Canadian Natural Resources Reports Strong Quarterly Results

In commenting on first quarter 2004 results, Canadian Natural's Chairman, Allan Markin, stated, "We have achieved a very significant milestone this quarter with exit and current production volumes now in excess of half a million boes per day. This has been accomplished in less than 15 years of operation."

Canadian Natural's Chief Operating Officer, Steve Laut, in commenting on operations stated, "Our first quarter drilling program was the largest in the history of Canadian Natural, which saw us contracting up to 64 drilling rigs per day. As a result of our development activities, our current worldwide natural gas production levels are in excess of 1.45 bcf/d and crude oil and NGLs production is in excess of 276 mbbl/d. The acquisition of heavy oil properties in eastern Alberta and natural gas properties in Northeast British Columbia both represent core area consolidation opportunities with exploitation and exploration upside. As a result of these transactions, our project portfolio is stronger and our ability to finance major development projects is enhanced."

Canadian Natural's President, John Langille, in commenting on the financial results of the first quarter stated, "Growing production results combined with strong commodity prices have yielded exceptional cash flow and positioned us to build an even stronger Canadian Natural. We have taken some of our excess cash flows and reinvested them into properties that will payout in short order and provide free cash flow during the Horizon Project construction years."


  • Production rates exited the quarter in excess of 500,000 boe/d, before royalties.
  • Record quarterly crude oil and NGLs sales of 261 mbbl/d, before royalties (237 mbbl/d, net of royalties).
  • Natural gas sales of 1,294 mmcf/d, before royalties (1,029 mmcf/d, net of royalties), representing 45 percent of equivalent production during the quarter.
  • ,li>Cash flow of $848 million ($6.32 per common share) compared with $906 million ($6.76 per common share) in the first quarter of 2003 and $734 million ($5.48 per common share) in the previous quarter.
  • Net earnings of $258 million ($1.92 per common share) compared with $427 million ($3.19 per common share) for the first quarter of 2003 and $250 million ($1.87 per common share) in the previous quarter. Adjusted net earnings from operations a non Generally Accepted Accounting Principle ("GAAP") term, amounted to $339 million ($2.53 per common share) compared with $324 million ($2.42 per common share) for the first quarter of 2003 and $201 million ($1.50 per common share) in the previous quarter.
  • Successfully completed the $471 million acquisition of the Petrovera Partnership ("Petrovera") with an effective date of February 1, 2004. This strategic acquisition added 27.5 mbbl/d (18.4 mbbl/d average during the first quarter) of heavy crude oil and 9 mmcf/d (6 mmcf/d average during the first quarter) of natural gas together with royalty interest volumes of 1.2 mbbl/d of heavy crude oil and 2 mmcf/d of natural gas.
  • Received regulatory approvals for the Horizon Oil Sands Project from the Alberta Energy and Utilities Board as well as the Alberta Provincial Cabinet and the Canadian Federal Cabinet.
  • Capital expenditures of $1.5 billion, reflecting the high activity levels associated with winter drilling areas and the Petrovera acquisition. During the quarter, Canadian Natural drilled 839 wells, including 358 natural gas wells.
  • Extended its Normal Course Issuer Bid for a further 12-month period through the facilities of the Toronto Stock Exchange and the New York Stock Exchange for the purchase of up to 5 percent of the Company's common shares outstanding (approximately 6.7 million common shares) at the market price, if and when acquired.
  • To increase the liquidity of its common shares, the Board of Directors has proposed to the shareholders that the Company's common shares be subdivided on the basis of 2:1. The proposal will be voted on at the Annual and Special Meeting of Shareholders to be held on May 6, 2004.
  • Increased the quarterly dividend by 33 percent to $0.20 per common share on a pre-split basis ($0.10 per common share on a post split basis), commencing with the April 1, 2004 payment.
  • Subsequent to the first quarter, successfully negotiated the acquisition of natural gas assets located in the Company's core region of Northeast British Columbia and an extension of its core region in the Foothills area of Western Alberta for $280 million. The acquisition provides Foothills exploration acreage to augment Canadian Natural's increasing exploration efforts in the area.

  • Production

    The Company's business approach is to maintain large project inventories and production diversification among each of the commodities it produces; namely natural gas, light crude oil, Pelican Lake crude oil, primary heavy crude oil and thermal heavy crude oil.

    Canadian Natural has prospectively adopted a new reporting practice of netting royalty income against royalty expense rather than sales volumes and revenue. The result is that approximately 8 mmcf/d of natural gas and 1.7 mbbl/d of crude oil is not reported as production volumes, as was previous practice. While not material, this prospective reporting may result in minor changes in certain reporting metrics such as production volumes and "per boe" financial results.

    Average natural gas production levels in the first quarter of 2004 increased by 3 percent over the previous quarter, reflecting the increased drilling activity in winter-access only areas offset by the reporting change noted above. During the quarter, 358 natural gas wells were drilled. This drilling activity was affected by extreme cold during the month of January, effectively shifting tie in and first production from many wells by several weeks. As a result of this, approximately 45 mmcf/d of natural gas was not tied in during the quarter as expected. This production will be tied in following break-up. Natural gas production levels increased significantly during the quarter with entry to exit growth of over 100 mmcf/d. Current production volumes are in excess of 1,450 mmcf/d of natural gas.

    Production of crude oil and NGLs during the first quarter of 2004 totaled 261 mbbl/d, a new quarterly record. Entry to exit production increased from 247 mbbl/d to 276 mbbl/d, reflecting past drilling programs and the Petrovera acquisition. The Company expects production from the first quarter drilling program to come on-stream during the second and third quarters.

    Following the acquisition of Petrovera and natural gas resource properties in Northeast British Columbia, the Company expects production levels, before royalties, in 2004 to average 1,350 to 1,405 mmcf/d of natural gas and 265 to 283 mbbl/d of oil and liquids. Second quarter 2004 production guidance, before royalties, for natural gas is 1,427 to 1,455 mmcf/d of natural gas and 264 to 282 mbbl/d of oil and liquids.

    DRILLING ACTIVITY (number of wells)

                                             Three Months Ended March 31
                                                 2004             2003
                                           Gross     Net   Gross     Net
    Oil                                      148     143     124     116
    Natural gas                              395     358     261     244
    Dry                                       74      70      24      23
    Subtotal                                 617     571     409     383
    Stratigraphic test / service wells       269     268     367     366
    Total                                    886     839     776     749
    Success rate
    (excluding strat tests / service wells)          88%             94%

    During the quarter, Canadian Natural drilled 839 net wells, including 268 stratigraphic test and service wells, representing the most active quarterly drilling program in the Company's history. Canadian Natural drilled 358 net wells targeting natural gas, also a quarterly record. In Northeast British Columbia, 173 wells targeting natural gas were drilled, including 86 shallow Notikewin wells that achieved a 96 percent success rate. In Northwest Alberta, 75 wells targeting natural gas were drilled including 37 Cardium wells with a 100 percent success rate. The Northeast British Columbia and Northwest Alberta core regions represent the high growth potential natural gas areas of the Company.

    The Company also drilled 143 net wells, including 33 net wells drilled by Petrovera, targeting crude oil and NGLs during the first quarter 2004. These wells were concentrated in the Company's crude oil region of North Alberta where 76 primary heavy oil and 20 Pelican Lake wells were drilled. Also included in this figure were 19 high-pressure horizontal thermal oil wells that were drilled and completed at Primrose as part of the 2004 development strategy of the area.

    Finally, 180 stratigraphic test wells were drilled on the oil sands leases in Horizon Oil Sands Project and 79 wells in Primrose and Pelican Lake.

    The total success rate for Canadian Natural's drilling program was 88 percent, excluding stratigraphic test and service wells. These excellent results reflect the disciplined approach that the Company takes in its exploitation and development programs and the strength of our asset base.

    North American Natural Gas

    Canadian Natural continues its exploration and development activities in the highly prospective core region of Northeast British Columbia. In the Helmet area, a total of 52 horizontal wells targeting tight natural gas zones were drilled, while in the Fort St. John Block, 86 Notikewin shallow wells and 4 deeper targets were drilled. The Notikewin wells drilled to date are producing at rates of 0.4 mmcf/d to 1.0 mmcf/d of natural gas, slightly better than original expectations.

    The Company drilled four deep natural gas exploration targets during the quarter with 100 percent success and production rate expectations of between 2 mmcf/d and 15 mmcf/d of natural gas per well. The overall success rate for this core region was 94 percent.

    In the Cardium-oriented southern portion of the Northwest Alberta core region, a total of 37 wells targeting natural gas were drilled with a success rate of 100 percent. In addition to the Cardium drilling, a total of 38 wells targeting other natural gas formations were drilled in this core region with a success rate of 79 percent.

    Subsequent to the quarter end, the Company completed an acquisition of certain resource properties producing approximately 68 mmcf/d of natural gas located in Northeast British Columbia and Northwest Alberta for consideration of $280 million. The properties include a further ownership interest in the Ladyfern natural gas field, complementing Canadian Natural's existing holdings. The acquisition also provided over 415 thousand acres of developed and undeveloped land facilitating the expansion of existing Gething and Notikewin plays as well as an expanded presence in the Foothills areas of Alberta and British Columbia. The Foothills area is characterized by large, high-rate, deep prospects and are considered higher risk and higher reward targets. The Company has been building a team of exploration specialists to take advantage of this opportunity and has already identified at least four targets for drilling.

    Canadian Natural was also active in its traditional natural gas core regions of North Alberta and South Alberta where it dominates a vast land base, drilling 100 and 77 wells targeting natural gas respectively in the first quarter. The Company continues to develop its resources in these regions which account for approximately 40 to 45 percent of daily corporate natural gas production.

    North American Crude Oil and NGLs

    Canadian Natural continues the disciplined development of its vast heavy crude oil resources. As has been previously articulated, these assets will be developed as heavy crude oil markets permit. In addition to the expansion of markets for Synbit, the Company is working with refiners to expand heavy crude oil conversion capacity of refineries in the Midwest United States; and is working with pipeline companies to develop new capacity to the Canadian west coast where crude cargoes could be sold on a world-wide basis. Over the long term, as these opportunities come to fruition, Canadian Natural will accelerate development of its bitumen resources. As part of this development plan, the Company is continuing with its Primrose thermal project which includes the Primrose North expansion project, drilling additional wells in the Primrose South project augmenting existing production, and converting all of the existing wells from low pressure to high pressure steaming. At Primrose south drilling of the two new phases that commenced in 2003 was completed. Steaming of these new phases is underway and production will commence in mid 2004.

    In the first quarter, the Company drilled 76 heavy crude oil wells, including 33 wells drilled relating to the acquisition of Petrovera, 20 Pelican Lake oil wells and 19 high-pressure cyclic steam thermal crude oil wells at Primrose. The majority of these wells were drilled late in the first quarter as the drilling program was focused on natural gas early in the quarter. The majority of the North American crude oil drilling program will occur in the second and third quarter of 2004 as many of the Company's oil areas are accessible year round.

    During the first quarter, the Company completed its acquisition of Petrovera. This acquisition fits Canadian Natural's strategy of dominating its core areas and related infrastructure as all of the properties acquired by the Company are located in its heavy oil core area. Canadian Natural expects operating cost reductions through synergies with its own existing facilities including additional throughput in its 100 percent owned ECHO pipeline. In addition, approximately 300 new well locations and over 400 well recompletion opportunities have been identified on these lands and will be added into project inventory. This $467 million acquisition included 27.5 mbbl/d of heavy crude oil and 9 mmcf/d of natural gas and was effective February 1, 2004.

    The Pelican Lake enhanced oil recovery project also continues. This project seeks to significantly increase recovery efficiency on this vast blanket sand in North Alberta. Quarterly production declines reflected lower drilling activity and the conversion of additional producer wells to waterflood injection wells. The project to date is on schedule and on budget and waterflood response to date has been positive.

    Horizon Oil Sands Project

    Canadian Natural continues to target acceptable certainty of forecasted capital costs for the Horizon Oil Sands Project ("Horizon Project") for fall, 2004. The Company's approach is to have a higher level of project definition and detailed engineering than has been completed by predecessor projects. This, along with Canadian Natural retaining the role as project manager and breaking the project into numerous manageable pieces which can be individually bid out to different engineering firms represents a significant departure from past industry norms. Ideally, many of these bids are expected to be completed on a lump-sum or fixed cost basis, further providing certainty of costs. Once acceptable certainty of forecasted capital costs is obtained, the Company's management will be in a position to recommend the sanctioning of the project. While completion on a timely basis is important, the Company views determination of certainty of forecasted costs to be a higher priority and will allow some flexibility in dates in order to control costs.

    During the quarter, the Company received regulatory approvals from the Alberta Energy and Utilities Board as well as the Alberta Provincial Cabinet and the Canadian Federal Cabinet.

    Also during the quarter, work on the third phase of engineering, Engineering Design Specification continued and some preconstruction site preparation was completed. Additionally, contracts to develop the gravel supply and construct drainage for the plant site area were signed.

    The Company currently employs over 700 experienced staff and contractor professionals on this project, including 140 employees focused solely on the development of the Project Execution Plan. As owner manager, Canadian Natural will develop and execute this plan ensuring delivery of the project on budget.

    North Sea

    Canadian Natural continues its successful infill drilling, recompletion and waterflood optimization programs at the Ninian and Murchison platforms. During the first quarter, the Company commenced the Lyell Field development with one well being spudded late in the quarter. Increased production from this field is expected late in the second quarter of 2004. The successful infill drilling program at the Ninian Field also continued with 4 wells drilled during the quarter. First quarter production levels reflect the 21 day shutdown of the Murchison platform for routine planned maintenance. Routine maintenance activities are scheduled for the Ninian Platforms during the second quarter of 2004.

    Also during the quarter Canadian Natural continued plans for its natural gas reinjection project at the Banff field in the Central North Sea. This project is expected to increase overall recovery of hydrocarbons, but will result in lower natural gas production volumes during the latter half of 2004.

    Canadian Natural remains excited about the exploitation prospects that exist in the North Sea and will continue to target accretive acquisitions with exploitation upside potential.

    Offshore West Africa

    The development of the Baobab Field offshore Cote d'Ivoire continued on time and on budget. The development will include five production wells, two water injection wells and related subsea infrastructure. Crude oil will be produced to a Floating Production, Storage and Offtake ("FPSO") vessel currently being fabricated in Singapore.

    The planned development of the West Espoir field continued with sanctioning of the final project expected by mid year. Current plans provide for approximately 7,500 bbl/d of crude oil and 22 mmcf/d of natural gas production net to Canadian Natural in spring 2006 through existing FPSO facilities located at East Espoir. Delineation drilling of the Acajou satellite pool discovered in 2003 is expected for the fourth quarter of 2004. If sufficient reserves are identified, this pool would also be tied back to the East Espoir FPSO. Additional geological reviews on other Canadian Natural lands is yielding exploration targets, one of which is currently expected to be drilled during 2005.

    Finally, Canadian Natural continues to reprocess seismic on Block 16 located offshore Angola to optimize its next drilling location. The incorporation of data from the unsuccessful well drilled in late 2003 will help reduce exploration risks on the next well, currently expected to be drilled in early 2005. Block 16 represents a high risk/high impact exploration development for the Company in one of the most prolific oil regions of the world.


    Canadian Natural is committed to maintaining its strong financial position in order to withstand volatile oil and natural gas commodity prices and the operational risks inherent in the oil and natural gas business environment. The Company continues to build the necessary financial capacity to maximize ownership in the Horizon Project.

    During the first quarter of 2004, strong operational results and product pricing enabled the Company to maintain debt levels at approximately 34 percent of capitalization despite a very significant first quarter drilling program and the acquisition of Petrovera. Corporate debt to cash flow was approximately 1.0 times versus 0.9 times recorded at year end 2003, while debt to EBITDA was 1.0 times compared with 0.8 times at December 31, 2003.

    During the first quarter of 2004, Canadian Natural extended its normal course issuer bid program administered through the facilities of the Toronto Stock Exchange ("TSX") and the New York Stock Exchange ("NYSE"). This program provides for the repurchase and cancellation of up to 6,690,385 shares until January 23, 2005. To date, no shares have been repurchased under these facilities.

    Canadian Natural's Board of Directors approved an increase in the annual dividend paid by the Company to $0.80 per common share from the previous level of $0.60 per common share. The 33 percent increase recognizes the stability of Canadian Natural's increased cash flow and provides a further return to shareholders. This is the fourth consecutive year in which the Company has paid dividends and the third consecutive year of increase in the distribution paid to its shareholders. The increased dividend became effective with the quarterly payment of $0.20 per common share paid on April 1, 2004.

    In order to increase the liquidity of its common shares, the Board of Directors has recommended to its shareholders to subdivide the Company's issued and outstanding common shares on a 2 for 1 basis, which will result in an increase in the Company's total issued and outstanding common shares to approximately 268 million common shares. This recommendation will be voted on by the shareholders at the Annual and Special Meeting of Shareholders to be held on May 6, 2004. If approved, it is expected that the additional common shares will be issued on or about May 28, 2004.

    Finally, the Company has used excess cash flows derived from higher than expected commodity prices to selectively acquire future cash flow generating properties in its core regions. These targeted acquisitions provide relatively quick repayment of initial investments and will provide additional free cash flow generation capability during the heavy capital spending years of Horizon construction. Both the Petrovera acquisition and the second quarter acquisition of natural gas properties meet these reinvestment criteria and will enhance Canadian Natural's ability to maximizing its ownership in the Horizon Project. This expansion of conventional assets also helps reduce the sole project risk exposure associated with this major development project.

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