Canadian Natural Resources Reports 2010 Operational, Financial Results
"Canadian Natural reached a milestone in 2010 as we achieved an overall record yearly production level of over 632,000 barrels per day of oil equivalent. In addition, we increased our total proved plus probable company gross reserves by 9% to 6.9 billion barrels of oil equivalent, replacing 341% of our 2010 production and providing us a strong base of reserves with significant upside potential for years to come. Finally, to demonstrate confidence in our growth and sustainability, the Board of Directors has increased the quarterly dividend to $0.09 per common share, a 20% increase from 2010, marking this as the eleventh year of consecutive increases for the Company." Canadian Natural's Chairman, Allan Markin stated.
John Langille, Vice-Chairman of Canadian Natural summarized, "Over the last two years our core business has generated approximately $6.0 billion of free cash flow allowing us to make discretionary acquisitions of $1.9 billion while at the same time reducing debt by $4.5 billion, resulting in a debt to book capitalization of 29%. The Company's ability to generate strong cash flow enables us to manage the reduced cash flow we will experience from Horizon in 2011 without affecting our ongoing operations or capital expenditure plans. Our focus on financial discipline ensures we maintain a strong balance sheet going forward."
With regards to Canadian Natural's 2010 operating year, Steve Laut, President commented, "2010 was a strong year as we capitalized on the balance in our asset base through the effective allocation of capital to projects that provide the highest returns. We are in a solid position as the project portfolio continues to build strength and optionality preparing us to provide growth through a variety of commodity price scenarios."
- During 2010, total crude oil and NGLs production increased by 20% from 2009 to average 424,985 bbl/d reflecting increased crude oil drilling demonstrating the Company's flexibility in allocating capital to higher return crude oil projects as well as increased production volumes from the Company's thermal and Horizon Oil Sands (Horizon) operations.
- Total natural gas production for the year averaged 1,243 MMcf/d, a decrease of 5% from 2009. Production volumes were targeted to decrease from 2009 due to the Company's strategic decision to reduce capital reinvestment in natural gas resulting in a 16% reduction in North America natural gas net drilling activity.
- Net earnings in 2010 increased to $1.7 billion compared to $1.6 billion in 2009. Net earnings for 2010 included net unrealized after-tax expenses related to the effects of risk management activities, fluctuations in foreign exchange rates, stock-based compensation, a $0.67 billion (after tax) ceiling test impairment charge at Gabon, Offshore West Africa and the impact of statutory tax rate changes on future income tax liabilities. Adjusted net earnings in 2010 were $2.6 billion compared to $2.7 billion in 2009.
- Cash flow from operations was approximately $6.3 billion, an increase of 4% from $6.1 billion in 2009. The increase in cash flow primarily resulted from the increase in higher crude oil and NGL sales volumes and netbacks partially offset by lower realized risk management gains, lower natural gas sales volumes and netbacks, the impact of the stronger Canadian dollar and higher cash taxes.
- Independent Qualified Reserves Evaluators evaluated and reviewed all of the Company's crude oil and natural gas reserves and the following are highlights based on Company gross reserves using forecast prices and costs as at December 31, 2010:
- Company Gross proved crude oil and NGL reserves increased 8% to 3.80 billion barrels. Company Gross proved natural gas reserves increased 9% to 4.26 Tcf. Total proved BOE increased 8% to 4.51 billion barrels.
- Company Gross proved plus probable crude oil and NGL reserves increased 9% to 5.94 billion barrels. Company Gross proved plus probable natural gas reserves increased 10% to 5.77 Tcf. Total proved plus probable BOE increased 9% to 6.90 billion barrels.
- Company Gross proved reserve additions, including acquisitions, were 433 million barrels of crude oil and NGL and 814 billion cubic feet of natural gas, equating to 569 million barrels of oil equivalent. The total proved reserve replacement ratio on a BOE basis is 246%. Proved undeveloped reserves accounted for 30% of the Corporate total proved reserves.
- Company Gross proved plus probable reserve additions, including acquisitions, were 624 million barrels of crude oil and NGL and 979 billion cubic feet of natural gas equating to 787 million barrels of oil equivalent. The total proved plus probable reserve replacement ratio on a BOE basis is 341%.
- Total net exploration and production reserve replacement expenditures totaled $4.8 billion in 2010, including acquisitions of approximately $1.9 billion. Horizon sustaining capital totaled $0.13 billion while project capital accumulated $0.41 billion (including capitalized interest, stock-based compensation and other). Total consolidated net capital expenditures for 2010 were $5.5 billion, an increase of $2.5 billion from 2009.
- Total crude oil and NGLs production for Q4/10 was 438,835 bbl/d. Q4/10 crude oil production volumes increased 7% from Q3/10 of 411,585 bbl/d, and increased 20% from Q4/09 of 366,451 bbl/d. The increase in volumes in Q4/10 from Q3/10 and Q4/09 was primarily due to the Company's thermal and Horizon production volumes. Natural gas production volumes for the fourth quarter represented 32% of the Company's total production. Natural gas production for Q4/10 averaged 1,252 MMcf/d, comparable to 1,258 MMcf/d for Q3/10 and to 1,250 MMcf/d for Q4/09. The Company incurred a net loss in Q4/10 of $0.4 billion which included net unrealized after-tax expenses of $1.0 billion related to the effects of risk management activities, fluctuations in foreign exchange rates, stock-based compensation and a ceiling test impairment charge at Gabon, Offshore West Africa. Excluding these items, adjusted net earnings from operations for Q4/10 was $0.6 billion, compared to adjusted net earnings of $0.6 billion in Q3/10 and $0.7 billion in Q4/09.
- Quarterly cash flow from operations was approximately $1.64 billion, a 6% increase from Q3/10 and a 4% decrease from Q4/09. The increase from Q3/10 primarily reflected higher crude oil and NGL sales volumes and netbacks, partially offset by realized risk management losses. The decrease from Q4/09 reflects the impact of realized risk management losses, lower natural gas pricing and higher cash taxes, partially offset by higher crude oil and NGL sales volumes.
Operational and Financial
- Canadian Natural drilled a record 654 net primary heavy crude oil wells in 2010. The Company targets to drill 791 net primary heavy crude oil wells in 2011 which will drive a target 11% production growth in 2011.
- Record quarterly thermal heavy crude oil production of approximately 104,000 bbl/d was achieved in Q4/10. Thermal production levels increased approximately 22% from Q3/10 and 81% from Q4/09. The Company targets 12% production growth in 2011 and continues to execute on its thermal heavy crude oil growth plan.
- The Company drilled 127 horizontal wells in 2010 at Pelican Lake with plans to drill an additional 93 horizontal wells in 2011. The Company continues to convert wells to polymer flood injectors and targets 18% production growth in 2011.
- During 2010, a 15 well drilling program was completed at Septimus, a Montney shale play in Northeast British Columbia and all wells have been tied in. Production volumes up to 60 MMcf/d have been achieved through the plant which had a design processing capacity of the 50 MMcf/d. Additionally, the liquids ratio associated with the Septimus play are slightly higher than expected at 30 bbl/MMcf or 1,800 bbl/d.
- International operations in the North Sea and Offshore West Africa provided cash flow from operations in 2010 of approximately $960 million against capital expenditures of $395 million, resulting in significant free cash flow to the Company. International operations provide exposure to Brent oil pricing and the Company targets additional significant free cash flow from the International operations in 2011.
- A continued focus on effective and efficient operations in 2010 resulted in lower production costs across the Company. In 2010, production costs on a Company average $/BOE basis decreased 6% compared to 2009.
- Company total capital expenditures are targeted between $6.2 billion and $6.6 billion in 2011. The capital expenditures reflect an allocation of approximately $2.6 billion to long-term growth initiatives that will add long-term production volumes in 2012 and beyond. As the Company generates strong cash flow, the production volumes impacted at Horizon due to the Coker fire have not impacted the Company's capital expenditure plans for 2011.
- During 2010, the Company acquired approximately $1.9 billion of crude oil and natural gas properties in its core regions in Western Canada. These assets provide opportunities to lower operating costs, increase reserves and/or production and capture synergies with existing processing facilities and pipelines.
- The acquisition of leases adjacent to Canadian Natural's Kirby In Situ Oil Sands Project ("Kirby") provided the Company with gross proved plus probable reserves of 272 million barrels and the Company expects to gain significant operating synergies through these leases which will create the potential to drive exploitation opportunities.
- Construction of Kirby Phase 1 commenced soon after sanction in Q4/10. Kirby's first steam-in is targeted for 2013 and production is targeted to peak at 40,000 bbl/d. The overall cost of Kirby Phase 1 is targeted to be $1.25 billion. Horizon Synthetic Crude Oil (SCO) production averaged 90,867 bbl/d in 2010, an increase of 81% from 2009. During 2010, average month over month production volumes demonstrated more consistency as preventative maintenance activities continued to be fine tuned. 2011 production volumes have been impacted as a result of a Coker fire that occurred on January 6, 2011. The Company targets to reach half plant production rates (55,000 bbl/d SCO) in Q2/11 and full plant production rates (110,000 bbl/d SCO) in Q3/11. Corporate guidance has been revised to reflect newly targeted volumes for 2011.
- The Company announced the re-profiling of Horizon's expansion in Q4/10. The expansion will be executed 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 favorable market conditions and whether the business case meets the Company's investment criteria.
- In the first quarter of 2011, Canadian Natural announced that it has partnered with North West Upgrading Inc. tomove forward with detailed engineering regarding the construction and operation of the bitumen refinery under the Alberta Royalty Framework's Bitumen Royalty In Kind (BRIK) program. This project supports the Company's marketing strategy to ensure conversion capacity for the Company's products.
- Long term debt reductions of approximately $1.2 billion in 2010 further enhances the Company's already strong balance sheet, even after completing approximately $1.9 billion of acquisitions over the course of the year.
- During 2010, the Company repurchased two million common shares under the Company's Normal Course Issuer Bid.
- Canadian Natural's Board of Directors has resolved to increase its cash dividend on common shares for the eleventh year in a row. The 2011 quarterly dividend on common shares increased by 20% to C$0.09 from C$0.075 per common share, payable April 1, 2011. The dividend increase in 2011 follows a 43% increase in 2010.
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