CALGARY, ALBERTA--(Marketwire - Aug. 4, 2011) - Canadian Natural Resources Limited (TSX:CNQ) (NYSE:CNQ)
Commenting on second quarter results, Canadian Natural's Chairman,Allan Markin stated, "Our skilled and experienced technical, operational and financial teams, along with our balanced assets continue to deliver. We generated solid cash flow results even while production at Horizon remained suspended in the second quarter. We maintain a safe, responsible, efficient operating environment which allows us to effectively execute on our plans. With the Horizon rebuild and repairs now essentially complete and commissioning underway, we look forward to additional cash flow generation for the remainder of 2011."
John Langille, Vice-Chairman of Canadian Natural continued, "We maintain sufficient available liquidity which will sustain our operations in the short, medium and long term. We continue to take advantage of our diverse asset base through effective capital allocation to higher return projects. Our favorable debt to book capital ratio of 29% supports our future growth strategy and our ability to be flexible in our decision making and capital allocation."
Steve Laut, President of Canadian Natural stated, "Canadian Natural is positioned to generate significant shareholder value going forward with production at Horizon set to resume in the third quarter along with the solid overall performance in the rest of the asset base so far in 2011. At Horizon, we are committed to a disciplined execution strategy to achieve cost certainty for expansions from the current 110,000 bbl/d of SCO capacity to 250,000 bbl/d of SCO capacity. Our high quality, balanced asset base has allowed us to allocate capital to the highest return projects and the business is set to deliver significant free cash flow going forward." QUARTERLY HIGHLIGHTS Three Months Ended Six Months Ended Jun 30 Mar 31 Jun 30 Jun 30 Jun 30 ($ millions, except as noted) 2011 2011 2010 2011 2010 ---------------------------------------------------------------------------- Net earnings $ 929 $ 46 $ 651 $ 975 $ 1,386 Per common share - basic $ 0.85 $ 0.04 $ 0.60 $ 0.89 $ 1.28 - diluted $ 0.84 $ 0.04 $ 0.60 $ 0.88 $ 1.27 Adjusted net earnings from operations (1) $ 621 $ 228 $ 647 $ 849 $ 1,286 Per common share - basic $ 0.57 $ 0.21 $ 0.59 $ 0.78 $ 1.18 - diluted $ 0.56 $ 0.21 $ 0.59 $ 0.77 $ 1.17 Cash flow from operations (2) $ 1,548 $ 1,074 $ 1,629 $ 2,622 $ 3,136 Per common share - basic $ 1.41 $ 0.98 $ 1.50 $ 2.39 $ 2.89 - diluted $ 1.40 $ 0.97 $ 1.49 $ 2.37 $ 2.87 Capital expenditures, net of dispositions $ 1,405 $ 1,694 $ 1,576 $ 3,099 $ 2,652 Daily production, before royalties Natural gas (MMcf/d) 1,240 1,256 1,237 1,248 1,231 Crude oil and NGLs (bbl/d) 349,915 356,988 443,045 353,433 424,757 Equivalent production (BOE/d) 556,539 566,231 649,195 561,359 629,982 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- (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 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. -- In Q2/11 the Company's diverse assets continued to deliver while Horizon repairs near completion. Production in all areas were within previously issued guidance despite challenging conditions relating to both forest fires and flooding in Western Canada. Solid cash flow results continue to support the Company's strong financial position. -- Total crude oil and NGLs production for Q2/11 was 349,915 bbl/d. Q2/11 crude oil production volumes decreased 21% from Q2/10 of 443,045 bbl/d and 2% from Q1/11 of 356,988 bbl/d primarily due to the suspension of production at Horizon, partially offset by the results of the impact of a record primary heavy oil drilling program, continued pad additions at Primrose, the cyclic nature of the Company's thermal in situ production and acquisitions. -- Crude oil and NGLs production in North America Exploration and Production in Q2/11 was 295,715 bbl/d. Q2/11 crude oil and NGLs production volumes increased 7% from Q2/10 levels of 275,584 bbl/d, and increased 2% from Q1/11 levels of 290,130 bbl/d. The increase in volumes in Q2/11 from Q2/10 was due to a record heavy oil drilling program, continued pad additions at Primrose, the cyclic nature of the Company's thermal in situ production and acquisitions. -- Natural gas production for Q2/11 averaged 1,240 MMcf/d, comparable to Q2/10 production of 1,237 MMcf/d and a 1% decrease from Q1/11 of 1,256 MMcf/d. Natural gas production in Q2/11 was comparable to Q2/10 as a result of volumes from the Septimus Montney development in Northeast British Columbia and from natural gas producing properties acquired in 2010 and 2011, offset by the strategic decision to allocate capital to higher return crude oil projects. -- Quarterly cash flow from operations was $1.55 billion compared to $1.63 billion for Q2/10 and $1.07 billion for Q1/11. The decrease in cash flow from Q2/10 is primarily related to the suspension of production at Horizon. The increase in Q2/11 cash flow from Q1/11 is primarily related to higher crude oil and NGL netbacks, lower realized risk management losses and lower net operating expenses at Horizon due to business interruption insurance recoveries in Q2/11. -- Adjusted net earnings from operations for Q2/11 was $621 million, compared to adjusted net earnings of $647 million in Q2/10 and $228 million in Q1/11. The decrease in adjusted net earnings from Q2/10 primarily related to the suspension of production at Horizon. The increase in adjusted net earnings in Q2/11 from Q1/11 was primarily due to higher crude oil and NGL netbacks and lower realized risk management losses. -- A significant quarterly primary heavy crude oil drilling program, as part of a targeted record drilling program in 2011, contributed to record quarterly production in excess of 101,000 bbl/d in Q2/11. In Q2/11, Canadian Natural drilled 134 net primary heavy crude oil wells. The Company targets to drill a record 826 net primary heavy crude oil wells in 2011 which will drive a targeted 13% annual production growth in primary heavy crude oil. Primary heavy crude oil currently provides the highest return on capital projects in the Company's portfolio. -- International production in the North Sea slightly exceeded the Company's previously issued guidance for Q2/11 due to strong performance from the Ninian field. The North Sea and Offshore Africa provided cash flow from operations in Q2/11 of approximately $235 million against capital expenditures of $86 million. International operations provide exposure to Brent oil pricing and the Company targets additional significant free cash flow from the International operations in 2011. -- Thermal in situ crude oil production exceeded 106,000 bbl/d in Q2/11 due to the nature of the steaming and production cycles, continued pad additions at Primrose and excellent well performance in the quarter. Record monthly average production of 127,000 bbl/d in June 2011 in the Company's thermal in situ assets contributed to the strong quarterly production performance. -- Construction at the Kirby South Phase 1 ("Kirby") 45,000 bbl/d capacity Steam Assisted Gravity Drainage ("SAGD") project remains on cost and on schedule. Kirby has targeted capital costs of $1.25 billion and first steam-in is targeted for late 2013. As at Q2/11, the overall project is 19% complete. All major equipment has been ordered and drilling has commenced on schedule and on cost. -- All necessary regulatory and operating approvals to recommence operations at Horizon Oil Sands Mining and Upgrading have been received. Fire rebuild and collateral damage repairs are essentially complete and commissioning to commence operations started on August 2, 2011. Commissioning is targeted to take between 2 and 3 weeks with ramp up to full production design rates of 110,000 bbl/d of synthetic crude oil ("SCO") shortly thereafter. -- Construction of the third Ore Preparation Plant ("OPP") at Horizon is currently anticipated to be completed slightly below budget and on schedule. Commissioning is currently targeted for early Q4/11 and is expected to increase production reliability and result in higher plant uptime at Horizon. -- As part of Canadian Natural's disciplined execution strategy to achieve cost certainty for a defined and stepped expansion at its Horizon operation from the current 110,000 bbl/d to 250,000 bbl/d of SCO capacity, the Company's Board of Directors has approved targeted strategic expansion capital expenditures at Horizon for 2012 of approximately $2 billion. It is expected that certain projects will be advanced and contracts finalized in 2011 and 2012 such that the execution of engineering, procurement and construction activities will be undertaken in 2012 resulting in the above noted strategic expansion capital expenditures. -- The Company currently anticipates capital expenditures for 2012 will range between $7 billion and $8 billion, including the targeted Horizon strategic expansion capital expenditures.
OPERATIONS REVIEW AND CAPITAL ALLOCATION
In order to facilitate efficient operations, Canadian Natural focuses its activities in core regions where it can dominate the land base and infrastructure. Land inventories are maintained to enable continuous exploitation of play types and geological trends, greatly reducing overall exploration risk. By dominating infrastructure, the Company is able to maximize utilization of its production facilities, thereby increasing control over production costs. Further, the Company maintains large project inventories and production diversification among each of the commodities it produces; namely natural gas, light/medium crude oil, primary heavy crude oil, Pelican Lake heavy crude oil, bitumen (thermal oil), SCO and NGLs. A large diversified project portfolio enables the effective allocation of capital to higher return opportunities.
OPERATIONS REVIEW Drilling activity (number of wells) Six Months Ended Jun 30 2011 2010 Gross Net Gross Net ---------------------------------------------------------------------------- Crude oil 471 456 356 335 Natural gas 39 35 63 55 Dry 22 21 17 16 ---------------------------------------------------------------------------- Subtotal 532 512 436 406 Stratigraphic test / service wells 521 520 307 306 ---------------------------------------------------------------------------- Total 1,053 1,032 743 712 ---------------------------------------------------------------------------- Success rate (excluding stratigraphic test / service wells) 96% 96% ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- North America Exploration and Production North America natural gas Three Months Ended Six Months Ended Jun 30 Mar 31 Jun 30 Jun 30 Jun 30 2011 2011 2010 2011 2010 ---------------------------------------------------------------------------- Natural gas production (MMcf/d) 1,218 1,225 1,219 1,221 1,206 ---------------------------------------------------------------------------- Net wells targeting natural gas 10 26 11 36 60 Net successful wells drilled 10 25 10 35 55 ---------------------------------------------------------------------------- Success rate 100% 96% 91% 97% 92% ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- -- Q2/11 North America natural gas production volumes were comparable to Q2/10 and Q1/11 as a result of production from the Company's Septimus Montney development in Northeast British Columbia and natural gas volumes acquired in 2010 and 2011, offset by expected production declines due to the allocation of capital to higher return crude oil projects. -- The Company's liquids rich Montney unconventional natural gas play at Septimus continues to exceed expectations. During Q2/11 the Company drilled 6 additional wells at Septimus as part of the planned 8 well drilling program in 2011. Current production is approximately 60 MMcf/d and 1,800 bbl/d of natural gas liquids. With additional infrastructure liquid recovery is targeted to increase to approximately 50 bbl/MMcf or 3,000 bbl/d in Q4/11. -- Planned drilling activity for Q3/11 includes 24 net natural gas wells. North American crude oil and NGLs Three Months Ended Six Months Ended Jun 30 Mar 31 Jun 30 Jun 30 Jun 30 2011 2011 2010 2011 2010 ---------------------------------------------------------------------------- Crude oil and NGLs production (bbl/d) 295,715 290,130 275,584 292,938 264,081 ---------------------------------------------------------------------------- Net wells targeting crude oil 182 293 91 475 341 Net successful wells drilled 177 279 90 456 330 ---------------------------------------------------------------------------- Success rate 97% 95% 99% 96% 97% ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- -- Q2/11 North America crude oil and NGLs production increased 7% and 2% from Q2/10 and Q1/11 levels respectively. The increase from the same quarter last year reflects increases in growth in the Company's primary heavy crude oil and thermal in situ operations. -- The Company's focus on heavy and thermal in situ crude oil assets resulted in record quarterly production in Q2/11. Heavy crude oil differentials narrowed in Q2/11 compared to Q1/11, further increasing already robust economics. -- A significant quarterly primary heavy crude oil drilling program, as part of a targeted record drilling program in 2011, contributed to record quarterly production in excess of 101,000 bbl/d in Q2/11. In Q2/11, Canadian Natural drilled 134 net primary heavy crude oil wells. The Company targets to drill a record 826 net primary heavy crude oil wells in 2011 which will drive a targeted 13% annual production growth in primary heavy crude oil. Primary heavy crude oil currently provides the highest return on capital projects in the Company's portfolio. -- Pelican Lake production averaged approximately 35,000 bbl/d for Q2/11, compared to approximately 37,000 bbl/d and 39,000 bbl/d for Q2/10 and Q1/11 respectively. The decrease in production was a result of the suspension of production due to forest fires which caused the Rainbow pipeline system to be shut-in for several days. Polymer flood production response is typically seen 9 to 24 months from injection of polymer and production increases are expected in late 2011/early 2012. Production response in the south portion of the crude oil pool is taking longer than originally forecasted but is expected to ultimately result in higher recovery rates. The planned 2011 expansion of the polymer flood into new areas of the Pelican Lake pool will now occur later than forecasted due to delays in receiving regulatory approvals. The Company continues to work with regulators and anticipates all approvals to be received in the Fall of 2011. These delays may impact production ramp up timing in 2012. Canadian Natural targets to have close to 90% of the field under polymer flood by 2015. Canadian Natural targets to have close to 90% of the field under polymer flood by 2015. -- Development of new pads at Primrose continue on track and contributed to strong quarterly thermal in situ heavy crude oil production of over 106,000 bbl/d in Q2/11. -- Production wells are currently being drilled at pads in Primrose East and Primrose South as part of the Company's ongoing in situ development program. The development costs for these pads is approximately $13,000 per flowing barrel of capacity. -- Construction of Kirby continued in Q2/11 and targeted timelines and capital expenditures remain on track. Drilling has commenced on schedule and on cost. Fabrication of major equipment items including the evaporators and steam generators is proceeding on schedule. Significant construction milestones completed in Q2/11 included conclusion of the Utilities and Infrastructure stage and initial occupancy of the 850 man workforce camp. -- During Q2/11, drilling activity targeted 182 net crude oil wells including 134 wells targeting primary heavy crude oil, 7 wells in the Greater Pelican Lake area, 37 wells targeting bitumen (thermal oil) and 4 wells targeting light crude oil. -- Planned drilling activity for Q3/11 includes 326 net crude oil wells, excluding stratigraphic test and service wells and 41 bitumen wells. International Exploration and Production Three Months Ended Six Months Ended ---------------------------------------------------------------------------- Jun 30 Mar 31 Jun 30 Jun 30 Jun 30 2011 2011 2010 2011 2010 ---------------------------------------------------------------------------- Crude oil production (bbl/d) North Sea 32,866 34,101 37,669 33,480 37,276 Offshore Africa 21,334 25,488 29,842 23,400 29,892 ---------------------------------------------------------------------------- Natural gas production (MMcf/d) North Sea 7 9 9 8 12 Offshore Africa 15 22 9 19 13 ---------------------------------------------------------------------------- Net wells targeting crude oil 0.0 0.9 1.9 0.9 4.7 Net successful wells drilled 0.0 0.0 1.9 0.0 4.7 ---------------------------------------------------------------------------- Success rate 0% 0% 100% 0% 100% ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- -- North Sea crude oil production was 32,866 bbl/d during Q2/11, slightly above previously issued Corporate guidance due to strong performance from the Ninian field. Q2/11 crude oil production decreased 13% from Q2/10 and 4% from Q1/11 due to natural field declines. -- In March 2011, the UK government substantively enacted an increase to the corporate income tax rate charged on profits from UK North Sea crude oil and natural gas production from 50% to 62%. As a result, the Company's development activities in the North Sea have been reduced. The Company is maintaining one drilling string in the North Sea, down from the two originally planned. The planned drilling activity at Murchison during 2011 has been cancelled and decommissioning plans for the Murchison Platform are progressing as planned. The Company will continue to high grade all North Sea prospects for potential future development opportunities. -- In Q2/11, Offshore Africa crude oil production averaged 21,334 bbl/d, decreasing 29% from 29,842 bbl/d for Q2/10 and 16% from 25,488 bbl/d for the prior quarter. The decrease in production volumes from Q2/10 and Q1/11 was due to natural field declines, and the temporary suspension of production at the Olowi Field due to a failure in the midwater arch. Olowi production was reinstated at Platform C during Q2/11. The midwater arch has been stabilized and work is ongoing with production from Platforms A and B targeted for late Q3/11. North America Oil Sands Mining and Upgrading - Horizon Three Months Ended Six Months Ended ---------------------------------------------------------------------------- Jun 30 Mar 31 Jun 30 Jun 30 Jun 30 2011 2011 2010 2011 2010 ---------------------------------------------------------------------------- Synthetic crude oil production (bbl/d) - 7,269 99,950 3,615 93,508 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- -- All necessary regulatory and operating approvals to recommence operations at Horizon have been received. Fire rebuild and collateral damage repairs are essentially complete and commissioning to commence operations started on August 2, 2011. Commissioning is targeted to take between 2 and 3 weeks with ramp up to full production design rates of 110,000 bbl/d of SCO shortly thereafter. -- Construction of the third Ore Preparation Plant ("OPP") at Horizon is currently anticipated to be completed slightly below budget and on schedule. Commissioning is currently targeted for early Q4/11 and is expected to increase production reliability and result in higher plant uptime at Horizon. -- Turnaround and opportune maintenance has been completed. Portions of the turnaround originally scheduled for 2012 have been accelerated and remaining portions of that turnaround are now expected to be deferred to 2013, resulting in higher targeted production levels of SCO for 2012 than originally forecast. -- Fire repair/rebuild costs, including collateral damage, are currently estimated at approximately $400 million to $450 million. Business interruption insurance recoveries of $136 million were recognized in Q2/11. Additional business interruption insurance recoveries related to the second and third quarters will be recognized at such time as additional interim payments are processed and as the final terms of the insurance settlement are determined. -- As part of Canadian Natural's disciplined execution strategy to achieve cost certainty for a defined and stepped expansion at its Horizon operation from the current 110,000 bbl/d to 250,000 bbl/d of SCO capacity, the Company's Board of Directors has approved targeted strategic expansion capital expenditures at Horizon for 2012 of approximately $2 billion. It is expected that certain projects will be advanced and contracts finalized in 2011 and 2012 such that the execution of engineering, procurement and construction activities will be undertaken in 2012 resulting in the above noted strategic expansion capital expenditures. Decisions to proceed with individual projects, or the next stage of the expansion, will be based on then market conditions, the risk factors associated with the project, execution performance to date and the overall strategy to deliver the expansion phase of the project in a cost contained manner. MARKETING Three Months Ended Six Months Ended ---------------------------------------------------------------------------- Jun 30 Mar 31 Jun 30 Jun 30 Jun 30 2011 2011 2010 2011 2010 ---------------------------------------------------------------------------- Crude oil and NGLs pricing WTI(1) benchmark price (US$/bbl) $ 102.55 $ 94.25 $ 77.99 $ 98.42 $ 78.39 Western Canadian Select blend differential from WTI (%) 17% 24% 18% 20% 15% SCO price (US$/bbl) $ 115.65 $ 95.24 $ 76.44 $ 105.50 $ 77.90 Average realized pricing before risk management(2) (C$/bbl) $ 82.58 $ 67.96 $ 63.62 $ 75.25 $ 66.10 Natural gas pricing AECO benchmark price (C$/GJ) $ 3.54 $ 3.57 $ 3.66 $ 3.56 $ 4.36 Average realized pricing before risk management (C$/Mcf) $ 3.83 $ 3.83 $ 3.86 $ 3.83 $ 4.52 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- (1) Refers to West Texas Intermediate (WTI) crude oil barrel priced at Cushing, Oklahoma. (2) Excludes SCO. -- In Q2/11, WTI pricing increased by 31% from Q2/10, reflective of the political instability in the Middle East and North Africa, continued strong Asian demand and the relative weakness of the US dollar. -- The Western Canadian Select ("WCS") heavy crude oil differential as a percent of WTI averaged 17% in Q2/11 compared with 18% in Q2/10 and 24% in Q1/11. The WCS heavy differential narrowed in Q2/11 from the prior quarter primarily due to restored operations from Q1/11 outages at upgrading facilities and planned refinery shutdowns in key markets for WCS. -- During Q2/11, the Company contributed approximately 155,000 bbl/d of its heavy crude oil streams to the WCS blend. Canadian Natural is the largest contributor accounting for 57% of the WCS blend. REDWATER UPGRADING AND REFINING -- In Q1/11 Canadian Natural announced that it has partnered with North West Upgrading Inc. to move forward with detailed engineering regarding the construction and operation of the bitumen refinery. The partnership entered into an agreement to process bitumen supplied by the Government of Alberta under its Bitumen Royalty In Kind ("BRIK") initiative. The Project engineering is advancing and work towards sanction level completion is ongoing. Sanction is currently targeted for the latter part of 2011 or the first half of 2012. FINANCIAL REVIEW -- The financial position of Canadian Natural remains strong as the Company continues to focus on capital allocation and the execution of implemented strategies. Canadian Natural's credit facilities, its diverse asset base and related capital expenditure programs, and commodity hedging policy all support a flexible financial position and provide the right liquid resources for the short, mid and long term. Supporting this are: -- A large and diverse asset base spread over various commodity types; average production amounted to 561,359 BOE/d in the first half of 2011 and 95% of production was located in G8 countries. -- Financial stability and liquidity; in Q2/11 the $2.2 billion revolving syndicated credit facility was increased to $3.0 billion and extended to June 2015. With cash flow from operations of over $2.6 billion in the first half of 2011 and available unused bank lines of $2.8 billion at June 30, 2011, the Company maintains significant financial stability and liquidity. -- A strong balance sheet with debt to book capitalization of 29% and debt to EBITDA of 1.2 times; Canadian Natural's long term debt at June 30, 2011 amounted to $8.6 billion compared with $8.5 billion at December 31, 2010.
OUTLOOK
The Company forecasts 2011 production levels before royalties to average between 1,250 and 1,275 MMcf/d of natural gas and between 371,000 and 406,000 bbl/d of crude oil and NGLs. Q3/11 production guidance before royalties is forecast to average between 1,230 and 1,255 MMcf/d of natural gas and between 373,000 and 414,000 bbl/d of crude oil and NGLs. Detailed guidance on production levels, capital allocation and operating costs can be found on the Company's website at www.cnrl.com.