Canadian Natural Resources

Capex

Capital spending in 2009 is budgeted at $4.0 billion.

- Canadian conventional crude oil and natural gas capital expenditures of $2.75 billion in 2009, representing a 15% increase in capital spending from 2008 levels. The increase is due to a large crude oil drilling program, continued expansion of the Pelican polymer flood, increasing the focus on the company's unconventional natural gas plays largely located in British Columbia and a large stratigraphic well program to further delineate their thermal assets.
- International conventional crude oil and natural gas capital expenditures are budgeted to be $681 million.
- Canadian Natural has significant capital flexibility in the 2009 capital program allowing the Company to quickly scale back capital spending, or increase capital spending effectively if costs decrease or commodity prices increase.
- In light of the reduced commodity pricing and the continued highly inflationary cost environment in the Fort McMurray region, capital spending at Horizon has been significantly reduced. Tranches 3 and 4 of the expansion of the Horizon Project are being re-profiled and will not be executed until better cost management is attained and the environment returns to a more normalized state.

Future Plans

Canadian Natural four major development projects undertaken in 2008 are either onstream or will be onstream in the first quarter of 2009 meaning that the company will have significant production growth - even in the context of a reduced 2009 capital budget.

Canadian Natural's conventional business has been a significant generator of free cash flow over the years. In 2009, all businesses, including the Horizon Project, will generate free cash flow. In addition, the company have 92,000 bbl/d protected with US$100/bbl WTI puts which will reduce the impact of any further decline in crude oil prices. Using current strip pricing, Canadian Natural target to have between $6.8 billion to $7.2 billion of cash flow from operations. With a capital spending program of $4.0 billion the company are targeting to generate between $2.8 billion and $3.2 billion of free cash flow. The initial use of these funds will be to pay down debt.

HIGHLIGHTS OF THE 2009 BUDGET
- Equivalent production target of 600,000 to 651,000 boe/d before royalties, representing a midpoint increase of 11% from the midpoint of 2008 revised annual guidance. Entry to exit production is targeted to increase 17% in 2009.
- Crude oil and NGLs production target of 386,000 to 426,000 bbl/d before royalties, representing a midpoint increase of 29% from the midpoint of 2008 revised annual guidance. The increase reflects the ramp up of operations at the Horizon Project, Primrose East and Pelican Lake, but is offset by reduced activity in the North Sea.
- Natural gas production target of 1,285 to 1,350 mmcf/d before royalties, representing a midpoint decrease of 12% from the midpoint of 2008 revised annual guidance. The decrease reflects a 20% reduction in drilling activity levels year over year, largely as a result of the impact of increased royalties in Alberta commencing January 1, 2009 and to a lesser degree, the impact of low natural gas prices.
- Cash flow from operations targeted at $6.8 billion to $7.2 billion ($12.60 - $13.30 per common share) based upon November 3, 2008 strip pricing with a forecast average West Texas Intermediate crude oil price of US$69.00/bbl, a Western Canadian Select heavy oil differential of 28%, a NYMEX natural gas price of US$7.37/mmbtu and an exchange rate of C$1.00 = US$0.87.
- Free cash flow (cash flow after capital), is targeted between $2.8 billion and $3.2 billion based on November 3, 2008 strip pricing.

Production and Financial Guidance
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 in its properties and can therefore control the nature, timing and extent of expenditures in each of its project areas.
- In 2009, the Company's priorities for natural gas drilling are advancing development of the key resource projects and drilling strategic wells in the high impact growth areas while maintaining an efficient, cost effective program.
- Key resource projects that the Company will focus on will include, the Montney / Doig shales and the Muskwa shale, located in British Columbia.
- Our guidance range for North American natural gas production is 1,260 - 1,320 mmcf/d before royalties, a decrease of 13% from the midpoint of 2008 revised guidance.

NORTH AMERICA

Natural Gas
- In 2009, the Company's priorities for natural gas drilling are advancing development of the key resource projects and drilling strategic wells in the high impact growth areas while maintaining an efficient, cost effective program.
- Key resource projects that the Company will focus on will include, the Montney / Doig shales and the Muskwa shale, located in British Columbia.
- Our guidance range for North American natural gas production is 1,260 - 1,320 mmcf/d before royalties, a decrease of 13% from the midpoint of 2008 revised guidance.

Conventional Crude Oil and NGLs
- At Primrose, the Company has a very active drilling program at Primrose North and Primrose East focusing on the Clearwater cyclic steam reservoir. The Company will continue the development program that began in 2008 at Primrose North, drilling 93 horizontal wells during 2009. Production from this program will begin in late 2009. Primrose East production commenced in 2008 with plans to drill a further 22 horizontal cyclic steam wells in 2009.
- As expected, total thermal production is targeted to peak in mid 2009 reflecting Primrose East expected first production cycle.
- At Pelican Lake, Canadian Natural is continuing to expand its polymer flooding within the field. Results to date 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 2009 targeted production increase at Pelican Lake is tempered while awaiting response from these conversions. In 2009, 108 wells will be drilled at Pelican.
- The guidance range for North American conventional crude oil and NGLs production is 242,000 - 260,000 bbl/d before royalties.

INTERNATIONAL

North Sea
- Canadian Natural anticipates drilling approximately 0.9 net platform wells with focus on building drilling and work over inventory for 2010.
- As a result of reduced activity and three major turnarounds, the 2009 guidance range for North Sea crude oil production is 36,000 to 42,000 bbl/d, representing an expected decrease of 14% from midpoint 2008 revised guidance.
Offshore West Africa
- Canadian Natural anticipates spending $80 million in 2009 to complete Phase 2 of the development of the Baobab Field in Cote d'Ivoire. The Company is targeting to have 3 wells back on production by early 2009.
- The Company is budgeted to spend approximately $212 million in 2009 to complete the Olowi project, in Gabon, with production targeting to ramp-up to 20,000 bbl/d, net to Canadian Natural in early 2010.
- The 2009 guidance range for Offshore West Africa crude oil production is 28,000 to 35,000 bbl/d before royalties. This represents approximately 13% increase in entry to exit production.
Horizon Oil Sands Project ("Horizon Project")
- The Horizon Project is targeting production of Synthetic Crude Oil ("SCO") in late Q4/08. The operations are targeting to reach full capacity of 110,000 bbl/d of SCO on a sustained basis by later in 2009.
- The Company decided in 2007 to implement a plan for the expansion of the Horizon Project involving a four-tranche approach to develop targeted capacity of 232,000 to 250,000 SCO bbl/d by 2013. Tranches 3 and 4 of the expansion are being re-profiled.
- Tranche 1 was largely completed in 2006/07, which involved front-end loading, building coker foundations and the pipe racks for the expansion, and ordering certain long-lead vessels, which are on site.
- Tranche 2 involves procuring additional mining equipment, constructing a third ore preparation plant, constructing additional gas recovery and sulphur trains, and debottlenecking the existing plant. Targeted production gains are between 6,000 and 15,000 SCO bbl/d. A significant portion of Tranche 2 will be moved to 2010, when a more reasonable cost environment is expected.
- Tranche 3 involves 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 3 is being re-profiled to spread to capital spending until better cost management is attained and the environment returns to more reasonable levels.
- Tranche 4 involves 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 decision on Tranche 4 is waiting on the re-profiled process.
- The 2009 guidance range for the Horizon Project production is 80,000 to 89,000 SCO bbl/d.

Financial Review
- The current worldwide credit events and a corresponding economic pullback creating uncertain commodity demand sets the stage for a conservative capital expenditure program for 2009.
- Canadian Natural is committed to maintaining its strong financial position, allowing maximum flexibility in a volatile crude oil and natural gas commodity price environment.
- The Company continues to utilize certain risk management tools, including commodity price hedge instruments, to underpin the cash flow from operations to ensure the completion of the capital expenditure budget plans.
- Cash flow from operations provides financial stability and liquidity and is forecasted, on current strip pricing, to be between $6.8 billion to $7.2 billion. This internally generated cash flow from operations is augmented by available unused bank lines of $2.4 billion at September 30, 2008.
- In 2009, each of the North American Conventional, Horizon Project, North Sea and Offshore West Africa business segments are expected to be generating significant free cash flow available for Canadian Natural's capital allocation process.
- Canadian Natural expects to exit 2009 at the lower end of the targeted debt to book capitalization of 35% - 45% and below the targeted debt to EBITDA of 1.8x - 2.2x utilizing the previously discussed strip commodity price assumptions and guidance production levels.

Production

Total natural gas production in 2007 averaged 1,668 mmcf/d, an increase of 12% from 2006, primarily due to a full year of production from the Anadarko Canada Corporation acquisition in November of 2006. Total crude oil and NGLs production in 2007 averaged 331,232 bbl/d, a slight decrease from 2006. North America grew 5%, offset by a decrease in production from the International operations.

2007 Daily production, before royalties

Natural gas (mmcf/d): 1,668
Crude oil and NGLs (bbl/d): 331,232
Equivalent production (boe/d): 609,206

Reserves

Total net proved reserves from conventional operations at the end of 2007 amounted to 1.4 billion barrels of crude oil and NGLs and 3.7 trillion cubic feet of natural gas. Total net proved conventional reserves increased modestly from 2006 to 2007.

Net proved reserve additions from conventional operations equaled 110% of 2007 net production, at a finding and on-stream cost of $14.28 per barrel of oil equivalent. The Company's three-year average proved finding and on-stream costs were $15.07 per barrel of oil equivalent.

Total net proved and probable reserves from conventional operations at the end of 2007 amounted to 2.1 billion barrels of crude oil and NGLs and 4.8 trillion cubic feet of natural gas. Total proved and probable net conventional reserves remained relatively unchanged from the prior year.

Net proved and probable reserve additions from conventional operations equaled 87% of 2007 net production, at a finding and on-stream cost of $18.02 per barrel of oil equivalent. The Company's three-year average net proved and probable finding and on-stream costs were $11.03 per barrel of oil equivalent. As anticipated, the significantly reduced drilling program in 2007 resulted in less proved and probable reserves being booked.

Total net proved and probable reserves from conventional operations at the end of 2006 amounted to 2.1 billion barrels of crude oil and NGLs and 5.0 trillion cubic feet of natural gas. Total proved and probable net conventional reserves increased by 30%, with net proved and probable crude oil reserves increasing by 28% and net proved and probable natural gas reserves increasing by 35%.

Net proved and probable reserve additions from conventional operations equaled 472% of 2006 net production, at a finding and onstream cost of $10.09 per barrel of oil equivalent. The Company's three-year average net proved and probable finding and onstream costs was $9.88 per barrel of oil equivalent.

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