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CNRL applies to resume work at Primrose using different steaming technique

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CALGARY - Canadian Natural Resources Ltd. is seeking approval to resume crude extraction from the part of its Primrose East oilsands property where a bitumen-water mixture was found oozing to the surface last year.

But the Calgary-based company (TSX:CNQ) said it's planning to use a different steaming method that it says would avoid the problems that may have led to the high-profile leaks in eastern Alberta, which are still being investigated by the province's energy watchdog.

Canadian Natural filed an application to the Alberta Energy Regulator last week asking for permission to inject steam at low pressure in a technique known as steam flooding.

Previously, Canadian Natural had injected steam at high-pressure using a technology known as cyclic steam stimulation, the safety of which has been questioned by environmental groups. With that method — often described as "huff and puff" — a well alternates between injecting steam and drawing the softened bitumen to the surface.

On a conference call with analysts Thursday, Canadian Natural president Steve Laut says it's "not possible" for steam flooding to create the same conditions that led to the Primrose East leaks.

Cyclic steam would enable production to ramp up more quickly, but rates over the long term are expected to be the same if steam flooding is used instead, said Laut.

"I wouldn't see much of a drop in overall yearly average production from a steam flood at this stage versus a cyclic program at this stage," he said.

The AER has said it won't allow steaming to resume until it's convinced all the risks have been addressed.

Last month, the energy watchdog said it had a better idea of what went wrong at Primrose. It said the main issues centre around Canadian Natural's steaming strategy and on old wellbores around the site that have provided paths for fluids to flow to the surface.

Once a final report has been completed, Canadian Natural said it will apply to use cyclic steam on other parts of the Primrose East property. The section of Primrose East where the leaks took place, and where the company wants to use steam flooding, is a "unique area geologically," said Laut.

Some 1.2 million litres of the bitumen-water emulsion have been recovered and 20.7 hectares have been affected. The company said on Thursday that clean-up is complete.

Greenpeace campaigner Mike Hudema said the fact that CNRL wants to restart steaming before the investigation is complete "shows what little regard the company has for the environment."

"Not only should the Alberta Energy Regulator quickly turn down this application, it should force CNRL to stop all operations in the troubled region and begin the independent in-situ safety inquiry that dozens of First Nations, landowner and environmental groups have called for."

Production from Canadian Natural's steam-driven oil operations is expected to come in lower than previously anticipated, with the bottom end of the range lowered to 112,000 barrels per day from 120,000.

Some of that is due to the fact that it's taking longer than expected to start steam flooding at Primrose East. As well, mechanical issues at Canadian Natural's Kirby South steam plant are causing production to ramp up more slowly than planned.

Earlier Thursday, Canadian Natural said it more than doubled its second-quarter net earnings, helped by increased sales and higher prices.

The Calgary-based oil and natural gas producer reported profits of $1.07 billion, or 97 cents per share, versus $476 million, or 44 cents per share a year ago.

Adjusted profits were $1.04 per share, which beat analyst expectations by six cents a share, according to Thomson Reuters.

Company-wide production for the three months ended June 30 grew 31 per cent to 817,471 barrels of oil equivalent per day.

Realized prices for its crude oil averaged $87.03 per barrel, up nearly 16 per cent from the same period a year earlier.

Product sales rose to almost $6.11 billion from $4.23 billion.

Shares of the company closed down nearly 2.3 per cent at $44.82 on the Toronto Stock Exchange.

Follow @LaurenKrugel on Twitter

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