Commenting on second quarter results, Allan Markin, Chairman of Canadian Natural stated, "This is an exciting time for Canadian Natural. Phase 1 of our Horizon Project is approaching completion. This is a complex project which involves moving raw oil sands materials through a complex process to yield raw bitumen crude oil and then upgrading it to 34 degrees API, light sweet synthetic crude oil. The hard work of everyone involved on the Horizon Project has produced a world class asset that will provide steady cash flow for years to come. Strong results from our conventional operations reflect the strength and depth of our existing asset base. It is a credit to our team and assets that we managed our growth profile for conventional crude oil and natural gas growth opportunities to build the Horizon Project."
John Langille, Vice-Chairman of Canadian Natural stated, "The second quarter of 2008 saw continuing strength in both crude oil and natural gas pricing. Narrow heavy crude oil differentials combined with higher realized pricing for the quarter resulted in Q2/08 cash flow of nearly $1.86 billion. As cash flow from the Horizon Project is added to existing conventional cash flow, we will focus on further strengthening our balance sheet as well as opportunities available in our diverse asset base. Capital discipline and allocation remain priorities to ensure returns are optimized, even in a high commodity price environment."
Steve Laut, President and Chief Operating Officer of Canadian Natural commented, "Q2/08 was a very strong quarter for us. In Q2/08 both crude oil and natural gas production in Canada exceeded the top end of our guidance, reflecting the strength of our conventional asset base. Canadian Natural has achieved a significant milestone as we proceed with the final construction, commissioning and staged start-up of the Horizon Project and begin to realize the benefits of the largest single capital project in Canadian Natural's history. Our current schedule will see us producing first bitumen crude oil in early September, first partially upgraded crude oil by the end of September, and first 34 degrees API, light sweet synthetic crude oil in Q4/08.
We have experienced a slippage in our targeted start-up in the production of synthetic crude oil as we have experienced delays in the completion of the primary and secondary upgrading processes. This has also resulted in increased project costs as manpower requirements have been extended longer than our planning schedule anticipated. Our current cost estimate has increased by 8% above our previous estimate bringing the total cost to 36% above our original 2004 estimate of $6.8 billion. The start-up of the Horizon Project is a major step for Canadian Natural. We continue to evolve and diversify our asset base and look forward to the continuous stream of cash flow for years to come. The result is an even stronger and more sustainable company.
As part of our three phase heavy crude oil marketing strategy, Canadian Natural has made a significant step in the second phase to secure additional markets. Canadian Natural has committed 120,000 bbl/d for 20 years to the Keystone Pipeline US Gulf Coast expansion from Hardisty, Alberta to Port Arthur, Texas, which is subject to regulatory approval. Canadian Natural has also secured an option to acquire an equity interest in the Keystone Project.
Also fulfilling our defined heavy crude oil marketing plan is a 20 year 100,000 bbl/d supply arrangement with a major US refiner to supply refineries in the Gulf Coast at market prices.
The completion of both of these agreements allows Canadian Natural to proceed with increased confidence the development of Canadian Natural's vast heavy oil assets and to deliver in a methodical staged manner an incremental 325,000 bbl/d of heavy crude oil. These agreements facilitate the unlocking of the value in our vast heavy oil resource base and will create tremendous value for Canadian Natural shareholders.
We remain focused on the costs we are able to control and manage those that are outside our influence. We continue to direct our investment - of time, energy and capital - towards those projects and activities that provide the greatest return."
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