CALGARY, ALBERTA–(Marketwired – Nov. 6, 2014) – Commenting on third quarter results, Steve Laut, President of Canadian Natural (TSX:CNQ)(NYSE:CNQ), stated, “Canadian Natural continued the effective execution of our proven strategy. Our strong, well-balanced asset base generates free cash flow to fund our transition to longer life, low decline assets. Quarterly production increased by approximately 94,000 barrels of oil equivalent per day over third quarter 2013 levels, representing a 13% increase to approximately 797,000 barrels of oil equivalent per day, generating strong quarterly cash flow of $2.44 billion.
Canadian Natural’s transition to longer life, low decline assets remains on track. The Horizon coker expansion tie-in was completed in the third quarter of 2014, ahead of the original 2015 schedule, increasing Horizon production capacity by 12,000 barrels per day. Horizon production averaged approximately 123,100 barrels per day in October 2014, reflecting the effective startup of the expanded facility. Expansion activities remain on track and on budget, with Phase 2B targeted to add 45,000 barrels per day of production capacity in late 2016, and Phase 3 targeted to add another 80,000 barrels per day of production capacity in late 2017.
At Pelican Lake our leading edge polymer flood achieved another quarterly record, with production of approximately 51,900 barrels per day of heavy crude oil, reflecting the continued excellent reservoir performance. At Kirby South, our latest thermal in situ project, reservoir performance has been as expected. With the steam generator issues behind us, production is targeted to ramp up to 40,000 barrels per day in line with original projections of reservoir performance.
Our balanced and diverse asset base combined with the effectiveness of our teams enables us to remain nimble and flexible. The integration of acquisitions continues to progress smoothly, and approximately $70 million in cost efficiencies will be realized in 2014 due to synergies achieved.
As always, we remain focused on effective and efficient operations and optimizing our capital allocation to maximize value for shareholders.”
Canadian Natural’s Chief Financial Officer, Corey Bieber, continued, “We are in an enviable position with our diverse asset base supported by a strong balance sheet. Our liquidity and credit remain robust with current available liquidity of approximately $2.4 billion through our committed banking facilities. Our capital programs are flexible, allowing us to proactively respond to market conditions and enabling us to allocate capital to those projects which generate the highest returns.”
QUARTERLY HIGHLIGHTS
Three Months Ended Nine Months Ended
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($ Millions, except per Sep 30 Jun 30 Sep 30 Sep 30 Sep 30
common share amounts) 2014 2014 2013 2014 2013
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Net earnings $ 1,039 $ 1,070 $ 1,168 $ 2,731 $ 1,857
Per common share - basic $ 0.95 $ 0.98 $ 1.07 $ 2.50 $ 1.70
- diluted $ 0.94 $ 0.97 $ 1.07 $ 2.49 $ 1.70
Adjusted net earnings from
operations (1) $ 984 $ 1,150 $ 1,009 $ 3,055 $ 1,872
Per common share - basic $ 0.90 $ 1.05 $ 0.93 $ 2.80 $ 1.72
- diluted $ 0.89 $ 1.04 $ 0.93 $ 2.78 $ 1.72
Cash flow from operations (2) $ 2,440 $ 2,633 $ 2,454 $ 7,219 $ 5,695
Per common share - basic $ 2.23 $ 2.41 $ 2.26 $ 6.61 $ 5.23
- diluted $ 2.21 $ 2.39 $ 2.26 $ 6.57 $ 5.22
Capital expenditures, net of
dispositions $ 2,175 $ 5,456 $ 1,655 $ 9,524 $ 5,183
Daily production, before
royalties
Natural gas (MMcf/d) 1,674 1,634 1,163 1,497 1,145
Crude oil and NGLs (bbl/d) 518,007 545,169 509,182 517,428 478,308
Equivalent production
(BOE/d) (3) 796,931 817,471 702,938 766,871 669,170
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(1) Adjusted net earnings from operations is a non-GAAP measure that the Company utilizes to evaluate its performance. The derivation of this measure is discussed in the Management’s Discussion and Analysis (“MD&A”).
(2) Cash flow from operations is a non-GAAP measure that the Company considers key as it demonstrates the Company’s ability to fund capital reinvestment and debt repayment. The derivation of this measure is discussed in the MD&A.
(3) A barrel of oil equivalent (“BOE”) is derived by converting six thousand cubic feet (“Mcf”) of natural gas to one barrel (“bbl”) of crude oil (6 Mcf:1 bbl). This conversion may be misleading, particularly if used in isolation, since the 6 Mcf:1 bbl ratio is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. In comparing the value ratio using current crude oil prices relative to natural gas prices, the 6 Mcf:1 bbl conversion ratio may be misleading as an indication of value.
– Canadian Natural generated cash flow from operations of approximately $2.44 billion in Q3/14 compared to approximately $2.45 billion in Q3/13 and $2.63 billion in Q2/14. The reduction in cash flow from Q2/14 levels reflects lower synthetic crude oil (“SCO”) sales volumes at Horizon Oil Sands (“Horizon”) operations as a result of the planned turnaround for the coker tie-in, as well as lower benchmark pricing, partially offset by higher sales in the North America Exploration and Production segment.
– Adjusted net earnings from operations for Q3/14 were $984 million, compared to adjusted net earnings of $1,009 million in Q3/13 and $1,150 million Q2/14. Changes in adjusted net earnings reflect the changes in cash flow.
– Total production for Q3/14 increased approximately 94,000 BOE/d, or 13%, to 796,931 BOE/d from Q3/13 levels of 702,938 BOE/d and decreased 3% from Q2/14 levels of 817,471 BOE/d. The increase from Q3/13 levels is as a result of strong production in all areas, as well as acquisitions made in 2014. The decrease in production from Q2/14 levels was largely due to the planned 25 day turnaround required at Horizon for the coker tie-in.
– During Q3/14 Horizon continued to achieve strong and reliable operating performance and successfully completed the coker tie-in, originally scheduled for 2015. Horizon achieved quarterly SCO production of approximately 82,000 bbl/d, reflecting the 25 day planned turnaround. Horizon achieved an effective ramp up of production after the coker tie-in, with strong October 2014 production of approximately 123,100 bbl/d, representing a 94% plant utilization rate. Production levels are targeted to average approximately 127,000 bbl/d for the remainder of the year, at the high end of the expected plant utilization rate of 94 – 96%.
– North America light crude oil and NGLs achieved quarterly production of approximately 93,500 bbl/d in Q3/14. Production increased 33% from Q3/13 levels, and is comparable to Q2/14 levels, largely as a result of the successful integration of light crude oil and NGLs production volumes acquired in 2014, as well as a successful drilling program.
– In Q3/14, primary heavy crude oil operations achieved record quarterly production of approximately 143,400 bbl/d. Primary heavy crude oil production increased 2% from Q3/13 levels and achieved a slight increase from Q2/14 levels. The strong performance from Canadian Natural’s primary heavy crude oil assets is largely due to the Company’s large undeveloped land base.
– In Q3/14, Pelican Lake operations achieved record quarterly heavy crude oil production volumes of approximately 51,900 bbl/d, a 14% increase from Q3/13 volumes and a 5% increase from Q2/14 volumes. This is the seventh consecutive quarter of production increases, which reflects Canadian Natural’s continued success in developing, implementing and optimizing leading edge polymer flood technology at Pelican Lake.
– Q3/14 thermal in situ production volumes were approximately 115,300 bbl/d, within the Company’s previously issued guidance of 110,000 bbl/d to 120,000 bbl/d.
— At Kirby South, Q3/14 production averaged approximately 18,100 bbl/d, reflecting the impact of the previously announced mechanical issues at the steam generating facility. Canadian Natural has remedied these issues and the production ramp up has resumed. October 2014 production averaged approximately 22,000 bbl/d, and current production is averaging approximately 25,000 bbl/d, reflecting the strong performance of the reservoir.
— To date, the Kirby North Phase 1 (“Kirby North”) project has received all regulatory permits. Targeted project capital for Kirby North is $1.45 billion, or approximately $36,000 per flowing barrel at a project capacity of 40,000 bbl/d. The overall project is 33% complete and in Q3/14 site construction commenced on the Central Processing Facility. First steam-in is targeted for Q4/16.
— Canadian Natural’s stepwise plan to return to steaming operations at Primrose with enhanced mitigation strategies in place has progressed:
— In September 2014, Canadian Natural received approval from the Alberta Energy Regulator (“AER”) to implement a low pressure steamflood in Primrose East Area 1. The steamflood commenced and production is ramping up as expected.
— Primrose South received approval for additional cyclic steam stimulation (“CSS”) on four pads in September 2014; production is targeted to ramp up in 2015.
— Additionally, during Q3/14, an application for low pressure CSS was submitted to the AER for Primrose East Area 2.
– Q3/14 total natural gas production was 1,674 MMcf/d, an increase of 44% and 2% from Q3/13 levels and Q2/14 levels respectively. The increase from Q3/13 levels was as a result of property acquisitions and the increase from Q2/14 levels was due to a continuing concentrated liquids-rich natural gas drilling program and the successful integration of acquired assets.
– In Q3/14, North Sea light crude oil production averaged 18,200 bbl/d, an increase of 17% and 44% from Q3/13 and Q2/14 levels respectively. The increase in production over Q2/14 levels was primarily due to the reinstatement of the Banff/Kyle Floating Production Storage and Offtake vessel (“FPSO”) in July 2014. Production had been suspended in 2011 after the infrastructure suffered storm damage.
– Canadian Natural continues to review its royalty lands and royalty revenue portfolio. A thorough review process has been ongoing and Canadian Natural continues to evaluate the options to maximize the value of these assets for its shareholders. Based on the analysis completed to date, Canadian Natural reports the following information for quarterly royalty volumes:
ROYALTY PRODUCTION VOLUMES (1)
Royalty volumes attributable to
------------------------------------
Canadian
Third Natural
Party (2) Total
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Natural gas (MMcf/d) 17.8 3.2 21.0
Crude oil (bbl/d) 2,977 724 3,701
NGLs (bbl/d) 402 61 463
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Total (BOE/d) 6,339 1,326 7,665
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REVENUE BY PRODUCT (1)
Royalty revenue attributable to
------------------------------------
Canadian
Third Natural
($ millions) Party (2) Total
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Natural gas $ 7.2 $ 1.4 $ 8.6
Crude oil $ 25.9 $ 5.7 $ 31.6
NGLs $ 2.0 $ 0.3 $ 2.3
Other revenue (3) $ 2.2 $ - $ 2.2
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Total $ 37.3 $ 7.4 $ 44.7
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REVENUE BY ROYALTY CLASSIFICATION (1)
Royalty revenue attributable to
------------------------------------
Canadian
Third Natural
($ millions) Party (2) Total
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Fee title $ 21.6 $ 5.6 $ 27.2
Gross overriding royalty (4) $ 13.5 $ 1.8 $ 15.3
Other revenue (3) $ 2.2 $ - $ 2.2
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Total $ 37.3 $ 7.4 $ 44.7
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ROYALTY REALIZED PRICING (1)
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Total
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Natural gas ($/Mcf) $ 4.50
Crude oil ($/bbl) $ 93.80
NGLs ($/bbl) $ 53.98
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Total ($/BOE) $ 60.88
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ROYALTY ACREAGE
Leased to
----------------------------------
Third Party Canadian
And Unleased Natural
(gross acres, millions) (2) Total
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Fee title 2.76 0.17 2.93
Gross overriding royalty (4) 1.69 1.50 3.19
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Total 4.45 1.67 6.12
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(1) Based on the Company’s current estimate of revenue and volumes attributable to Q2/14 and subject to final revision.
(2) Indicates Canadian Natural is both the Lessor and Lessee, thereby incurring intercompany royalties; in addition there are certain Canadian Natural fee title lands where the Company has production where no royalty burden has been recognized in this table.
(3) Includes sulphur revenue, bonus payments, lease rentals and compliance revenue.
(4) Includes Net Profit Interests and other royalties.
— The development of leased acreage is ongoing and lease requests on undeveloped acreage continue to be evaluated. Production on the royalty lands continues to grow; as over 168 new wells have been rig released on royalty lands since June 1, 2014, of which 19 wells were drilled by Canadian Natural.
— The Company continues to focus on lease compliance, well commitments, offset drilling obligations and compensatory royalties payable, with 97 offset obligations currently identified.
— Canadian Natural is reviewing the best option to maximize value for its shareholders as it relates to its fee title and royalty lands and is targeting to finalize its strategy in this regard by late 2014 or early 2015.
— Royalty production volumes highlighted above are not reported in Canadian Natural’s quarterly production volumes. Third party royalty revenues are included in reported Product Sales in the Company’s consolidated statement of earnings.
– Under the Company’s Normal Course Issuer Bid, year to date, Canadian Natural has purchased for cancellation 9,675,000 common shares at a weighted average price of $45.01 per common share.
– Canadian Natural declared a quarterly cash dividend on common shares of C$0.225 per share payable on January 1, 2014.
CORPORATE UPDATE
Canadian Natural is pleased to announce the appointment of Annette Verschuren to the Board of Directors of the Company. Ms. Verschuren is Chair and CEO of NRStor Inc., an energy storage project developer accelerating the development and construction of industry leading energy storage technologies. She began her career in the coal mining industry with Cape Breton Development Corporation and held various executive positions with Canada Development Investment Corporation and Imasco Ltd. She is former president of The Home Depot Canada and Asia and prior to that was president and co-owner of the arts and crafts retailer, Michaels of Canada. Ms. Verschuren is an Officer of The Order of Canada and holds honorary doctorate degrees from several notable Canadian universities including St. Francis Xavier University, where she also earned a Bachelor of Business Administration degree. She currently serves on two other publicly traded company boards, sits on a number of not-for-profit boards and serves as Chancellor of Cape Breton University.
OPERATIONS REVIEW AND CAPITAL ALLOCATION
In order to facilitate efficient operations, Canadian Natural focuses its activities in core regions where the Company owns a substantial land base and associated infrastructure. Land inventories are maintained to enable continuous exploitation of play types and geological trends, greatly reducing overall exploration risk. By owning and operating associated infrastructure, the Company is able to maximize utilization of production facilities by processing its own or third party volumes, thereby increasing control over production costs. Furthermore, the Company maintains large project inventories and production diversification among each of the commodities it produces; light and medium crude oil, primary heavy crude oil, Pelican Lake heavy crude oil, bitumen and SCO, natural gas and NGLs. A large diversified project portfolio enables the effective allocation of capital to higher return opportunities.
OPERATIONS REVIEW
Drilling activity
Nine Months Ended Sep 30
----------------------------------------
2014 2013
(number of wells) Gross Net Gross Net
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Crude oil 774 698 824 793
Natural gas 81 59 44 33
Dry 13 11 18 17
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Subtotal 868 768 886 843
Stratigraphic test / service wells 365 363 331 330
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Total 1,233 1,131 1,217 1,173
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Success rate (excluding
stratigraphic test / service
wells) 99% 98%
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North America Exploration and Production
Crude oil and NGLs - excluding Thermal In Situ Oil Sands
Three Months Ended Nine Months Ended
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Sep 30 Jun 30 Sep 30 Sep 30 Sept 30
2014 2014 2013 2014 2013
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Crude oil and NGLs
production (bbl/d) 288,858 285,740 256,329 280,319 244,849
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Net wells targeting crude
oil 275 151 294 689 701
Net successful wells
drilled 270 149 287 679 685
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Success rate 98% 99% 98% 99% 98%
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– North America crude oil and NGLs achieved record quarterly production of approximately 288,900 bbl/d in Q3/14, an increase of 13% from Q3/13 levels and 1% from Q2/14 levels.
– In Q3/14, primary heavy crude oil operations achieved record quarterly production of approximately 143,400 bbl/d. Primary heavy crude oil production increased 2% from Q3/13 levels and achieved a slight increase from Q2/14 levels. The Company’s large undeveloped land base, effective and efficient drilling program and vast inventory of over 8,000 well locations enables Canadian Natural to remain the industry leading primary heavy crude oil producer. Canadian Natural continued with its large and cost efficient drilling program, drilling 245 net primary heavy crude oil wells in Q3/14.
– Canadian Natural’s primary heavy crude oil assets provide strong netbacks and the highest return on capital in the Company’s North America portfolio of diverse and balanced assets.
– In Q3/14, Pelican Lake operations achieved record heavy crude oil quarterly production volumes of approximately 51,900 bbl/d, a 14% increase from Q3/13 volumes and a 5% increase from Q2/14 volumes. This is the seventh consecutive quarter of production increases, which reflects Canadian Natural’s continued success in developing, implementing and optimizing polymer flood technology at Pelican Lake.
— Industry leading Pelican Lake operating costs drive high netbacks and significant free cash flow generation. These industry leading Q3/14 operating costs of $7.82/bbl represent a 17% decrease in operating costs from Q3/13 levels and a 12% decrease from Q2/14 levels. The increasing polymer flood production response combined with continued optimization and effective and efficient operations have driven cost improvements.
– North America light crude oil and NGLs achieved quarterly production of approximately 93,500 bbl/d in Q3/14. Production increased 33% from Q3/13 levels, and is comparable to Q2/14 levels, largely as a result of the successful integration of light crude oil and NGLs production volumes acquired in 2014, as well as a successful drilling program. The increase from Q3/13 levels also reflects the increased NGLs production associated with the Septimus project expansion completed in Q3/13.
Thermal In Situ Oil Sands
Three Months Ended Nine Months Ended
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Sep 30 Jun 30 Sep 30 Sep 30 Sep 30
2014 2014 2013 2014 2013
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Bitumen production (bbl/d) 115,256 114,414 109,200 104,037 102,715
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Net wells targeting
bitumen 1 3 47 15 107
Net successful wells
drilled 1 3 47 15 107
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Success rate 100% 100% 100% 100% 100%
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– Q3/14 thermal in situ production volumes were approximately 115,300 bbl/d, within the Company’s previously issued quarterly guidance of 110,000 bbl/d to 120,000 bbl/d.
– At Kirby South, Q3/14 production averaged approximately 18,100 bbl/d, reflecting the impact of the previously announced mechanical issues at the associated steam generating facility. Canadian Natural has remedied these issues and the production ramp up has resumed. October 2014 production averaged approximately 22,000 bbl/d, and current production is averaging approximately 25,000 bbl/d, reflecting the strong performance of the reservoir. The total cost to repair the steam generators was approximately $5 million. Kirby South production is targeted to grow to facility capacity of 40,000 bbl/d.
– To date, the Kirby North project has received all regulatory permits. Targeted project capital for Kirby North is $1.45 billion, or approximately $36,000 per flowing barrel at a project capacity of 40,000 bbl/d. The overall project is 33% complete and in Q3/14 site construction commenced on the Central Processing Facility. First steam-in is targeted for Q4/16.
– Canadian Natural’s stepwise plan to return to steaming operations at Primrose with enhanced mitigation strategies in place has progressed:
— In September 2014, Canadian Natural received approval from the Alberta Energy Regulator (“AER”) to implement a low pressure steamflood in Primrose East Area 1. The steamflood commenced and production is ramping up as expected.
— Primrose South received approval for additional CSS on four pads in September 2014; production is targeted to ramp up in 2015.
— Additionally, during Q3/14, an application for low pressure CSS was submitted to the AER for Primrose East Area 2.
— Canadian Natural believes that reserves recovered from the Primrose area over its life cycle will be substantially unchanged.
Natural Gas
Three Months Ended Nine Months Ended
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Sep 30 Jun 30 Sep 30 Sep 30 Sep 30
2014 2014 2013 2014 2013
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Natural gas production
(MMcf/d) 1,644 1,606 1,136 1,468 1,118
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Net wells targeting
natural gas 22 13 10 60 34
Net successful wells
drilled 21 13 10 59 33
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Success rate 95% 100% 100% 98% 97%
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– North America natural gas production averaged 1,644 MMcf/d for Q3/14, an increase of 45% and 2% from Q3/13 levels and Q2/14 levels respectively. The increase from Q3/13 levels was as a result of property acquisitions and the increase from Q2/14 levels was due to a continuing concentrated liquids-rich natural gas drilling program and the successful integration of acquired assets.
– In Q2/14, Canadian Natural completed natural gas and light crude oil property acquisitions in areas adjacent or proximal to the Company’s current operations. The integration and optimization of the acquired assets is progressing well. In Q3/14 Canadian Natural’s North America natural gas operating costs decreased to $1.36/Mcf, 8% below Q2/14 levels. The Company continues to enhance production while further reducing operating costs as the optimization process continues with facility consolidations, well reactivations and facility turnarounds.
International Exploration and Production
Three Months Ended Nine Months Ended
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Sep 30 Jun 30 Sep 30 Sep 30 Sep 30
2014 2014 2013 2014 2013
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Crude oil production
(bbl/d)
North Sea 18,197 12,615 15,522 15,848 17,720
Offshore Africa 13,684 13,164 16,172 12,557 16,780
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Natural gas production
(MMcf/d)
North Sea 7 5 4 7 3
Offshore Africa 23 23 23 22 24
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Net wells targeting crude
oil 1.8 1.7 - 3.5 1.0
Net successful wells
drilled 1.8 1.7 - 3.5 1.0
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Success rate 100% 100% - 100% 100%
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– International crude oil production averaged approximately 31,900 bbl/d during Q3/14, comparable to Q3/13 levels and a 24% increase from Q2/14 levels. The increase in production over Q2/14 levels was primarily due to the reinstatement of the Banff/Kyle FPSO in July 2014. Production was suspended in 2011 after the infrastructure suffered storm damage.
– During Q2/14, Canadian Natural contracted a drilling rig to undertake the 12-month light crude oil infill development drilling program at Espoir, Cote d’Ivoire. Drilling is targeted to commence in late Q4/14 with a 10 well (5.9 net) drilling program. This program is targeted to add 5,900 BOE/d of net production when complete.
– During Q4/13 the Company contracted a drilling rig for a 6 well (3.5 net) infill development drilling program at the Baobab field in Cote d’Ivoire. This rig is expected to arrive no later than Q1/15 to commence an approximate 16- month light crude oil drilling program, which is targeted to add 11,000 BOE/d of net production when complete.
– Canadian Natural previously acquired a working interest in two exploration blocks in Cote d’Ivoire which are prospective for deepwater channel/fan structures similar to Jubilee crude oil discoveries in Offshore Africa. In Q2/14, an exploratory well was drilled on Block CI-514, in which the Company has a 36% working interest. The well demonstrated the presence of a working petroleum system. A second well is targeted to be drilled in the first half of 2015 to evaluate the up-dip potential of the initial well. These results enhance the prospectivity of Canadian Natural’s Block CI-12, located approximately 35 km west of Canadian Natural’s current production at Espoir and Baobab, where new 3D seismic has been acquired and is being evaluated for further exploration targets.
– Canadian Natural has a 50% interest in the Block 11B/12B Exploration Right located in the Outeniqua Basin, approximately 175 kilometers off the southern coast of South Africa. During Q3/14, the operator, Total E&P South Africa BV, a wholly owned subsidiary of Total SA, commenced drilling the first exploratory well. Subsequent to Q3/14, the exploration well was suspended due to mechanical issues with marine equipment on the drilling rig. The rig safely left the well location and, as the available drilling window has ended, it has since been demobilized by the operator. The South African authorities have formally confirmed that the well drilled satisfies the work obligation for the initial period of the Block 11B/12B Exploration Right. The operator is reviewing the course of action to re-enter the well as soon as possible, and has indicated drilling operations are unlikely to resume in the area before 2016.
North America Oil Sands Mining and Upgrading - Horizon
Three Months Ended Nine Months Ended
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Sep 30 Jun 30 Sep 30 Sep 30 Sep 30
2014 2014 2013 2014 2013
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Synthetic crude oil
production (bbl/d) (1) 82,012 119,236 111,959 104,667 96,244
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(1) The Company has commenced production of diesel for internal use at Horizon. Q3/14 SCO production excludes 875 bbl/d of SCO consumed internally as diesel.
– During Q3/14 Horizon continued to achieve strong and reliable operating performance and successfully completed the coker tie-in, originally scheduled for 2015. Horizon achieved quarterly SCO production of approximately 82,000 bbl/d, reflecting the 25 day planned turnaround. Horizon achieved an effective ramp up of production after the coker tie-in, with strong October 2014 production of approximately 123,100 bbl/d, representing a 94% plant utilization rate. Production levels are targeted to average approximately 127,000 bbl/d for the remainder of the year, at the high end of the expected plant utilization rate of 94 – 96%.
– During Q3/14 the production of diesel for internal use commenced at Horizon. In Q4/14, 1,500 bbl/d of diesel production is targeted to be produced at Horizon. The production and use of internally produced diesel fuel at Horizon will reduce operating costs and provides additional volumes beyond reported production targets.
– Canadian Natural continues to deliver on its strategy to transition to a longer life, low decline asset base while providing significant and growing free cash flow. Canadian Natural’s staged expansion to 250,000 bbl/d of SCO production capacity continues to progress on track and within cost estimates.
– Overall Horizon Phase 2/3 expansion is 50% physically complete as at Q3/14:
— Reliability – Tranche 2 is 100% physically complete. This phase will increase performance, overall production reliability and the Gas Recovery Unit will recover additional SCO barrels in 2014.
— Directive 74 includes technological investment and research into tailings management. This project remains on track and is physically 41% complete.
— Phase 2A is a coker expansion which will utilize pre-invested infrastructure and equipment to expand the Coker Plant and alleviate the current bottleneck. The coker tie-in was originally scheduled to be completed in mid- 2015; however, due to strong construction performance and the early completion of the coker installation, the Company accelerated the tie-in to commence August 2014. The Coker Expansion Unit is fully operational and was completed on time and below budget. Horizon SCO production levels increased by approximately 12,000 bbl/d with the completion of the coker tie-in.
— Phase 2B is 42% physically complete. This phase expands the capacity of major components such as gas/oil hydrotreatment, froth treatment and the hydrogen plant. This phase is targeted to add another 45,000 bbl/d of production capacity in late 2016.
— Phase 3 is on track and on schedule. This phase is 38% physically complete, and includes the addition of extraction trains. This phase is targeted to increase production capacity by 80,000 bbl/d in late 2017 and will result in additional reliability, redundancy and significant operating cost savings.
— The projects currently under construction continue to progress on track and within sanctioned cost estimates.
– For the Phase 2/3 expansion Canadian Natural has committed to approximately 67% of the Engineering, Procurement and Construction contracts. Over 68% of the construction contracts have been awarded to date, with 85% being lump sum, ensuring greater cost certainty.
MARKETING
Three Months Ended Nine Months Ended
--------------------------------------------------
Sep 30 Jun 30 Sep 30 Sep 30 Sep 30
2014 2014 2013 2014 2013
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Crude oil and NGLs pricing
WTI benchmark price
(US$/bbl) (1) $ 97.21 $ 102.98 $ 105.82 $ 99.60 $ 98.17
WCS blend differential
from WTI (%) (2) 21% 19% 16% 21% 23%
SCO price (US$/bbl) $ 94.31 $ 103.87 $ 109.97 $ 98.20 $ 101.49
Condensate benchmark
pricing (US$/bbl) $ 93.49 $ 105.15 $ 103.83 $ 100.36 $ 104.16
Average realized pricing
before risk management
(C$/bbl) (3) $ 79.99 $ 87.03 $ 89.24 $ 82.35 $ 75.32
Natural gas pricing
AECO benchmark price
(C$/GJ) $ 4.00 $ 4.44 $ 2.68 $ 4.32 $ 3.00
Average realized pricing
before risk management
(C$/Mcf) $ 4.54 $ 5.06 $ 3.15 $ 5.03 $ 3.56
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(1) West Texas Intermediate (“WTI”).
(2) Western Canadian Select (“WCS”).
(3) Average crude oil and NGLs pricing excludes SCO. Pricing is net of blending costs and excluding risk management activities.
Dated
SCO Brent Condensate
premium/ premium/ premium/
WTI WCS Blend (discount) (discount) (discount)
Benchmark Pricing Differential from WTI from WTI from WTI
Pricing (US$/bbl) from WTI (%) (US$/bbl) (US$/bbl) (US$/bbl)
----------------------------------------------------------------------------
2014
July $ 102.39 19% $ (2.43) $ 4.24 $ (3.30)
August $ 96.08 23% $ (3.31) $ 5.53 $ (4.29)
September $ 93.03 20% $ (2.98) $ 4.26 $ (3.57)
October $ 84.34 16% $ (0.48) $ 2.93 $ (0.09)
November(i)$ 80.51 16% $ (0.45) $ 4.81 $ (2.13)
December(i)$ 80.40 19% $ (4.07) $ 5.21 $ (4.23)
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(i)Based on current indicative pricing as at October 31, 2014.
– Crude oil sales contracts in the North America segment are typically based on WTI benchmark pricing. WTI averaged US$97.21/bbl for Q3/14, a decrease of 8% from US$105.82/bbl for Q3/13, and a decrease of 6% from US$102.98/bbl for Q2/14. However, Q3/14 realized prices were offset by the impact of the weaker Canadian dollar, which increased the Canadian dollar sales price the Company received for its crude oil sales, based on US dollar denominated benchmarks. The Company realized Canadian dollar WTI benchmark pricing of C$109.96/bbl for July 2014, C$104.98/bbl for August 2014 and C$102.45/bbl for September 2014.
– The WCS differential averaged 21% during Q3/14 compared with 16% in Q3/13 and 19% in Q2/14. The WCS differential averaged 21% for the nine months ended September 30, 2014, compared with 23% for the nine months ended September 30, 2013.
– Subsequent to Q3/14, the WCS differential averaged 16% in October 2014, and the indicative WCS differential for November 2014 is approximately 16% and December 2014 is approximately 19%.
– Canadian Natural contributed approximately 160,000 bbl/d of its heavy crude oil stream to the WCS blend in Q3/14. The Company remains the largest contributor to the WCS blend, accounting for over 56% of the total blend this quarter.
– SCO pricing during Q3/14 decreased 14% and 9% from Q3/13 levels and Q2/14 levels respectively, primarily due to a decrease in benchmark pricing.
– During Q3/14, AECO natural gas prices increased 49% over Q3/13 levels and decreased 10% from Q2/14 levels. Natural gas prices increased from the comparable period in 2013 due to increased winter weather related natural gas demand. The colder than normal winter resulted in natural gas storage inventories falling below five-year lows in the US and Canada. The decrease from Q2/14 levels is due to decreased summer weather related natural gas demand and an increase in natural gas storage levels.
NORTH WEST REDWATER UPGRADING AND REFINING
The North West Redwater refinery, upon completion, will strengthen the Company’s position by providing a competitive return on investment and by adding 50,000 bbl/d of bitumen conversion capacity in Alberta which will help reduce pricing volatility in all Western Canadian heavy crude oil. The Company has a 50% interest in the North West Redwater Partnership. Work is progressing and site preparation and deep underground construction is targeted to be completed in Q4/14.
FINANCIAL REVIEW
The Company continues to implement proven strategies and its disciplined approach to capital allocation. As a result, the financial position of Canadian Natural remains strong. Canadian Natural’s cash flow generation, credit facilities, US commercial paper program, diverse asset base and related capital expenditure programs and commodity hedging policy all support a flexible financial position and provide the appropriate financial resources for the near-, mid- and long-term.
– The Company’s strategy is to maintain a diverse portfolio balanced across various commodity types. The Company achieved production of 796,931 BOE/d for Q3/14 with approximately 98% of production located in G8 countries.
– Canadian Natural has a strong balance sheet with debt to book capitalization of 33% and debt to EBITDA of 1.4x at September 30, 2014.
– Canadian Natural maintains significant financial stability and liquidity represented by bank credit facilities. As at September 30, 2014, the Company had in place bank credit facilities of $5,802 million, of which $2,358 million, net of commercial paper issuances of $560 million, was available.
– The Company’s commodity hedging program is utilized, as required, to protect investment returns, ensure ongoing balance sheet strength and support the Company’s cash flow for its capital expenditure programs. Details of the Company’s commodity hedging program can be found on the Company’s website at www.cnrl.com.
– Under the Company’s Normal Course Issuer Bid, Canadian Natural has purchased year to date 9,675,000 common shares for cancellation at an average price of $45.01 per common share, which includes 790,000 common shares purchased subsequent to September 30, 2014 at a weighted average price of $39.49 per common share.
– Canadian Natural’s Board of Directors has declared a quarterly cash dividend on common shares of C$0.225 per share payable on January 1, 2014.
– The Company has a strong balance sheet and cash flow generation which enables it to weather volatility in commodity prices. Additionally, Canadian Natural retains significant capital expenditure program flexibility to proactively adapt to changing market conditions.
OUTLOOK
The Company forecasts 2014 production levels before royalties to average between 531,000 and 557,000 bbl/d of crude oil and NGLs and between 1,550 and 1,570 MMcf/d of natural gas. Detailed guidance on production levels, capital allocation and operating costs can be found on the Company’s website at www.cnrl.com.