CNR Starts Up Oil Production at Horizon Oil Sands
Commenting on fourth quarter and 2008 annual results, Canadian Natural's Chairman, Allan Markin stated, "Canadian Natural's defined plan has delivered strong quarterly and annual results. The first half of the year saw a strong market for crude oil accompanied by record pricing. This buoyant business environment was then offset by the economic challenges faced in the second half of 2008, and which are expected to continue well into 2009. We strive to create value for our shareholders, and work towards capturing opportunity regardless of the business cycle. Our teams continue to develop cost effective alternatives in developing our portfolio of projects and to deliver our defined growth plan. On that note, I am pleased to report that we achieved first synthetic crude oil production at the Horizon Oil Sands Project on February 28, 2009, a major milestone for Canadian Natural, adding tremendous value for shareholders. We would like to thank those people working on Horizon for their tireless effort over the last 4 years from Project sanction in February 2005."
John Langille, Vice-Chairman, commented, "We had a unique and challenging year in 2008 in terms of managing through the worldwide economic downturn and associated commodity price cycle swing. Strong crude oil prices for a large portion of 2008, combined with operating and capital discipline, helped us achieve cash flow of nearly $7 billion for the year. We also reached the mid-point of our targeted debt levels. Despite a much less robust price environment in 2009, a very strong hedge program combined with Canadian Natural's disciplined management will ensure free cash flow for debt repayment during the year. Canadian Natural's long term financial strategies - which includes flexible capital allocation and budgeting -- along with strength in our balance sheet allows us to make the most of our opportunities, even in this challenging economic environment."
Canadian Natural's President and Chief Operating Officer, Steve Laut, continued, "As a result of the current pricing environment Canadian Natural has deferred $800 million of its 2009 capital program. The deferral is a proactive action taken as a result of weak commodity prices particularly on the natural gas side of the business. At the current commodity prices and cost environment, the economics for all but the very best projects are marginal. Although we have not seen anything appreciable to date, as we move through this cycle we fully expect we will achieve better returns through acquisitions rather than developing our portfolio of assets. In addition, we expect to see improved productivity and unit cost improvements on the operational and developmental sides of the business. Therefore we are taking the prudent step to reduce our capital program now, to ensure balance sheet strength and position ourselves for opportunities later in 2009 and in 2010.
"Focusing on year-end conventional reserves for 2008, Canadian Natural replaced 95% of 2008 production through the drill bit with finding and on-stream costs of $20.68 per barrel of oil equivalent for proved reserves and $14.66 per barrel of oil equivalent for proved and probable reserves. The year over year increase in finding and on-stream costs are a reflection of the reduced year-end pricing and its associated impact on year end reserves, particularly in the North Sea. In North America, finding and on-stream costs of $13.08 per barrel of oil equivalent for proved reserves were achieved.
"Although our production history at Horizon has been very short, at this point all operating units appear to be performing at design capacity. In the immediate near term, we will focus on stabilizing performance and filling the product tanks in preparation for blending and introducing first synthetic crude oil into the Horizon pipeline for shipment to Edmonton and ultimate sale. For the remainder of 2009, our focus at Horizon will be on ramping up production volumes, increasing reliability and reducing operating costs."
- The Company's natural gas assets delivered as expected, averaging 1,495 mmcf/d for 2008, a decrease of 10% from 2007. As anticipated, 2008 entry to exit natural gas production volumes declined due to reduced capital re-investment and an associated 30% reduction in natural gas net drilling activity.
- Total crude oil and NGLs production in 2008 averaged 315,667 bbl/d, a 5% decrease from 2007. Crude oil volumes were lower due to decreased North Sea production volumes, the timing of the steam cycle at Primrose, and capturing incremental thermal reserves in the first half of the year, taking advantage of the high crude oil price environment at the time.
- Cash flow from operations increased 12% to nearly $7.0 billion in 2008 from $6.2 billion in 2007, and net earnings increased 91% in 2008 to $5.0 billion from $2.6 billion in 2007. The increase in cash flow was primarily due to increased product pricing net of realized risk management activities.
- Total crude oil and NGLs production for Q4/08 was 309,570 bbl/d. Q4/08 crude oil production volumes increased 1% from Q3/08 of 306,970 bbl/d, and decreased 8% from Q4/07 of 337,240 bbl/d. Volumes in Q4/08 reflect the transition between steam and production cycles for Primrose thermal wells, the beginning of production from the Primrose East expansion, and continued conversion of production wells to polymer injection wells at Pelican Lake, along with scheduled turnarounds in the North Sea and Offshore West Africa.
- Natural gas production volumes for the fourth quarter represented 43% of the Company's total production. Natural gas production for Q4/08 averaged 1,427 mmcf/d, down 4% from 1,490 mmcf/d for Q3/08 and down 10% from 1,589 mmcf/d for Q4/07. The decrease in volumes for Q4/08 from Q4/07 reflected the reallocation of capital towards higher return crude oil projects.
- Quarterly cash flow from operations was just under $1.6 billion, a 13% decrease from Q3/08 and an increase of 6% from Q4/07. The decrease from Q3/08 primarily reflected lower crude oil and natural gas price realizations partially offset by higher realized risk management activity for the quarter. The increase from Q4/07 reflects the impact of lower royalty expense, higher realized natural gas pricing, and higher realized risk management activity. These factors were partially offset by the impact of lower sales volumes and lower realized crude oil pricing.
- Quarterly net earnings for Q4/08 of $1.8 billion included the effects of unrealized risk management activity, stock based compensation and fluctuations in foreign exchange. Excluding these items, quarterly adjusted net earnings from operations for Q4/08 were $697 million, an increase of 28% from Q4/07.
- Completed the Q4/08 North America drilling program targeting 190 net crude oil wells and 43 net natural gas wells with a 95% success rate in the quarter, excluding stratigraphic test and service wells. The success rate is a reflection of Canadian Natural's strong, predictable, low-risk asset base.
Operational and Financial
- Maintained a strong undeveloped conventional core land base in Canada of 11.5 million net acres - a key asset for continued value growth.
- Improvements at the Pelican Lake Field continue with the conversion of water flood wells to polymer flood wells, with production averaging approximately 37,000 bbl/d.
- The Primrose East expansion, which added 40,000 bbl/d of capacity, achieved first production in late October 2008.
- The drilling program at Baobab in Offshore Cote d'Ivoire has progressed with three wells completed in Q4/08 and restoring production of approximately 7,500 bbl/d net to Canadian Natural. Drilling continues on the fourth and final well and is targeted to be complete in Q2/09.
- At the Olowi Project in Offshore Gabon, first crude oil is expected in late Q1/09 or early Q2/09. During Q4/08, installation of the Conductor Supported Platform Deck and construction of the Floating, Production, Storage and Offtake Vessel ("FPSO") were completed. The FPSO arrived on location in February 2009. Two appraisal wells and two production wells have been drilled and development activity is continuing.
- First synthetic crude oil production was achieved at the Horizon Oil Sands Project ("Horizon Project") on February 28, 2009.
- An independent qualified reserves evaluator evaluated 100% of the Company's conventional crude oil and natural gas reserves under constant prices and costs as at December 31, 2008:
- Total net proved reserves from conventional operations at the end of 2008 amounted to 1.35 billion barrels of crude oil and NGLs and 3.68 trillion cubic feet of natural gas. Total net proved conventional reserves decreased slightly from 2007.
- Solely due to economic revisions as a direct result of lower commodity prices, there was a reduction of net proved reserves of approximately 56.5 million barrels of proved oil equivalent, with a 90.3 million barrel reduction from the North Sea, offset by positive economic revisions of 24.8 million barrels from North America and 9.0 million barrels from Offshore West Africa.
- Net proved reserve additions from conventional operations equaled 95% of 2008 net production, at a finding and on-stream cost of $20.68 per barrel of oil equivalent. The Company's three-year average proved finding and on-stream costs were $16.55 per barrel of oil equivalent.
- North America crude oil and NGLs proved reserves increased by 3% replacing 137% of production while natural gas proved reserves additions replaced 100% of 2008 production. The finding and on-stream cost for net proved reserve additions in North America was $13.08 per barrel of oil equivalent.
- Total net proved and probable reserves from conventional operations at the end of 2008 amounted to 2.19 billion barrels of crude oil and NGLs and 4.84 trillion cubic feet of natural gas. Total proved and probable net conventional reserves increased in 2008 from 2007.
- Net proved and probable reserve additions from conventional operations equaled 134% of 2008 net production, at a finding and on-stream cost of $14.66 per barrel of oil equivalent. The Company's three-year average net proved and probable finding and on-stream cost was $11.99 per barrel of oil equivalent.
- North America crude oil and NGLs net proved and probable reserve additions equaled to 171% of 2008 net production, while natural gas proved and probable reserve additions equaled 104% of 2008 net production. The finding and on-stream cost for net proved and probable reserve additions in North America was $11.29 per barrel of oil equivalent.
- Using net proved finding and on-stream costs, the Company achieved an overall recycle ratio of 2.3x during 2008.
- An independent qualified reserves evaluator 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, 2008. The net proved synthetic crude oil reserves increased 11% year over year to 1.95 billion barrels due to price revisions. The net proved and probable synthetic crude oil reserves were 2.94 billion barrels.
- The Company repaid $420 million in Q1/09 on the non-revolving syndicated credit facility maturing in October 2009.
- Ninth consecutive year of dividend increases. The 2009 quarterly dividend on common shares increased by 5% from C$0.10 to C$0.105 per common share, payable April 1, 2009.
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