By Nia Williams and Arunima Kumar

(Reuters) -Canadian Natural Resources reported better-than-expected third-quarter profits on Thursday due to robust oil sands production but the country's largest oil and gas producer is to reduce natural gas drilling as a result of weak prices.

Western Canadian natural gas prices slumped to their lowest in more than two years in the July-September quarter as storage levels in Alberta reached full capacity, prompting a number of producers to shut in production.

In August, Canadian Natural said it would delay completing some new wells due to weak market conditions, and on Thursday said it plans to drill a net total of 74 wells in 2024, 17 fewer than its original target.

The Calgary-based company maintained its 2024 natural gas output forecast of 2.12-2.23 billion cubic feet per day (bcf/d), despite a 4.7% drop in third quarter production to 2.05 bcf/d. That contributed to a 2% drop in Canadian Natural's overall production to 1.36 million barrels of oil equivalent per day (boepd).

But oil sands synthetic crude output rose slightly year-on-year to 497,656 barrels per day (bpd), helped by a new monthly production record of 529,000 bpd set in August.

Canadian Natural increased its contracted capacity on the expanded Trans Mountain pipeline (TMX) to 169,000 bpd during the quarter, after PetroChina said it would end its role as a committed shipper.

Company president Scott Stauth said the terms of the contract were very similar to Canadian Natural's original TMX contract for 94,000 bpd.

"That's why it was a good fit for us, but probably more importantly securing those barrels has achieved stronger pricing either through deliveries to the West Coast and California or further Asian markets," Stauth said on an earnings call.

During the quarter the company also announced a $6.5 billion deal to buy Chevron Corp's Canadian assets, including a share in the Athabasca oil sands projects and Duvernay light oil assets.

Global oil prices dropped during the quarter, hurt by sluggish demand from top importer China and oversupply concerns.

Canadian Natural posted net income of C$2.27 billion ($1.63 billion), or C$1.06 per share, for the three months ended Sept. 30, compared with C$2.34 billion, or C$1.06 per share, a year earlier.

Net earnings from operations were 97 Canadian cents per share for the third quarter, higher than analysts' average estimate of 90 Canadian cents per share, according to data compiled by LSEG.

(Reporting by Arunima Kumar in Bengaluru and Nia Williams in British Columbia; Editing by Eileen Soreng, Savio D'Souza and Jane Merriman)