Canadian Natural Resources Limited (TSX: CNQ) (NYSE: CNQ)
In commenting on the Company's 2011 budget, Allan Markin,
Chairman, stated, "Canadian Natural's 2011 budget reflects our
strong asset base and a continued focus on projects that provide
the best returns for shareholders. We are targeting another year of
significant free cash flow generation, debt reduction and a
strengthening balance sheet. At the same time as we target
production volumes per barrel of oil equivalent to grow by 6% in
2011, we will be investing over $2.4 billion (approximately 45% of
2011 capital expenditures) on long-term growth initiatives that
provide no additional volumes in 2011 but will provide sustainable,
long-term returns in 2012 and beyond."
HIGHLIGHTS OF THE 2011 BUDGET
-- Equivalent production target of 645,000 boe/d to 694,000 boe/d before
royalties, representing a midpoint increase of 6% from the midpoint of
2010 forecasted annual average production guidance.
-- Crude oil and NGLs production target of 449,000 bbl/d to 486,000 bbl/d
before royalties, representing a midpoint increase of 10% from the
midpoint of 2010 forecasted annual guidance. This increase reflects the
following:
-- Primary heavy crude oil is targeted to increase 10% from 2010
volumes reflecting record drilling programs implemented in 2010 and
2011;
-- Production response at Pelican Lake due to the Company's ongoing
conversion to polymer flood will result in production volumes being
targeted to increase by 17% in 2011;
-- Increased production reliability at Horizon Oil Sands
("Horizon") with budgeted 2011 production targeted to range from
105,000 bbl/d to 112,000 bbl/d of SCO; approximately 19% higher than
2010;
-- Production increases targeted at Primrose East, North and South of
12% over 2010 levels; and,
-- Greater production rates of light crude oil due to a combination of
acquisitions completed in 2010 and increased light crude oil capital
spending over previous years resulting in approximately an 11%
annual increase.
The overall increase in crude oil and NGLs production will be
partially offset by production declines in Offshore West Africa and
the North Sea.
-- Natural gas production target of 1,177 mmcf/d to 1,246 mmcf/d before
royalties,representing a midpoint decrease of 3% from the midpoint of
2010 forecasted annual guidance. This decrease reflects the Company's
continued proactive reduction of natural gas drilling activity by 28%
from 2010 levels as a result of the Company's short to mid term outlook
for low natural gas pricing, offset somewhat by new Montney production
at Septimus and acquired volumes completed over the course of 2010.
-- Cash flow from operations is targeted to be between $7.0 billion and
$7.4 billion ($6.40 - $6.75 per common share), based upon targeted
production and forward strip pricing on November 24, 2010 (WTI crude oil
price of US$84.32/bbl, Western Canadian Select heavy oil differential of
22%, NYMEX natural gas price of US$4.31/mmbtu and an exchange rate of
US$0.98 = C$1.00).
-- Capital spending in 2011 will range between approximately $5.6 billion
and $6.0 billion. Approximately 45% of 2011 capital expenditures are
allocated to projects that will result in long-term production growth
beginning in 2012 and beyond. This $2.4 billion to $2.8 billion
investment will generate more sustainable, long-term returns for the
Company.
-- Free cash flow (cash flow after capital expenditures), is targeted
between $1.0 billion and $1.8 billion based on forward strip pricing.
-- Crude oil and natural gas capital expenditures in North America,
including Horizon Oil Sands and thermal projects but excluding
acquisitions, are targeted to be $5.0 billion to $5.4 billion in 2011,
representing a 52% - 64% increase in capital spending from 2010 levels.
The 2011 capital budget in North America reflects:
-- An allocation of $2.4 billion to $2.8 billion to long-term growth
initiatives that will add long-term production volumes in 2012 and
beyond;
-- A significant increase in thermal crude oil investment of 142% from
2010 levels. Kirby Phase 1 capital expenditures are targeted to be
$515 million in 2011 as the Company progresses its thermal growth
plan;
-- Continuation of record primary heavy crude oil drilling in 2011;
-- Progression of the polymer flooding program at Pelican Lake;
-- The Company's outlook for natural gas pricing is not favorable, and
as a result, 2011 natural gas capital expenditures are targeted to
decrease by 14% to $600 million from 2010 levels of $700 million;
and,
-- Increased expenditures at Horizon Oil Sands to meet regulatory
requirements for tailings, continue previously approved reliability
work (Tranche 2) and advance certain debottlenecking and expansion
projects.
-- At Horizon, approximately $220 million of sustaining and reclamation
capital has been allocated in 2011, an increase of $90 million from
2010. This increase reflects the Company's objective to improve overall
plant reliability and maintain the Company's targeted sustainable
production of 110,000 bbl/d SCO.
-- The Horizon 2011 Plan reflects the re-profiling of Horizon's expansion
in a staged project execution plan. Project capital will be allocated to
several different modules. Total expenditures on Horizon in 2011 will
range between $800 million and $1,200 million dependent upon
favorability of market conditions and whether the business case meets
the Company's investment criteria.
-- International conventional crude oil and natural gas capital
expenditures are budgeted to be $505 million, an increase of 17% from
2010. North Sea capital expenditures are budgeted to be $370, the
majority of which will be used to complete necessary sustaining capital
activities on North Sea platforms. Offshore West Africa expenditures are
budgeted to be $135 million, the majority of which will be spent on
drilling and completions.
-- Canadian Natural has significant capital flexibility in the 2011 capital
program allowing the Company to quickly adapt its capital spending
profile to any changes in the commodity price environment.
-- Continued strong balance sheet management which provides financial
flexibility for operating plans.
-- The Company continues to focus on operational excellence through
commitment to safe operations, a minimal environmental footprint and
focus on being the most efficient producer in its core areas. North
America crude oil operating costs are targeted to remain flat while only
a marginal increase is targeted for North America natural gas operating
costs despite a targeted midpoint production volume decrease of 3%.
Horizon operating costs are targeted to decline in 2011 to between
$30.00 and $36.00 per barrel of SCO production.
Capital and Production Guidance
Canadian Natural continues its strategy of maintaining a large
portfolio of varied projects. This enables the Company to provide
consistent growth in production and high shareholder returns over
an extended period of time. Annual budgets are developed,
scrutinized throughout the year and changed if necessary in the
context of project returns, product pricing expectations, and
balance project risks and time horizons. Canadian Natural maintains
a high ownership level and operatorship in its properties and can
therefore control the nature, timing and extent of expenditures in
each of its project areas.
The capital expenditures forecast in 2010 and budgeted for 2011
are as follows:
----------------------------
($ millions) 2010 Forecast 2011 Budget
----------------------------------------------------------------------------
Crude oil and natural gas
North America natural gas $ 700 $ 600
North America crude oil and NGLs 1,445 1,895
North America thermal crude oil
Primrose and Future 465 830
Kirby Phase 1 90 515
North Sea 180 370
Offshore West Africa 250 135
Property acquisitions, dispositions and
midstream 1,900 110
--------------------------
5,030 4,455
--------------------------
Horizon Oil Sands Mining and Upgrading
--------------------------
Sustaining and reclamation capital $ 130 $ 220
--------------------------
Project capital
Reliability - Tranche 2 $ 320 $ 370
Directive 74 and Technology 10 130
Phase 2A 25 200 - 230
Phase 2B 5 10 - 295
Phase 3 - 90 - 150
Phase 4 - 0 - 25
--------------------------
$ 360 $ 800 - 1,200
--------------------------
Capitalized interest and other 80 100
--------------------------
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Corporate Total $ 5,600 $5,575 - 5,975
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The above capital expenditure profile incorporates the following
levels of drilling activity forecast for 2010 and budgeted for
2011:
-----------------------
Drilling activity (number of net wells) 2010 2011
Forecast Budget
----------------------------------------------------------------------------
Targeting natural gas 100.0 72.0
Targeting crude oil
Primary Heavy, Light and Pelican Lake 941.0 969.0
In situ oil sands 40.0 217.0
North Sea 0.9 1.6
Offshore West Africa 7.5 2.8
Stratigraphic test / service wells - excludes oil
sands mining and upgrading 231.9 519.6
Stratigraphic test / service wells - oil sands mining
and upgrading 244.0 280.0
----------------------------------------------------------------------------
Total 1,565.3 2,062.0
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----------------------------------------------------------------------------
The production guidance for 2011 is as follows:
-------------
Daily production volumes, before royalties 2011 Budget
----------------------------------------------------------------------------
Natural gas (mmcf/d)
North America 1,150 - 1,210
North Sea 7 - 10
Offshore West Africa 20 - 26
----------------------------------------------------------------------------
1,177 - 1,246
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Crude oil and NGLs (mbbl/d)
North America 295 - 315
North America - oil sands mining and upgrading 105 - 112
North Sea 27 - 32
Offshore West Africa 22 - 27
----------------------------------------------------------------------------
449 - 486
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total (boe/d) 645 - 694
----------------------------------------------------------------------------
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Forward-Looking Statements
Certain statements relating to Canadian Natural Resources
Limited (the "Company") in this document or documents incorporated
herein by reference constitute forward-looking statements or
information (collectively referred to herein as "forward-looking
statements") within the meaning of applicable securities
legislation. Forward-looking statements can be identified by the
words "believe", "anticipate", "expect", "plan", "estimate",
"target", "continue", "could", "intend", "may", "potential",
"predict", "should", "will", "objective", "project", "forecast",
"goal", "guidance", "outlook", "effort", "seeks", "schedule" or
expressions of a similar nature suggesting future outcome or
statements regarding an outlook. Disclosure related to expected
future commodity pricing, production volumes, royalties, operating
costs, capital expenditures and other guidance provided throughout
this Management's Discussion and Analysis ("MD&A"), constitute
forward-looking statements. Disclosure of plans relating to and
expected results of existing and future developments, including but
not limited to Horizon Oil Sands, Primrose East, Pelican Lake,
Olowi Field (Offshore Gabon), and the Kirby Thermal Oil Sands
Project also constitute forward-looking statements. This
forward-looking information is based on annual budgets and
multi-year forecasts, and is reviewed and revised throughout the
year if necessary in the context of targeted financial ratios,
project returns, product pricing expectations and balance in
project risk and time horizons. These statements are not guarantees
of future performance and are subject to certain risks. The reader
should not place undue reliance on these forward-looking statements
as there can be no assurances that the plans, initiatives or
expectations upon which they are based will occur.
In addition, statements relating to "reserves" are deemed to be
forward-looking statements as they involve the implied assessment
based on certain estimates and assumptions that the reserves
described can be profitably produced in the future. There are
numerous uncertainties inherent in estimating quantities of proved
crude oil and natural gas reserves and in projecting future rates
of production and the timing of development expenditures. The total
amount or timing of actual future production may vary significantly
from reserve and production estimates.
The forward-looking statements are based on current
expectations, estimates and projections about the Company and the
industry in which the Company operates, which speak only as of the
date such statements were made or as of the date of the report or
document in which they are contained, and are subject to known and
unknown risks and uncertainties that could cause the actual
results, performance or achievements of the Company to be
materially different from any future results, performance or
achievements expressed or implied by such forward-looking
statements. Such risks and uncertainties include, among others:
general economic and business conditions which will, among other
things, impact demand for and market prices of the Company's
products; volatility of and assumptions regarding crude oil and
natural gas prices; fluctuations in currency and interest rates;
assumptions on which the Company's current guidance is based;
economic conditions in the countries and regions in which the
Company conducts business; political uncertainty, including actions
of or against terrorists, insurgent groups or other conflict
including conflict between states; industry capacity; ability of
the Company to implement its business strategy, including
exploration and development activities; impact of competition; the
Company's defense of lawsuits; availability and cost of seismic,
drilling and other equipment; ability of the Company and its
subsidiaries to complete capital programs; the Company's and its
subsidiaries' ability to secure adequate transportation for its
products; unexpected difficulties in mining, extracting or
upgrading the Company's bitumen products; potential delays or
changes in plans with respect to exploration or development
projects or capital expenditures; ability of the Company to attract
the necessary labour required to build its thermal and oil sands
mining projects; operating hazards and other difficulties inherent
in the exploration for and production and sale of crude oil and
natural gas; availability and cost of financing; the Company's and
its subsidiaries' success of exploration and development activities
and their ability to replace and expand crude oil and natural gas
reserves; timing and success of integrating the business and
operations of acquired companies; production levels; imprecision of
reserve estimates and estimates of recoverable quantities of crude
oil, bitumen, natural gas and natural gas liquids ("NGLs") not
currently classified as proved; actions by governmental
authorities; government regulations and the expenditures required
to comply with them (especially safety and environmental laws and
regulations and the impact of climate change initiatives on capital
and operating costs); asset retirement obligations; the adequacy of
the Company's provision for taxes; and other circumstances
affecting revenues and expenses.
The Company's operations have been, and in the future may be,
affected by political developments and by federal, provincial and
local laws and regulations such as restrictions on production,
changes in taxes, royalties and other amounts payable to
governments or governmental agencies, price or gathering rate
controls and environmental protection regulations. Should one or
more of these risks or uncertainties materialize, or should any of
the Company's assumptions prove incorrect, actual results may vary
in material respects from those projected in the forward-looking
statements. The impact of any one factor on a particular
forward-looking statement is not determinable with certainty as
such factors are dependent upon other factors, and the Company's
course of action would depend upon its assessment of the future
considering all information then available.
Readers are cautioned that the foregoing list of factors is not
exhaustive. Unpredictable or unknown factors not discussed in this
report could also have material adverse effects on forward-looking
statements. Although the Company believes that the expectations
conveyed by the forward-looking statements are reasonable based on
information available to it on the date such forward-looking
statements are made, no assurances can be given as to future
results, levels of activity and achievements. All subsequent
forward-looking statements, whether written or oral, attributable
to the Company or persons acting on its behalf are expressly
qualified in their entirety by these cautionary statements. Except
as required by law, the Company assumes no obligation to update
forward-looking statements should circumstances or Management's
estimates or opinions change.
CONFERENCE CALL
A conference call will be held at 9:00 a.m. Mountain Time, 11:00
a.m. Eastern Time on Thursday, December 2, 2010. The North American
conference call number is 1-800-769-8320 and the outside North
American conference call number is 001-416-695-6616. Please call in
about 10 minutes before the starting time in order to be patched
into the call. The conference call will also be broadcast live on
the internet and may be accessed through the Canadian Natural
website at www.cnrl.com.
A taped rebroadcast will be available until 6:00 p.m. Mountain
Time, Thursday, December 2, 2010. To access the postview in North
America, dial 1-800-408-3053. Those outside of North America, dial
001-416-695-5800. The passcode to use is 7456828.
WEBCAST
This call is being webcast and can be accessed on Canadian
Natural's website www.cnrl.com. Presentation slides will be
available on Canadian Natural's website in PDF format shortly
before the live conference call webcast.
Contacts: John G. Langille Vice Chairman Steve W. Laut President
Corey B. Bieber Vice-President, Finance & Investor Relations
Canadian Natural Resources Limited 2500, 855 - 2nd Street S.W.
Calgary, Alberta, T2P 4J8 (403) 514-7777 (403) 514-7888 (FAX)
ir@cnrl.com www.cnrl.com
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