Capex Data
• Canadian conventional crude oil and natural gas capital expenditures of $1.7 billion in 2008, representing a 33% reduction in capital spending from 2007 levels. Of the reduction in capital spending, 78% ($645 million) is due to a reduced drilling program in Alberta largely as a result of the impact of the Royalty Review changes.
• International conventional crude oil and natural gas capital expenditures are budgeted to be $689 million.
• Construction capital expenditures on the Horizon Oil Sands Project are budgeted at $600 to $1,020 million for completion of Phase 1.
Future Plans
Highlights of the 2008 Budget
- Crude oil and NGLs production target of 316,000 to 366,000 bbl/d before royalties, representing a midpoint increase of 3% from the midpoint of 2007 annual guidance. The increase reflects the commencement of operations at the Horizon Project, but is partially offset by the long term production optimization cycle at Primrose, polymer conversion at Pelican Lake, and reduced activity in the North Sea.
- Natural gas production target of 1,429 to 1,513 mmcf/d before royalties, representing a midpoint decrease of 12% from the midpoint of 2007 annual guidance. The decrease reflects lower activity levels due to reduced economics, relative to crude oil, and the resulting lower drilling activity in Alberta largely due to the anticipated changes from the Alberta Royalty Review.
- Equivalent production target of 554,000 to 618,000 boe/d before royalties, representing a midpoint decrease of 4% from the midpoint of 2007 annual guidance. Entry to exit production is targeted to increase 6% in 2008.
- Cash flow from operations estimate of $4.6 billion to $5.1 billion ($8.50 - $9.40 per common share) based upon a forecast average West Texas Intermediate crude oil price of US$73.00/bbl, a Lloyd Blend heavy oil differential of 30%, a NYMEX natural gas price of US$7.00/mmbtu and an exchange rate of C$1.00 = US$1.00.
- Canadian conventional crude oil and natural gas capital expenditures of $1.7 billion in 2008, representing a 33% reduction in capital spending from 2007 levels. Of the reduction in capital spending, 78% ($645 million) is due to a reduced drilling program in Alberta largely as a result of the impact of the Royalty Review changes.
- International conventional crude oil and natural gas capital expenditures are budgeted to be $689 million.
- Construction capital expenditures on the Horizon Oil Sands Project are budgeted at $600 to $1,020 million for completion of Phase 1.
- The Company is moving forward with Phase 2/3 of the Horizon Project with a four-tranche development plan increasing targeted capacity to 232,000 to 250,000 Synthetic Crude Oil ("SCO") bbl/d of by 2013. Tranche 2 of the Phase 2/3 expansion expenditures are budgeted at $439 million in 2008. Tranche 1 of Phase 2/3 expansion will be largely completed in 2007.
- Continued strong balance sheet management with targeted debt to book capitalization at the end of 2008 of approximately 43% and debt to EBITDA of 1.9x.
Canadian Natural continues its strategy of maintaining a large portfolio of varied projects, which enables the Company to provide consistent growth in production and high shareholder returns over an extended period of time. Annual budgets are developed, scrutinized throughout the year and changed if necessary in the context of project returns, product pricing expectations, and balance in project risks and time horizons. Canadian Natural maintains a high ownership level and operatorship level in all of its properties and can therefore control the nature, timing and extent of expenditures in each of its project areas.
- Natural gas drilling in Alberta is targeted to be reduced by 44% due to the anticipated future impact of royalty changes effective 2009. In Alberta 36% of the wells targeted to be drilled will be low rate shallow natural gas and coal bed methane wells. The Company's activities outside Alberta are targeted to increase 8% due mainly to a large development program in the Hatton region of Saskatchewan.
- The shift in natural gas spending between categories and provinces reflects both changing economics due to commodity price forecasts and the anticipated implementation of the new Royalty Regime within the Province of Alberta, effective 2009. The new Alberta royalty regime dramatically reduces drilling economics of certain play types at current and higher price forecasts in future years by extending the project payout period due to a front end loaded royalty structure. As such, further cuts in both conventional and high productive rate deep natural gas wells are expected in future years as they would not benefit from first year production under the current regime in Alberta.
- Canadian Natural's guidance range for North American natural gas production is 1,405 - 1,485 mmcf/d before royalties, a decrease of 12% from the midpoint of 2007 guidance.
- At Primrose, the Company has chosen to concentrate the 2008 thermal drilling program on the new Primrose East Expansion project and defer drilling at the existing Primrose North and South projects until 2009. As a result, production from the existing operations at Primrose will rely on relatively mature wells. As part of the cyclic steam process, steam oil ratios ("SORs") climb and well productivity declines as a well matures. The Company is taking advantage of the opportunity of the robust economics of steaming mature wells in the current commodity price environment of low natural gas prices and high crude oil prices.
- As expected thermal production is targeted to peak in late 2007/early 2008 as the Primrose North wells commence their production phase. Production will then decline throughout the remainder of 2008, resulting in higher SORs and higher corresponding operating costs. Drilling will resume at Primrose North, Primrose South and Wolf Lake in 2009 as Canadian Natural will continue to develop the excellent Clearwater, Grand Rapids and McMurray reservoirs on these leases.
- At Pelican Lake, Canadian Natural is targeted to significantly expand the polymer flood as a result of the success the Company has had in 2007. Results have met or exceeded expectation, which provides the confidence to apply this process to large regions of the pool. This will involve converting many producers to polymer injection wells, which will require a "reservoir fill-up" period of 12 to 18 months prior to seeing a positive crude oil production response from the process. The result is that 2008 targeted production at Pelican Lake will be essentially flat while awaiting response from these conversions.
- The guidance range for North American conventional crude oil and NGLs production is 221,000 - 245,000 bbl/d before royalties.
International
North Sea
- Canadian Natural anticipates drilling approximately 4 net platform wells while continuing its successful workover and recompletion program.
- As a result of reduced activity and major turnarounds, the 2008 guidance range for North Sea crude oil production is 44,000 to 54,000 bbl/d, representing an expected decrease of 12% from midpoint 2007 guidance.
Offshore West Africa
- Canadian Natural anticipates spending approximately $150 million in 2008 on the development of the Baobab Field in Cote d'Ivoire, Offshore West Africa, re-completing the wells that experienced sanding issues. The Company is targeting to have 2 wells back on production by the end of 2008.
- The Company is budgeted to spend approximately $235 million completing the Olowi project, in Gabon, Offshore West Africa, targeting first crude oil in Q4/08. The peak production is targeted to be 20,000 bbl/d, net to Canadian Natural.
- The 2008 guidance range for Offshore West Africa crude oil production is 24,000 to 32,000 bbl/d before royalties. This represents approximately 20% increase in entry to exit production.
Horizon Oil Sands Project
- The Horizon Project is targeting first crude oil for Q3/08. Phase 1 construction capital is targeted to range from $600 million to $1,020 million in 2008, representing a cost to completion forecast range of 8% to 14% over the original $6.8 billion estimate.
- The Company has decided to implement a plan for Phases 2/3 involving a four-tranche approach to develop targeted capacity of 232,000 to 250,000 SCO bbl/d by 2013. The development plan for the Phase 2/3 expansion is characterized by smaller incremental projects. The execution strategy takes project control to the next step where Canadian Natural will complete the detailed engineering and design work, procure equipment, and award well defined, complete construction work packages. This strategy will take more time to complete but will ensure greater cost control and will provide intermediate production gains.
- This execution strategy plan for Phase 2/3 gives Canadian Natural better project control over execution and costs and allows for greater capital flexibility. The incremental approach also ensures the availability of the people and project teams to complete the expansion while maximizing the learnings from Phase 1. It will maintain the balance sheet strength of Canadian Natural and the ability to respond accordingly to commodity price fluctuations. This will minimize distraction for effective Phase 1 start-up and optimization and allow the Company to maximize its learnings from Phase 1. The Company will not be creating a mega project, allowing access to a greater depth of contractors.
- Tranche 1 was largely completed in 2006/07, which involved front-end loading, building coker foundations and the pipe racks for Phase 2/3, and ordering certain long-lead vessels, which are targeted to arrive in Q1/08.
- Tranche 2 will involve procuring additional mining equipment, constructing a third ore preparation plant, constructing additional gas recovery and sulphur trains, and debottlenecking the existing plant. The capital cost over the next three years is estimated to be $1.1 billion and will provide increased plant capacity and targeted production gains of between 6,000 and 15,000 SCO bbl/d.
- Tranche 3 will involve additional mining equipment and construction of extraction trains, coker expansions, and CO2 recovery units. This tranche will result in lower operating costs, improved "uptime" and reliability, and targeted production increases of 10,000 to 20,000 SCO bbl/d.
- Tranche 4 will involve construction of two additional ore preparation plants, additional froth treatment and extraction facilities, support facilities, a diluent recovery unit, a vacuum recovery unit, and further hydrotreating units. This will take the targeted production to 232,000 to 250,000 SCO bbl/d, lower operating costs, and improve "uptime" and reliability.
- The 2008 guidance range for the Horizon Project production is 27,000 to 35,000 SCO bbl/d.
Financial Review
- Canadian Natural is committed to maintaining its strong financial position, allowing the Company to withstand volatile crude oil and natural gas commodity prices and the operational risks inherent in the crude oil and natural gas business environment. The Company continues to build the necessary financial capacity to complete the numerous projects under development in the Company.
- Based upon the previously referenced price deck, capital expenditure and production levels, Canadian Natural expects to exit 2008 with debt to book capitalization of approximately 43% and with a debt to EBITDA of 1.9x.
- Canadian Natural expects to exit 2008 with new targeted production capacities of 176,000 to 180,000 bbl/d from four major projects. This significant increase in cash flow / net income generation capacity is targeted to strengthen the Company's balance sheet metrics to 35% to 39% debt to book capitalization and 1.3x to 1.5x debt to EBITDA by December 2009.
- In 2009, all business segments are expected to be generating significant free cash flow available for Canadian Natural's capital allocation process.