holdings in the Montney region of northwestern Alberta and northeastern B.C., or find a partner to help develop them.

Canadian Natural also has offshore platforms in the North Sea and West Africa.

Drilling at its Espoir project in Cote D'Ivoire has been delayed because of safety issues at a platform supplied by a major global contractor that Laut declined to identify.

"We have certain standards here and safety wasn't where it was and performance wasn't there, so we released the rig and we'll look for another rig to do the work," he said.