By: Lauren Krugel, THE CANADIAN PRESS

CALGARY - Canadian Natural Resources Ltd. (TSX:CNQ) says it will take a prudent approach to future spending, even as soaring commodity prices led to a sharp increase in its first-quarter profits.

While US$120 for a barrel of oil seems may seem high, Canadian Natural's chief operating officer noted that crude was worth US$65 only a year ago.

"It can go down just as fast as it went up," Steve Laut told reporters after the company's annual general meeting.

Even though oilsands developments, like Canadian Natural's massive Horizon project, are expected to rake in huge profits, they have also been subject to big cost pressures.

"The economics on these projects are strong, but they're not that strong to withstand a lot of extra costs," Laut said.

"The returns on these projects are not like windfall returns, so if we continue to keep taxing, keep adding more and more burdens onto oilsands, we are at risk of slowing down the whole development and that's not a good thing. We have to be measured in our approach."

The major oil and gas producer company said Thursday it earned $727 million or $1.35 a share for the three months ended March 31.

That was up from $269 million or 50 cents a share for the same 2007 period, when the company booked a $352 million after-tax expense, which squeezed its bottom line.

First quarter revenues, before royalties, soared to just under $4 billion from $3.1 billion last year.

Vice-chairman John Langille said in a statement that higher natural gas prices "also added to the company's bottom line as a cold, late winter resulted in a draw on natural gas inventories."

But Laut said at the shareholder meeting that Alberta's new royalty regime will have a negative effect on natural gas drilling in the province, even with recently-announced measures to ease some of its unintended consequences.

"I think the Alberta government got the balance right on heavy oil and mining. Obviously we're paying higher royalties, but it still allows projects to grow forward," he said.

"On the natural gas business, that's a different story. They have increased the royalties to the extent that it makes it very difficult to proceed forward."

Natural gas prices need to be higher than $12 per thousand cubic feet in order to give companies the incentive to drill more wells. Natural gas traded at $11.25 on the New York Mercantile Exchange on Thursday.

"Over time the Alberta government will see the impact of that. We've seen it already in land sales. The Alberta government's not getting much money on land sales compared to B.C. and Saskatchewan today. So that's a leading indicator of what the royalty system has done to gas," Laut said.

Instead, Canadian Natural will turn more of its attention to a huge shale gas resource in northeastern B.C. that many other majors have bought a stake in recently.

Canadian Natural's Horizon oilsands project near Fort McMurray, Alta., is 94 per cent complete and is set to begin production in the third quarter of this year.

"Our mining guys say 'tell us when and we'll start mining ore and dropping it in. We're ready to mine today,"' Laut said.

In February, Canadian Natural said its final costs could come in as much as $1.9 billion over the original $6.8-billion estimate, bringing the total to about $8.7 billion.

But the revised estimate is not expected to expand further, Laut said.

Another challenge for many oilsands producers has been how to curb the impact of their projects on the environment.

That issue has been in the spotlight a lot recently, with the deaths of 500 ducks in a toxic tailings pond at Syncrude's nearby oilsands mine. Cannons that scare away the birds were apparently not working.

Canadian Natural is looking for a "fail-safe" way to keep local wildlife away from its own tailings ponds, Laut said.

"Ducks are not as dumb as people think. You have the cannons and after a while they get used to the cannons and they realize it's not a big deal. So have to be more innovative," he said.

One example could be to use radar sensors that pick up movement from any birds that fly near the pond. That way the cannons would only go off when the ducks approach.

Instead of cannons, the company could also broadcast sounds that mimic predator calls to scare away the ducks.

The company's earnings release came after the close of stock trading Thursday. Earlier, the oil giant's shares rose $4.19 to close at $96, a gain of 4.6 per cent in trading of more than 1.9 million shares on the TSX.