CALGARY, ALBERTA–(Marketwired – Nov. 7, 2017) – Commenting on the Company’s 2018 budget, Steve Laut, President of Canadian Natural (TSX:CNQ)(NYSE:CNQ), stated, “Canadian Natural’s transition to a long life low decline asset base is complete, as the Horizon Phase 3 expansion has been successfully executed. The strength of the Company is reflected in the 2018 budget as we target overall production between 1,090,000 and 1,170,000 BOE/d. This represents a 17% increase over 2017 production levels with a capital program targeted at $4.3 billion, $0.5 billion less than 2017, excluding the Athabasca Oil Sands Project acquisition capital. This allows the Company significant capital flexibility to allocate capital to the highest return projects and to maximize shareholder value. Free cash flow is targeted to be in the $2.3 billion to $2.7 billion range, after the Company’s current dividend.”
Canadian Natural’s Chief Operating Officer, Tim McKay, continued, “The Company will focus on reliability across our diverse asset base and continue to integrate and optimize the assets acquired in 2017. Modest drilling programs will ensure cost control, which is essential in this commodity price environment. Project development at our Steam Assisted Gravity Drainage project, Kirby North will continue in 2018 as we advance the project for ultimate completion in Q4/19.”
Canadian Natural’s Chief Financial Officer, Corey Bieber, continued, “In 2018, the Company targets to continue to strengthen our balance sheet metrics with increasing free cash flow. Ample liquidity and significant capital flexibility in 2018 will allow the Company to effectively manage our financial position in a volatile commodity price environment.”
HIGHLIGHTS OF THE 2018 BUDGET
– Canadian Natural’s 2018 capital budget is targeted at approximately $4.3 billion, $0.5 billion less than 2017, excluding the Athabasca Oil Sands Project (“AOSP”) acquisition capital. The Company targets to deliver 2018 production growth of approximately 17% at the midpoint of 2018 budget guidance with targeted maintenance capital at approximately $3.0 billion, demonstrating the benefit of a long life low decline asset base.
– The Company’s 2018 funds flow from operations is targeted to be approximately $7.9 billion to $8.3 billion. Free cash flow is targeted to be approximately $2.3 billion to $2.7 billion, after budgeted capital and the current dividend, based upon average annual WTI strip pricing of US$52.03/bbl and AECO strip pricing of C$2.11/GJ.
– Overall crude oil and NGL production is targeted to increase from 2017 levels by 23%, ranging from 815,000 bbl/d to 885,000 bbl/d in 2018. The increase represents approximately 160,000 bbl/d of production growth and is largely as a result of the completion of the Phase 3 expansion at Horizon Oil Sands Mining & Upgrading (“Horizon”) and a full year of production at the AOSP.
– Overall production in 2018 is targeted to be between 1,090,000 BOE/d and 1,170,000 BOE/d, with a product mix of approximately 75% crude oil and NGLs and 25% natural gas. In 2018 approximately 55% of the Company’s production is targeted to come from long life low decline assets.
North America – Exploration & Production
– North America crude oil and NGL production provides significant capital flexibility as the Company’s large asset base encompasses light crude oil, primary heavy crude oil and Pelican Lake heavy crude oil. The Company’s strong asset base is complemented by an extensive network of owned infrastructure and is supported by a deep inventory of low capital exposure, high return on capital projects that deliver significant production and value growth opportunities.
— The Company is targeting a capital program of $1,555 million for North American E&P in 2018. Plans for 2018 are summarized as follows:
— North American crude oil and NGL production is targeted to range from 253,000 bbl/d to 263,000 bbl/d, representing a 7% increase from 2017 production levels. The Company’s 2018 drilling program is focused on value growth over the near, mid and long term.
— Canadian Natural targets to drill approximately 67 net producing wells in its North America light crude oil operations, a significant part of the Company’s balanced portfolio. This represents an increase of 28 net producing wells from 2017 targeted levels.
— The Company targets continued strong capital efficiencies and high returns with a right-sized primary heavy crude oil drilling program of 377 net producing wells, a 6% decrease compared to 2017 targeted levels.
— The Company targets a drilling program of 22 net producing wells in 2018 at Pelican Lake, its industry leading polymer flood asset. This represents an increase of 5 net producing wells from 2017 targeted levels. In 2018, Canadian Natural will integrate and optimize operations at its recently acquired Pelican Lake lands to maximize shareholder value.
— Corporate natural gas production is targeted to range from 1,650 MMcf/d to 1,710 MMcf/d, in-line with 2017 levels, as natural gas prices are expected to continue to be challenged in 2018.
— The Company targets a modest natural gas drilling program of 17 net producing wells representing a decrease of 3 net producing wells compared to 2017 targeted levels. The Company targets to continue its focused drill to fill strategy in its liquid rich assets in the Montney and the Deep Basin, where the Company owns and operates significant infrastructure.
North America – Thermal in Situ Oil Sands
– Thermal in situ oil sands assets provide a substantial, low risk production profile that can generate significant sustainable free cash flow.
— Thermal in situ production is targeted to be in line with 2017 levels in the range of 107,000 bbl/d to 127,000 bbl/d in 2018.
— Total thermal in situ capital in 2018 is targeted to be $960 million, as the Company targets to drill 119 net producing thermal wells. In 2018, the Company will initiate high value pad additions at Primrose, which will add long life low decline production commencing in Q4 of 2019. Additionally, drilling at the Company’s 40,000 bbl/d Kirby North Steam Assisted Gravity Drainage (“SAGD”) project will begin in 2018.
— Primrose drilling activity is targeted to be 64 net producing wells in 2018. First production from this drilling program is targeted in Q4 of 2019 with exit 2019 production of 25,000 bbl/d.
— Canadian Natural will advance its development of the Kirby North SAGD project in 2018. In the year, the Company targets project capital of approximately $465 million to complete 49 net producing wells, 44 injector wells and facility construction. First steam injection is targeted for late 2019 and first production is targeted in Q1 of 2020. Overall targeted productive capacity at Kirby North is 40,000 bbl/d.
— Drilling activity at Kirby South will be minimal with 6 net producing wells targeted.
North America – Oil Sands Mining and Upgrading
– Canadian Natural’s transition to a long life low decline asset base is complete. Oil Sands Mining & Upgrading production is targeted to increase significantly in 2018 due to the successful completion of the Phase 3 expansion at Horizon and a full year of production at the AOSP.
— Oil Sands Mining and Upgrading production is targeted to increase by greater than 50% in 2018 from 2017 levels. The 2018 production guidance range for Oil Sands Mining and Upgrading is 415,000 bbl/d to 450,000 bbl/d of synthetic crude oil.
— The 2018 targeted production range includes a 21 day planned turnaround at the Horizon operations and includes planned pit stops at the AOSP in the spring and fall of 2018.
— 2018 Oil Sands Mining and Upgrading targeted capital includes approximately $500 million for completion of environmental work related to the Phase 3 expansion, technology and project development.
— Sustaining capital is targeted to be $660 million, while $220 million is targeted for turnarounds and reclamation activities.
International – Exploration & Production
– International light crude oil production is targeted to range from 40,000 bbl/d to 45,000 bbl/d, a decrease of approximately 8% from 2017 production levels, reflecting natural production declines.
– 2018 capital at the Company’s International assets is targeted to be in-line with 2017 levels at approximately $410 million, which includes approximately $70 million for decommissioning activities.
– The Company targets to drill 4.6 net producing wells in the North Sea and 1.7 net producing wells at the Baobab field in Cote d’Ivoire.
PRODUCTION AND CAPITAL GUIDANCE
Canadian Natural continues its strategy of maintaining a large diverse portfolio of assets. This enables the Company to provide consistent growth in production and to maximize shareholder returns through flexible capital allocation. Annual budgets are developed and scrutinized throughout the year and changed if necessary in the context of project returns, product pricing expectations, and the balancing of project risks and time horizons. Canadian Natural maintains a high ownership level and operatorship in its properties and can therefore control the nature, timing and extent of expenditures in each of its project areas.
|Daily production volumes (before royalties)||2017 Forecast||2018 Budget|
|Natural gas (MMcf/d)||1,655 – 1,705||1,650 – 1,710|
|Crude oil and NGLs (Mbbl/d)|
|North America – Exploration and Production||236 – 246||253 – 263|
|North America – Thermal In Situ||112 – 122||107 – 127|
|North America – Oil Sands Mining and Upgrading||272 – 300||415 – 450|
|International||43 – 49||40 – 45|
|Total crude oil and NGLs||663 – 717||815 – 885|
|Total BOE/d||939 – 1,001||1,090 – 1,170|
The forecast capital expenditures for 2017 and the 2018 Budget guidance are as follows:
|Capital Expenditures (C$ millions)||2017 Forecast||2018 Budget|
|North America natural gas and NGLs||$||460||$||440|
|North America crude oil||920||1,115|
|International crude oil||420||410|
|Total Exploration and Production||$||1,800||$||1,965|
|Total Thermal In Situ Oil Sands||$||380||$||960|
|Oil Sands Mining and Upgrading|
|Environment, technology and project development||$||925||$||500|
|Turnarounds, reclamation and other||225||220|
|Total Oil Sands Mining and Upgrading||$||1,705||$||1,380|
|Net acquisitions, midstream and other (1)||$||970||$||30|
|Total Capital Expenditures||$||4,855||$||4,335|
2017 Forecast excludes acquisition costs of AOSP transaction.
The above capital expenditures for the 2017 forecast and the 2018 budget incorporate the following levels of drilling activity:
|Drilling activity (number of net producing wells)||2017 Forecast||2018 Budget|
|Targeting natural gas||20||17|
|Targeting crude oil||459||472|
|Targeting thermal in situ||27||119|
Note: 2017F and 2018B excludes stratagraphic and service wells.
Special Note Regarding Currency, Production and Reserves
In this document, all references to dollars refer to Canadian dollars unless otherwise stated. Reserves and production data are presented on a before royalties basis unless otherwise stated. In addition, reference is made to crude oil, natural gas and NGLs in common units called barrel of oil equivalent (“BOE”) or thousand cubic feet of gas equivalent (“McfGE”). A BOE is derived by converting six thousand cubic feet of natural gas to one barrel of crude oil or NGLs (6Mcf:1bbl). An McfGE is derived by converting one barrel of crude oil or NGLs to six thousand cubic feet of natural gas (1bbl:6Mcf). These conversions may be misleading, particularly if used in isolation, since the 6Mcf:1bbl ratio or the 1bbl:6Mcf 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 or NGL prices relative to natural gas prices, the 6Mcf:1bbl or 1bbl:6Mcf conversion ratios may be misleading as an indication of value.
This document, herein incorporated by reference, has been prepared in accordance with IFRS, as issued by the International Accounting Standards Board.
For the year ended December 31, 2016 the Company retained Independent Qualified Reserves Evaluators (“IQREs”), Sproule Associates Limited and Sproule International Limited (together as “Sproule”) and GLJ Petroleum Consultants Ltd. (“GLJ”), to evaluate and review all of the Company’s proved and proved plus probable reserves with an effective date of December 31, 2016 and a preparation date of February 6, 2017. Sproule evaluated the North America and International light and medium crude oil, primary heavy crude oil, Pelican Lake heavy crude oil, bitumen (thermal oil), natural gas and NGLs reserves. GLJ evaluated the Horizon SCO reserves. The evaluation and review was conducted in accordance with the standards contained in the Canadian Oil and Gas Evaluation Handbook (“COGE Handbook”) and disclosed in accordance with National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities (“NI 51-101”) requirements. Reserves disclosure is presented in accordance with Canadian reporting requirements using forecast prices and escalated costs.
The Company annually discloses net proved reserves and the standardized measure of discounted future net cash flows using 12-month average prices and current costs in accordance with United States Financial Accounting Standards Board Topic 932 “Extractive Activities – Oil and Gas” in the Company’s Form 40-F filed with the SEC in the “Supplementary Oil and Gas Information” section of the Company’s Annual Report.