EXHIBIT 99.1
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News Release ------------- --------------- ------------
Discipline Opportunity Strategy
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CANADIAN NATURAL RESOURCES LIMITED EXPRESSES
CONCERNS OVER THE ROYALTY REVIEW PANEL REPORT
CALGARY, ALBERTA - OCTOBER 9, 2007 - FOR IMMEDIATE RELEASE
Canadian Natural Resources Limited ("Canadian Natural" or the "Company") is a
disciplined operator with a strong track record of value creation in Alberta.
Canadian Natural has operations in Western Canada, the U.K. portion of the
North Sea and Offshore West Africa but is proud to have its headquarters in
Calgary, Alberta and conduct the majority of its operations throughout most of
Alberta. We directly employ approximately 4,000 Albertans, but just as
importantly, the impact of our activity directly employs almost 18,000
additional Albertans, with indirect employment of over 71,000 additional
Albertans.
Canadian Natural believes we have a responsibility to all stakeholders,
shareholders, employees, contractors, communities in which we operate and
Albertans to ensure that a fair share of revenues are shared with the
Government to enable it to ensure the viability of Provincial infrastructure,
health care, education and social services for the benefit of all Albertans. In
2006, our royalty, tax and Crown land payments to the Alberta Government
totaled almost $900 million. We see the opportunity for increased royalties in
the Province of Alberta at higher commodity prices to allow the Alberta
Government to make further investments in these programs.
We have taken the time to complete a detailed and diligent review of the
proposals recommended by Alberta's Royalty Review Panel (the "Panel"). After
careful consideration, Canadian Natural believes that the Panel was
disadvantaged by the factually incorrect information available to them which
resulted in a number of flawed proposals. Therefore, the adoption of the
Panel's proposals will have negative consequences in terms of an economic
downturn in Alberta and reduced development of Alberta's vast, albeit
high-cost, oil and natural gas resources.
Following a number of unrelated regime changes in income taxation,
environmental and greenhouse gas regulation and general global cost inflation
for the oil and natural gas sector, we believe that the Panel's proposals pose
the risk of turning the oil and natural gas industry in Alberta into a
"shrinking" or "blowdown" model. The cumulative impact of these developments
means that the oil and natural gas industry participants will not earn a rate
of return commensurate with the risks in the Alberta basin. Investment in the
Alberta oil and natural gas industry will be sharply reduced going forward. As
a result, in the mid- and long-term, the royalty revenues required to
strengthen and even maintain the Provincial infrastructure, health care,
education and social services in the Province of Alberta may not be available.
This is an event no one in Alberta wants to occur.
If the Panel's proposals are adopted, many oil and natural gas activities in
Alberta would be rendered uneconomic. Canadian Natural would have no choice but
to reduce activity and, via our contractors, would result in an estimated 3,900
less direct jobs and 16,000 less indirect jobs for Albertans.
We call on the Government of Alberta to examine the Panel's proposals and
determine a path forward that balances the need for Albertans to retain a fair
share of revenues while maintaining a viable oil and natural gas industry that
can continue to contribute to a prosperous Alberta for generations to come.
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CANADIAN NATURAL'S ANALYSIS OF THE ROYALTY PANEL'S PROPOSALS
1. THE PANEL WAS DISADVANTAGED BY THE FACTUALLY INCORRECT INFORMATION
AVAILABLE TO THEM, WHICH RESULTED IN A NUMBER OF FLAWED PROPOSALS.
Canadian Natural believes that the Panel was disadvantaged in terms of
the information available to it. In particular:
o Much of the economic information provided to the Panel by the
Department of Energy and Pedro van Meurs was not subjected to
industry comment. Canadian Natural believes that many of the cost
assumptions represent only half of the actual costs being incurred
by industry today. Further, the impacts of new environmental levies
and recent taxation changes were not considered by the Panel.
o As the second largest producer of natural gas and largest producer
of heavy oil in the Province, Canadian Natural's only interface
with the Panel was a 10 minute presentation, resulting in only a
superficial sharing of ideas.
2. THE PANEL'S PROPOSALS ARE NOT CONSISTENT WITH A MATURE, HIGH COST BASIN
SUCH AS ALBERTA'S. Much of the Panel analysis compared Alberta to other
jurisdictions with lower costs and higher productivity. INCREASING
GOVERNMENT TAKE TO LEVELS SIMILAR TO THESE LOWER-COST / HIGHER
PRODUCTIVITY JURISDICTIONS IS LIKELY TO RESULT IN A SEVERE CURTAILMENT OF
FUTURE DEVELOPMENT IN ALBERTA, LOWER EMPLOYMENT LEVELS AND RESULT IN EVER
DECREASING GOVERNMENT REVENUES.
3. THE PANEL SOUGHT TO INCREASE ROYALTIES BY APPROXIMATELY 20%, HOWEVER,
CANADIAN NATURAL'S ANALYSIS AND INTERPRETATION OF THE PANEL'S
RECOMMENDATIONS INDICATES AN OVERALL INCREASE OF 50%, FAR EXCEEDING THE
PANEL'S ESTIMATES. THE RESULTING REDUCTION IN CASH FLOWS REDUCES CAPITAL
REINVESTMENT IN ALBERTA.
4. THE IMPENDING LOWER LEVELS OF REINVESTMENT IN ALBERTA WILL LIKELY HAVE
SIGNIFICANT RIPPLE EFFECTS THROUGHOUT THE ECONOMY. LOWER ECONOMIC
ACTIVITY AND JOB LOSSES WILL SEVERELY HARM THE ALBERTA ECONOMY THROUGHOUT
THE ENTIRE PROVINCE AND THE PROSPERITY OF MANY ALBERTANS.
5. THE PANEL'S PROPOSED ROYALTY STRUCTURE EXTRACTS DISPROPORTIONATELY
GREATER CASH FLOW IN THE EARLY YEARS OF A WELL'S USEFUL LIFE,
SIGNIFICANTLY ERODING RETURNS ON CAPITAL. THE PANEL'S PROPOSALS FOCUSED
ALMOST EXCLUSIVELY ON EXTRACTING ADDITIONAL REVENUES AND NOT ON FAIR
SHARE OF RETURNS, RESULTING IN A POOR INVESTMENT PROFILE FOR THE OIL AND
NATURAL GAS INDUSTRY. AS A CONSEQUENCE, A LARGE PORTION OF ALBERTA'S OIL
AND NATURAL GAS RESOURCES WILL BECOME UNECONOMIC.
6. THE CHANGE IN OIL SANDS ROYALTIES AND CONVERTING CERTAIN BITUMEN
PRODUCTION PROJECTS TO HIGHER CONVENTIONAL ROYALTY SCHEMES WILL SEVERELY
ERODE ECONOMICS. Canadian Natural has made great strides to bring
formerly uneconomic reserves in Alberta to production through application
of new innovative technologies and production practices. The Company has
twenty-eight oil sands projects under the current oil sands royalty
regime of which twenty projects have already paid out - resulting in
royalty payments of $138 million to the government of Alberta in 2006.
Absent that royalty scheme those twenty-eight projects would not have
been developed. CANADIAN NATURAL'S VIEW IS THAT UNDER THE PANEL'S
PROPOSALS, COMPANIES WILL NOT BE IN A POSITION TO PURSUE SUCH VALUE
CREATION PROJECTS AS RETURNS DO NOT JUSTIFY RISKS INCURRED, LEAVING A
VAST AMOUNT OF OIL SANDS STRANDED AND UNDEVELOPED.
7. CAPITAL DISCIPLINE REQUIRES SIGNIFICANT PRE-INVESTMENT AND YEARS OF
PLANNING IN ORDER TO MAXIMIZE VALUE OF THE OIL SANDS RESOURCES - THE
PANEL PROPOSALS DISCOURAGE SUCH ACTIVITIES. Investing 10% to 15% of
project costs prior to sanction allows a company to better control costs
leading to earlier payout and ultimately, higher returns to a company and
larger royalties for the Province of Alberta - IN THIS WE ARE ALIGNED.
THE PANEL'S PROPOSALS SEEK TO REDUCE THE REVENUE STREAM AND INCREASE
COSTS (E.G. LEASE RENTALS) IN THE INTERIM, EFFECTIVELY INCENTING
COMPANIES TO ACCELERATE DEVELOPMENT BUT ERODING THE INCENTIVE TO TAKE THE
TIME REQUIRED TO DO IT RIGHT AND CONTROL COSTS.
8. THE GENERATION OF FREE CASH FLOW FROM OIL SANDS MINING PROJECTS IS A
DIFFERENT CONCEPT FROM SHARING OF RETURNS FOR RISK TAKEN. The Panel's
report underestimates the large up-front capital costs which must be
dedicated to bring these oil sands mining projects into production.
During the period of 2000 through 2008, Canadian Natural will have
invested in excess of $9 billion (including $2 billion of
pre-construction, capitalized interest and overhead costs and Phase 2/3
expenditures) in order to bring its Horizon Project into production. This
capital is invested by the Company with no associated return for several
years before any cash flow is achieved. IN CANADIAN NATURAL'S VIEW, THE
PANEL'S PROPOSALS FOR AN OIL SANDS SEVERANCE TAX WILL HAVE A NEGATIVE
IMPACT ON THE DEVELOPMENT OR EXPANSION OF NEW OIL SANDS PROJECTS AS THE
COST AND CONSTRUCTION RISKS ARE TOO GREAT FOR THE RETURN GENERATED.
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9. THE PANEL'S PROPOSAL THAT NO GRANDFATHERING OF PROJECTS TAKE PLACE DOES
NOT RESPECT THE INVESTMENT DECISIONS MADE TO DATE. THE FAIRNESS OF
CHANGING THE ROYALTY REGIME FOR INVESTMENTS ALREADY MADE IS QUESTIONABLE.
AS NOTED ABOVE, MANY OF THE OIL SANDS PROJECTS REQUIRE YEARS OF
PREPLANNING AND ENGINEERING BEFORE CONSTRUCTION PROCEEDS. This
disciplined approach helps to ensure that the value of the resource is
maximized both to companies and to the people of Alberta. HOWEVER, IN
CANADIAN NATURAL'S VIEW, NOT GRANDFATHERING COMMITTED INVESTMENTS ERODES
THE BELIEF THAT THE INVESTMENT CLIMATE WOULD NOT CHANGE. IN THE CASE OF
THE HORIZON PROJECT, WE FIND THIS PROPOSAL UNSETTLING GIVEN THE
INVESTMENT OF SEVERAL BILLION DOLLARS IN EXPENDITURES TO DATE IN THE
EXECUTION OF AN OIL SANDS PROJECT APPROVAL. INTERESTINGLY, THE PROPOSALS
WOULD, HOWEVER, GRANDFATHER THE HORIZON PROJECT'S UPGRADER SO AS TO
PRECLUDE IT FROM RECEIVING THE PROPOSED UPGRADER ROYALTY CREDIT.
WHAT THE PANEL'S PROPOSALS MEAN TO CANADIAN NATURAL AND ALBERTANS
CANADIAN NATURAL HAS GRAVE CONCERNS on how the Panel's proposals will affect
Canadian Natural's operations in Alberta - proudly our main centre of
operations. After a detailed and diligent review of the Panel's proposals, the
Company, due to the economic impact of the Panel's proposals, will be required
to reduce its level of activity in Alberta and accordingly, should the Panel's
proposals be adopted:
A. The number of Alberta natural gas wells which can be economically drilled
in Alberta by Canadian Natural in either today's pricing environment or
even in a higher pricing environment will be dramatically reduced under
the Panel's proposals. This will result in the Province of Alberta
receiving a larger share of an ever shrinking production base as reduced
drilling and development will not offset natural production declines.
DRILLING ACTIVITY (NUMBER OF WELLS) IN ALBERTA
2008 REDUCTION
2004 2005 2006(1) 2007F PANEL(2) 2008/2007
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Natural gas
Conventional 365 425 427 253 88 (65%)
Shallow 164 167 65 76 20 (73%)
Coal Bed Methane (CBM) 39 100 51 40 20 (50%)
Total natural gas 568 692 543 369 128 (65%)
Total crude oil 244 462 425 480 410 (15%)
Total stratigraphic test /
service wells 330 236 370 244 40 (84%)
(1) Excludes natural gas wells drilled by Anadarko Canada Corporation
prior to its acquisition by Canadian Natural in November, 2006.
(2) This represents the forecast number of wells to be drilled in 2008 by
Canadian Natural in Alberta, if the Panel's proposals are adopted.
B. The economics for certain long term in-situ development projects must be
re-evaluated. It is likely that the Company's defined plan for the
development of the Kirby, Birch Mountain and Gregoire Lake Projects will
be cancelled due to poor economics using reasonable long-term price decks
and an uncertain fiscal environment. This will result in over 3 billion
barrels of resource not being developed and approximately 235,000 bbl/d
of new production not coming on stream over for the next 15 years.
Associated capital costs in excess of $7 billion will not be spent.
C. Phase 1 of the Horizon Project will proceed through completion of
construction, and the Company believes that Phases 2/3 of the Horizon
Project will remain economic and proceed through completion of
construction due to the high level of pre-investment to date. However,
Phases beyond Phase 2/3 would likely be cancelled due to the Panel's
proposals.
The Company's emphasis on creating shareholder value will continue to guide its
investment decisions and judicious review of capital allocations. If no
economic projects are identified, the Company will use free cash flow to
increase its debt retirement profile and return cash to shareholders.
Canadian Natural is a senior oil and natural gas production company, with
continuing operations in its core areas located in Western Canada, the U.K.
portion of the North Sea and Offshore West Africa.
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FORWARD-LOOKING STATEMENTS
Certain statements in this document or documents incorporated herein by
reference for Canadian Natural Resources Limited (the "Company") may constitute
"forward-looking statements" within the meaning of the United States Private
Litigation Reform Act of 1995. These forward-looking statements can generally
be identified as such because of the context of the statements including words
such as the Company "believes", "anticipates", "expects", "plans", "estimates",
"targets", or words of a similar nature.
The forward-looking statements are based on current expectations and are
subject to known and unknown risks, uncertainties and other factors that may
cause the actual results, performance or achievements of the Company, or
industry results, to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Such factors include, among others: general economic and business
conditions which will, among other things, impact demand for and market prices
of the Company's products; foreign currency exchange rates; 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, availability and cost of
seismic, drilling and other equipment; ability of the Company to complete its
capital programs; ability of the Company to transport its products to market;
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 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; success of exploration
and development activities; timing and success of integrating the business and
operations of acquired companies; production levels; uncertainty of reserve
estimates; actions by governmental authorities; government regulations and the
expenditures required to comply with them (especially safety and environmental
laws and regulations); asset retirement obligations; and other circumstances
affecting revenues and expenses. The impact of any one factor on a particular
forward-looking statement is not determinable with certainty as such factors
are interdependent upon other factors, and the Company's course of action would
depend upon its assessment of the future considering all information then
available.
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.
Readers are cautioned that the foregoing list of important factors is not
exhaustive. 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.
For further information, please contact:
CANADIAN NATURAL RESOURCES LIMITED
2500, 855 - 2nd Street S.W.
Calgary, Alberta
T2P 4J8
TELEPHONE: (403) 514-7777 ALLAN P. MARKIN DOUGLAS A. PROLL
Chairman Chief Financial Officer and
FACSIMILE: (403) 514-7888 Senior Vice-President, Finance
EMAIL: ir@cnrl.com JOHN G. LANGILLE
WEBSITE: www.cnrl.com Vice-Chairman COREY B. BIEBER
Vice-President,
TRADING SYMBOL - CNQ STEVE W. LAUT Finance & Investor Relations
Toronto Stock Exchange President and
New York Stock Exchange Chief Operating Officer