CANADIAN NATURAL RESOURCES LIMITED ANNOUNCES

2018 SECOND QUARTER RESULTS

CALGARY, ALBERTA - AUGUST 2, 2018 - FOR IMMEDIATE RELEASE

Commenting on second quarter 2018 results, Steve Laut, Executive Vice-Chairman of Canadian Natural stated, "The Company's balanced strategy was once again evident in the quarter as our robust long life low decline asset base provided record quarterly funds flow of approximately $2.7 billion. The allocation of funds flow was balanced among our four pillars to maximize value for our shareholders through strengthening the balance sheet, returns to shareholders through dividends and share buybacks, economic resource development, and some minor opportunistic acquisitions year to date. The Company's ability to execute on our strategy is reflected in our second quarter results, and continues a long track record of strong results."

Canadian Natural's President, Tim McKay, added, "In the second quarter of 2018, operations were strong and cost control remained a focus, specifically at our Oil Sands Mining and Upgrading assets, where costs continue to come down. Operating costs of $22.94/bbl (US$17.77/bbl) of Synthetic Crude Oil ("SCO") were impressive given the successfully completed turnaround and pit stop activities in the quarter.

Canadian Natural's ability to effectively allocate capital was demonstrated in the quarter as we have made strategic and proactive decisions to take advantage of our large, balanced and diverse asset base due to changing market conditions. Our asset base is a key competitive advantage providing significant capital flexibility and as a result, to maximize value, we are shifting capital from primary heavy crude oil to light crude oil.

At Kirby North, top tier execution and strong productivity have resulted in accelerating the projects time line, bringing forward targeted first oil of the project's 40,000 bbl/d, by three months into Q4/19, one quarter earlier than originally planned.

At Horizon, the Company has identified opportunities to increase reliability, lower costs and add production growth of between 75,000 bbl/d and 95,000 bbl/d in the near and long term. The near term opportunities are targeted to add production growth of 35,000 bbl/d to 45,000 bbl/d of SCO. High grading of these near term opportunities and further defining of substantial long term growth opportunities is ongoing and is targeted to be completed by the end of the year. Additionally, early results from engineering and design specification work at the potential Paraffinic Froth Treatment expansion has indicated that the optimal production range for the expansion has increased by 10,000 bbl/d and is now targeted to add 40,000 bbl/d to 50,000 bbl/d. All of the these identified production growth opportunities at Horizon are over and above the previously disclosed annual corporate growth target of approximately 4% or 45,000 BOE/d of organic production over the next few years. These Horizon opportunities will be executed in a disciplined and step wise manner which preserves Canadian Natural's capital flexibility."

Canadian Natural's Chief Financial Officer, Corey Bieber, continued, "In the second quarter of 2018, the strength of our asset base and effective and efficient operations delivered net earnings of $982 million and funds flow from operations of $2,706 million. Our strong financial results allowed the Company to further strengthen the balance sheet by decreasing absolute long term net debt by over $600 million from the previous quarter, and returning over $850 million to shareholders by way of dividends and share buybacks in the quarter.

The Company's acquisitions in 2017 were transformational and our results continue to show the accretive nature and resilience of these assets. Supported by successful expansions at Horizon, long life low decline and low capital exposure assets, we have been able to reduce long term net debt in the last 12 months since the Athabasca Oil Sands Project ("AOSP") acquisition by approximately $2,500 million, including the retirement of the deferred AOSP acquisition liability, improving our debt to book capitalization to 39.6% from 42.8% and debt to adjusted EBITDA to 2.1x from 3.4x over the same time frame, clearly demonstrating our commitment to strengthening the balance sheet."

HIGHLIGHTS

Three Months Ended

Six Months Ended

Net earnings

$

1,317

Per common share - basic

$

1.16

$

1.16

Adjusted net earnings from operations(1)

$

609

Per common share - basic

$

0.54

$

0.54

Funds flow from operations(2)

$

3,365

Per common share - basic

$

2.97

$

2.95

Total net capital expenditures(3)

$

13,892

Daily production, before royalties

Natural gas (MMcf/d)

1,664

Crude oil and NGLs (bbl/d)

617,728

Equivalent production (BOE/d)(4)

895,139

- diluted

Jun 30 2018

Jun 30 2018

  • $ 982

  • $ 0.80

  • $ 0.80

  • $ 1,279

  • $ 1.05

  • $ 1.04

  • $ 2,706

  • $ 2.20

  • $ 2.19

  • $ 974

$ 583 $ 1,072

$ 0.48 $ 0.93

$ 0.47 $ 0.93

$ 885 $ 332

$ 0.72 $ 0.29

$ 0.71 $ 0.29

$ 2,323 $ 1,726

$ 1.90 $ 1.50

$ 1.89 $ 1.49

$ 1,103 $ 13,046

  • $ 1,565

  • $ 1.28

  • $ 1.27

  • $ 2,164

  • $ 1.77

  • $ 1.76

  • $ 5,029

  • $ 4.10

  • $ 4.08

  • $ 2,077

1,539 793,899 1,050,376

  • 1,614 1,656

  • 854,558 637,127 1,123,546 913,171

1,576 824,060 1,086,757

($ millions, except per common share amounts)

Jun 30 2017

- diluted

- diluted

  • (1) Adjusted net earnings from operations is a non-GAAP measure that the Company utilizes to evaluate its performance. The derivation of this measure is discussed in the Management's Discussion and Analysis ("MD&A").

  • (2) Funds flow from operations is a non-GAAP measure that the Company considers key as it demonstrates the Company's ability to fund capital reinvestment and debt repayment. The derivation of this measure is discussed in the MD&A.

  • (3) For additional information and details, refer to the net capital expenditures table in the Company's MD&A.

  • (4) A barrel of oil equivalent ("BOE") is derived by converting six thousand cubic feet ("Mcf") of natural gas to one barrel ("bbl") of crude oil (6 Mcf:1 bbl). This conversion may be misleading, particularly if used in isolation, since the 6 Mcf:1 bbl ratio is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. In comparing the value ratio using current crude oil prices relative to natural gas prices, the 6 Mcf:1 bbl conversion ratio may be misleading as an indication of value.

    Net earnings of $982 million were realized in Q2/18, an increase of 68% over Q1/18 levels, and adjusted net earnings of $1,279 million were achieved, a 45% increase over Q1/18 levels.

    Canadian Natural generated record quarterly funds flow from operations of $2,706 million in Q2/18, increases of $383 million and $980 million from Q1/18 and Q2/17 levels respectively. The increase over Q1/18 and Q2/17 primarily reflects higher realized prices from the Company's liquids production together with higher liquids production volumes when compared to Q2/17.

    In Q2/18, Canadian Natural delivered funds flow from operations in excess of capital expenditures of approximately $1,730 million, an increase of approximately $510 million and $890 million from Q1/18 and Q2/17 levels respectively.

    In the first half of 2018, after dividend requirements, free cash flow totaled approximately $2,200 million.

    The Company maintained balance in the allocation of its funds flow from operations, consistent with the Company's four pillar strategy:

    • • The Company remained disciplined in economic resource development with capital expenditures of $2,077 million in the first half of 2018.

    • • In the first half of the year the Company has reduced long term net debt by $1,106 million, resulting in debt to adjusted EBITDA strengthening to 2.1x and debt to book capitalization improving to 39.6%.

    • • Returns to shareholders remain a key focus for Canadian Natural as the Company has returned approximately $1,188 million by way of dividends and share buybacks in the first six months of 2018. Share buybacks for cancellation totaled 10,140,127 shares in Q2/18 at a weighted average share price of $43.52.

Subsequent to quarter end Canadian Natural declared a quarterly cash dividend on common shares of $0.335 per share payable on October 1, 2018.

Subsequent to quarter end, the Company executed additional share buybacks of 722,600 common shares for cancellation at a weighted average price of $46.95 per common share.

  • • Opportunistic acquisitions have been minor in 2018, with year to date net expenditures of less than $100 million. The Company's production volumes in Q2/18 averaged 1,050,376 BOE/d, an increase of 15% from Q2/17 levels, mainly due to the Horizon Phase 3 expansion and acquisitions in 2017. Production decreased from Q1/18 levels by 7%, primarily as a result of major planned turnaround activities at the Company's Oil Sands Mining and Upgrading and thermal in situ operations as well as proactive and strategic actions taken to maximize value.

Canadian Natural's corporate crude oil and NGL production volumes averaged 793,899 bbl/d, a decrease of 7% from Q1/18 levels and a 25% increase from Q2/17 levels. The decrease from Q1/18 was primarily as a result of proactive turnaround activities at our Oil Sands Mining and Upgrading and thermal in situ operations as well as curtailments in Q2/18. The increase from Q2/17 was primarily as a result of production from the Horizon Phase 3 expansion, as well as high reliability and strong production from acquisitions completed in 2017.

At the Company's world class Oil Sands Mining and Upgrading assets, operations were as expected in Q2/18 with quarterly production of 407,704 bbl/d of Synthetic Crude Oil ("SCO"), a decrease of 11% from Q1/18 levels, as planned turnaround and pit stop activities at all three of the Company's oil sands mines, as well as a major 62 day turnaround at the Scotford Upgrader were successfully completed in the quarter.

  • • Cost control remains a strong focus for the Company as costs continued to come down resulting in industry leading operating costs of $22.94/bbl (US$17.77/bbl) of SCO in Q2/18, a 2% decrease from Q2/17 levels and a 7% increase from Q1/18 levels, impressive results considering major turnarounds decreased production by 11% in Q2/18 from Q1/18 levels.

  • • At the Athabasca Oil Sands Project ("AOSP"), a significant milestone was reached in July, when the asset produced its 1 billionth barrel of mined bitumen during its first 15 years of operations, one of the few world class assets to reach such a milestone. This is a true demonstration of the quality, size and scale of the Company's Oil Sands Mining and Upgrading operations which through environmentally responsible, safe, reliable, effective and efficient operations, provide sustainable long life low decline production and significant value for stakeholders.

  • • At Horizon, following the successful completion of the Phase 3 expansion and after operating the plant for the last 8 months, the Company continues to evaluate potential expansions and has identified additional opportunities to increase reliability, lower costs and add production.

Results at the potential Paraffinic Froth Treatment expansion at Horizon are evident as the engineering and design specification work completed year to date has shown that the optimal production range of the proposed expansion has increased by 10,000 bbl/d and is now targeted to be 40,000 bbl/d to 50,000 bbl/d. The expansion is targeted to produce high quality diluted bitumen at significantly lower operating costs as the Company leverages its existing infrastructure. Preliminary estimates of the capital required for the proposed expansion are approximately $1.4 billion.

Defining and high grading additional opportunities is ongoing with the completion of the process targeted by year end. These opportunities are targeted to add near term growth of 35,000 bbl/d to 45,000 bbl/d of SCO. All opportunities will be executed in a disciplined and step wise manner, which preserves Canadian Natural's capital flexibility. The previously discussed Vacuum Gas Oil ("VGO") expansion will be included in the high grading process.

In preparation to execute on these opportunities in 2019 and 2020, Canadian Natural has increased 2018 capital expenditures guidance by $170 million to advance engineering and procurement of certain long lead equipment.

At Kirby North, top tier execution and strong productivity has resulted in the project progressing ahead of schedule, advancing targeted first oil by three months into Q4/19, one quarter earlier than originally planned. Cost performance remains on budget with 95% of the Central Processing Facility equipment delivered to site and Steam Assisted Gravity Drainage ("SAGD") drilling nearing 45% completion. Kirby North targets to add 40,000 bbl/d of SAGD production.

Balance sheet strength continues to be a focus of the Company and strong financial performance was demonstrated in Q2/18 through reduced long term debt and extensions of select credit facilities.

  • • In Q2/18, Standard & Poor's revised the Company's rating outlook from BBB+/negative to BBB+/stable.

  • • In Q2/18, the Company reduced absolute long term net debt by approximately $610 million, from Q1/18 levels.

  • • Canadian Natural maintains strong financial stability and liquidity represented by cash balances and committed bank credit facilities. At June 30, 2018 the Company had approximately $4,800 million of available liquidity, including cash and cash equivalents, an increase of approximately $800 million from Q1/18.

  • • In Q2/18 Canadian Natural continued to have significant support from its large and diverse banking group as indicated by extensions of certain credit facilities completed in the quarter.

In Q2/18 Canadian Natural published its 2017 Stewardship Report to Stakeholders, now available on the Company's website athttps://www.cnrl.com/corporate-responsibility/stewardship-report/#2017. The report displays how Canadian Natural continues to focus on safe, reliable, effective and efficient operations while minimizing the Company's environmental footprint.

OPERATIONS REVIEW AND CAPITAL ALLOCATION

Canadian Natural has a balanced and diverse portfolio of assets, primarily Canadian-based, with international exposure in the UK section of the North Sea and Offshore Africa. Canadian Natural's production is well balanced between light and medium crude oil, primary heavy crude oil, Pelican Lake heavy crude oil, bitumen and SCO (herein collectively referred to as "crude oil"), natural gas and NGLs. This balance provides optionality for capital investments, facilitating improved value for the Company's shareholders.

Underpinning this asset base is long life low decline production from the Company's Oil Sands Mining and Upgrading, thermal in situ oil sands and Pelican Lake heavy crude oil assets. The combination of low decline, low reserves replacement costs, and effective and efficient operations means these assets provide substantial and sustainable funds flow throughout the commodity price cycle.

Augmenting this, Canadian Natural maintains a substantial inventory of low capital exposure projects within its conventional asset base. These projects can be executed quickly and with the right economic conditions, can provide excellent returns and maximize value for shareholders. Supporting these projects is the Company's undeveloped land base which enables large, repeatable drilling programs which can be optimized over time. Additionally, by owning and operating most of the related infrastructure, Canadian Natural is able to control a major component of its operating cost and minimize production commitments. Low capital exposure projects can be quickly stopped or started depending upon success, market conditions, or corporate needs.

Canadian Natural's balanced portfolio, built with both long life low decline assets and low capital exposure assets, enables effective capital allocation, production growth and value creation.

Drilling Activity

Six Months Ended Jun 30

2018

2017

(number of wells)

Gross

Net

Gross

Net

Crude oil

210

203

236

216

Natural gas

13

9

16

16

Dry

2

2

3

3

Subtotal

225

214

255

235

Stratigraphic test / service wells

555

477

232

232

Total

780

691

487

467

Success rate (excluding stratigraphic test / service wells)

99%

99%

The Company's total Q2/18 crude oil and natural gas drilling program was 85 net wells, excluding strat/service wells, an increase of 17 net wells from the 68 net wells drilled in Q2/17. The Company's drilling levels reflects the disciplined capital allocation process and proactive actions to improve execution and control costs by balancing overall drilling levels throughout the year.

North America Exploration and Production

Crude oil and NGLs - excluding Thermal In Situ Oil Sands

Three Months Ended

Six Months Ended

2017

Crude oil and NGLs production (bbl/d)

229,325

Net wells targeting crude oil

204

Net successful wells drilled

202

Success rate

99%

Canadian Natural Resources Limited

5

Six months ended June 30, 2018

June 30

June 30 2018

June 30 2018

238,631

245,609

227,083

242,101

58 58

101 57

99 55

159 157

100%

98%

96%

99%

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Disclaimer

CNRL - Canadian Natural Resources Ltd. published this content on 02 August 2018 and is solely responsible for the information contained herein. Distributed by Public, unedited and unaltered, on 02 August 2018 11:14:14 UTC