Canadian Natural Resources Limited Announces 2005 Budget

Canadian Natural Resources Limited (NYSE:CNQ)(TSX:CNQ) - In commenting on the Company's 2005 budget, Canadian Natural's Chairman, Allan Markin, stated "Next year looks like another strong one for Canadian Natural. We expect to grow production volumes by about 10% and set a new cash flow record, estimated to be in excess of $4.3 billion. Additionally, you will see us continue to exploit assets we acquired during 2004. Heavy oil drilling is up reflecting the early 2004 acquisition of Petrovera and deep natural gas drilling in the Foothills has similarly increased to reflect new opportunities created by an asset acquisition completed during the first half of 2004. Internationally, new production is coming on line at Baobab in mid-2005 and we will commence exploitation work on the Central North Sea assets acquired in mid-2004. I am convinced that Canadian Natural has the people, assets and resolve to continue to deliver superior returns to our shareholders on our conventional oil and natural gas assets as well as on the Horizon project over the longer term."


  • Crude oil and NGLs production target of 307 - 335 thousand bbl/d before royalties (283 - 309 thousand bbl/d net of royalties) representing a midpoint increase of 13% from the midpoint of 2004 annual guidance.
  • Natural gas production target of 1,448 - 1,510 mmcf/d before royalties (1,134 - 1,182 mmcf/d net of royalties) representing a midpoint increase of 7% from the midpoint of 2004 annual guidance.
  • Equivalent production target of 548 - 586 thousand boe/d before royalties (469 - 503 thousand boe/d net of royalties) representing a midpoint increase of 10% from the midpoint of 2004 annual guidance.
  • Cash flow estimate of $4.3 billion - $4.5 billion ($16.00 - $16.80 per common share) based upon a forecast average West Texas Intermediate oil price of US$42.50/bbl, a NYMEX natural gas price of US$6.60/mmbtu and an exchange rate of C$1.00 = US$0.79.
  • Earnings estimate of $1.7 billion - $1.9 billion ($6.35 - $7.10 per common share) based upon the same assumptions listed above.
  • Conventional oil and natural gas capital expenditures of $3.1 billion, reflecting an approximate 1,900 well drilling program. Capital expenditures on the Horizon Oil Sands Project are budgeted at $220 million for winter work and long lead items. Should full project sanction be achieved, the expenditures will increase to $1.4 billion.
  • Continued strong balance sheet management with targeted debt to book capitalization at the end of 2005 of approximately 31% and debt/EBITDA of 0.8 times (assuming full sanction of the Horizon Oil Sands Project).

  • Production and Financial Guidance

    Canadian Natural continues its strategy of maintaining a large portfolio of varied projects, which enables the Company over an extended period of time to provide consistent growth in production and high shareholder returns. Annual budgets are developed, scrutinized throughout the year and changed if necessary in the context of project returns, product pricing expectations, and balance in project risks and time horizons. Canadian Natural maintains a high ownership level and operatorship level in all of its properties and can therefore control the nature, timing and extent of expenditures in each of its project areas.

    Canadian Natural is presently budgeting cash flow from operations in 2005 of $4.3 billion to $4.5 billion. This cash flow is derived from production of 1,448 to 1,510 mmcf/d of natural gas and 307,000 to 335,000 bbl/d of crude oil and NGLs and applying pricing parameters of an average WTI price of US$42.50/bbl, a Lloyd Blend heavy oil differential of US$14.45/bbl, NYMEX natural gas price of US$6.60/mmbtu and a Canada/United States exchange rate of $0.79.

    The budgeted capital expenditures in 2004 are currently expected to
    be as follows:
    ($ millions)                            2004 Forecast    2005 Budget
    Conventional Oil and Gas
     North America natural gas                   $  1,090       $  1,350
     North America crude oil and NGLs                 665            910
     North Sea                                        295            420
     Offshore West Africa                             310            400
     Property acquisitions and midstream            1,788             50
                                                 $  4,148       $  3,130
    Horizon Oil Sands Project 
     Base budget - winter work                   $    400       $    220
     Additional, assuming full
      project sanction                                  -          1,152
                                                 $    400       $  1,372
    The above capital expenditure budget incorporates the following 
    levels of drilling activity:
    Drilling Activity
    (number of net wells)                   2004 Forecast    2005 Budget
    Targeting natural gas                             803          1,033
    Targeting crude oil                               339            690
    Stratigraphic test / service wells                338            199
    Total                                           1,480          1,922
    North American Natural Gas
    The 2005 natural gas program will be highlighted by expanded 
    drilling programs in the Northwest Alberta and Northeast British
    Columbia core regions as shown below.
    (number of net wells)                   2004 Forecast    2005 Budget
    Northeast British Columbia                        202            240
    Northwest Alberta                                 175            194
    North Alberta                                     164            205
    South Alberta                                     262            394
    Total                                             803          1,033

    Drilling in 2005 reflect higher activity levels targeting the shallow Notikewin zone in Northeast British Columbia as well as increased Cardium drilling in Northwest Alberta. Both shallow and coal bed methane drilling will increase in the South Alberta core region. Conventional drilling is also targeted to increase in North Alberta. During 2005 approximately 90 wells targeting deep gas are budgeted, including 9 in the Foothills region. The Foothills region drilling increases reflect both increased focus on the area as well as new drilling targets identified on assets acquired during the first half of 2004.

    For the fourth quarter of 2004, Canadian Natural has increased capital spending levels directed toward natural gas drilling in an effort to reduce pressures of a tight 2005 winter drilling season by starting earlier. This effort includes a detailed and sequential drilling program that will enhance the procurement of better drilling rigs and crews for the winter season, both of which are an integral part of cost control in an inflationary environment. Through this process, Canadian Natural will actually use about 10 less drill rigs this year while drilling a similar number of wells during the winter season.

    North American midpoint average natural gas production is expected to increase by approximately 9% from midpoint 2004 guidance levels. Organic growth will account for approximately half of this growth with the remainder reflecting the full year impact of 2004 acquisitions. The 2005 capital budget for North American natural gas is $1,350 million.

    North American Crude Oil and NGLs
    The 2005 drilling program consists of:
    (number of net wells)                   2004 Forecast    2005 Budget
    Conventional heavy crude oil                      187            398
    Thermal heavy crude oil                            64            105
    Light crude oil                                    43            101
    Pelican Lake crude oil                             36             67
    Total                                             330            671

    The ramp up in conventional heavy oil drilling activity reflects favourable crude oil prices as well as new opportunities identified through property acquisitions made during 2004. Due to the nature of heavy oil production patterns in which volumes ramp during the first months of production, much of the production resulting from this expanded drill program will not be realized until late 2005.

    In 2005, Canadian Natural expects to continue its Primrose thermal crude oil expansion plans. At Primrose South, production from two new phases commenced in mid-2004 at 19,000 bbl/d, which was higher than the budgeted 13,000 bbl/d. This increased production significantly enhances the economics of these pads and is a positive indicator for future pads to be drilled. Production from these pads is subject to the cycling of steam injection and crude oil production; therefore, due to such normal cycling activities, average production levels similar to 2004 will result in 2005. The project remains on track to add 30,000 bbl/d of average production in 2006.

    At Pelican Lake, the promising waterflooding test program continues and will be expanded to additional lands in the area. In addition, the Company will be pilot testing the use of a polymer flood on a portion of the field in an effort to further enhance field recoveries.

    As a result of the above activities and factors affecting production average North American crude oil and NGLs production for 2005 is expected to modestly increase from 2004 levels with a 2005 capital budget of $910 million. Entry to exit volumes, however, are forecast to increase by approximately 12%.

    Horizon Oil Sands Project

    The 2005 base capital budget of $220 million for the Horizon Oil Sands Project will be comprised of winter site preparation activities in order to keep existing construction schedules. Upon sanction of the full project the full 2005 Horizon capital budget would be increased by an additional $1,152 million.

    North Sea

    In 2005, Canadian Natural anticipates drilling approximately 12 net platform wells while continuing its successful workover and recompletion program. The Company will also conduct a mobile drilling program in which 4 subsea wells will be drilled at Nadia, Thelma (2) and Columba E. With the exception of Nadia, all of these wells are stepout development wells on existing proved properties. Nadia represents exploration of new terraces in the Ninian/Columba area.

    Average 2005 midpoint crude oil production guidance is expected to increase by 19% from midpoint 2004 guidance, however natural gas volumes will be lower as natural gas sales at Banff are diverted to reinjection. The 2005 capital budget for the North Sea is $420 million.

    Offshore West Africa

    In 2005, the capital budget for Offshore West Africa is set at $400 million. Canadian Natural anticipates $210 million to be spent on finalizing the development of the Baobab Field in Cote d'Ivoire with approximately $100 million to be spent on the West Espoir Field development. Additional geological reviews on other Canadian Natural lands are yielding exploration targets, at least one of which, Zaizou, will be drilled during 2005. Average production from this region is expected to increase by 144-213% from 2004 midpoint guidance levels. This reflects the mid 2005 commissioning of production from the Baobab field as well as the drilling of additional producer wells at the East Espoir Field.


    Canadian Natural is committed to maintaining its strong financial position so as to allow it to withstand volatile crude oil and natural gas commodity prices and the operational risks inherent in the crude oil and natural gas business environment. The Company continues to build the necessary financial capacity to complete the Horizon Oil Sands Project.

    Based upon the previously referenced price deck, capital expenditure and production levels, Canadian Natural expects to exit 2005 with debt to book capitalization of approximately 31% and with a debt/EBITDA of 0.8 times.

    The Company also utilizes risk management instruments on a portion of its production in an effort to reduce volatility and provide greater certainty that operating cash flows are available to fund capital expenditures. To this end, the Company has recently completed the procurement of additional financial instruments with total current hedge positions in place as follows:

                                      Q1/05     Q2/05     2H/05     2005
                                     -------   -------   -------  ------
    Crude Oil - WTI (mbbl/d)
      Puts                              119       143        62       97
      Collars                            81        61        31       50
                                     -------   -------   -------  ------
      Total volumes hedged              200       204        93      147
      Puts (US$/bbl)                 $30.73    $30.57    $31.54   $31.10
      Collars floor (US$/bbl)        $32.87    $35.81    $42.50   $38.42
      Collars ceiling (US$/bbl)      $41.41    $47.39    $52.98   $46.70
    Natural Gas - AECO (mGJ/d)
      Collars                           540       340       227      333
      Floor (C$/GJ)                  $ 6.37    $ 6.00    $ 6.00   $ 6.09
      Ceiling (C$/GJ)                $12.22    $ 8.08    $ 8.08   $ 9.11