Canadian Natural Resources Buoys 2011 Production with $2.4B Investment
Canadian Natural Resources updated its budget for 2011.
In commenting on the Company's 2011 budget, Allan Markin, Chairman, stated, "Canadian Natural's 2011 budget reflects our strong asset base and a continued focus on projects that provide the best returns for shareholders. We are targeting another year of significant free cash flow generation, debt reduction and a strengthening balance sheet. At the same time as we target production volumes per barrel of oil equivalent to grow by 6% in 2011, we will be investing over $2.4 billion (approximately 45% of 2011 capital expenditures) on long-term growth initiatives that provide no additional volumes in 2011 but will provide sustainable, long-term returns in 2012 and beyond."
HIGHLIGHTS OF THE 2011 BUDGET
- Equivalent production target of 645,000 boe/d to 694,000 boe/d before royalties, representing a midpoint increase of 6% from the midpoint of 2010 forecasted annual average production guidance.
- Crude oil and NGLs production target of 449,000 bbl/d to 486,000 bbl/d before royalties, representing a midpoint increase of 10% from the midpoint of 2010 forecasted annual guidance. This increase reflects the following:
- Primary heavy crude oil is targeted to increase 10% from 2010 volumes reflecting record drilling programs implemented in 2010 and 2011;
- Production response at Pelican Lake due to the Company's ongoing conversion to polymer flood will result in production volumes being targeted to increase by 17% in 2011;
- Increased production reliability at Horizon Oil Sands ("Horizon") with budgeted 2011 production targeted to range from
- 105,000 bbl/d to 112,000 bbl/d of SCO; approximately 19% higher than 2010;
- Production increases targeted at Primrose East, North and South of 12% over 2010 levels; and,
- Greater production rates of light crude oil due to a combination of acquisitions completed in 2010 and increased light crude oil capital spending over previous years resulting in approximately an 11% annual increase.
- The overall increase in crude oil and NGLs production will be partially offset by production declines in Offshore West Africa and the North Sea.
- Natural gas production target of 1,177 mmcf/d to 1,246 mmcf/d before royalties,representing a midpoint decrease of 3% from the midpoint of 2010 forecasted annual guidance. This decrease reflects the Company's continued proactive reduction of natural gas drilling activity by 28% from 2010 levels as a result of the Company's short to mid term outlook for low natural gas pricing, offset somewhat by new Montney production at Septimus and acquired volumes completed over the course of 2010.
- Cash flow from operations is targeted to be between $7.0 billion and $7.4 billion ($6.40 - $6.75 per common share), based upon targeted production and forward strip pricing on November 24, 2010 (WTI crude oil price of US $84.32/bbl, Western Canadian Select heavy oil differential of 22%, NYMEX natural gas price of US $4.31/mmbtu and an exchange rate of US $0.98 = C$1.00).
- Capital spending in 2011 will range between approximately $5.6 billion and $6.0 billion. Approximately 45% of 2011 capital expenditures are allocated to projects that will result in long-term production growth beginning in 2012 and beyond. This $2.4 billion to $2.8 billion investment will generate more sustainable, long-term returns for the Company.
- Free cash flow (cash flow after capital expenditures), is targeted between $1.0 billion and $1.8 billion based on forward strip pricing.
- Crude oil and natural gas capital expenditures in North America, including Horizon Oil Sands and thermal projects but excluding acquisitions, are targeted to be $5.0 billion to $5.4 billion in 2011, representing a 52% - 64% increase in capital spending from 2010 levels.
- The 2011 capital budget in North America reflects:
- An allocation of $2.4 billion to $2.8 billion to long-term growth initiatives that will add long-term production volumes in 2012 and beyond;
- A significant increase in thermal crude oil investment of 142% from 2010 levels. Kirby Phase 1 capital expenditures are targeted to be $515 million in 2011 as the Company progresses its thermal growth plan;
- Continuation of record primary heavy crude oil drilling in 2011;
- Progression of the polymer flooding program at Pelican Lake;
- The Company's outlook for natural gas pricing is not favorable, and as a result, 2011 natural gas capital expenditures are targeted to decrease by 14% to $600 million from 2010 levels of $700 million; and,
- Increased expenditures at Horizon Oil Sands to meet regulatory requirements for tailings, continue previously approved reliability work (Tranche 2) and advance certain debottlenecking and expansion projects.
- At Horizon, approximately $220 million of sustaining and reclamation capital has been allocated in 2011, an increase of $90 million from 2010. This increase reflects the Company's objective to improve overall plant reliability and maintain the Company's targeted sustainable production of 110,000 bbl/d SCO.
- The Horizon 2011 Plan reflects the re-profiling of Horizon's expansion in a staged project execution plan. Project capital will be allocated to several different modules. Total expenditures on Horizon in 2011 will range between $800 million and $1,200 million dependent upon favorability of market conditions and whether the business case meets the Company's investment criteria.
- International conventional crude oil and natural gas capital expenditures are budgeted to be $505 million, an increase of 17% from 2010. North Sea capital expenditures are budgeted to be $370, the majority of which will be used to complete necessary sustaining capital activities on North Sea platforms. Offshore West Africa expenditures are budgeted to be $135 million, the majority of which will be spent on drilling and completions.
- Canadian Natural has significant capital flexibility in the 2011 capital program allowing the Company to quickly adapt its capital spending profile to any changes in the commodity price environment.
- Continued strong balance sheet management which provides financial flexibility for operating plans.
- The Company continues to focus on operational excellence through commitment to safe operations, a minimal environmental footprint and focus on being the most efficient producer in its core areas. North America crude oil operating costs are targeted to remain flat while only a marginal increase is targeted for North America natural gas operating costs despite a targeted midpoint production volume decrease of 3%. Horizon operating costs are targeted to decline in 2011 to between $30.00 and $36.00 per barrel of SCO production.
Capital and Production Guidance
Canadian Natural continues its strategy of maintaining a large portfolio of varied projects. This 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 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.
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