Canadian Natural Resources Limited announced record production volumes for both the fourth quarter 2006 as well the full year.
In commenting on fourth quarter 2006 results, Canadian Natural's Chairman, Allan Markin stated:
"2006 was a year of both challenges and tremendous opportunities. Higher commodity prices were accompanied by significant cost inflation throughout each of our basins, meaning that we had to be even more vigilant at ensuring full cycle economics were maintained - we responded by optimizing our capital allocation to projects that provided the highest return on capital. For example, we were one of the first in the industry to address the effects of this inflation through significant reductions in natural gas drilling commencing with the second quarter of last year.
"In late 2006 we were able to complete a major acquisition of natural gas assets at an attractive price, which greatly expanded our project portfolio. In completing this transaction, we further reduced drill bit activity and our exposure to cost inflation for 2007. Integration of people and assets is now complete and we are looking forward to developing our expanded and exceptional portfolio of crude oil and natural gas opportunities. Our management team are firm believers that this re-allocation of capital in 2006 will create significant value in future years."
John Langille, Vice-Chairman, commented, "Canadian Natural continues to believe in strong fiscal management. In particular, we have a very strong hedge program underpinning our 2007 cash flows and this, combined with better than expected heavy oil differentials and continued operating and capital discipline, is expected to facilitate our return to the mid range of our targeted debt levels in 2008. Based upon current strip pricing and projected production levels, we would expect to generate 2007 cash flows in excess of $6 billion, above the high end of our original 2007 financial budget."
Canadian Natural's President and Chief Operating Officer, Steve Laut, in commenting on the Company's annual results stated:
"Our cultural focus on execution is affording us success notwithstanding cost and operational challenges. On the conventional operations side, we are operating very well in a challenging environment, delivering 2006 finding and development costs of $10.09/boe. Our focused teams are determining cost effective alternatives to develop our project portfolio, and deliver on our defined growth plans. On the marketing side, we are aggressively pursuing new markets for our massive heavy oil resource while still managing a large hedge position to ensure cash flow certainty in the short run.
"Finally, at our Horizon Oil Sands Project ("Horizon Project"), our project management and construction teams continue to deliver. With the Horizon Project 57% complete at the end of 2006 and forecast to achieve approximately 90% completion by the end of 2007, at present we continue to expect final Phase 1 construction costs to not be materially different than our original $6.8 billion target cost with an on-schedule commissioning in the third quarter of 2008. While there are still numerous challenges and inflationary pressures, I believe that our teams have performed very well, again highlighting Canadian Natural's cultural focus on execution."
- Record North America natural gas production in Q4/06 represented an increase of 13% from Q3/06 and a 14% increase over Q4/05 due to the acquisition of Anadarko Canada Corporation ("ACC"), a subsidiary of Anadarko Petroleum Corporation volumes in November, which was partially offset by normal production declines and the effects of a reduced drilling emphasis due to a re-allocation of capital away from higher cost organic natural gas development.
- Record crude oil production volumes in Q4/06 represented a 7% increase from Q3/06 and 1% from Q4/05. The increase from Q3/06 was largely the result of higher North Sea and thermal crude oil volumes as well as the ACC acquisition. The increase from Q4/05 was driven by higher Canadian crude oil production partially offset by lower international volumes.
- Quarterly cash flow of $1.3 billion, essentially flat with Q3/06 and a 13% decrease from Q4/05. The decrease from Q4/05 reflected lower natural gas pricing, higher production expenses and the impact of a stronger Canadian dollar relative to the US dollar. These factors were offset by the impact of higher crude oil pricing, higher crude oil and NGLs and natural gas sales volumes and lower realized risk management losses.
- Quarterly net earnings of $313 million, representing a 72% decrease from both Q3/06 and Q4/05. Net earnings in Q4/06 included unrealized after-tax expenses of $99 million related to the effects of risk management activities, foreign exchange losses and stock-based compensation expense, compared to net after-tax income of $503 million in Q4/05 and $646 million of after-tax income in Q3/06.
- Quarterly adjusted net earnings from operations of $412 million, 12% lower than Q3/06 results and a 31% decrease from Q4/05 reflecting lower cash flow and higher DD&A rates.
- Completed the acquisition and integration ACC. ACC, which was acquired for aggregate cash consideration of $4,641 million including working capital and other adjustments and was included in Canadian Natural's results effective November 2006. Substantially all of ACC's land and production bases are located in Western Canada and are premium quality, concentrated natural gas weighted assets with strong netbacks and long reserve lives.
- Independent qualified reserve evaluators evaluated 100% of the Company's conventional crude oil and natural gas reserves under constant prices and costs as at December 31, 2006:
--Total net proved reserves from conventional operations at the end of 2006 amounted to 1.3 billion barrels of crude oil and NGLs and 3.8 trillion cubic feet of natural gas. Total net proved conventional reserves increased by 22%, with net proved crude oil reserves increasing by 18% and net proved natural gas reserves increasing by 34%.
--Net proved reserve additions from conventional operations equaled 295% of 2006 net production, at a finding and onstream cost of $16.16 per barrel of oil equivalent. The Company's three-year average proved finding and onstream costs was $14.28 per barrel of oil equivalent.
--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.
--Using net proved and probable finding and onstream costs, the Company achieved an overall recycle ratio of 3.3x (2.0x using only proved reserve additions) during 2006.
- Independent qualified reserve evaluators evaluated 100% of the Company's Phase 1 to Phase 3 oil sands mining reserves for the Horizon Project under constant prices as at December 31, 2006, which resulted in 2.3 billion barrels of gross lease proved bitumen reserves and 3.5 billion barrels of gross lease proved and probable bitumen reserves. This represents an increase from the December 31, 2005 evaluation which had 2.2 billion barrels of gross lease proved bitumen reserves and 3.4 billion barrels of gross lease proved and probable bitumen reserves.
- Completed a Q4/06 drilling program of 265 net wells, excluding stratigraphic test and service wells, with an 89% success ratio, reflecting Canadian Natural's strong, predictable, low-risk asset base.
- Increased an already strong undeveloped conventional land base in Canada to 12.6 million net acres--a key asset in today's highly competitive industry--including an additional 1.5 million net undeveloped acres acquired through the ACC acquisition.
- The Horizon Project remains slightly ahead of schedule as at December 31, 2006. The Horizon Project exited 2006 57% complete with approximately $5.1 billion in purchase orders and contracts having been awarded to date. Cost pressures are causing cost estimates for certain isolated pieces of the project to be above target cost. However, at present such cost increases are not expected to, in aggregate, result in Phase 1 construction costs of the project being materially different than the original target cost of $6.8 billion. Further, Canadian Natural remains on track for commissioning during the third quarter of 2008.
- Continued production improvements at Pelican Lake Field arising from new drilling activity and the expansion of the enhanced crude oil recovery program. Pelican Lake crude oil production averaged approximately 29,200 bbl/d during the quarter, up 5% or approximately 1,600 bbl/d from Q4/05. Production is expected to continue to increase in Q1/07 and throughout the rest of 2007.
- The Company's commodity hedging program reduces the risk of volatility in commodity price markets and supports the Company's cash flow for its capital expenditure program throughout the Horizon Project construction period. This program allows for the hedging of up to 75% of the near 12 months budgeted production, up to 50% of the following 13 to 24 months estimated production and up to 25% of production expected in months 25 to 48. For the purpose of this program, the purchase of crude oil put options is in addition to the above parameters. In accordance with the policy, approximately 65% of expected crude oil volumes and approximately 75% of expected natural gas volumes have been hedged for 2007. In addition, 77,000 bbl/d of crude oil volumes are protected by put options for 2007 at a strike price of US$60.00 per barrel. The Company is extending its hedge program into 2008 whereby 150,000 bbl/d of crude oil volumes have been hedged (100,000 bbl/d of price collars with a US$60.00 floor and 50,000 bbl/d of put options with a US$55.00 strike price). In addition, 900,000 GJ/d of natural gas volumes have been hedged through the use of price collars for the first quarter of 2008 (400,000 GJ/d with a floor of $7.00 and 500,000 GJ/d with a floor of $7.50).
- Seventh straight year of dividend increases. The 2007 quarterly dividend will increase 13% from $0.075 per common share to $0.085 per common share, effective with the April 2007 payment.
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