In commenting on second quarter 2004 results, Canadian Natural's Chairman, Allan Markin, stated, "This was yet another milestone quarter for Canadian Natural as we continue to execute our defined plan, achieving record results. We have set quarterly records for crude oil production, natural gas production and cash flow from operations. In 2004, we expect average annual production growth of 11 to 14% and entry to exit growth in excess of 15%."
Canadian Natural's President, John Langille, in commenting on the financial results of the second quarter stated, "We continue to show discipline in our financial matters. Two large asset acquisitions have been completed in Canada with a third, in the North Sea, now expected to close in the third quarter. All three of these acquisitions meet our internal return targets and provide exploitation upside. In addition, they will have the benefit of providing additional free cash flow generation during the construction years of the Horizon Oil Sands Project - making us financially stronger and further increasing our capability to retain a 100% interest in the Project. Based on today's strip commodity prices, our debt to book capitalization is expected to exit 2004 at under 30%. We continue to finalize the engineering and design work for the Project and are in the process of receiving and reviewing the fixed bid offers in order to help achieve the level of cost comfort required for our Board of Directors to approve the Project later this year."
Canadian Natural's Chief Operating Officer, Steve Laut, in commenting on 2004 operations year to date stated, "We are pleased to have achieved quarterly production that was at the high end of our guidance for both crude oil and NGLs and natural gas. In addition to quarterly organic production growth of 5%, the property acquisition we completed at the start of the quarter added 3% to quarterly growth. We have dropped operating costs on the East Alberta heavy crude oil assets acquired in the first quarter of 2004 by about $0.60 per barrel through leveraging our vast infrastructure. The acquisition of natural gas properties in Northeast British Columbia also looks to have additional upside on a shallow natural gas play we discovered late last year. The Notikewin geology trends on to this land, providing significant upside in addition to the deep foothills potential acquired."
HIGHLIGHTS OF THE FIRST QUARTER
Record quarterly crude oil and NGLs production of 275 mbbl/d before royalties (249 mbbl/d net of royalties). This represents an increase of 5% over first quarter 2004 production and 14% over second quarter 2003 production.
Record quarterly natural gas sales of 1,452 mmcf/d before royalties (1,156 mmcf/d net of royalties), representing 47% of equivalent production during the quarter. This includes North American quarterly growth of 13% over first quarter 2004, representing 7% organic growth and 6% from the assets acquired at the start of the second quarter.
Record quarterly equivalent production of 517 mboe/d before royalties (442 mboe/d net of royalties), representing the third consecutive quarter of overall production growth, an 8% increase from the first quarter and a 12% increase over the second quarter of the prior year.
Record quarterly cash flow of $930 million ($3.47 per common share) compared with $762 million ($2.84 per common share) in the second quarter of 2003 and $848 million ($3.16 per common share) in the previous quarter.
Net earnings of $259 million ($0.97 per common share) compared with $525 million ($1.96 per common share) for the second quarter of 2003 and $258 million ($0.96 per common share) in the previous quarter. Adjusted net earnings from operations, a non Generally Accepted Accounting Principle ("GAAP") term, amounted to $364 million ($1.36 per common share) compared with $256 million ($0.96 per common share) for the second quarter of 2003 and $339 million ($1.27 per common share) in the previous quarter.
Successfully completed 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 Northwest Alberta for $280 million. The acquisition increases ownership in the Ladyfern area and adds a significant number of additional shallow gas drilling opportunities as well as providing Foothills exploration acreage to augment Canadian Natural's existing holdings in the region.
Commenced production from a new phase of the Primrose in-situ thermal crude oil development late in the quarter. Production is expected to ramp up during the second half of 2004 with exit volumes expected to reach between 48 and 51 mbbl/d.
Capital expenditures of $844 million, reflecting second quarter drilling activities and the natural gas property acquisition. During the quarter, Canadian Natural drilled 132 wells, including 86 successful natural gas wells.
Completed the subdivision of its Common Shares on the basis of two for one.
Increased the quarterly dividend by 33% to $0.10 per common share commencing with the April 1, 2004 payment.
Continued with the repurchase of 800,000 common shares under its Normal Course Issuer Bid.
Debt to book capitalization at the end of the second quarter was 35%, which reflects the capital program in the first half of 2004. The first half capital program is higher than for the balance of 2004 due to a larger portion of activities occurring during the winter months. In the current pricing environment, debt to book capitalization would exit 2004 at less than 30%.
Negotiated the acquisition of certain light crude oil producing properties in the Central North Sea. The acquisition is expected to close during the third quarter and will add approximately 16,000 boe/d and includes additional infrastructure including a fixed platform, a Floating Production Vessel (FPV) and subsea equipment.