Commenting on fourth quarter and year end results, Steve Laut, President of
Canadian Natural (TSX:CNQ)(NYSE:CNQ) stated, "2013 was a solid year for Canadian
Natural as we achieved significant progress in our transition to longer life,
low decline assets. We achieved record cash flow of approximately $7.5 billion
in 2013 and we grew our total liquids production by 6% to approximately 478,000
barrels per day, with total production of 671,162 barrels of oil equivalent per
day. Additionally, we increased total Company Gross proved plus probable
reserves to 7.99 billion BOE, replacing 143% of production, with a proved plus
probable reserve life index of approximately 35 years.
During 2013, Canadian Natural continued to effectively execute our strategy to
transform our asset base to longer life, low decline production. The Kirby South
SAGD project achieved first steam injection ahead of schedule and on budget
during the third quarter of 2013. Production is targeted to ramp up to 40,000
barrels per day of crude oil by the end of 2014. This is an important step in
the development of our in situ oil sands reserves. Expansion of Horizon to
250,000 barrels per day is tracking 10% below cost estimates, with Phase 2A
targeted to add 12,000 barrels per day of additional SCO production capacity in
2014, ahead of the original 2015 plan. Horizon also achieved a step change in
reliability this year as a result of several initiatives including the
successful completion of the first major planned turnaround. Horizon averaged
over 100,000 barrels per day of high quality synthetic crude oil during 2013, an
increase of 17% over the 2012 average volumes and within the original 2013
budgeted guidance.
In 2013 production growth was solid, driving our record cash flow. The
facilities at our leading edge Pelican Lake polymer flood were expanded in 2013
and associated crude oil production increased 12% year over year. Canadian
Natural had 7% production growth in North American light crude oil and NGLs and
9% production growth in primary heavy crude oil in 2013 over 2012. We maintain
an enviable position with our vast and balanced asset base; and we target all
aspects of the business to generate free cash flow while maximizing returns to
our shareholders."
Canadian Natural's Chief Financial Officer, Corey Bieber, continued, "Our record
cash flow of approximately $7.5 billion was due to strong operating performance
overall and a healthy price environment, which contributed to a 24% increase in
cash flow over the comparable period in 2012. We exited the year with a strong
balance sheet, with debt to book capitalization of 27% and debt to EBITDA of 1.1
times.
As a result of the Company's continued strength and successful execution of our
proven effective strategy, the Company's Board of Directors, as part of its
annual review of dividend payment levels concurrently with the approval of the
Company's year-end financial statements, have increased the quarterly dividend
to $0.225 per share. This increase is in addition to the aggregate quarterly
dividend increase of 90% announced during 2013. In addition, as part of our
Normal Course Issuer Bid in 2013, we purchased 10.2 million common shares for
cancellation.
Our balance sheet allows us the flexibility to continue to develop the assets
with the highest returns while we generate substantial and growing free cash
flow which can be allocated to resource development, sustainable dividends,
share purchases, opportunistic acquisitions, and debt repayment."
QUARTERLY AND ANNUAL HIGHLIGHTS
Three Months Ended Year Ended
-----------------------------------------------
($ Millions, except per Dec 31 Sep 30 Dec 31 Dec 31 Dec 31
common share amounts) 2013 2013 2012 2013 2012
----------------------------------------------------------------------------
Net earnings $ 413 $ 1,168 $ 352 $ 2,270 $ 1,892
Per common share - basic $ 0.38 $ 1.07 $ 0.32 $ 2.08 $ 1.72
- diluted $ 0.38 $ 1.07 $ 0.32 $ 2.08 $ 1.72
Adjusted net earnings from
operations (1) $ 563 $ 1,009 $ 359 $ 2,435 $ 1,618
Per common share - basic $ 0.52 $ 0.93 $ 0.33 $ 2.24 $ 1.48
- diluted $ 0.52 $ 0.93 $ 0.33 $ 2.23 $ 1.47
Cash flow from operations (2) $ 1,782 $ 2,454 $ 1,548 $ 7,477 $ 6,013
Per common share - basic $ 1.64 $ 2.26 $ 1.41 $ 6.87 $ 5.48
- diluted $ 1.64 $ 2.26 $ 1.41 $ 6.86 $ 5.47
Capital expenditures, net of
dispositions $ 2,091 $ 1,655 $ 1,767 $ 7,274 $ 6,308
Daily production, before
royalties
Natural gas (MMcf/d) 1,195 1,163 1,134 1,158 1,220
Crude oil and NGLs (bbl/d) 478,038 509,182 469,964 478,240 451,378
Equivalent production
(BOE/d) (3) 677,242 702,938 658,973 671,162 654,665
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(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) Cash 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) 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.
Annual
- Total overall production for the year averaged 671,162 BOE/d representing an
increase of 3% from 2012. Canadian Natural's production volumes were driven by
greater reliability of Horizon Oil Sands ("Horizon") operations, successful
light and primary heavy crude oil drilling programs and strong production at
Pelican Lake, and offset by planned production declines in natural gas.
- Total crude oil and NGLs production for the year averaged 478,240 bbl/d, an
increase of 6% from 2012. Crude oil production increased in 2013 as follows:
-- 17% annual increase in Horizon production,
-- 12% annual increase in Pelican Lake production,
-- 9% annual increase in primary heavy crude oil production, and,
-- 7% annual increase in North America light crude oil and NGLs production.
- Total natural gas production for the year averaged 1,158 MMcf/d and was
minimized to a 5% decrease from 2012 due to liquids-rich natural gas development
at Septimus and minor acquisitions throughout the year. The decrease reflects
expected production declines and Canadian Natural's strategic decision to
allocate capital to higher return crude oil projects.
- Canadian Natural realized record cash flow from operations in 2013 of
approximately $7.5 billion. This is a 24% increase in cash flow compared to
approximately $6.0 billion in 2012. The increase in cash flow was primarily due
to higher overall crude oil volumes and higher realized synthetic crude oil
("SCO") and natural gas prices.
- Adjusted net earnings from operations increased to $2.4 billion in 2013
compared to $1.6 billion in 2012. Changes in adjusted net earnings reflect the
changes in cash flow from operations partially offset by higher depletion,
depreciation and amortization ("DD&A") expense.
- Canadian Natural's crude oil and natural gas reserves were reviewed and
evaluated by Independent Qualified Reserves Evaluators. The following highlights
are based on the Company's reserves using forecast prices and costs as at
December 31, 2013:
-- North America E&P Company Gross proved crude oil, bitumen and NGLs reserves
increased 8% to 1.89 billion barrels. Company Gross proved natural gas reserves
increased 4% to 4.16 Tcf. Total proved BOE increased 7% to 2.58 billion barrels,
with a reserve replacement ratio of 188%.
-- North America E&P Company Gross proved plus probable crude oil, bitumen and
NGLs reserves increased 4% to 3.21 billion barrels. Company Gross proved plus
probable natural gas reserves increased 6% to 5.88 Tcf. Total proved plus
probable BOE increased 4% to 4.19 billion barrels, with a reserve replacement
ratio of 191%.
-- Thermal oil sands (bitumen) Company Gross proved reserves increased 9% to
1.16 billion barrels primarily due to category transfers from probable
undeveloped to proved undeveloped at Kirby North and new proved undeveloped
additions at Primrose and Wolf Lake. Proved reserve additions and revisions were
126 million barrels. Total proved plus probable bitumen reserves increased 2% to
2.17 billion barrels.
-- Canadian Natural total Company Gross proved crude oil, SCO, bitumen and NGLs
reserves increased 2% to 4.42 billion barrels. Company Gross proved natural gas
reserves increased 4% to 4.31 Tcf. Total proved reserves increased 2% to 5.14
billion BOE, resulting in a reserve life index of 22.8 years.
-- Canadian Natural total Company Gross proved reserves increased by 364 million
BOE through additions and revisions, resulting in a proved reserve replacement
ratio of 149%.
-- Canadian Natural total Company Gross proved plus probable crude oil, SCO,
bitumen and NGLs reserves increased 1% to 6.97 billion barrels. Company Gross
proved plus probable natural gas reserves increased 6% to 6.11 Tcf. Total proved
plus probable reserves increased 1% to 7.99 billion BOE resulting in a reserve
life index of 35.4 years.
-- Canadian Natural total Company Gross proved plus probable reserves increased
by 350 million BOE through additions and revisions, resulting in a proved plus
probable reserve replacement ratio of 143%.
- Total net exploration and production reserve replacement expenditures totaled
approximately $4.24 billion in 2013, including acquisitions and excluding
Horizon. Horizon project capital (including capitalized interest, share-based
compensation and other) totaled approximately $2.21 billion and sustaining and
turnaround capital totaled approximately $378 million.
- Subsequent to Q4/13, the Company announced an agreement to acquire certain
Canadian assets of Devon Canada ("Devon Assets") for total cash consideration of
approximately $3.125 billion, effective January 1, 2014, with a targeted closing
date of April 1, 2014. The Devon Assets are all located in Western Canada in
areas adjacent or proximal to Canadian Natural's current operations and are high
quality, concentrated liquids-rich natural gas weighted assets, with additional
light crude oil exposure. Devon Assets also include associated key strategic
facilities, a royalty revenue stream and undeveloped land. The acquired Company
Gross proved reserves, excluding the royalty land position, are 272.2 million
BOE, as evaluated by an Independent Qualified Reserves Evaluator retained by
Devon, as at December 31, 2013 using forecast prices and costs.
Fourth Quarter
- Total crude oil and NGLs production was 478,038 bbl/d for Q4/13. Q4/13 crude
oil and NGLs production volumes increased 2% from Q4/12 largely as a result of
safe, steady and reliable production at Horizon, production growth at Pelican
Lake and increased NGLs production. Q4/13 crude oil and NGLs production volumes
decreased 6% from Q3/13 as a result of lower thermal production, as expected,
and lower primary heavy crude oil production. This decrease was primarily due to
the strategic temporary reduction of primary heavy crude oil production in
response to wider WCS heavy differentials and the impact on primary heavy crude
oil production volumes at Woodenhouse due to the temporary loss of a third party
fuel gas pipeline.
- Total natural gas production was 1,195 MMcf/d in Q4/13, an increase of 5% and
3% from Q4/12 and Q3/13 respectively. The increase in production is largely due
to the concentrated liquids-rich Montney natural gas drilling program at
Septimus, as well as minor property acquisitions.
- Canadian Natural generated quarterly cash flow from operations of $1.78
billion compared with $1.55 billion in Q4/12 and $2.45 billion in Q3/13. The
increase in cash flow from Q4/12 was due to higher SCO sales volumes, higher
crude oil and NGLs sales volumes in Offshore Africa, and the impact of a weaker
Canadian dollar relative to the US dollar, partially offset by lower North
America crude oil and NGLs sales volumes. The decrease in cash flow from Q3/13
was due to lower realized SCO and North America crude oil and NGLs prices and
expected lower crude oil and NGLs sales volumes in North America. These factors
were partially offset by higher crude oil and NGLs sales volumes in Offshore
Africa.
- Adjusted net earnings from operations for Q4/13 were $563 million, compared to
adjusted net earnings of $359 million in Q4/12 and $1,009 million Q3/13. Changes
in adjusted net earnings reflect the changes in cash flow from operations.
Operational and Financial
- In 2013 North America light oil and NGLs production volumes increased 7% from
2012.
-- The plant expansion at Septimus, the Company's premium liquids-rich natural
gas Montney play, was completed during Q3/13. During the first week of September
2013, the newly expanded gas plant reached its production capacity of 125 MMcf/d
and approximately 12,200 bbl/d of liquids with the completion of new wells. With
high liquids yields and low operating costs of approximately $0.22/Mcfe,
Septimus continues to generate excellent returns and significant free cash flow
while maximizing the utilization of the plant capacity.
-- In Q3/13, Canadian Natural completed the acquisition of Barrick Energy Inc.
for approximately $173 million. The production and undeveloped land base is
complementary to Canadian Natural's existing assets and is concentrated in light
oil weighted assets with strong netbacks and a long reserve life. This
acquisition added approximately 4,200 bbl/d of light crude oil and NGLs and 4
MMcf/d of natural gas production. These assets have been integrated into the
Company's operations and optimization opportunities are underway.
- Canadian Natural's primary heavy crude oil continued to provide strong
netbacks and amongst the highest returns on capital in the Company's portfolio
of diverse and balanced assets. Primary heavy crude oil operations achieved
annual production volumes of approximately 136,000 bbl/d, representing an
average annual production growth of 9% over 2012. The Q4/13 primary heavy crude
oil production volumes were approximately 135,000 bbl/d, a 3% increase from
Q4/12 and a 4% decrease from Q3/13 levels. The decrease in production levels
from the previous quarter was largely due to the strategic temporary reduction
of production levels by approximately 10,500 bbl/d of primary heavy crude oil
production volumes for approximately 30 days in response to wider WCS heavy
differentials.
- WCS differentials to WTI widened to 40% in December. To partially mitigate the
cash flow impact from temporarily wider differentials, the Company strategically
curtailed production levels by approximately 10,500 bbl/d of primary heavy crude
oil production volumes for approximately 30 days. Primary heavy crude oil
production volumes were deferred to January and February, when differentials
narrowed to 31% and 19% respectively.
- Pelican Lake achieved record quarterly crude oil production of approximately
46,000 bbl/d in Q4/13, a 27% increase from Q4/12 and a 1% increase from Q3/13
levels. This is the fourth consecutive quarter of production increases, which
reflects Canadian Natural's continued success in implementing polymer flooding
technology at this property. Pelican Lake's industry leading operating costs of
$9.25/bbl in Q4/13 represent a 28% decrease from Q4/12 levels. The increasing
polymer flood production response combined with continued optimization and
effective and efficient operations have driven cost improvements, resulting in
increasing free cash flow generation.
- Kirby South, a 100% owned and operated SAGD project, was completed during
Q3/13, on budget, at a cost of approximately $30,000 per flowing barrel. At the
end of Q4/13, steam was being circulated in 36 well pairs on 6 pads to initiate
the SAGD process. Subsequent to Q4/13, 15 well pairs have been converted to SAGD
production as planned. The wells at Kirby South are responding as expected and
production is targeted to grow to 40,000 bbl/d in Q4/14. All evaporators, steam
generators and oil treating vessels are in service and the first shipment of
crude oil produced was delivered during Q4/13 with production averaging 1,500
bbl/d for the quarter. Production ramp up continues as expected, with current
production of approximately 7,000 bbl/d.
- Horizon achieved strong and reliable operating performance for all of 2013.
Horizon SCO production averaged approximately 112,000 bbl/d in the second half
of 2013 upon the completion of the first major turnaround. The Q4/13 production
volumes of 112,273 bbl/d represent a 35% increase from Q4/12 levels, indicating
a step change in safe, steady and reliable production at Horizon. Canadian
Natural expects continued strong operating performance, and for the first two
months of 2014 production has averaged approximately 111,000 bbl/d. Horizon
production is targeted to increase by 11% in 2014 from 2013 levels as a result
of the continued focus on effective and efficient operations.
- During 2013, the Company disposed of a 50% interest in its exploration right
in South Africa, for a net cash consideration of US$255 million, including a
recovery of US$14 million of past incurred costs, resulting in an after-tax gain
on sale of exploration and evaluation property of $166 million. In the event
that a commercial crude oil or natural gas discovery occurs on this exploration
right, resulting in the exploration right being converted into a production
right, an additional cash payment would be due to the Company at such time,
amounting to US$450 million for a commercial crude oil discovery and US$120
million for a commercial natural gas discovery. Long lead equipment has been
ordered and the operator is targeting to drill the first exploration well in
Q3/14.
- For the year ended December 31, 2013, Canadian Natural purchased for
cancellation under its Normal Course Issuer Bid 10,164,800 common shares at a
weighted average price of $31.46 per common share. Subsequent to December 31,
2013, to date in 2014 the Company has purchased for cancellation 1,475,000
common shares at a weighted average price of $35.85 per common share.
- As a result of the Company's continued strength and successful execution of
its proven and effective strategy, Canadian Natural's Board of Directors has
increased the quarterly cash dividend on common shares to C$0.225 per share
payable on April 1, 2014. This increase is in addition to the aggregate
quarterly dividend increase of 90% announced during 2013 and represents a 13%
increase over the previous quarterly dividend. This is the fourteenth
consecutive year of dividend increases since the Company first paid a dividend
in 2001, and a compound annual growth rate of 34% from 2009 when Horizon first
commenced production. This dividend reflects the continued strong operational
results of the Company and the successful execution to date on the thermal
development program and Horizon Phase 2/3 development, both in terms of
construction accomplished and cost performance to date and the amount of future
contracts that have been awarded.
OPERATIONS REVIEW AND CAPITAL ALLOCATION
In order to facilitate efficient operations, Canadian Natural focuses its
activities in core regions where the Company owns a substantial land base and
associated infrastructure. Land inventories are maintained to enable continuous
exploitation of play types and geological trends, greatly reducing overall
exploration risk. By owning and operating associated infrastructure, the Company
is able to maximize utilization of its production facilities, thereby increasing
control over production costs. Furthermore, the Company maintains large project
inventories and production diversification among each of the commodities it
produces; 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. A large diversified project portfolio enables the
effective allocation of capital to higher return opportunities.
OPERATIONS REVIEW
Activity by core region
Net unproved
property
as at Drilling activity
Dec 31, 2013 year ended
(thousands of net Dec 31, 2013
acres)(1) (net wells)(2)
----------------------------------------------------------------------------
North America
Northeast British Columbia 2,956 31.4
Northwest Alberta 2,454 60.3
Northern Plains 7,131 913.3
Southern Plains 1,128 31.0
Southeast Saskatchewan 106 23.5
Thermal In Situ Oil Sands 838 280.0
----------------------------------------------------------------------------
14,613 1,339.5
Oil Sands Mining and Upgrading 59 234.0
North Sea 110 1.0
Offshore Africa 2,467 0.0
----------------------------------------------------------------------------
17,249 1,574.5
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Unproved property refers to a property or part of a property to which no
reserves have been specifically attributed.
(2) Drilling activity includes stratigraphic test and service wells.
Drilling activity (number of wells)
Year Ended Dec 31
----------------------------------------
2013 2012
Gross Net Gross Net
----------------------------------------------------------------------------
Crude oil 1,180 1,117 1,255 1,203
Natural gas 60 44 42 35
Dry 31 30 34 33
----------------------------------------------------------------------------
Subtotal 1,271 1,191 1,331 1,271
Stratigraphic test / service wells 384 384 728 727
----------------------------------------------------------------------------
Total 1,655 1,575 2,059 1,998
----------------------------------------------------------------------------
Success rate (excluding
stratigraphic test / service wells) 97% 97%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
North America Exploration and Production
Crude oil and NGLs - excluding Thermal In Situ Oil Sands
Three Months Ended Year Ended
--------------------------------------------------
Dec 31 Sep 30 Dec 31 Dec 31 Dec 31
2013 2013 2012 2013 2012
----------------------------------------------------------------------------
Crude oil and NGLs
production (bbl/d) 254,162 256,329 230,621 247,196 227,351
----------------------------------------------------------------------------
Net wells targeting crude
oil 299 294 275 1,000 1,075
Net successful wells
drilled 289 287 256 974 1,042
----------------------------------------------------------------------------
Success rate 97% 98% 93% 97% 97%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
- North America crude oil and NGLs production averaged 247,196 bbl/d for the
year, an increase of 9% from 2012 levels. The increase was largely driven by
successful light and primary heavy crude oil drilling programs, strong
performance at Pelican Lake and acquisitions.
- North America crude oil and NGLs production for Q4/13 was 254,162 bbl/d. Q4/13
crude oil and NGLs production volumes increased 10% from Q4/12 as a result of
strong performance in light oil, NGLs, Pelican Lake and primary heavy crude oil
production. Crude oil and NGLs production volumes decreased 1% from Q3/13
levels, as a result of the strategic temporary reduction of approximately 10,500
bbl/d of primary heavy crude oil production volumes for approximately 30 days in
response to wider WCS heavy differentials.
- Woodenhouse returned to full production rates upon the restoration of third
party fuel gas supply on November 21, 2013, with December primary heavy crude
oil production volumes approaching 16,000 bbl/d. Fuel gas supply to the
Woodenhouse operation was interrupted for a period of time as a result of a
third party fuel pipeline issue which resulted in a reduction of production
volumes by approximately 1,200 bbl/d, on average, during Q4/13, as the Company
had to acquire an alternative fuel source to substantially mitigate the
disruption.
- Canadian Natural drilled 259 net primary heavy crude oil wells in Q4/13,
completing an effective and efficient annual drilling program of 859 net primary
heavy crude oil wells during 2013. The Company will continue the drilling
program in 2014, leveraging drilling efficiencies, with the target to drill 898
net primary heavy crude oil wells. Canadian Natural's primary heavy crude oil
continues to provide strong netbacks and a high return on capital in the
Company's portfolio of diverse and balanced assets.
- Pelican Lake achieved record quarterly heavy crude oil production of
approximately 46,000 bbl/d in Q4/13, a 27% increase from Q4/12 and a 1% increase
from Q3/13 levels. This is the fourth consecutive quarter of production
increases, which reflects Canadian Natural's continued success in implementing
polymer flooding technology at this property. Twelve net horizontal production
wells were drilled during the quarter and 17 net horizontal production wells are
targeted to be drilled in 2014. Pelican Lake's industry leading operating costs
of $9.25/bbl in Q4/13 represent a 28% decrease in operating costs from Q4/12.
The increasing polymer flood production response combined with continued
optimization and effective and efficient operations have driven cost
improvements, resulting in increasing free cash flow generation.
- North America light crude oil and NGLs achieved record quarterly production of
approximately 73,400 bbl/d in Q4/13. Production increased 4% from Q3/13,
partially as a result of increased NGLs production associated with the Septimus
project expansion and minor property acquisitions. The Company drilled 28 net
light crude oil wells in Q4/13. Canadian Natural's light crude oil drilling
program will continue to utilize and advance horizontal multi-frac well
technology to access new reserves in pools across the Company's land base.
Thermal In Situ Oil Sands
Three Months Ended Year Ended
--------------------------------------------------
Dec 31 Sep 30 Dec 31 Dec 31 Dec 31
2013 2013 2012 2013 2012
----------------------------------------------------------------------------
Bitumen production (bbl/d) 78,069 109,200 121,362 96,503 99,478
----------------------------------------------------------------------------
Net wells targeting
bitumen 38 47 38 145 161
Net successful wells
drilled 35 47 38 142 161
----------------------------------------------------------------------------
Success rate 92% 100% 100% 98% 100%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
- Average annual thermal in situ production for 2013 was approximately 97,000
bbl/d representing a decrease of 3% from 2012. Q4/13 thermal in situ production
volumes were approximately 78,000 bbl/d due to the timing of steaming and
production cycles and steaming restrictions.
- During Q2/13, bitumen emulsion was discovered at surface at 4 separate
locations in the Company's Primrose development area, 3 at Primrose East and 1
at Primrose South. Canadian Natural continues to work with Alberta Environment
and Sustainable Resource Development ("AESRD") on an effective and efficient
clean-up. Cleanup of the 3 Primrose East sites is complete and the Primrose
South site cleanup is targeted to be completed in Q1/14.
- The causation review of the bitumen emulsion seepage is progressing well. The
significant amount of data collected to date indicates the cause of the bitumen
emulsion seepage is the mechanical failures of wellbores. No data collected to
date supports any other potential failure mechanisms. The method to prevent
seepages for all potential failure mechanisms has been developed and includes
the remediation of legacy wellbores, modified steaming strategies, enhanced
monitoring techniques and proactive response strategies.
- Canadian Natural continues to work with the Alberta Energy Regulator ("AER")
on the causation review of the bitumen emulsion seepage. The Company's near term
steaming plan at Primrose has been modified as a result of the seepages, with
steaming being reduced in certain areas until the causation review with the AER
is complete. Canadian Natural believes that reserves recovered from the Primrose
area over its life cycle will be substantially unchanged and production guidance
for 2014 also remains unchanged.
- Kirby South, a 100% owned and operated SAGD project, was completed during
Q3/13, on budget, at a cost of approximately $30,000 per flowing barrel. At the
end of Q4/13, steam was being circulated in 36 well pairs on 6 pads to initiate
the SAGD process. Subsequent to Q4/13, 15 well pairs have been converted to SAGD
production as planned. The wells at Kirby South are responding as expected and
production is targeted to grow to 40,000 bbl/d in Q4/14. All evaporators, steam
generators and oil treating vessels are in service and the first shipment of
crude oil produced was delivered during Q4/13 with production averaging 1,500
bbl/d for the quarter. Production ramp up continues as expected, with current
production of approximately 7,000 bbl/d.
- The Kirby North Phase 1 project is targeted for Board sanctioning in mid 2014.
Detailed engineering is progressing and, currently, is approximately 97%
complete.
- Kirby South and Kirby North Phase 1 will contribute to a staged expansion plan
for the greater Kirby area. The Company targets to increase Kirby area
production volumes, over time, to approximately 140,000 bbl/d. Canadian
Natural's current overall thermal in situ development plan targets to increase
facility capacity from current levels to approximately 510,000 bbl/d in staged
increments over the next 15 years.
- Planned drilling activity for Q1/14 includes 8 net thermal in situ (bitumen)
wells, excluding strat and service wells.
Natural Gas
Three Months Ended Year Ended
--------------------------------------------------
Dec 31 Sep 30 Dec 31 Dec 31 Dec 31
2013 2013 2012 2013 2012
----------------------------------------------------------------------------
Natural gas production
(MMcf/d) 1,165 1,136 1,113 1,130 1,198
----------------------------------------------------------------------------
Net wells targeting
natural gas 11 10 3 45 35
Net successful wells
drilled 11 10 3 44 35
----------------------------------------------------------------------------
Success rate 100% 100% 100% 98% 100%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
- North America natural gas production averaged 1,130 MMcf/d for the year, and
was minimized to a 6% decrease from 2012, due to liquids-rich development at
Septimus and minor acquisitions throughout the year. The decrease in production
levels reflects natural production declines and Canadian Natural's strategic
decision to allocate capital to higher return crude oil projects. During Q4/13
natural gas production averaged 1,165 MMcf/d, a 5% and 3% increase from Q4/12
and Q3/13 levels respectively. The increase in production from last quarter was
largely driven by liquids-rich Septimus production.
- The plant expansion at Septimus, the Company's premium liquids-rich natural
gas Montney play, was completed during Q3/13. During the first week of September
2013, the newly expanded gas plant reached its production capacity of 125 MMcf/d
and approximately 12,200 bbl/d of liquids with the completion of new wells. With
high liquids yields and low operating costs of approximately $0.22/Mcfe,
Septimus continues to generate excellent returns and significant free cash flow
while maximizing the utilization of the plant capacity in 2014.
International Exploration and Production
Three Months Ended Year Ended
--------------------------------------------------
Dec 31 Sep 30 Dec 31 Dec 31 Dec 31
2013 2013 2012 2013 2012
----------------------------------------------------------------------------
Crude oil production
(bbl/d)
North Sea 20,155 15,522 19,140 18,334 19,824
Offshore Africa 13,379 16,172 15,762 15,923 18,648
----------------------------------------------------------------------------
Natural gas production
(MMcf/d)
North Sea 7 4 1 4 2
Offshore Africa 23 23 20 24 20
----------------------------------------------------------------------------
Net wells targeting crude
oil - - - 1.0 -
Net successful wells
drilled - - - 1.0 -
----------------------------------------------------------------------------
Success rate - - - 100% -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
- International crude oil production averaged 33,534 bbl/d during the quarter, a
6% increase from Q3/13 levels. This increase was primarily as a result of the
successful completion of planned turnarounds in the North Sea, offset by
decreased Offshore Africa crude oil production in the quarter due to a temporary
shut in of the Baobab field in December 2013 as a result of a mooring line
failure on the Floating Production Storage and Offloading ("FPSO") vessel.
Production in the Baobab field was temporarily reinstated in late January 2014,
with final repairs targeted for March 2014.
- During Q4/13 the Company contracted a drilling rig for a 6 well (3.5 net)
drilling program at the Baobab field in Côte d'Ivoire. This rig is expected to
arrive no later than Q1/15 to commence the program, which is targeted to add
11,000 BOE/d of net production when complete.
- Canadian Natural is in the process of obtaining a drilling rig to undertake
the light crude oil infill drilling program at Espoir, Cote d'Ivoire. The
development of Espoir is now targeted to commence in the second half of 2014
with a 10 well (5.9 net) drilling program. This program is targeted to add 5,900
BOE/d of net production when complete.
- Canadian Natural previously acquired two blocks in Cote d'Ivoire which are
prospective for deepwater channel/fan structures similar to Jubilee crude oil
discoveries in Ghana and plays elsewhere in offshore Africa.
-- Block CI-12 is located approximately 35 km west of the Canadian Natural's
current production at Espoir and Baobab and Canadian Natural operates with a 60%
working interest. The Company shot a 3D seismic program in Q4/13 and the data is
currently being processed. Potential exploration drilling is targeted for 2015.
-- Canadian Natural has a 36% working interest in Block CI-514. A seismic
program has been completed and a drilling rig has been contracted to commence
drilling in March 2014, targeting to drill the Lower Cretaceous formations, with
structures targeted to contain between 800 million barrels and 1,400 million
barrels gross oil originally in place (300 million barrels and 500 million
barrels net oil originally in place).
- In September 2012, the UK government announced the implementation of the
Brownfield Allowance ("BFA"), which allows for a property development allowance
on qualifying preapproved field developments. This allowance partially mitigates
the impact of previous supplementary income tax increases. To date, Canadian
Natural has received approval for 3 BFAs. The Tiffany field BFA resulted in a 2
well infill drilling program, which achieved first oil in May 2013. The Ninian
Field was awarded a BFA; the development plan, which includes 4 new production
wells, 4 injectors and 2 well upgrades, commenced in Q4/13.
- In Q4/11 the Banff/Kyle FPSO suffered damage from severe storm conditions and
was consequently removed from the field for repair. The FPSO is currently
undergoing repairs and is targeted to return to the field during Q3/14.
Subsequent to the tie-in of the FPSO, the Banff/Kyle field is targeted to resume
3,500 bbl/d of net light crude oil production.
- During 2013, the Company disposed of a 50% interest in its exploration right
in South Africa, for net cash consideration of US$255 million, including a
recovery of US$14 million of past incurred costs, resulting in an after-tax gain
on sale of exploration and evaluation property of $166 million. In the event
that a commercial crude oil or natural gas discovery occurs on this exploration
right, resulting in the exploration right being converted into a production
right, an additional cash payment would be due to the Company at such time,
amounting to US$450 million for a commercial crude oil discovery and US$120
million for a commercial natural gas discovery. The operator is targeting to
commence drilling the first exploration well in Q3/14.
- The decommissioning activities at the Murchison platform commenced in Q4/13
and the Company estimates the decommissioning efforts will continue for
approximately 5 years. In October 2013, the Company entered into a
Decommissioning Relief Deed ("DRD") with the UK government. The DRD was
introduced in 2013 and is a contractual mechanism whereby the UK government
guarantees its participation in future field abandonments through a recovery of
PRT and corporate income tax.
North America Oil Sands Mining and Upgrading - Horizon
Three Months Ended Year Ended
--------------------------------------------------
Dec 31 Sep 30 Dec 31 Dec 31 Dec 31
2013 2013 2012 2013 2012
----------------------------------------------------------------------------
Synthetic crude oil
production (bbl/d) 112,273 111,959 83,079 100,284 86,077
----------------------------------------------------------------------------
----------------------------------------------------------------------------
- Horizon achieved strong and reliable operating performance for all of 2013.
Horizon SCO production averaged approximately 112,000 bbl/d in the second half
of 2013 upon the completion of the first major turnaround. The Q4/13 production
volumes of 112,273 bbl/d represent a 35% increase from Q4/12 levels, indicating
a step change in safe, steady and reliable production at Horizon. Canadian
Natural expects continued strong operating performance in 2014, and SCO
production to date in 2014 has averaged approximately 111,000 bbl/d. Horizon
production is targeted to increase by 11% in 2014 from 2013 levels as a result
of the continued focus on effective and efficient operations.
- Canadian Natural continues to deliver on its strategy to transition to a
longer life, low decline asset base which provides significant and growing free
cash flow. Canadian Natural's staged expansion to 250,000 bbl/d of SCO
production capacity continues to progress on track and below sanctioned costs.
- An update to the staged Phase 2/3 physical completion of expansion at the end
of Q4/13 is as follows:
-- Overall Horizon Phase 2/3 expansion is 34% physically complete.
-- Reliability - Tranche 2 is 94% physically complete. This phase will increase
performance, overall production reliability and the Gas Recovery Unit will
recover additional light oil barrels in 2014.
-- Directive 74 includes technological investment and research into tailings
management. This project remains on track and is physically 24% complete.
-- Phase 2A is a coker expansion which will utilize pre-invested infrastructure
and equipment to expand the Coker Plant and alleviate the current bottleneck.
The expansion is 78% physically complete with current progress tracking ahead of
schedule. The coker tie-in was originally scheduled to be completed in mid-2015;
however, due to strong construction performance and the early completion of the
coker installation, the Company has accelerated the tie-in to September 2014. An
increase in Horizon production capacity of approximately 12,000 bbl/d is
targeted to occur subsequent to the completion of the coker tie-in.
-- Phase 2B is 24% physically complete. This phase expands the capacity of major
components such as gas/oil hydrotreatment, froth treatment and the hydrogen
plant. This phase is targeted to add another 45,000 bbl/d of production capacity
in 2016.
-- Phase 3 is on track and on schedule. This phase is 22% physically complete,
and includes the addition of supplementary extraction trains. This phase is
targeted to increase production capacity by 80,000 bbl/d in 2017 and will result
in additional reliability, redundancy and significant operating cost savings.
-- The projects currently under construction continue to trend at or below cost
estimates.
- On the Phase 2/3 expansion Canadian Natural has committed approximately 60% of
the Engineering, Procurement and Construction contracts. In addition, over 50%
of the construction contracts have been awarded to date, with 85% being lump
sum, ensuring greater cost certainty. To date, Canadian Natural is running
approximately 10% below the original cost estimates.
MARKETING
Three Months Ended Year Ended
--------------------------------------------------
Dec 31 Sep 30 Dec 31 Dec 31 Dec 31
2013 2013 2012 2013 2012
----------------------------------------------------------------------------
Crude oil and NGLs pricing
WTI benchmark price
(US$/bbl) (1) $ 97.50 $ 105.82 $ 88.20 $ 98.00 $ 94.19
WCS blend differential
from WTI (%) (2) 33% 16% 21% 26% 22%
SCO price (US$/bbl) $ 88.37 $ 109.97 $ 91.90 $ 98.18 $ 92.59
Condensate benchmark
pricing (US$/bbl) $ 94.30 $ 103.83 $ 98.13 $ 101.67 $ 100.92
Average realized pricing
before risk management
(C$/bbl) (3) $ 69.38 $ 89.24 $ 66.55 $ 73.81 $ 72.44
Natural gas pricing
AECO benchmark price
(C$/GJ) $ 2.99 $ 2.68 $ 2.89 $ 3.00 $ 2.28
Average realized pricing
before risk management
(C$/Mcf) $ 3.62 $ 3.15 $ 3.42 $ 3.58 $ 2.70
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) West Texas Intermediate ("WTI").
(2) Western Canadian Select ("WCS").
(3) Average crude oil and NGLs pricing excludes SCO. Pricing is net of blending
costs and excluding risk management activities.
SCO Dated Brent Condensate
WTI WCS Blend Differential Differential Differential
Benchmark Pricing Differential from WTI from WTI from WTI
Pricing (US$/bbl) from WTI (%) (US$/bbl) (US$/bbl) (US$/bbl)
----------------------------------------------------------------------------
2013
October $100.55 26% $ (2.44) $ 8.49 $(1.92)
November $ 93.93 33% $(10.70) $ 14.03 $(6.41)
December $ 97.89 40% $(14.30) $ 12.92 $(1.38)
2014
January $ 94.86 31% $ (7.12) $ 13.40 $ 3.35
February $100.68 19% $ 1.97 $ 8.19 $ 5.15
March(i) $102.36 21% $ (0.95) $ 6.42 $ 3.37
----------------------------------------------------------------------------
(i)Based on current indicative pricing as at February 28, 2013.
- The WCS differential averaged 26% during 2013 compared with 22% in the
previous year. During Q4/13 the WCS differential widened to an average of 33% as
a result of decreased heavy oil demand due to planned refinery maintenance,
pipeline logistical constraints and third party unplanned refinery disruptions.
The temporary widening was in line with the Company's Q4/13 expectations. The
Company anticipates continued volatility in the WCS differential for the first
half of 2014 with a narrowing of the WCS differential thereafter as additional
heavy oil conversion and pipeline capacity come on stream.
- WCS differentials to WTI widened to 40% in December. To partially mitigate the
cash flow impact from temporarily wider differentials, the Company strategically
curtailed production levels by approximately 10,500 bbl/d of primary heavy crude
oil production volumes for approximately 30 days. Primary heavy crude oil
production volumes were deferred to January and February, when differentials
narrowed to 31% and 19% respectively.
- Subsequent to Q4/13, the WCS differential narrowed in January 2014 to average
31%, in February 2014 to average 19% and the indicative differential for March
2014 is approximately 21%. The WCS differential is directionally tightening due
to increased demand for heavier crudes, as a result of third party refinery
expansion and higher refinery utilization.
- Canadian Natural contributed 171,000 bbl/d of its heavy crude oil stream to
the WCS blend in 2013. The Company remains the largest contributor of the WCS
blend, accounting for 59%.
- During 2013, natural gas prices continued to recover from the low pricing
levels in 2012. Natural gas prices increased in Q4/13 from Q4/12 due to a return
to normal natural gas storage levels. Natural gas prices increased for Q4/13
from Q3/13 due to increased winter weather related natural gas demand and
changes in third party short-term tolling arrangements.
NORTH WEST REDWATER UPGRADING AND REFINING
The North West Redwater refinery, upon completion, will strengthen the Company's
position by providing a competitive return on investment and by adding 50,000
bbl/d of bitumen conversion capacity in Alberta which will help reduce pricing
volatility in all Western Canadian heavy crude oil. The Company has a 50%
interest in the North West Redwater Partnership. Work is progressing and site
preparation and deep underground construction is underway.
FINANCIAL REVIEW
The Company continues to implement proven strategies and its disciplined
approach to capital allocation. As a result, the financial position of Canadian
Natural remains strong. Canadian Natural's cash flow generation, credit
facilities, diverse asset base and related capital expenditure programs and
commodity hedging policy all support a flexible financial position and provide
the appropriate financial resources for the near-, mid- and long-term.
- The Company's strategy is to maintain a diverse portfolio balanced across
various commodity types. The Company achieved production of 677,242 BOE/d for
Q4/13 with approximately 97% of production located in G8 countries.
- Canadian Natural has a strong balance sheet with debt to book capitalization
of 27% and debt to EBITDA of 1.1x at December 31, 2013.
- Canadian Natural maintains significant financial stability and liquidity
represented by approximately $2.9 billion of available credit under its bank
credit facilities, net of commercial paper issued, as at December 31, 2013. In
addition, the Company has negotiated an additional $1 billion committed term
facility with the Bank of Montreal, which is available upon closing of the Devon
Asset acquisition.
- The Company's commodity hedging program protects investment returns, ensures
ongoing balance sheet strength and supports the Company's cash flow for its
capital expenditure programs. Details of the Company's commodity hedging program
can be found on the Company's website at www.cnrl.com.
- For the year ended December 31, 2013, Canadian Natural has purchased for
cancellation under its Normal Course Issuer Bid 10,164,800 common shares at a
weighted average price of $31.46 per common share. Subsequent to December 31,
2013, to date in 2014 the Company has purchased for cancellation 1,475,000
common shares at a weighted average price of $35.85 per common share.
- Canadian Natural's Board of Directors has declared a quarterly cash dividend
on common shares of C$0.225 per share payable on April 1, 2014. This increase is
in addition to the aggregate quarterly dividend increase of 90% announced during
2013 and is a 13% increase over the previous quarterly dividend. This is the
fourteenth consecutive year of dividend increases since the Company first paid a
dividend in 2001, with a compound annual growth rate of 34% from 2009 when
Horizon first commenced production.
OUTLOOK
For 2014, excluding production volumes associated with the Devon Assets, annual
production guidance is targeted to average between 521,000 and 560,000 bbl/d of
crude oil and NGLs and between 1,170 and 1,210 MMcf/d of natural gas. Q1/14
production guidance before royalties is forecast to average between 469,000 and
495,000 bbl/d of crude oil and NGLs and between 1,166 and 1,186 MMcf/d of
natural gas. Detailed guidance on production levels, capital allocation and
operating costs can be found on the Company's website at www.cnrl.com.
YEAR-END RESERVES
Determination of Reserves
For the year ended December 31, 2013 the Company retained Independent Qualified
Reserves Evaluators, Sproule Associates Limited, Sproule International Limited
and GLJ Petroleum Consultants Ltd., to evaluate and review all of the Company's
proved and proved plus probable reserves. Sproule evaluated the Company's North
America and International crude oil, bitumen, natural gas and NGL reserves. GLJ
evaluated the Company's Horizon synthetic crude oil reserves. The Evaluators
conducted the evaluation and review in accordance with the standards contained
in the Canadian Oil and Gas Evaluation Handbook ("COGE Handbook"). The reserves
disclosure is presented in accordance with NI 51-101 requirements using forecast
prices and escalated costs.
The Reserves Committee of the Company's Board of Directors has met with and
carried out independent due diligence procedures with the Evaluators as to the
Company's reserves.
Corporate Total
- Company Gross proved crude oil, SCO, bitumen and NGLs reserves increased 2% to
4.42 billion barrels. Company Gross proved natural gas reserves increased 4% to
4.31 Tcf. Total proved reserves increased 2% to 5.14 billion BOE.
- Company Gross proved plus probable crude oil, SCO, bitumen and NGLs reserves
increased 1% to 6.97 billion barrels. Company Gross proved plus probable natural
gas reserves increased 6% to 6.11 Tcf. Total proved plus probable reserves
increased 1% to 7.99 billion BOE.
- Company Gross proved reserve additions and revisions, including acquisitions,
were 266 million barrels of crude oil, SCO, bitumen and NGLs and 592 billion
cubic feet of natural gas for 364 million BOE. The total proved reserve
replacement ratio was 149%. The total proved reserve life index is 22.8 years.
- Company Gross proved plus probable reserve additions and revisions, including
acquisitions, were 227 million barrels of crude oil, bitumen, SCO and NGLs and
745 billion cubic feet of natural gas for 350 million BOE. The total proved plus
probable reserve replacement ratio was 143%. The total proved plus probable
reserve life index is 35.4 years.
- Proved undeveloped crude oil, SCO, bitumen and NGLs reserves accounted for 30%
of the corporate total proved reserves and proved undeveloped natural gas
reserves accounted for 4% of the corporate total proved reserves.
North America Exploration and Production
- Company Gross proved crude oil, bitumen and NGLs reserves increased 8% to 1.89
billion barrels. Company Gross proved natural gas reserves increased 4% to 4.16
Tcf. Total proved BOE increased 7% to 2.58 billion barrels.
- Company Gross proved plus probable crude oil, bitumen and NGLs reserves
increased 4% to 3.21 billion barrels. Company Gross proved plus probable natural
gas reserves increased 6% to 5.88 Tcf. Total proved plus probable BOE increased
4% to 4.19 billion barrels.
- Company Gross proved reserve additions and revisions, including acquisitions,
were 268 million barrels of crude oil, bitumen and NGLs and 587 billion cubic
feet of natural gas for 366 million BOE. The total proved reserve replacement
ratio is 188%. The total proved reserve life index in 14.8 years.
- Company Gross proved plus probable reserve additions and revisions, including
acquisitions, were 252 million barrels of crude oil, bitumen and NGLs and 719
billion cubic feet of natural gas for 372 million BOE. The total proved plus
probable reserve replacement ratio was 191%. The total proved plus probable
reserve life index is 23.9 years.
- Proved undeveloped crude oil, bitumen and NGLs reserves accounted for 37% of
the North America total proved reserves and proved undeveloped natural gas
reserves accounted for 7% of the North America total proved reserves.
- Thermal oil sands (bitumen) Company Gross proved reserves increased 9% to 1.16
billion barrels primarily due to category transfers from probable undeveloped to
proved undeveloped at Kirby North and new proved undeveloped additions at
Primrose and Wolf Lake. Proved reserve additions and revisions were 126 million
barrels. Total proved plus probable bitumen reserves increased 2% to 2.17
billion barrels.
North America Oil Sands Mining and Upgrading
- Company Gross proved plus probable SCO reserves decreased 2% to 3.29 billion
barrels, primarily due to 2013 production, as well as the consumption of
distillate, commencing in 2014, to produce on-site diesel fuel and reduce
operating costs.
International Exploration and Production
- North Sea Company Gross proved reserves are unchanged at 239 million BOE.
North Sea Company Gross proved plus probable reserves are 346 million BOE.
- Offshore Africa Company Gross proved reserves decreased 6% to 108 million BOE
primarily due to production. Offshore Africa Company Gross proved plus probable
reserves are 170 million BOE.
Summary of Company Gross Crude Oil, Bitumen, Natural Gas & NGL Reserves
As of December 31, 2013
Forecast Prices and Costs
Light and Primary Pelican Lake Bitumen
Medium Oil Heavy Heavy Oil (Thermal Oil)
MMbbl Oil MMbbl MMbbl MMbbl
----------------------------------------------------------------------------
North America
Proved
Developed
Producing 95 123 216 321
Developed Non-
Producing 4 23 1 90
Undeveloped 18 98 41 746
----------------------------------------------------------------------------
Total Proved 117 244 258 1,157
Probable 49 90 104 1,013
----------------------------------------------------------------------------
Total Proved
plus Probable 166 334 362 2,170
----------------------------------------------------------------------------
----------------------------------------------------------------------------
North Sea
Proved
Developed
Producing 38
Developed Non-
Producing 18
Undeveloped 168
----------------------------------------------------------------------------
Total Proved 224
Probable 101
----------------------------------------------------------------------------
Total Proved
plus Probable 325
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Offshore Africa
Proved
Developed
Producing 34
Developed Non-
Producing -
Undeveloped 65
----------------------------------------------------------------------------
Total Proved 99
Probable 54
----------------------------------------------------------------------------
Total Proved
plus Probable 153
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total Company
Proved
Developed
Producing 167 123 216 321
Developed Non-
Producing 22 23 1 90
Undeveloped 251 98 41 746
----------------------------------------------------------------------------
Total Proved 440 244 258 1,157
Probable 204 90 104 1,013
----------------------------------------------------------------------------
Total Proved
plus Probable 644 334 362 2,170
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Synthetic Barrels of Oil
Crude Natural Natural Gas Equivalent
Oil MMbbl Gas Bcf Liquids MMbbl MMBOE
----------------------------------------------------------------------------
North America
Proved
Developed
Producing 1,848 2,773 63 3,128
Developed Non-
Producing - 251 4 164
Undeveloped 363 1,136 43 1,498
----------------------------------------------------------------------------
Total Proved 2,211 4,160 110 4,790
Probable 1,078 1,721 64 2,685
----------------------------------------------------------------------------
Total Proved
plus Probable 3,289 5,881 174 7,475
----------------------------------------------------------------------------
----------------------------------------------------------------------------
North Sea
Proved
Developed
Producing 8 39
Developed Non-
Producing 63 28
Undeveloped 20 172
----------------------------------------------------------------------------
Total Proved 91 239
Probable 34 107
----------------------------------------------------------------------------
Total Proved
plus Probable 125 346
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Offshore Africa
Proved
Developed
Producing 40 41
Developed Non-
Producing - -
Undeveloped 14 67
----------------------------------------------------------------------------
Total Proved 54 108
Probable 49 62
----------------------------------------------------------------------------
Total Proved
plus Probable 103 170
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total Company
Proved
Developed
Producing 1,848 2,821 63 3,208
Developed Non-
Producing - 314 4 192
Undeveloped 363 1,170 43 1,737
----------------------------------------------------------------------------
Total Proved 2,211 4,305 110 5,137
Probable 1,078 1,804 64 2,854
----------------------------------------------------------------------------
Total Proved
plus Probable 3,289 6,109 174 7,991
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Summary of Company Net Crude Oil, Bitumen, Natural Gas & NGL Reserves
As of December 31, 2013
Forecast Prices and Costs
Light and Pelican Bitumen
Medium Oil Primary Heavy Lake Heavy (Thermal Oil)
MMbbl Oil MMbbl Oil MMbbl MMbbl
----------------------------------------------------------------------------
North America
Proved
Developed
Producing 82 101 164 244
Developed Non-
Producing 3 19 1 65
Undeveloped 15 82 32 574
----------------------------------------------------------------------------
Total Proved 100 202 197 883
Probable 40 72 71 776
----------------------------------------------------------------------------
Total Proved
plus Probable 140 274 268 1,659
----------------------------------------------------------------------------
----------------------------------------------------------------------------
North Sea
Proved
Developed
Producing 38
Developed Non-
Producing 18
Undeveloped 168
----------------------------------------------------------------------------
Total Proved 224
Probable 101
----------------------------------------------------------------------------
Total Proved
plus Probable 325
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Offshore Africa
Proved
Developed
Producing 29
Developed Non-
Producing -
Undeveloped 51
----------------------------------------------------------------------------
Total Proved 80
Probable 42
----------------------------------------------------------------------------
Total Proved
plus Probable 122
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total Company
Proved
Developed
Producing 149 101 164 244
Developed Non-
Producing 21 19 1 65
Undeveloped 234 82 32 574
----------------------------------------------------------------------------
Total Proved 404 202 197 883
Probable 183 72 71 776
----------------------------------------------------------------------------
Total Proved
plus Probable 587 274 268 1,659
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Synthetic Barrels of Oil
Crude Natural Natural Gas Equivalent
Oil MMbbl Gas Bcf Liquids MMbbl MMBOE
----------------------------------------------------------------------------
North America
Proved
Developed
Producing 1,564 2,485 45 2,614
Developed Non-
Producing - 211 2 125
Undeveloped 263 988 34 1,165
----------------------------------------------------------------------------
Total Proved 1,827 3,684 81 3,904
Probable 836 1,454 50 2,087
----------------------------------------------------------------------------
Total Proved
plus Probable 2,663 5,138 131 5,991
----------------------------------------------------------------------------
----------------------------------------------------------------------------
North Sea
Proved
Developed
Producing 8 39
Developed Non-
Producing 63 28
Undeveloped 20 172
----------------------------------------------------------------------------
Total Proved 91 239
Probable 34 107
----------------------------------------------------------------------------
Total Proved
plus Probable 125 346
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Offshore Africa
Proved
Developed
Producing 27 34
Developed Non-
Producing - -
Undeveloped 11 53
----------------------------------------------------------------------------
Total Proved 38 87
Probable 32 47
----------------------------------------------------------------------------
Total Proved
plus Probable 70 134
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total Company
Proved
Developed
Producing 1,564 2,520 45 2,687
Developed Non-
Producing - 274 2 153
Undeveloped 263 1,019 34 1,390
----------------------------------------------------------------------------
Total Proved 1,827 3,813 81 4,230
Probable 836 1,520 50 2,241
----------------------------------------------------------------------------
Total Proved
plus Probable 2,663 5,333 131 6,471
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Reconciliation of Company Gross Reserves by Product
As of December 31, 2013
Forecast Prices and Costs
PROVED
Light and Primary Pelican Lake Bitumen
Medium Heavy Heavy (Thermal Oil)
North America Oil MMbbl Oil MMbbl Oil MMbbl MMbbl
----------------------------------------------------------------------------
December 31,
2012 113 204 267 1,066
----------------------------------------------------------------------------
Discoveries - 1 - -
Extensions 3 36 - 51
Infill Drilling 5 11 2 -
Improved
Recovery - 1 - -
Acquisitions 9 - - -
Dispositions - - - -
Economic Factors 1 1 - 2
Technical
Revisions 2 40 5 73
Production (16) (50) (16) (35)
----------------------------------------------------------------------------
December 31,
2013 117 244 258 1,157
----------------------------------------------------------------------------
----------------------------------------------------------------------------
North Sea
----------------------------------------------------------------------------
December 31,
2012 227
----------------------------------------------------------------------------
Discoveries -
Extensions -
Infill Drilling -
Improved
Recovery -
Acquisitions 6
Dispositions -
Economic Factors -
Technical
Revisions (2)
Production (7)
----------------------------------------------------------------------------
December 31,
2013 224
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Offshore Africa
----------------------------------------------------------------------------
December 31,
2012 103
----------------------------------------------------------------------------
Discoveries -
Extensions -
Infill Drilling -
Improved
Recovery -
Acquisitions -
Dispositions -
Economic Factors -
Technical
Revisions 1
Production (5)
----------------------------------------------------------------------------
December 31,
2013 99
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total Company
----------------------------------------------------------------------------
December 31,
2012 443 204 267 1,066
----------------------------------------------------------------------------
Discoveries - 1 - -
Extensions 3 36 - 51
Infill Drilling 5 11 2 -
Improved
Recovery - 1 - -
Acquisitions 15 - - -
Dispositions - - - -
Economic Factors 1 1 - 2
Technical
Revisions 1 40 5 73
Production (28) (50) (16) (35)
----------------------------------------------------------------------------
December 31,
2013 440 244 258 1,157
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Synthetic Barrels of Oil
Crude Oil Natural Natural Gas Equivalent
North America MMbbl Gas Bcf Liquids MMbbl MMBOE
----------------------------------------------------------------------------
December 31,
2012 2,255 3,985 94 4,663
----------------------------------------------------------------------------
Discoveries - 6 - 2
Extensions - 163 13 130
Infill Drilling - 73 3 33
Improved
Recovery - 1 - 1
Acquisitions - 141 2 35
Dispositions - (1) - -
Economic Factors (2) (99) (1) (16)
Technical
Revisions (5) 303 8 173
Production (37) (412) (9) (231)
----------------------------------------------------------------------------
December 31,
2013 2,211 4,160 110 4,790
----------------------------------------------------------------------------
----------------------------------------------------------------------------
North Sea
----------------------------------------------------------------------------
December 31,
2012 82 240
----------------------------------------------------------------------------
Discoveries - -
Extensions - -
Infill Drilling - -
Improved
Recovery - -
Acquisitions 15 8
Dispositions - -
Economic Factors - -
Technical
Revisions (4) (2)
Production (2) (7)
----------------------------------------------------------------------------
December 31,
2013 91 239
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Offshore Africa
----------------------------------------------------------------------------
December 31,
2012 69 115
----------------------------------------------------------------------------
Discoveries - -
Extensions - -
Infill Drilling - -
Improved
Recovery - -
Acquisitions - -
Dispositions - -
Economic Factors - -
Technical
Revisions (6) -
Production (9) (7)
----------------------------------------------------------------------------
December 31,
2013 54 108
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total Company
----------------------------------------------------------------------------
December 31,
2012 2,255 4,136 94 5,018
----------------------------------------------------------------------------
Discoveries - 6 - 2
Extensions - 163 13 130
Infill Drilling - 73 3 33
Improved
Recovery - 1 - 1
Acquisitions - 156 2 43
Dispositions - (1) - -
Economic Factors (2) (99) (1) (16)
Technical
Revisions (5) 293 8 171
Production (37) (423) (9) (245)
----------------------------------------------------------------------------
December 31,
2013 2,211 4,305 110 5,137
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Reconciliation of Company Gross Reserves by Product
As of December 31, 2013
Forecast Prices and Costs
PROBABLE
Light and Primary Pelican Lake Bitumen
Medium Heavy Heavy (Thermal Oil)
North America Oil MMbbl Oil MMbbl Oil MMbbl MMbbl
----------------------------------------------------------------------------
December 31,
2012 51 80 105 1,056
----------------------------------------------------------------------------
Discoveries - - - -
Extensions 2 19 - 49
Infill Drilling 1 4 - -
Improved
Recovery - - - -
Acquisitions 3 - - -
Dispositions - - - -
Economic Factors 1 - 1 (2)
Technical
Revisions (9) (13) (2) (90)
Production - - - -
----------------------------------------------------------------------------
December 31,
2013 49 90 104 1,013
----------------------------------------------------------------------------
----------------------------------------------------------------------------
North Sea
----------------------------------------------------------------------------
December 31,
2012 105
----------------------------------------------------------------------------
Discoveries -
Extensions -
Infill Drilling -
Improved
Recovery -
Acquisitions 1
Dispositions -
Economic Factors -
Technical
Revisions (5)
Production -
----------------------------------------------------------------------------
December 31,
2013 101
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Offshore Africa
----------------------------------------------------------------------------
December 31,
2012 55
----------------------------------------------------------------------------
Discoveries -
Extensions -
Infill Drilling -
Improved
Recovery -
Acquisitions -
Dispositions -
Economic Factors (1)
Technical
Revisions -
Production -
----------------------------------------------------------------------------
December 31,
2013 54
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total Company
----------------------------------------------------------------------------
December 31,
2012 211 80 105 1,056
----------------------------------------------------------------------------
Discoveries - - - -
Extensions 2 19 - 49
Infill Drilling 1 4 - -
Improved
Recovery - - - -
Acquisitions 4 - - -
Dispositions - - - -
Economic Factors - - 1 (2)
Technical
Revisions (14) (13) (2) (90)
Production - - - -
----------------------------------------------------------------------------
December 31,
2013 204 90 104 1,013
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Synthetic Barrels of Oil
Crude Natural Natural Gas Equivalent
North America Oil MMbbl Gas Bcf Liquids MMbbl MMBOE
----------------------------------------------------------------------------
December 31,
2012 1,096 1,589 44 2,697
----------------------------------------------------------------------------
Discoveries - 1 1 1
Extensions - 261 20 134
Infill Drilling - 19 - 8
Improved
Recovery - - - -
Acquisitions - 35 - 8
Dispositions - - - -
Economic Factors 1 18 - 4
Technical
Revisions (19) (202) (1) (167)
Production - - - -
----------------------------------------------------------------------------
December 31,
2013 1,078 1,721 64 2,685
----------------------------------------------------------------------------
----------------------------------------------------------------------------
North Sea
----------------------------------------------------------------------------
December 31,
2012 20 109
----------------------------------------------------------------------------
Discoveries - -
Extensions - -
Infill Drilling - -
Improved
Recovery - -
Acquisitions 5 2
Dispositions - -
Economic Factors - -
Technical
Revisions 9 (4)
Production - -
----------------------------------------------------------------------------
December 31,
2013 34 107
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Offshore Africa
----------------------------------------------------------------------------
December 31,
2012 42 62
----------------------------------------------------------------------------
Discoveries - -
Extensions - -
Infill Drilling - -
Improved
Recovery - -
Acquisitions - -
Dispositions - -
Economic Factors - (1)
Technical
Revisions 7 1
Production - -
----------------------------------------------------------------------------
December 31,
2013 49 62
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total Company
----------------------------------------------------------------------------
December 31,
2012 1,096 1,651 44 2,868
----------------------------------------------------------------------------
Discoveries - 1 1 1
Extensions - 261 20 134
Infill Drilling - 19 - 8
Improved
Recovery - - - -
Acquisitions - 40 - 10
Dispositions - - - -
Economic Factors 1 18 - 3
Technical
Revisions (19) (186) (1) (170)
Production - - - -
----------------------------------------------------------------------------
December 31,
2013 1,078 1,804 64 2,854
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Reconciliation of Company Gross Reserves by Product
As of December 31, 2013
Forecast Prices and Costs
PROVED PLUS PROBABLE
Light and Primary Pelican Lake Bitumen
Medium Heavy Heavy (Thermal Oil)
North America Oil MMbbl Oil MMbbl Oil MMbbl MMbbl
----------------------------------------------------------------------------
December 31,
2012 164 284 372 2,122
----------------------------------------------------------------------------
Discoveries - 1 - -
Extensions 5 55 - 100
Infill Drilling 6 15 2 -
Improved
Recovery - 1 - -
Acquisitions 12 - - -
Dispositions - - - -
Economic Factors 2 1 1 -
Technical
Revisions (7) 27 3 (17)
Production (16) (50) (16) (35)
----------------------------------------------------------------------------
December 31,
2013 166 334 362 2,170
----------------------------------------------------------------------------
----------------------------------------------------------------------------
North Sea
----------------------------------------------------------------------------
December 31,
2012 332
----------------------------------------------------------------------------
Discoveries -
Extensions -
Infill Drilling -
Improved
Recovery -
Acquisitions 7
Dispositions -
Economic Factors -
Technical
Revisions (7)
Production (7)
----------------------------------------------------------------------------
December 31,
2013 325
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Offshore Africa
----------------------------------------------------------------------------
December 31,
2012 158
----------------------------------------------------------------------------
Discoveries -
Extensions -
Infill Drilling -
Improved
Recovery -
Acquisitions -
Dispositions -
Economic Factors (1)
Technical
Revisions 1
Production (5)
----------------------------------------------------------------------------
December 31,
2013 153
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total Company
----------------------------------------------------------------------------
December 31,
2012 654 284 372 2,122
----------------------------------------------------------------------------
Discoveries - 1 - -
Extensions 5 55 - 100
Infill Drilling 6 15 2 -
Improved
Recovery - 1 - -
Acquisitions 19 - - -
Dispositions - - - -
Economic Factors 1 1 1 -
Technical
Revisions (13) 27 3 (17)
Production (28) (50) (16) (35)
----------------------------------------------------------------------------
December 31,
2013 644 334 362 2,170
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Synthetic Barrels of Oil
Crude Natural Natural Gas Equivalent
North America Oil MMbbl Gas Bcf Liquids MMbbl MMBOE
----------------------------------------------------------------------------
December 31,
2012 3,351 5,574 138 7,360
----------------------------------------------------------------------------
Discoveries - 7 1 3
Extensions - 424 33 264
Infill Drilling - 92 3 41
Improved
Recovery - 1 - 1
Acquisitions - 176 2 43
Dispositions - (1) - -
Economic Factors (1) (81) (1) (12)
Technical
Revisions (24) 101 7 6
Production (37) (412) (9) (231)
----------------------------------------------------------------------------
December 31,
2013 3,289 5,881 174 7,475
----------------------------------------------------------------------------
----------------------------------------------------------------------------
North Sea
----------------------------------------------------------------------------
December 31,
2012 102 349
----------------------------------------------------------------------------
Discoveries - -
Extensions - -
Infill Drilling - -
Improved
Recovery - -
Acquisitions 20 10
Dispositions - -
Economic Factors - -
Technical
Revisions 5 (6)
Production (2) (7)
----------------------------------------------------------------------------
December 31,
2013 125 346
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Offshore Africa
----------------------------------------------------------------------------
December 31,
2012 111 177
----------------------------------------------------------------------------
Discoveries - -
Extensions - -
Infill Drilling - -
Improved
Recovery - -
Acquisitions - -
Dispositions - -
Economic Factors - (1)
Technical
Revisions 1 1
Production (9) (7)
----------------------------------------------------------------------------
December 31,
2013 103 170
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total Company
----------------------------------------------------------------------------
December 31,
2012 3,351 5,787 138 7,886
----------------------------------------------------------------------------
Discoveries - 7 1 3
Extensions - 424 33 264
Infill Drilling - 92 3 41
Improved
Recovery - 1 - 1
Acquisitions - 196 2 53
Dispositions - (1) - -
Economic Factors (1) (81) (1) (13)
Technical
Revisions (24) 107 7 1
Production (37) (423) (9) (245)
----------------------------------------------------------------------------
December 31,
2013 3,289 6,109 174 7,991
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Reserves Notes:
(1) Company Gross reserves are working interest share before deduction of
royalties and excluding any royalty interests.
(2) Company Net reserves are working interest share after deduction of royalties
and including any royalty interests.
(3) BOE values may not calculate due to rounding.
(4) Forecast pricing assumptions utilized by the Independent Qualified Reserves
Evaluators in the reserve estimates were provided by Sproule
Associates Limited:
Average
annual
increase
2014 2015 2016 2017 2018 thereafter
----------------------------------------------------------------------------
Crude oil and NGLs
WTI at Cushing
(US$/bbl) 94.65 88.37 84.25 95.52 96.96 1.50%
Western Canada Select
(C$/bbl) 77.81 75.02 75.29 85.36 86.64 1.50%
Edmonton Par (C$/bbl) 92.64 89.31 89.63 101.62 103.14 1.50%
Edmonton Pentanes+
(C$/bbl) 103.50 99.78 100.14 113.53 115.24 1.50%
North Sea Brent
(US$/bbl) 108.06 102.73 97.42 106.14 107.73 1.50%
----------------------------------------------------------------------------
Natural gas
AECO (C$/MMBtu) 4.00 3.99 4.00 4.93 5.01 1.50%
BC Westcoast Station 2
(C$/MMBtu) 3.95 3.94 3.95 4.88 4.96 1.50%
Henry Hub Louisiana
(US$/MMBtu) 4.17 4.15 4.17 5.04 5.12 1.50%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
A foreign exchange rate of 0.9400 US$/Cdn$ was used in the 2013 evaluation.
(5) Reserve additions and revisions are comprised of all categories of Company
Gross reserve changes, exclusive of production.
(6) Reserve replacement ratio is the Company Gross reserve additions and
revisions divided by the Company Gross production in the same period.
(7) A barrel of oil equivalent ("BOE") is derived by converting six thousand
cubic feet of natural gas to one barrel 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.
(8) Reserve Life Index is based on the amount for the relevant reserve category
divided by the 2014 proved developed producing production forecast prepared by
the Independent Qualified Reserve Evaluators.
MANAGEMENT'S DISCUSSION AND ANALYSIS
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", "proposed" or expressions of a similar nature suggesting
future outcome or statements regarding an outlook. Disclosure related to
expected future commodity pricing, forecast or anticipated production volumes,
royalties, operating costs, capital expenditures, income tax expenses 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 the Horizon Oil Sands operations and future expansions, Primrose thermal
projects, Pelican Lake water and polymer flood project, the Kirby Thermal Oil
Sands Project, construction of the proposed Keystone XL Pipeline from Hardisty,
Alberta to the US Gulf Coast, construction of the proposed Energy East pipeline
to transport crude oil from Alberta to Quebec and New Brunswick, the proposed
Kinder Morgan Trans Mountain pipeline expansion from Edmonton, Alberta to
Vancouver, British Columbia, and the construction and future operations of the
North West Redwater bitumen upgrader and refinery 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 as 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 and proved plus probable crude oil, natural gas and natural gas liquids
("NGLs") 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
disruptions or delays in the resumption of the mining, extracting or upgrading
of 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 and in
mining, extracting or upgrading the Company's bitumen products; 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, natural gas and
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, whether as a result of new information, future events or other
factors, or the foregoing factors affecting this information, should
circumstances or Management's estimates or opinions change.
Management's Discussion and Analysis
This MD&A of the financial condition and results of operations of the Company
should be read in conjunction with the unaudited interim consolidated financial
statements for the three months and year ended December 31, 2013 and the MD&A
and the audited consolidated financial statements for the year ended December
31, 2012.
All dollar amounts are referenced in millions of Canadian dollars, except where
noted otherwise. The Company's unaudited interim consolidated financial
statements for the period ended December 31, 2013 and this MD&A have been
prepared in accordance with International Financial Reporting Standards ("IFRS")
as issued by the International Accounting Standards Board. This MD&A includes
references to financial measures commonly used in the crude oil and natural gas
industry, such as adjusted net earnings from operations, cash flow from
operations, and cash production costs. These financial measures are not defined
by IFRS and therefore are referred to as non-GAAP measures. The non-GAAP
measures used by the Company may not be comparable to similar measures presented
by other companies. The Company uses these non-GAAP measures to evaluate its
performance. The non-GAAP measures should not be considered an alternative to or
more meaningful than net earnings, as determined in accordance with IFRS, as an
indication of the Company's performance. The non-GAAP measures adjusted net
earnings from operations and cash flow from operations are reconciled to net
earnings, as determined in accordance with IFRS, in the "Financial Highlights"
section of this MD&A. The derivation of adjusted cash production costs and
adjusted depreciation, depletion and amortization are included in the "Operating
Highlights - Oil Sands Mining and Upgrading" section of this MD&A. The Company
also presents certain non-GAAP financial ratios and their derivation in the
"Liquidity and Capital Resources" section of this MD&A.
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. In addition, for the purposes of this MD&A, crude oil is
defined to include the following commodities: light and medium crude oil,
primary heavy crude oil, Pelican Lake heavy crude oil, bitumen (thermal oil),
and synthetic crude oil.
Production volumes and per unit statistics are presented throughout this MD&A on
a "before royalty" or "gross" basis, and realized prices are net of blending
costs and exclude the effect of risk management activities. Production on an
"after royalty" or "net" basis is also presented for information purposes only.
The Company's 2014 guidance included in this MD&A does not reflect the potential
impact of the agreement announced on February 19, 2014 to acquire certain
producing Canadian crude oil and natural gas properties based on a targeted
closing date of April 1, 2014.
The following discussion refers primarily to the Company's financial results for
the three months and year ended December 31, 2013 in relation to the comparable
periods in 2012 and the third quarter of 2013. The accompanying tables form an
integral part of this MD&A. Additional information relating to the Company,
including its Annual Information Form for the year ended December 31, 2012, is
available on SEDAR at www.sedar.com, and on EDGAR at www.sec.gov. This MD&A is
dated March 5, 2014.
FINANCIAL HIGHLIGHTS
($ millions, except per common share amounts)
Three Months Ended Year Ended
--------------------------------------------------
Dec 31 Sep 30 Dec 31 Dec 31 Dec 31
2013 2013 2012 2013 2012
----------------------------------------------------------------------------
Product sales $ 4,330 $ 5,284 $ 4,059 $ 17,945 $ 16,195
Net earnings $ 413 $ 1,168 $ 352 $ 2,270 $ 1,892
Per common share - basic $ 0.38 $ 1.07 $ 0.32 $ 2.08 $ 1.72
- diluted $ 0.38 $ 1.07 $ 0.32 $ 2.08 $ 1.72
Adjusted net earnings from
operations (1) $ 563 $ 1,009 $ 359 $ 2,435 $ 1,618
Per common share - basic $ 0.52 $ 0.93 $ 0.33 $ 2.24 $ 1.48
- diluted $ 0.52 $ 0.93 $ 0.33 $ 2.23 $ 1.47
Cash flow from operations
(2) $ 1,782 $ 2,454 $ 1,548 $ 7,477 $ 6,013
Per common share - basic $ 1.64 $ 2.26 $ 1.41 $ 6.87 $ 5.48
- diluted $ 1.64 $ 2.26 $ 1.41 $ 6.86 $ 5.47
Capital expenditures, net
of dispositions $ 2,091 $ 1,655 $ 1,767 $ 7,274 $ 6,308
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Adjusted net earnings from operations is a non-GAAP measure that represents
net earnings adjusted for certain items of a non-operational nature. The Company
evaluates its performance based on adjusted net earnings from operations. The
reconciliation "Adjusted Net Earnings from Operations" presents the after-tax
effects of certain items of a non-operational nature that are included in the
Company's financial results. Adjusted net earnings from operations may not be
comparable to similar measures presented by other companies.
(2) Cash flow from operations is a non-GAAP measure that represents net earnings
adjusted for non-cash items before working capital adjustments. The Company
evaluates its performance based on cash flow from operations. The Company
considers cash flow from operations a key measure as it demonstrates the
Company's ability to generate the cash flow necessary to fund future growth
through capital investment and to repay debt. The reconciliation "Cash Flow from
Operations" presents certain non-cash items that are included in the Company's
financial results. Cash flow from operations may not be comparable to similar
measures presented by other companies.
Adjusted Net Earnings from Operations
Three Months Ended Year Ended
--------------------------------------------------
Dec 31 Sep 30 Dec 31 Dec 31 Dec 31
($ millions) 2013 2013 2012 2013 2012
----------------------------------------------------------------------------
Net earnings as reported $ 413 $ 1,168 $ 352 $ 2,270 $ 1,892
Share-based compensation,
net of tax (1) 65 48 (41) 135 (214)
Unrealized risk management
(gain) loss, net of tax
(2) (26) 99 4 32 (37)
Unrealized foreign
exchange loss (gain), net
of tax (3) 111 (75) 254 226 129
Realized foreign exchange
gain on repayment of US
dollar debt securities,
net of tax (4) - - (210) (12) (210)
Gain on corporate
acquisition/disposition
of properties, net of tax
(5) - (231) - (231) -
Effect of statutory tax
rate and other
legislative changes on
deferred income tax
liabilities (6) - - - 15 58
----------------------------------------------------------------------------
Adjusted net earnings from
operations $ 563 $ 1,009 $ 359 $ 2,435 $ 1,618
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) The Company's employee stock option plan provides for a cash payment option.
Accordingly, the fair value of the outstanding vested options is recorded as a
liability on the Company's balance sheets and periodic changes in the fair value
are recognized in net earnings or are capitalized to Oil Sands Mining and
Upgrading construction costs.
(2) Derivative financial instruments are recorded at fair value on the Company's
balance sheets, with changes in the fair value of non-designated hedges
recognized in net earnings. The amounts ultimately realized may be materially
different than reflected in the financial statements due to changes in prices of
the underlying items hedged, primarily crude oil and natural gas.
(3) Unrealized foreign exchange gains and losses result primarily from the
translation of US dollar denominated long-term debt to period-end exchange
rates, partially offset by the impact of cross currency swaps, and are
recognized in net earnings.
(4) During the first quarter of 2013, the Company repaid US$400 million of 5.15%
notes. During the fourth quarter of 2012, the Company repaid US$350 million of
5.45% notes.
(5) During the third quarter of 2013, the Company recorded an after-tax gain of
$231 million related to the acquisition of Barrick Energy Inc. and the
disposition of a 50% working interest in an exploration right in South Africa.
(6) All substantively enacted adjustments in applicable income tax rates and
other legislative changes are applied to underlying assets and liabilities on
the Company's balance sheets in determining deferred income tax assets and
liabilities. The impact of these tax rate and other legislative changes is
recorded in net earnings during the period the legislation is substantively
enacted. During the second quarter of 2013, the Government of British Columbia
substantively enacted legislation to increase its provincial corporate income
tax rate effective April 1, 2013, resulting in an increase in the Company's
deferred income tax liability of $15 million. During the third quarter of 2012,
the UK government enacted legislation to restrict the combined corporate and
supplementary income tax rate relief on UK North Sea decommissioning
expenditures to 50%, resulting in an increase in the Company's deferred income
tax liability of $58 million.
Cash Flow from Operations
Three Months Ended Year Ended
--------------------------------------------------
Dec 31 Sep 30 Dec 31 Dec 31 Dec 31
($ millions) 2013 2013 2012 2013 2012
----------------------------------------------------------------------------
Net earnings $ 413 $ 1,168 $ 352 $ 2,270 $ 1,892
Non-cash items:
Depletion, depreciation
and amortization 1,272 1,258 1,213 4,844 4,328
Share-based compensation 65 48 (41) 135 (214)
Asset retirement
obligation accretion 46 41 38 171 151
Unrealized risk
management (gain) loss (30) 121 8 39 (42)
Unrealized foreign
exchange loss (gain) 111 (75) 254 226 129
Realized foreign
exchange gain on
repayment of US dollar
debt securities - - (210) (12) (210)
Equity loss from joint
venture 1 1 3 4 9
Deferred income tax
(recovery) expense (96) 123 (69) 31 (30)
Gain on corporate
acquisition/disposition
of properties - (289) - (289) -
Current income tax on
disposition of properties - 58 - 58 -
----------------------------------------------------------------------------
Cash flow from operations $ 1,782 $ 2,454 $ 1,548 $ 7,477 $ 6,013
----------------------------------------------------------------------------
----------------------------------------------------------------------------
SUMMARY OF CONSOLIDATED NET EARNINGS AND CASH FLOW FROM OPERATIONS
Net earnings for the year ended December 31, 2013 were $2,270 million compared
with $1,892 million for the year ended December 31, 2012. Net earnings for the
year ended December 31, 2013 included net after-tax expenses of $165 million
compared with net after-tax income of $274 million for the year ended December
31, 2012 related to the effects of share-based compensation, risk management
activities, fluctuations in foreign exchange rates including the impact of a
realized foreign exchange gain on repayment of long-term debt, the gain on
corporate acquisition/disposition of properties, and the impact of statutory tax
rate and other legislative changes on deferred income tax liabilities. Excluding
these items, adjusted net earnings from operations for the year ended December
31, 2013 were $2,435 million compared with $1,618 million for the year ended
December 31, 2012.
Net earnings for the fourth quarter of 2013 were $413 million compared with $352
million for the fourth quarter of 2012 and $1,168 million for the third quarter
of 2013. Net earnings for the fourth quarter of 2013 included net after-tax
expenses of $150 million compared with net after-tax expense of $7 million for
the fourth quarter of 2012 and net after-tax income of $159 million for the
third quarter of 2013 related to the effects of share-based compensation, risk
management activities, fluctuations in foreign exchange rates including the
impact of a realized foreign exchange gain on repayment of long-term debt, and
the gain on corporate acquisition/disposition of properties. Excluding these
items, adjusted net earnings from operations for the fourth quarter of 2013 were
$563 million compared with $359 million for the fourth quarter of 2012 and
$1,009 million for the third quarter of 2013.
The increase in adjusted net earnings for the year ended December 31, 2013 from
the comparable period in 2012 was primarily due to:
- higher crude oil and NGLs and synthetic crude oil ("SCO") sales volumes in the
North America and Oil Sands Mining and Upgrading segments;
- higher realized SCO prices;
- higher natural gas netbacks;
- higher realized risk management gains; and
- the impact of a weaker Canadian dollar relative to the US dollar;
partially offset by:
- higher depletion, depreciation and amortization expense.
The increase in adjusted net earnings for the fourth quarter of 2013 from the
comparable period in 2012 was primarily due to:
- higher SCO sales volumes in the Oil Sands Mining and Upgrading segment;
- higher crude oil and NGLs sales volumes in the Offshore Africa segment; and
- the impact of a weaker Canadian dollar relative to the US dollar;
partially offset by:
- lower crude oil and NGLs sales volumes in the North America segment.
The decrease in adjusted net earnings for the fourth quarter of 2013 from the
third quarter of 2013 was primarily due to:
- lower North America crude oil and NGLs netbacks;
- lower crude oil and NGLs sales volumes in the North America segment; and
- lower realized SCO prices;
partially offset by:
- higher crude oil and NGLs sales volumes in the Offshore Africa segment; and
- the impact of a weaker Canadian dollar relative to the US dollar.
The impacts of share-based compensation, risk management activities and changes
in foreign exchange rates are expected to continue to contribute to quarterly
volatility in consolidated net earnings and are discussed in detail in the
relevant sections of this MD&A.
Cash flow from operations for the year ended December 31, 2013 was $7,477
million compared with $6,013 million for the year ended December 31, 2012. Cash
flow from operations for the fourth quarter of 2013 was $1,782 million compared
with $1,548 million for the fourth quarter of 2012 and $2,454 million for the
third quarter of 2013. The fluctuations in cash flow from operations from the
comparable periods were primarily due to the factors noted above relating to the
fluctuations in adjusted net earnings, excluding depletion, depreciation and
amortization expense, as well as due to the impact of cash taxes.
Total production before royalties for the year ended December 31, 2013 increased
3% to 671,162 BOE/d from 654,665 BOE/d for the year ended December 31, 2012.
Total production before royalties for the fourth quarter of 2013 increased 3% to
677,242 BOE/d from 658,973 BOE/d for the fourth quarter of 2012, and decreased
4% from 702,938 BOE/d for the third quarter of 2013.
SUMMARY OF QUARTERLY RESULTS
The following is a summary of the Company's quarterly results for the eight most
recently completed quarters:
($ millions, except per common share Dec 31 Sep 30 Jun 30 Mar 31
amounts) 2013 2013 2013 2013
----------------------------------------------------------------------------
Product sales $ 4,330 $ 5,284 $ 4,230 $ 4,101
Net earnings $ 413 $ 1,168 $ 476 $ 213
Net earnings per common share
- basic $ 0.38 $ 1.07 $ 0.44 $ 0.19
- diluted $ 0.38 $ 1.07 $ 0.44 $ 0.19
----------------------------------------------------------------------------
----------------------------------------------------------------------------
($ millions, except per common share Dec 31 Sep 30 Jun 30 Mar 31
amounts) 2012 2012 2012 2012
----------------------------------------------------------------------------
Product sales $ 4,059 $ 3,978 $ 4,187 $ 3,971
Net earnings $ 352 $ 360 $ 753 $ 427
Net earnings per common share
- basic $ 0.32 $ 0.33 $ 0.68 $ 0.39
- diluted $ 0.32 $ 0.33 $ 0.68 $ 0.39
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Volatility in the quarterly net earnings over the eight most recently completed
quarters was primarily due to:
- Crude oil pricing - The impact of fluctuating demand, inventory storage levels
and geopolitical uncertainties on worldwide benchmark pricing, the impact of the
WCS Heavy Differential from the West Texas Intermediate reference location at
Cushing, Oklahoma ("WTI") in North America and the impact of the differential
between WTI and Dated Brent benchmark pricing in the North Sea and Offshore
Africa.
- Natural gas pricing - The impact of fluctuations in both the demand for
natural gas and inventory storage levels, and the impact of increased shale gas
production in the US.
- Crude oil and NGLs sales volumes - Fluctuations in production due to the
cyclic nature of the Company's Primrose thermal projects, the results from the
Pelican Lake water and polymer flood projects, the strong heavy crude oil
drilling program, and the impact of the turnaround/suspension and subsequent
recommencement of production at Horizon. Sales volumes also reflected
fluctuations due to timing of liftings and maintenance activities in the North
Sea and Offshore Africa.
- Natural gas sales volumes - Fluctuations in production due to the Company's
strategic decision to reduce natural gas drilling activity in North America and
the allocation of capital to higher return crude oil projects, as well as
natural decline rates, shut-in natural gas production due to pricing and the
impact and timing of acquisitions.
- Production expense - Fluctuations primarily due to the impact of the demand
for services, fluctuations in product mix, the impact of seasonal costs that are
dependent on weather, production and cost optimizations in North America, and
the turnaround/suspension and subsequent recommencement of production at
Horizon.
- Depletion, depreciation and amortization - Fluctuations due to changes in
sales volumes, proved reserves, asset retirement obligations, finding and
development costs associated with crude oil and natural gas exploration,
estimated future costs to develop the Company's proved undeveloped reserves, the
effect of the planned decommissioning of the Murchison platform in the North
Sea, and the impact of the turnaround/suspension and subsequent recommencement
of production at Horizon.
- Share-based compensation - Fluctuations due to the determination of fair
market value based on the Black-Scholes valuation model of the Company's
share-based compensation liability.
- Risk management - Fluctuations due to the recognition of gains and losses from
the mark-to-market and subsequent settlement of the Company's risk management
activities.
- Foreign exchange rates - Changes in the Canadian dollar relative to the US
dollar that impacted the realized price the Company received for its crude oil
and natural gas sales, as sales prices are based predominately on US dollar
denominated benchmarks. Fluctuations in realized and unrealized foreign exchange
gains and losses are also recorded with respect to US dollar denominated debt,
partially offset by the impact of cross currency swap hedges.
- Income tax expense - Fluctuations in income tax expense include statutory tax
rate and other legislative changes substantively enacted in the various periods.
- Gains on corporate acquisition/disposition of properties - Fluctuations due to
the recognition of gains on corporate acquisitions/dispositions in the third
quarter of 2013.
BUSINESS ENVIRONMENT
Three Months Ended Year Ended
--------------------------------------------------
Dec 31 Sep 30 Dec 31 Dec 31 Dec 31
2013 2013 2012 2013 2012
----------------------------------------------------------------------------
WTI benchmark price
(US$/bbl) $ 97.50 $ 105.82 $ 88.20 $ 98.00 $ 94.19
Dated Brent benchmark
price (US$/bbl) $ 109.29 $ 110.35 $ 110.03 $ 108.62 $ 111.56
WCS blend differential
from WTI (US$/bbl) $ 32.21 $ 17.42 $ 18.15 $ 25.11 $ 21.05
WCS blend differential
from WTI (%) 33% 16% 21% 26% 22%
SCO price (US$/bbl) $ 88.37 $ 109.97 $ 91.90 $ 98.18 $ 92.59
Condensate benchmark price
(US$/bbl) $ 94.30 $ 103.83 $ 98.13 $ 101.67 $ 100.92
NYMEX benchmark price
(US$/MMBtu) $ 3.63 $ 3.60 $ 3.36 $ 3.67 $ 2.80
AECO benchmark price
(C$/GJ) $ 2.99 $ 2.68 $ 2.89 $ 3.00 $ 2.28
US/Canadian dollar average
exchange rate (US$) $ 0.9529 $ 0.9629 $ 1.0088 $ 0.9710 $ 1.0004
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Commodity Prices
Crude oil sales contracts in the North America segment are typically based on
WTI benchmark pricing. WTI averaged US$98.00 per bbl for the year ended December
31, 2013, an increase of 4% from US$94.19 per bbl for the year ended December
31, 2012. WTI averaged US$97.50 per bbl for the fourth quarter of 2013, an
increase of 11% from US$88.20 per bbl for the fourth quarter of 2012, and a
decrease of 8% from US$105.82 per bbl for the third quarter of 2013.
Crude oil sales contracts for the Company's North Sea and Offshore Africa
segments are typically based on Dated Brent ("Brent") pricing, which is
representative of international markets and overall world supply and demand.
Brent averaged US$108.62 per bbl for the year ended December 31, 2013, a
decrease of 3% from US$111.56 per bbl for the year ended December 31, 2012.
Brent averaged US$109.29 per bbl for the fourth quarter of 2013, consistent with
the comparable periods.
WTI and Brent pricing continued to reflect volatility in supply and demand
factors and geopolitical events. The Brent differential from WTI tightened for
the three months and year ended December 31, 2013 from the comparable periods in
2012 due to a continued debottlenecking of logistical constraints from Cushing
to the US Gulf Coast. The Brent differential from WTI widened in the fourth
quarter of 2013 compared with the third quarter of 2013 due to increased
inventory levels at Cushing as well as upward pressure on Brent pricing.
The WCS Heavy Differential averaged 26% for the year ended December 31, 2013
compared with 22% for the year ended December 31, 2012. The WCS Heavy
Differential averaged 33% for the fourth quarter of 2013 compared with 21% for
the fourth quarter of 2012, and 16% for the third quarter of 2013. The WCS Heavy
Differential widened in the fourth quarter of 2013 from the comparable periods
as a result of decreased heavy oil demand due to planned refinery maintenance,
pipeline logistical constraints and third party unplanned refinery disruptions.
To partially mitigate its exposure to fluctuating heavy crude oil differentials,
as at December 31, 2013, the Company entered into physical crude oil sales
contracts with weighted average fixed WCS differentials as follows: 8,000 bbl/d
in the first quarter of 2014 at US$21.89 per bbl; 9,000 bbl/d in the second
quarter of 2014 at US$21.93 per bbl; and 10,000 bbl/d in the third and fourth
quarters of 2014 at US$20.81 per bbl. Subsequent to December 31, 2013, the WCS
Heavy Differential narrowed in January 2014 to average US$29.17 per bbl and in
February 2014 to average US$19.14 per bbl. The WCS Heavy Differentials are
directionally tightening due to increased demand as a result of third party
refinery expansion and higher refinery utilization.
The SCO price averaged US$98.18 per bbl for the year ended December 31, 2013, an
increase of 6% from US$92.59 per bbl for the year ended December 31, 2012. The
SCO price averaged US$88.37 per bbl for the fourth quarter of 2013, a decrease
of 4% from US$91.90 per bbl for the fourth quarter of 2012, and a decrease of
20% from US$109.97 per bbl for the third quarter of 2013. The fluctuations in
SCO pricing for the three months and year ended December 31, 2013 from the
comparable periods were primarily due to demand fluctuations as well as
movements in WTI benchmark pricing.
The WCS Heavy Differential is expected to continue to reflect seasonal demand
fluctuations, changes in transportation logistics, and refinery utilization and
shutdowns.
NYMEX natural gas prices averaged US$3.67 per MMBtu for the year ended December
31, 2013, an increase of 31% from US$2.80 per MMBtu for the year ended December
31, 2012. NYMEX natural gas prices averaged US$3.63 per MMBtu for the fourth
quarter of 2013, an increase of 8% from US$3.36 per MMBtu for the fourth quarter
of 2012, and an increase of 1% from US$3.60 per MMBtu for the third quarter of
2013.
AECO natural gas prices for the year ended December 31, 2013 averaged $3.00 per
GJ, an increase of 32% from $2.28 per GJ for the year ended December 31, 2012.
AECO natural gas prices for the fourth quarter of 2013 averaged $2.99 per GJ, an
increase of 3% from $2.89 per GJ for the fourth quarter of 2012, and an increase
of 12% from $2.68 per GJ for the third quarter of 2013.
During the fourth quarter of 2013, natural gas prices continued to recover from
the low pricing levels in 2012. Natural gas prices increased for the three
months and year ended December 31, 2013 from the comparable periods in 2012 due
to a return to normal natural gas storage levels. Natural gas prices increased
for the fourth quarter of 2013 from the third quarter of 2013 due to increased
winter weather related natural gas demand and changes in third party short-term
tolling arrangements.
DAILY PRODUCTION, before royalties
Three Months Ended Year Ended
--------------------------------------------------
Dec 31 Sep 30 Dec 31 Dec 31 Dec 31
2013 2013 2012 2013 2012
----------------------------------------------------------------------------
Crude oil and NGLs (bbl/d)
North America -
Exploration and
Production 332,231 365,529 351,983 343,699 326,829
North America - Oil Sands
Mining and Upgrading 112,273 111,959 83,079 100,284 86,077
North Sea 20,155 15,522 19,140 18,334 19,824
Offshore Africa 13,379 16,172 15,762 15,923 18,648
----------------------------------------------------------------------------
478,038 509,182 469,964 478,240 451,378
----------------------------------------------------------------------------
Natural gas (MMcf/d)
North America 1,165 1,136 1,113 1,130 1,198
North Sea 7 4 1 4 2
Offshore Africa 23 23 20 24 20
----------------------------------------------------------------------------
1,195 1,163 1,134 1,158 1,220
----------------------------------------------------------------------------
Total barrels of oil
equivalent (BOE/d) 677,242 702,938 658,973 671,162 654,665
----------------------------------------------------------------------------
Product mix
Light and medium crude oil
and NGLs 16% 14% 15% 15% 16%
Pelican Lake heavy crude
oil 7% 6% 5% 7% 6%
Primary heavy crude oil 20% 20% 20% 20% 19%
Bitumen (thermal oil) 11% 16% 18% 14% 15%
Synthetic crude oil 17% 16% 13% 15% 13%
Natural gas 29% 28% 29% 29% 31%
----------------------------------------------------------------------------
Percentage of product
sales (1) (2) (excluding
Midstream revenue)
Crude oil and NGLs 89% 93% 90% 90% 91%
Natural gas 11% 7% 10% 10% 9%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Net of blending costs and excluding risk management activities.
(2) Comparative figures have been adjusted to reflect realized product prices
before transportation costs.
DAILY PRODUCTION, net of royalties
Three Months Ended Year Ended
--------------------------------------------------
Dec 31 Sep 30 Dec 31 Dec 31 Dec 31
2013 2013 2012 2013 2012
----------------------------------------------------------------------------
Crude oil and NGLs (bbl/d)
North America -
Exploration and
Production 285,594 299,194 305,577 287,428 273,374
North America - Oil Sands
Mining and Upgrading 106,358 104,627 79,691 95,098 82,171
North Sea 20,106 15,481 19,096 18,279 19,772
Offshore Africa 11,351 11,998 10,358 12,973 13,628
----------------------------------------------------------------------------
423,409 431,300 414,722 413,778 388,945
----------------------------------------------------------------------------
Natural gas (MMcf/d)
North America 1,101 1,109 1,047 1,080 1,171
North Sea 7 4 1 4 2
Offshore Africa 19 18 16 20 17
----------------------------------------------------------------------------
1,127 1,131 1,064 1,104 1,190
----------------------------------------------------------------------------
Total barrels of oil
equivalent (BOE/d) 611,245 619,800 592,080 597,835 587,246
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The Company's business approach is to maintain large project inventories and
production diversification among each of the commodities it produces; namely
light and medium crude oil and NGLs, primary heavy crude oil, Pelican Lake heavy
crude oil, bitumen (thermal oil), SCO and natural gas.
Crude oil and NGLs production for the year ended December 31, 2013 increased 6%
to 478,240 bbl/d from 451,378 bbl/d for the year ended December 31, 2012. Crude
oil and NGLs production for the fourth quarter of 2013 increased 2% to 478,038
bbl/d from 469,964 bbl/d for the fourth quarter of 2012 and decreased 6% from
509,182 bbl/d for the third quarter of 2013. The increase in production for the
year ended December 31, 2013 from the comparable period in 2012 was primarily
due to strong production in Horizon and Pelican Lake and the impact of the
drilling program. The increase in production for the fourth quarter of 2013 from
the comparable period in 2012 reflected the impact of strong production in
Horizon, which was partially offset by lower production from the Company's
cyclic thermal operations in the latter half of 2013. The decrease in production
for the fourth quarter of 2013 from the third quarter of 2013 was primarily due
to decreased production from the Company's cyclic thermal operations, the impact
of a third party fuel gas supply interruption in the Woodenhouse area, and a
strategic temporary reduction of heavy oil production in the fourth quarter of
2013 due to a wider WCS Heavy Differential. Crude oil and NGLs production in the
fourth quarter of 2013 was within the Company's previously issued guidance of
474,000 to 513,000 bbl/d.
Natural gas production for the year ended December 31, 2013 decreased 5% to
1,158 MMcf/d from 1,220 MMcf/d for the year ended December 31, 2012. Natural gas
production for the fourth quarter of 2013 increased 5% to 1,195 MMcf/d from
1,134 MMcf/d for the fourth quarter of 2012 and increased 3% from 1,163 MMcf/d
for the third quarter of 2013. The decrease in natural gas production for the
year ended December 31, 2013 from the comparable period was primarily a result
of a strategic reduction of natural gas drilling as the Company allocated
capital to higher return crude oil projects, as well as expected production
declines. The increase in natural gas production for the fourth quarter of 2013
from the comparable periods was primarily a result of the completion of the
Septimus drilling program and plant facility expansion in the third quarter, as
well as the completion of a minor acquisition during the fourth quarter of 2013.
Natural gas production in the fourth quarter of 2013 was within the Company's
previously issued guidance of 1,195 to 1,205 MMcf/d.
For 2014, annual production guidance is targeted to average between 521,000 and
560,000 bbl/d of crude oil and NGLs and between 1,170 and 1,210 MMcf/d of
natural gas. First quarter 2014 production guidance is targeted to average
between 469,000 and 495,000 bbl/d of crude oil and NGLs and between 1,166 and
1,186 MMcf/d of natural gas.
North America - Exploration and Production
North America crude oil and NGLs production for the year ended December 31, 2013
increased 5% to average 343,699 bbl/d from 326,829 bbl/d for the year ended
December 31, 2012. For the fourth quarter of 2013, crude oil and NGLs production
decreased 6% to average 332,231 bbl/d compared with 351,983 bbl/d for the fourth
quarter of 2012 and decreased 9% from 365,529 bbl/d for the third quarter of
2013. The increase in crude oil and NGLs production for the year ended December
31, 2013 from the comparable period was primarily due to strong production in
Pelican Lake and the impact of the drilling program. The decrease in production
for the fourth quarter of 2013 from the comparable periods was primarily due to
the decrease in production from the Company's cyclic thermal operations, the
impact of a third party fuel gas supply interruption in the Woodenhouse area and
a strategic temporary reduction of heavy oil production in the fourth quarter of
2013 due to a wider WCS Heavy Differential. Fourth quarter 2013 production of
crude oil and NGLs was within the Company's previously issued guidance of
332,000 to 362,000 bbl/d. First quarter 2014 production guidance is targeted to
average between 335,000 and 351,000 bbl/d for crude oil and NGLs.
North America natural gas production for the year ended December 31, 2013
decreased 6% to 1,130 MMcf/d compared with 1,198 MMcf/d for the year ended
December 31, 2012. Natural gas production increased 5% to 1,165 MMcf/d for the
fourth quarter of 2013 compared with 1,113 MMcf/d in the fourth quarter of 2012
and increased 3% from 1,136 MMcf/d for the third quarter of 2013. The decrease
in natural gas production for the year ended December 31, 2013 from the
comparable period was primarily a result of a strategic reduction of natural gas
drilling as the Company allocated capital to higher return crude oil projects,
as well as expected production declines. The increase in natural gas production
for the fourth quarter of 2013 from the comparable periods was primarily a
result of the completion of the Septimus drilling program and plant facility
expansion in the third quarter, as well as the completion of a minor acquisition
during the fourth quarter of 2013.
North America - Oil Sands Mining and Upgrading
Production averaged 100,284 bbl/d for the year ended December 31, 2013 compared
with 86,077 bbl/d for the year ended December 31, 2012. For the fourth quarter
of 2013, SCO production averaged 112,273 bbl/d compared with 83,079 bbl/d for
the fourth quarter of 2012 and 111,959 bbl/d for the third quarter of 2013.
Production increased for the three months and year ended December 31, 2013 from
the comparable periods in 2012, reflecting a continued focus on reliable and
efficient operations, and the impact of the successful completion of Horizon's
planned maintenance turnaround in May 2013. Production of SCO was within the
Company's previously issued guidance of 110,000 to 115,000 bbl/d for the fourth
quarter of 2013. First quarter 2014 production guidance is targeted to average
between 108,000 and 115,000 bbl/d.
North Sea
North Sea crude oil production for the year ended December 31, 2013 decreased 8%
to 18,334 bbl/d from 19,824 bbl/d for the year ended December 31, 2012. Fourth
quarter 2013 North Sea crude oil production increased 5% to 20,155 bbl/d from
19,140 bbl/d for the fourth quarter of 2012, and increased 30% from 15,522 bbl/d
for the third quarter of 2013. The decrease in production for the year ended
December 31, 2013 from the comparable period was primarily due to natural field
declines, turnaround activities and a previous reduction in drilling activities
as a result of an increase in the UK corporate income tax rate in 2011. The
increase in production for the fourth quarter of 2013 from the comparable period
in 2012 was due to temporary shut ins of the third-party operated pipeline to
the Sullom Voe Terminal, in 2012, which caused all Ninian and associated fields
to be shut in for a portion of the fourth quarter of 2012. The increase in
production for the fourth quarter of 2013 from the third quarter of 2013 was
primarily a result of the successful completion of planned turnarounds during
the third quarter of 2013.
In December 2011, the Banff Floating Production, Storage and Offloading Vessel
("FPSO") and subsea infrastructure suffered storm damage. Operations at
Banff/Kyle, with combined net production of approximately 3,500 bbl/d, were
suspended. The FPSO is currently undergoing repairs and is targeted to be back
in the field early in the third quarter of 2014. The associated repair costs,
net of insurance recoveries, are not expected to be significant. The financial
impact to operations has been partially mitigated through receipt of business
interruption insurance proceeds.
Offshore Africa
Offshore Africa crude oil production decreased 15% to 15,923 bbl/d for the year
ended December 31, 2013 from 18,648 bbl/d for the year ended December 31, 2012.
Fourth quarter 2013 crude oil production averaged 13,379 bbl/d, decreasing 15%
from 15,762 bbl/d for the fourth quarter of 2012 and decreasing 17% from 16,172
bbl/d for the third quarter of 2013. The decrease in production volumes for the
three months and year ended December 31, 2013 from the comparable periods was
due to natural field declines and a temporary shut in of the Baobab field in
December 2013 due to a FPSO mooring line failure. Turnaround activities were
advanced into this timeframe and production in the Baobab field was reinstated
in late January 2014. The Company plans to perform permanent repairs on the
mooring lines in March 2014.
International Guidance
The Company's North Sea and Offshore Africa fourth quarter 2013 crude oil
production was 33,534 bbl/d and was within the Company's previously issued
guidance of 32,000 to 36,000 bbl/d. First quarter 2014 production guidance is
targeted to average between 26,000 and 29,000 bbl/d of crude oil.
Crude Oil Inventory Volumes
The Company recognizes revenue on its crude oil production when title transfers
to the customer and delivery has taken place. Revenue has not been recognized on
crude oil volumes that were stored in various tanks, pipelines, or FPSOs, as
follows:
------------------------------------
Dec 31 Sep 30 Dec 31
(bbl) 2013 2013 2012
----------------------------------------------------------------------------
North America - Exploration and
Production 830,673 499,490 643,758
North America - Oil Sands Mining and
Upgrading (SCO) 1,550,857 1,172,723 993,627
North Sea 385,073 533,155 77,018
Offshore Africa 185,476 1,858,081 1,036,509
----------------------------------------------------------------------------
2,952,079 4,063,449 2,750,912
----------------------------------------------------------------------------
----------------------------------------------------------------------------
OPERATING HIGHLIGHTS - EXPLORATION AND PRODUCTION
Three Months Ended Year Ended
--------------------------------------------------
Dec 31 Sep 30 Dec 31 Dec 31 Dec 31
2013 2013 2012 2013 2012
----------------------------------------------------------------------------
Crude oil and NGLs ($/bbl)
(1)
Sales price (2) (3) $ 69.38 $ 89.24 $ 66.55 $ 73.81 $ 72.44
Transportation 1.84 2.38 2.32 2.22 2.20
----------------------------------------------------------------------------
Realized sales price, net
of transportation 67.54 86.86 64.23 71.59 70.24
Royalties 8.82 15.20 8.59 11.13 10.67
Production expense 18.59 15.90 15.32 17.14 16.11
----------------------------------------------------------------------------
Netback $ 40.13 $ 55.76 $ 40.32 $ 43.32 $ 43.46
----------------------------------------------------------------------------
Natural gas ($/Mcf) (1)
Sales price (2) (3) $ 3.62 $ 3.15 $ 3.42 $ 3.58 $ 2.70
Transportation 0.28 0.27 0.26 0.28 0.26
----------------------------------------------------------------------------
Realized sales price, net
of transportation 3.34 2.88 3.16 3.30 2.44
Royalties 0.21 0.10 0.21 0.18 0.09
Production expense 1.37 1.38 1.43 1.42 1.31
----------------------------------------------------------------------------
Netback $ 1.76 $ 1.40 $ 1.52 $ 1.70 $ 1.04
----------------------------------------------------------------------------
Barrels of oil equivalent
($/BOE) (1)
Sales price (2) (3) $ 53.30 $ 67.09 $ 51.97 $ 56.46 $ 52.85
Transportation 1.83 2.18 2.14 2.10 2.04
----------------------------------------------------------------------------
Realized sales price, net
of transportation 51.47 64.91 49.83 54.36 50.81
Royalties 6.23 10.35 6.22 7.74 7.07
Production expense 15.04 13.36 13.11 14.24 13.14
----------------------------------------------------------------------------
Netback $ 30.20 $ 41.20 $ 30.50 $ 32.38 $ 30.60
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Amounts expressed on a per unit basis are based on sales volumes.
(2) Net of blending costs and excluding risk management activities.
(3) Comparative figures have been adjusted to reflect realized product prices
before transportation costs.
PRODUCT PRICES - EXPLORATION AND PRODUCTION
Three Months Ended Year Ended
--------------------------------------------------
Dec 31 Sep 30 Dec 31 Dec 31 Dec 31
2013 2013 2012 2013 2012
----------------------------------------------------------------------------
Crude oil and NGLs ($/bbl)
(1)(2) (3)
North America $ 62.70 $ 87.62 $ 62.68 $ 69.90 $ 67.93
North Sea $ 113.84 $ 117.30 $ 109.47 $ 112.46 $ 111.90
Offshore Africa $ 108.25 $ 119.48 $ 97.97 $ 110.21 $ 111.18
Company average $ 69.38 $ 89.24 $ 66.55 $ 73.81 $ 72.44
Natural gas ($/Mcf) (1)(2)
(3)
North America $ 3.46 $ 3.00 $ 3.30 $ 3.43 $ 2.57
North Sea $ 5.05 $ 6.12 $ 3.96 $ 5.69 $ 5.14
Offshore Africa $ 11.13 $ 10.47 $ 10.39 $ 10.45 $ 10.31
Company average $ 3.62 $ 3.15 $ 3.42 $ 3.58 $ 2.70
Company average ($/BOE)
(1)(2) (3) $ 53.30 $ 67.09 $ 51.97 $ 56.46 $ 52.85
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Amounts expressed on a per unit basis are based on sales volumes.
(2) Net of blending costs and excluding risk management activities.
(3) Comparative figures have been adjusted to reflect realized product prices
before transportation costs.
North America
North America realized crude oil prices increased 3% to average $69.90 per bbl
for the year ended December 31, 2013 from $67.93 per bbl for the year ended
December 31, 2012. North America realized crude oil prices averaged $62.70 per
bbl for the fourth quarter of 2013 and were comparable with $62.68 per bbl for
the fourth quarter of 2012 and decreased 28% compared with $87.62 per bbl for
the third quarter of 2013. The increase in realized crude oil prices for the
year ended December 31, 2013 from the comparable period was due to higher WTI
benchmark pricing and the impact of a weaker Canadian dollar relative to the US
dollar. The decrease in realized crude oil prices for the fourth quarter of 2013
from the third quarter for 2013 was due to lower benchmark WTI pricing and the
widening of the WCS Heavy Differential, partially offset by the impact of a
weaker Canadian dollar relative to the US dollar. The Company continues to focus
on its crude oil blending marketing strategy and in the fourth quarter of 2013
contributed approximately 168,000 bbl/d of heavy crude oil blends to the WCS
stream.
North America realized natural gas prices increased 33% to average $3.43 per Mcf
for the year ended December 31, 2013 from $2.57 per Mcf for the year ended
December 31, 2012. North America realized natural gas prices increased 5% to
average $3.46 per Mcf for the fourth quarter of 2013 compared with $3.30 per Mcf
in the fourth quarter of 2012, and increased 15% compared with $3.00 per Mcf for
the third quarter of 2013. The increase in realized natural gas prices for the
three months and year ended December 31, 2013 from the comparable periods in
2012 was primarily due to a return to normal gas storage levels. The increase in
realized natural gas prices for the fourth quarter of 2013 from the third
quarter of 2013 was primarily due to seasonal weather related natural gas demand
and changes in third party short-term tolling arrangements.
Comparisons of the prices received in North America Exploration and Production
by product type were as follows:
------------------------------------
Dec 31 Sep 30 Dec 31
(Quarterly Average) 2013 2013 2012
----------------------------------------------------------------------------
Wellhead Price(1) (2) (3)
Light and medium crude oil and NGLs
($/bbl) $ 70.91 $ 83.10 $ 70.20
Pelican Lake heavy crude oil ($/bbl) $ 60.19 $ 90.32 $ 65.12
Primary heavy crude oil ($/bbl) $ 61.75 $ 89.76 $ 62.02
Bitumen (thermal oil) ($/bbl) $ 57.97 $ 86.68 $ 58.69
Natural gas ($/Mcf) $ 3.46 $ 3.00 $ 3.30
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Amounts expressed on a per unit basis are based on sales volumes.
(2) Net of blending costs and excluding risk management activities.
(3) Comparative figures have been adjusted to reflect realized product prices
before transportation costs.
North Sea
North Sea realized crude oil prices averaged $112.46 per bbl for the year ended
December 31, 2013 and were comparable with $111.90 per bbl for the year ended
December 31, 2012. Realized crude oil prices increased 4% to average $113.84 per
bbl for the fourth quarter of 2013 from $109.47 per bbl for the fourth quarter
of 2012, and decreased 3% from $117.30 per bbl for the third quarter of 2013.
The fluctuations in realized crude oil prices for the three months and year
ended December 31, 2013 from the comparable periods reflected movements in Brent
benchmark pricing, the timing of liftings, and the impact of a weaker Canadian
dollar relative to the US dollar.
Offshore Africa
Offshore Africa realized crude oil prices averaged $110.21 per bbl for the year
ended December 31, 2013 and were comparable with $111.18 per bbl for the year
ended December 31, 2012. Realized crude oil prices increased 10% to average
$108.25 per bbl for the fourth quarter of 2013 from $97.97 per bbl for the
fourth quarter of 2012, and decreased 9% from $119.48 per bbl for the third
quarter of 2013. The fluctuations in realized crude oil prices for the three
months and year ended December 31, 2013 from the comparable periods reflected
movements in Brent benchmark pricing, the timing of liftings, and the impact of
a weaker Canadian dollar relative to the US dollar.
ROYALTIES - EXPLORATION AND PRODUCTION
Three Months Ended Year Ended
--------------------------------------------------
Dec 31 Sep 30 Dec 31 Dec 31 Dec 31
2013 2013 2012 2013 2012
----------------------------------------------------------------------------
Crude oil and NGLs ($/bbl)
(1)
North America $ 8.66 $ 15.65 $ 7.93 $ 11.30 $ 10.33
North Sea $ 0.28 $ 0.31 $ 0.25 $ 0.33 $ 0.29
Offshore Africa $ 16.41 $ 30.83 $ 33.59 $ 18.18 $ 29.46
Company average $ 8.82 $ 15.20 $ 8.59 $ 11.13 $ 10.67
Natural gas ($/Mcf) (1)
North America $ 0.17 $ 0.06 $ 0.18 $ 0.14 $ 0.06
Offshore Africa $ 2.04 $ 2.06 $ 1.74 $ 1.83 $ 1.77
Company average $ 0.21 $ 0.10 $ 0.21 $ 0.18 $ 0.09
Company average ($/BOE)
(1) $ 6.23 $ 10.35 $ 6.22 $ 7.74 $ 7.07
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Amounts expressed on a per unit basis are based on sales volumes.
North America
North America crude oil and natural gas royalties for the year ended December
31, 2013 compared with the year ended December 31, 2012 reflected movements in
benchmark commodity prices and the fluctuations of the WCS Heavy Differential.
Crude oil and NGLs royalties averaged approximately 17% of product sales in 2013
compared with 16% in 2012. Crude oil and NGLs royalties averaged approximately
14% of product sales for the fourth quarter of 2013 compared with 13% for the
fourth quarter of 2012 and 18% for the third quarter of 2013. The decrease in
royalties in the fourth quarter of 2013 from the third quarter of 2013 was
primarily due to the decrease in realized crude oil prices. Crude oil and NGLs
royalties per bbl are anticipated to average 18% to 20% of product sales for
2014.
Natural gas royalties averaged approximately 5% of product sales in 2013
compared with 3% in 2012. Natural gas royalties averaged approximately 5% of
product sales for the fourth quarter of 2013 compared with 6% for the fourth
quarter of 2012 and 2% for the third quarter of 2013. The fluctuations in
natural gas royalty rates compared with the comparable periods primarily
reflected movements in realized natural gas prices. Natural gas royalties are
anticipated to average 7% to 8% of product sales for 2014.
Offshore Africa
Under the terms of the various Production Sharing Contracts, royalty rates
fluctuate based on realized commodity pricing, capital and operating costs, the
status of payouts, and the timing of liftings from each field.
Royalty rates as a percentage of product sales averaged approximately 17% in
2013 compared with 26% in 2012. Royalty rates as a percentage of product sales
averaged approximately 15% for the fourth quarter of 2013 compared with 32% for
the fourth quarter of 2012 and 24% for the third quarter of 2013. The
fluctuations in royalties from the comparable periods in 2012 were due to
adjustments to royalties.
Offshore Africa royalty rates are anticipated to average 4.5% to 6.5% of product
sales for 2014.
PRODUCTION EXPENSE - EXPLORATION AND PRODUCTION
Three Months Ended Year Ended
--------------------------------------------------
Dec 31 Sep 30 Dec 31 Dec 31 Dec 31
2013 2013 2012 2013 2012
----------------------------------------------------------------------------
Crude oil and NGLs ($/bbl)
(1)
North America $ 14.46 $ 13.04 $ 12.79 $ 14.20 $ 13.40
North Sea $ 65.41 $ 78.66 $ 54.41 $ 66.19 $ 53.53
Offshore Africa $ 29.31 $ 25.13 $ 22.14 $ 25.32 $ 23.11
Company average $ 18.59 $ 15.90 $ 15.32 $ 17.14 $ 16.11
Natural gas ($/Mcf) (1)
North America $ 1.32 $ 1.33 $ 1.40 $ 1.39 $ 1.28
North Sea $ 4.81 $ 5.79 $ 3.58 $ 4.67 $ 3.75
Offshore Africa $ 2.73 $ 2.82 $ 3.19 $ 2.53 $ 2.27
Company average $ 1.37 $ 1.38 $ 1.43 $ 1.42 $ 1.31
Company average ($/BOE)
(1) $ 15.04 $ 13.36 $ 13.11 $ 14.24 $ 13.14
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Amounts expressed on a per unit basis are based on sales volumes.
North America
North America crude oil and NGLs production expense for the year ended December
31, 2013 increased 6% to $14.20 per bbl from $13.40 per bbl for the year ended
December 31, 2012. North America crude oil and NGLs production expense for the
fourth quarter of 2013 increased 13% to $14.46 per bbl from $12.79 per bbl for
the fourth quarter of 2012 and increased 11% from $13.04 per bbl for the third
quarter of 2013. The increase in production expense for the three months and
year ended December 31, 2013 from the comparable periods was primarily the
result of higher electricity costs, as well as higher servicing costs related to
heavy oil activities. North America crude oil and NGLs production expense was
slightly higher than the Company's previously issued guidance of $12.00 to
$14.00 per bbl, and is anticipated to average $12.50 to $14.50 per bbl for 2014.
North America natural gas production expense for the year ended December 31,
2013 increased 9% to $1.39 per Mcf from $1.28 per Mcf for the year ended
December 31, 2012. North America natural gas production expense for the fourth
quarter of 2013 decreased 6% to $1.32 per Mcf from $1.40 per Mcf for the fourth
quarter of 2012, and was comparable with the third quarter of 2013. Natural gas
production expense increased for the year ended December 31, 2013 from the year
ended December 31, 2012 primarily due to lower production volumes related to the
strategic reduction in natural gas activity. Natural gas production expense
decreased for the fourth quarter of 2013 from the comparable periods due to
increased production. North America natural gas production expense was within
the Company's previously issued guidance of $1.35 to $1.40 per Mcf, and is
anticipated to average $1.35 to $1.45 per Mcf for 2014.
North Sea
North Sea crude oil production expense for the year ended December 31, 2013
increased 24% to $66.19 per bbl from $53.53 per bbl for the year ended December
31, 2012. North Sea crude oil production expense for the fourth quarter of 2013
increased 20% to $65.41 per bbl from $54.41 per bbl for the fourth quarter of
2012 and decreased 17% from $78.66 per bbl for the third quarter of 2013.
Production expense increased on a per barrel basis for the three months and year
ended December 31, 2013 from the comparable periods in 2012 due to production
declines on relatively fixed costs. The decrease for the fourth quarter of 2013
from the third quarter of 2013 was due to the impacts of turnaround activities
and higher production volumes on a relatively fixed cost structure. North Sea
crude oil production expense was slightly higher than the Company's previously
issued guidance of $62.00 to $66.00 per bbl. Production expense is anticipated
to average $52.00 to $56.00 per bbl for 2014 due to new drilling activities
which are expected to result in additional production from the Ninian fields,
and as the Banff FPSO is targeted to return to service early in the third
quarter of 2014.
Offshore Africa
Offshore Africa crude oil production expense for the year ended December 31,
2013 increased 10% to $25.32 per bbl from $23.11 per bbl for the year ended
December 31, 2012. Offshore Africa crude oil production expense for the fourth
quarter of 2013 averaged $29.31 per bbl, an increase of 32% from $22.14 per bbl
for the fourth quarter of 2012, and an increase of 17% from $25.13 per bbl for
the third quarter of 2013. Production expense increased for the three months and
year ended December 31, 2013 from the comparable periods in 2012 as a result of
production declines on relatively fixed costs and the timing of liftings from
various fields, which have different cost structures. The increase for the
fourth quarter of 2013 from the third quarter of 2013 was due to timing of
liftings from various fields. Offshore Africa crude oil production expense was
below the Company's previously issued guidance of $27.00 to $30.00 per bbl, and
is anticipated to average $38.50 to $42.50 per bbl for 2014 due to timing of
liftings from various fields, which have different cost structures, as well as
due to lower production.
DEPLETION, DEPRECIATION AND AMORTIZATION - EXPLORATION AND PRODUCTION
Three Months Ended Year Ended
--------------------------------------------------
Dec 31 Sep 30 Dec 31 Dec 31 Dec 31
2013 2013 2012 2013 2012
----------------------------------------------------------------------------
Expense ($ millions) $ 1,133 $ 1,089 $ 1,097 $ 4,254 $ 3,874
$/BOE (1) $ 21.20 $ 20.33 $ 20.66 $ 20.38 $ 18.65
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Amounts expressed on a per unit basis are based on sales volumes.
Depletion, depreciation and amortization expense increased for the three months
and year ended December 31, 2013 from the comparable periods primarily due to
the effect of the planned cessation of production and decommissioning of the
Murchison platform in the North Sea, fluctuations in sales volumes and higher
overall future development costs.
ASSET RETIREMENT OBLIGATION ACCRETION - EXPLORATION AND PRODUCTION
Three Months Ended Year Ended
--------------------------------------------------
Dec 31 Sep 30 Dec 31 Dec 31 Dec 31
2013 2013 2012 2013 2012
----------------------------------------------------------------------------
Expense ($ millions) $ 38 $ 32 $ 30 $ 137 $ 119
$/BOE (1) $ 0.71 $ 0.61 $ 0.56 $ 0.66 $ 0.57
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Amounts expressed on a per unit basis are based on sales volumes.
Asset retirement obligation accretion expense represents the increase in the
carrying amount of the asset retirement obligation due to the passage of time.
OPERATING HIGHLIGHTS - OIL SANDS MINING AND UPGRADING
OPERATIONS UPDATE
The Company continues to focus on reliable and efficient operations. During the
fourth quarter of 2013, operating performance continued to be strong, leading to
production of 112,273 bbl/d, which was within stated guidance.
PRODUCT PRICES, ROYALTIES AND TRANSPORTATION - OIL SANDS MINING AND UPGRADING
Three Months Ended Year Ended
--------------------------------------------------
Dec 31 Sep 30 Dec 31 Dec 31 Dec 31
($/bbl) (1) 2013 2013 2012 2013 2012
----------------------------------------------------------------------------
SCO sales price (2) $ 92.05 $ 114.19 $ 89.40 $ 100.75 $ 90.74
Bitumen value for royalty
purposes (3) $ 55.45 $ 82.78 $ 58.12 $ 65.48 $ 59.93
Bitumen royalties (4) $ 5.06 $ 6.82 $ 3.80 $ 5.11 $ 4.34
Transportation $ 1.51 $ 1.52 $ 2.06 $ 1.57 $ 1.83
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Amounts expressed on a per unit basis are based on sales volumes excluding
the period of turnaround/suspension of production.
(2) Comparative figures have been adjusted to reflect realized product prices
before transportation costs.
(3) Calculated as the quarterly average of the bitumen valuation methodology price.
(4) Calculated based on actual bitumen royalties expensed during the period;
divided by the corresponding SCO sales volumes.
Realized SCO sales prices averaged $100.75 per bbl for the year ended December
31, 2013, an increase of 11% compared with $90.74 per bbl for the year ended
December 31, 2012. Realized SCO sales prices averaged $92.05 per bbl for the
fourth quarter of 2013, an increase of 3% compared with $89.40 per bbl for the
fourth quarter of 2012 and an decrease of 19% compared with $114.19 per bbl for
the third quarter of 2013, reflecting benchmark pricing and prevailing
differentials.
CASH PRODUCTION COSTS - OIL SANDS MINING AND UPGRADING
The following tables are reconciled to the Oil Sands Mining and Upgrading
production costs disclosed in the Company's unaudited interim consolidated
financial statements.
Three Months Ended Year Ended
--------------------------------------------------
Dec 31 Sep 30 Dec 31 Dec 31 Dec 31
($ millions) 2013 2013 2012 2013 2012
----------------------------------------------------------------------------
Cash production costs $ 389 $ 407 $ 372 $ 1,567 $ 1,504
Less: costs incurred
during the period of
turnaround/suspension of
production - - - (104) (154)
----------------------------------------------------------------------------
Adjusted cash production
costs $ 389 $ 407 $ 372 $ 1,463 $ 1,350
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Adjusted cash production
costs, excluding natural
gas costs $ 362 $ 380 $ 342 $ 1,359 $ 1,254
Adjusted natural gas costs 27 27 30 104 96
----------------------------------------------------------------------------
Adjusted cash production
costs $ 389 $ 407 $ 372 $ 1,463 $ 1,350
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three Months Ended Year Ended
--------------------------------------------------
Dec 31 Sep 30 Dec 31 Dec 31 Dec 31
($/bbl) (1) 2013 2013 2012 2013 2012
----------------------------------------------------------------------------
Adjusted cash production
costs, excluding natural
gas costs $ 36.31 $ 37.27 $ 45.31 $ 37.68 $ 39.79
Adjusted natural gas costs 2.74 2.63 3.96 2.89 3.04
----------------------------------------------------------------------------
Adjusted cash production
costs $ 39.05 $ 39.90 $ 49.27 $ 40.57 $ 42.83
----------------------------------------------------------------------------
Sales (bbl/d) (2) 108,163 110,750 81,936 98,757 86,153
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Adjusted cash production costs on a per unit basis were based on sales
volumes excluding the period of turnaround/suspension of production.
(2) Sales volumes include the period of turnaround/suspension of production.
Adjusted cash production costs averaged $40.57 per bbl for the year ended
December 31, 2013, a decrease of 5% compared with $42.83 per bbl for the year
ended December 31, 2012. Adjusted cash production costs for the fourth quarter
of 2013 averaged $39.05 per bbl, a decrease of 21% compared with $49.27 per bbl
for the fourth quarter of 2012 and a decrease of 2% compared with $39.90 per bbl
for the third quarter of 2013 primarily reflecting the impact of strong
production volumes on a relatively fixed cost structure. Cash production costs
are anticipated to average $36.00 to $39.00 per bbl for 2014.
DEPLETION, DEPRECIATION AND AMORTIZATION - OIL SANDS MINING AND UPGRADING
Three Months Ended Year Ended
--------------------------------------------------
Dec 31 Sep 30 Dec 31 Dec 31 Dec 31
($ millions) 2013 2013 2012 2013 2012
----------------------------------------------------------------------------
Depletion, depreciation
and amortization $ 137 $ 167 $ 114 $ 582 $ 447
Less: depreciation
incurred during the
period of
turnaround/suspension of
production - - - (79) (6)
----------------------------------------------------------------------------
Adjusted depletion,
depreciation and
amortization $ 137 $ 167 $ 114 $ 503 $ 441
----------------------------------------------------------------------------
$/bbl (1) $ 13.75 $ 16.40 $ 15.12 $ 13.95 $ 13.99
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Amounts expressed on a per unit basis are based on sales volumes excluding
the period of turnaround/suspension of production.
Depletion, depreciation and amortization expense reflected the impact of
fluctuations in sales volumes and minor asset derecognitions.
ASSET RETIREMENT OBLIGATION ACCRETION - OIL SANDS MINING AND UPGRADING
Three Months Ended Year Ended
--------------------------------------------------
Dec 31 Sep 30 Dec 31 Dec 31 Dec 31
($ millions) 2013 2013 2012 2013 2012
----------------------------------------------------------------------------
Expense $ 8 $ 9 $ 8 $ 34 $ 32
$/bbl (1) $ 0.85 $ 0.83 $ 1.06 $ 0.94 $ 1.01
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Amounts expressed on a per unit basis are based on sales volumes.
Asset retirement obligation accretion expense represents the increase in the
carrying amount of the asset retirement obligation due to the passage of time.
MIDSTREAM
Three Months Ended Year Ended
--------------------------------------------------
Dec 31 Sep 30 Dec 31 Dec 31 Dec 31
($ millions) 2013 2013 2012 2013 2012
----------------------------------------------------------------------------
Revenue $ 26 $ 28 $ 26 $ 110 $ 93
Production expense 8 9 8 34 29
----------------------------------------------------------------------------
Midstream cash flow 18 19 18 76 64
Depreciation 2 2 2 8 7
Equity loss from joint
venture 1 1 3 4 9
----------------------------------------------------------------------------
Segment earnings before
taxes $ 15 $ 16 $ 13 $ 64 $ 48
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Midstream operating results were consistent with the comparable periods.
The Company has a 50% interest in the North West Redwater Partnership ("Redwater
Partnership"). Redwater Partnership has entered into agreements to construct and
operate a 50,000 barrel per day bitumen upgrader and refinery (the "Project")
under processing agreements that target to process 12,500 barrels per day of
bitumen feedstock for the Company and 37,500 barrels per day of bitumen
feedstock for the Alberta Petroleum Marketing Commission ("APMC"), an agent of
the Government of Alberta, under a 30 year fee-for-service tolling agreement.
During 2012, the Project received board sanction from Redwater Partnership and
its partners.
As at December 31, 2013, Redwater Partnership had interim borrowings of $702
million under credit facilities totaling $1,200 million with original maturities
no later than December 2017. These facilities are secured by a floating charge
on the assets of Redwater Partnership with a mandatory repayment required from
future financing proceeds. At maturity, under its processing agreement, the
Company would be obligated to pay its 25% pro rata share of any shortfall.
In December 2013, Redwater Partnership, the Company and APMC agreed in principle
to amend certain terms of the processing agreements. In conjunction with these
amendments, the Company, along with APMC, each committed to provide additional
funding up to $350 million to attain Project completion based on the revised
Project cost estimate of approximately $8,500 million. The additional funding is
to be in the form of subordinated debt bearing interest at prime plus 6%, which
is anticipated to form part of the equity toll. Should final Project costs
exceed the revised cost estimate, the Company and APMC have agreed, subject to
the Company being able to meet certain funding conditions, to fund any shortfall
in available third party commercial lending required to attain Project
completion.
Redwater Partnership has entered into various agreements related to the
engineering, procurement and construction of the Project. These contracts can be
cancelled by Redwater Partnership upon notice without penalty, subject to the
costs incurred up to and in respect of the cancellation.
Subsequent to December 31, 2013, the credit facility maturity date was amended
to mature on November 28, 2014. At maturity or at such later date as mutually
agreed to by the lenders and Redwater Partnership, the Company will be obligated
to repay its 25% pro rata share of any amount outstanding under the facility. As
at March 4, 2014, interim borrowings under the facilities were $857 million.
ADMINISTRATION EXPENSE
Three Months Ended Year Ended
--------------------------------------------------
Dec 31 Sep 30 Dec 31 Dec 31 Dec 31
($ millions) 2013 2013 2012 2013 2012
----------------------------------------------------------------------------
Expense $ 93 $ 82 $ 64 $ 335 $ 270
$/BOE (1) $ 1.47 $ 1.28 $ 1.07 $ 1.37 $ 1.13
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Amounts expressed on a per unit basis are based on sales volumes.
Administration expense for the three months and year ended December 31, 2013
increased from the comparable periods in 2012 primarily due to higher staffing
and general corporate costs.
SHARE-BASED COMPENSATION
Three Months Ended Year Ended
--------------------------------------------------
Dec 31 Sep 30 Dec 31 Dec 31 Dec 31
($ millions) 2013 2013 2012 2013 2012
----------------------------------------------------------------------------
Expense (recovery) $ 65 $ 48 $ (41) $ 135 $ (214)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The Company's stock option plan provides current employees with the right to
receive common shares or a direct cash payment in exchange for stock options
surrendered.
The Company recorded a $135 million share-based compensation expense for the
year ended December 31, 2013, primarily as a result of remeasurement of the fair
value of outstanding stock options at the end of the year related to an increase
in the Company's share price, together with the impact of normal course graded
vesting of stock options granted in prior periods and the impact of vested stock
options exercised or surrendered during the year. For the year ended December
31, 2013, the Company capitalized $25 million of share-based compensation
expense to property, plant and equipment in the Oil Sands Mining and Upgrading
segment (December 31, 2012 - $12 million recovery).
For the year ended December 31, 2013, the Company paid $4 million for stock
options surrendered for cash settlement (December 31, 2012 - $7 million).
INTEREST AND OTHER FINANCING EXPENSE
Three Months Ended Year Ended
--------------------------------------------------
($ millions, except per Dec 31 Sep 30 Dec 31 Dec 31 Dec 31
BOE amounts) 2013 2013 2012 2013 2012
----------------------------------------------------------------------------
Expense, gross $ 113 $ 116 $ 115 $ 454 $ 462
Less: capitalized interest 53 46 32 175 98
----------------------------------------------------------------------------
Expense, net $ 60 $ 70 $ 83 $ 279 $ 364
$/BOE (1) $ 0.94 $ 1.10 $ 1.37 $ 1.14 $ 1.52
Average effective interest
rate 4.4% 4.3% 4.8% 4.4% 4.8%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Amounts expressed on a per unit basis are based on sales volumes.
Gross interest and other financing expense for the three months and year ended
December 31, 2013 was consistent with the comparable periods. Capitalized
interest of $175 million for the year ended December 31, 2013 was related to the
Horizon Phase 2/3 expansion and the Kirby Thermal Oil Sands Project.
The Company's average effective interest rate for the three months and year
ended December 31, 2013 decreased from the comparable periods in 2012 primarily
due to the repayment of $400 million of 4.50% medium-term notes and US$400
million of 5.15% notes during the first quarter of 2013 and US$350 million of
5.45% notes in the fourth quarter of 2012 as well as due to an increase in the
utilization of the lower cost US commercial paper program that was implemented
in March 2013. The Company's average effective interest rate for the fourth
quarter of 2013 was comparable with the third quarter of 2013.
RISK MANAGEMENT ACTIVITIES
The Company utilizes various derivative financial instruments to manage its
commodity price, interest rate and foreign currency exposures. These derivative
financial instruments are not intended for trading or speculative purposes.
Three Months Ended Year Ended
--------------------------------------------------
Dec 31 Sep 30 Dec 31 Dec 31 Dec 31
($ millions) 2013 2013 2012 2013 2012
----------------------------------------------------------------------------
Crude oil and NGLs
financial instruments $ 5 $ 39 $ 19 $ 44 $ 65
Foreign currency contracts (41) (17) (27) (160) 97
----------------------------------------------------------------------------
Realized (gain) loss (36) 22 (8) (116) 162
----------------------------------------------------------------------------
Crude oil and NGLs
financial instruments (10) 57 29 17 3
Natural gas financial
instruments (5) 8 - 3 -
Foreign currency contracts (15) 56 (21) 19 (45)
----------------------------------------------------------------------------
Unrealized (gain) loss (30) 121 8 39 (42)
----------------------------------------------------------------------------
Net (gain) loss $ (66) $ 143 $ - $ (77) $ 120
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Complete details related to outstanding derivative financial instruments at
December 31, 2013 are disclosed in note 14 to the Company's unaudited interim
consolidated financial statements.
The Company recorded a net unrealized loss of $39 million ($32 million
after-tax) on its risk management activities for the year ended December 31,
2013, including an unrealized gain of $30 million ($26 million after-tax) for
the fourth quarter of 2013 (September 30, 2013 - unrealized loss of $121
million; $99 million after-tax; December 31, 2012 - unrealized loss of $8
million; $4 million after-tax).
FOREIGN EXCHANGE
Three Months Ended Year Ended
--------------------------------------------------
Dec 31 Sep 30 Dec 31 Dec 31 Dec 31
($ millions) 2013 2013 2012 2013 2012
----------------------------------------------------------------------------
Net realized loss (gain) $ 3 $ 12 $ (196) $ (16) $ (178)
Net unrealized loss (gain)
(1) 111 (75) 254 226 129
----------------------------------------------------------------------------
Net loss (gain) $ 114 $ (63) $ 58 $ 210 $ (49)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Amounts are reported net of the hedging effect of cross currency swaps.
The net realized foreign exchange gain for the year ended December 31, 2013 was
primarily due to foreign exchange rate fluctuations on settlement of working
capital items denominated in US dollars or UK pounds sterling and the repayment
of US$400 million of 5.15% notes in the first quarter of 2013. The net
unrealized foreign exchange loss for the year ended December 31, 2013 was
primarily related to the impact of a weaker Canadian dollar with respect to
remaining US dollar debt and the reversal of the life-to-date unrealized foreign
exchange gain on the repayment of US$400 million of 5.15% notes in the first
quarter of 2013. The net unrealized loss (gain) for each of the periods
presented included the impact of cross currency swaps (three months ended
December 31, 2013 - unrealized gain of $85 million, September 30, 2013 -
unrealized loss of $55 million, December 31, 2012 - unrealized gain of $27
million; year ended December 31, 2013 - unrealized gain of $165 million;
December 31, 2012 - unrealized loss of $53 million). The US/Canadian dollar
exchange rate at December 31, 2013 was US$0.9402 (September 30, 2013 -
US$0.9723; December 31, 2012 - US$1.0051).
INCOME TAXES
Three Months Ended Year Ended
--------------------------------------------------
($ millions, except income Dec 31 Sep 30 Dec 31 Dec 31 Dec 31
tax rates) 2013 2013 2012 2013 2012
----------------------------------------------------------------------------
North America (1) $ 133 $ 178 $ 68 $ 544 $ 366
North Sea 5 - 29 23 115
Offshore Africa (2) 55 76 56 202 206
PRT expense (recovery) -
North Sea 5 (15) 31 (56) 44
Other taxes 4 8 5 22 16
----------------------------------------------------------------------------
Current income tax expense 202 247 189 735 747
----------------------------------------------------------------------------
Deferred income tax
(recovery) expense (36) 159 (34) 163 -
Deferred PRT recovery -
North Sea (60) (36) (35) (132) (30)
----------------------------------------------------------------------------
Deferred income tax
(recovery) expense (96) 123 (69) 31 (30)
----------------------------------------------------------------------------
106 370 120 766 717
Income tax rate and other
legislative changes - - - (15) (58)
----------------------------------------------------------------------------
$ 106 $ 370 $ 120 $ 751 $ 659
----------------------------------------------------------------------------
Effective income tax rate
on adjusted net earnings
from operations (3) 21.4% 27.2% 25.5% 26.2% 27.8%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Includes North America Exploration and Production, Midstream, and Oil Sands
Mining and Upgrading segments.
(2) Includes current income taxes relating to disposition of properties.
(3) Excludes the impact of current and deferred PRT expense and other current
income tax expense.
The decrease in the effective income tax rate on adjusted net earnings in the
fourth quarter of 2013 from the third quarter of 2013 included the impact of
deferred income tax recoveries recognized in the Company's North Sea operations.
The Company files income tax returns in the various jurisdictions in which it
operates. These tax returns are subject to periodic examinations in the normal
course by the applicable tax authorities. The tax returns as prepared may
include filing positions that could be subject to differing interpretations of
applicable tax laws and regulations, which may take several years to resolve.
The Company does not believe the ultimate resolution of these matters will have
a material impact upon the Company's results of operations, financial position
or liquidity.
During the second quarter of 2013, the Government of British Columbia
substantively enacted legislation to increase its provincial corporate income
tax rate effective April 1, 2013. As a result of the income tax rate change, the
Company's deferred income tax liability was increased by $15 million.
During the third quarter of 2012, the UK government enacted legislation to
restrict the combined corporate and supplementary income tax relief on UK North
Sea decommissioning expenditures to 50%. As a result of the income tax rate
change, the Company's deferred income tax liability was increased by $58
million.
For 2014, based on budgeted prices and the current availability of tax pools,
the Company expects to incur current income tax expense of $675 million to $775
million in Canada and recoveries of $40 million to $60 million in North Sea and
Offshore Africa.
NET CAPITAL EXPENDITURES (1)
Three Months Ended Year Ended
--------------------------------------------------
Dec 31 Sep 30 Dec 31 Dec 31 Dec 31
($ millions) 2013 2013 2012 2013 2012
----------------------------------------------------------------------------
Exploration and Evaluation
Net expenditures
(proceeds) (2) (3) $ 7 $ (238) $ 10 $ (144) $ 309
----------------------------------------------------------------------------
Property, Plant and
Equipment
Net property acquisitions
(2) 61 174 76 246 144
Well drilling, completion
and equipping 600 566 566 2,140 1,902
Production and related
facilities 444 431 495 1,878 1,978
Capitalized interest and
other (4) 34 29 23 120 111
----------------------------------------------------------------------------
Net expenditures 1,139 1,200 1,160 4,384 4,135
----------------------------------------------------------------------------
Total Exploration and
Production 1,146 962 1,170 4,240 4,444
----------------------------------------------------------------------------
Oil Sands Mining and
Upgrading
Horizon Phases 2/3
construction costs 597 550 423 2,057 1,315
Sustaining capital 28 41 94 278 223
Turnaround costs 2 1 5 100 21
Capitalized interest and
other (4) 56 41 19 157 51
----------------------------------------------------------------------------
Total Oil Sands Mining and
Upgrading 683 633 541 2,592 1,610
----------------------------------------------------------------------------
Midstream 185 3 4 197 14
Abandonments (5) 71 44 41 207 204
Head office 6 13 11 38 36
----------------------------------------------------------------------------
Total net capital
expenditures $ 2,091 $ 1,655 $ 1,767 $ 7,274 $ 6,308
----------------------------------------------------------------------------
----------------------------------------------------------------------------
By segment
North America (2) $ 1,001 $ 1,106 $ 1,086 $ 4,026 $ 4,126
North Sea 95 92 55 334 254
Offshore Africa (3) 50 (236) 29 (120) 64
Oil Sands Mining and
Upgrading 683 633 541 2,592 1,610
Midstream 185 3 4 197 14
Abandonments (5) 71 44 41 207 204
Head office 6 13 11 38 36
----------------------------------------------------------------------------
Total $ 2,091 $ 1,655 $ 1,767 $ 7,274 $ 6,308
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Net capital expenditures exclude adjustments related to differences between
carrying amounts and tax values, and other fair value adjustments.
(2) Includes Business Combinations.
(3) Includes proceeds from the Company's disposition of a 50% interest in its
exploration right in South Africa.
(4) Capitalized interest and other includes expenditures related to land
acquisition and retention, seismic, and other adjustments.
(5) Abandonments represent expenditures to settle asset retirement obligations
and have been reflected as capital expenditures in this table.
The Company's strategy is focused on building a diversified asset base that is
balanced among various products. In order to facilitate efficient operations,
the Company concentrates its activities in core areas. The Company focuses on
maintaining its land inventories to enable the continuous exploitation of play
types and geological trends, greatly reducing overall exploration risk. By
owning associated infrastructure, the Company is able to maximize utilization of
its production facilities, thereby increasing control over production costs.
Net capital expenditures for the year ended December 31, 2013 were $7,274
million compared with $6,308 million for the year ended December 31, 2012. Net
capital expenditures for the fourth quarter of 2013 were $2,091 million compared
with $1,767 million for the fourth quarter of 2012 and $1,655 million for the
third quarter of 2013.
The increase in capital expenditures for the year ended December 31, 2013 from
the year ended December 31, 2012 was primarily due to the ramp up of Horizon
Phase 2/3 site construction activity, the Horizon turnaround completed in the
second quarter of 2013, increased well drilling and completions spending,
Midstream pipeline construction activity, and the acquisition of Barrick Energy
Inc. in the third quarter of 2013, partially offset by the disposition of a 50%
working interest in Block 11B/12B in South Africa and the costs associated with
the construction of the Kirby South Project. The increase in capital
expenditures for the fourth quarter of 2013 from the comparable period in 2012
was primarily due to increases in Horizon Phase 2/3 site construction activity
and Midstream pipeline construction activity. The increase in capital
expenditures for the fourth quarter of 2013 from the third quarter of 2013 was
primarily due to Midstream pipeline construction activity in the fourth quarter,
together with the net impact of the disposition of a 50% working interest in
Block 11B/12B in South Africa and the acquisition of Barrick Energy Inc. during
the third quarter.
During the third quarter of 2013, the Company disposed of a 50% interest in its
exploration right in South Africa, for net cash consideration of US$255 million,
including a recovery of US$14 million of past incurred costs, resulting in an
after-tax gain on sale of exploration and evaluation property of $166 million.
In the event that a commercial crude oil or natural gas discovery occurs on this
exploration right, resulting in the exploration right being converted into a
production right, an additional cash payment would be due to the Company at such
time, amounting to US$450 million for a commercial crude oil discovery and
US$120 million for a commercial natural gas discovery.
Subsequent to December 31, 2013, the Company entered into an agreement to
acquire certain producing Canadian crude oil and natural gas properties,
together with undeveloped land, for total cash consideration of approximately
$3,125 million, based on an effective date of January 1, 2014, with a targeted
closing date of April 1, 2014. In connection with the agreement, the Company
negotiated an additional $1,000 million unsecured bank credit facility with a
two-year maturity and with terms similar to the Company's current syndicated
credit facilities, which is available upon closing. It is the Company's
intention to finance the transaction utilizing cash flow from operations
generated in excess of capital expenditures and available bank credit
facilities, including the new unsecured bank credit facility, while maintaining
the ongoing dividend program.
Drilling Activity (number of wells)
Three Months Ended Year Ended
--------------------------------------------------
Dec 31 Sep 30 Dec 31 Dec 31 Dec 31
2013 2013 2012 2013 2012
----------------------------------------------------------------------------
Net successful natural gas
wells 11 10 3 44 35
Net successful crude oil
wells (1) 324 334 294 1,117 1,203
Dry wells 13 7 19 30 33
Stratigraphic test /
service wells 54 9 116 384 727
----------------------------------------------------------------------------
Total 402 360 432 1,575 1,998
Success rate (excluding
stratigraphic test /
service wells) 96% 98% 94% 97% 97%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Includes bitumen wells.
North America
North America, excluding Oil Sands Mining and Upgrading, accounted for
approximately 59% of the total capital expenditures for the year ended December
31, 2013 compared with approximately 69% for the year ended December 31, 2012.
During the fourth quarter of 2013, the Company targeted 11 net natural gas
wells, including 5 wells in Northeast British Columbia, 5 wells in Northwest
Alberta and 1 well in Northern Plains. The Company also targeted 337 net crude
oil wells. The majority of these wells were concentrated in the Company's
Northern Plains region where 259 primary heavy crude oil wells, 12 Pelican Lake
heavy crude oil wells, 38 bitumen (thermal oil) wells and 1 light oil well were
drilled. Another 27 wells targeting light crude oil were drilled outside the
Northern Plains region.
Overall Primrose thermal production for the fourth quarter of 2013 averaged
approximately 77,000 bbl/d compared with approximately 121,000 bbl/d for the
fourth quarter of 2012 and approximately 109,000 bbl/d for the third quarter of
2013. Production volumes were in line with expectations due to the cyclic nature
of thermal production at Primrose.
In the second quarter of 2013, the Company discovered bitumen emulsion at
surface in areas of the Primrose field. The Company's view is that the cause of
the occurrence is mechanical in nature and is working collaboratively with the
regulators in the causation review and remediation plans. The Company's near
term steaming plan at the Primrose field has been modified, with steaming being
restricted in certain areas until the causation review with the regulators is
complete.
The next planned phase of the Company's in situ Oil Sands assets expansion is
the Kirby South Project. Site construction is complete and first steam injection
was achieved in September 2013. At December 31, 2013, steam was being circulated
through 6 pads with well response as expected. Subsequent to December 31, 2013,
15 well pairs have been fully converted to the production stage.
Development of the tertiary recovery conversion projects at Pelican Lake
continued and 12 horizontal wells were drilled during the fourth quarter of
2013. Pelican Lake production averaged approximately 46,000 bbl/d for the fourth
quarter of 2013 compared with 36,000 bbl/d for the fourth quarter of 2012 and
45,500 bbl/d for the third quarter of 2013.
In order to expand its pipeline infrastructure the Company has participated in
the expansion of the Cold Lake pipeline with construction anticipated to be
completed by 2016.
For the first quarter of 2014, the Company's overall planned drilling activity
in North America is expected to be 248 net crude oil wells, 8 net bitumen wells
and 22 net natural gas wells, excluding stratigraphic and service wells.
Oil Sands Mining and Upgrading
Phase 2/3 expansion activity in the fourth quarter of 2013 was focused on field
construction of the gas recovery unit, sulphur recovery unit, butane treatment
unit, coker expansion, tank farms, cooling water tower, tailings,
hydrotransport, froth treatment and extraction trains 3 and 4, along with
engineering related to the froth treatment plants, extraction retrofit of trains
1 and 2, hydrogen unit, hydrotreater unit, vacuum distillation unit and
distillation recovery unit.
North Sea
In September 2012, the UK government announced the implementation of the
Brownfield Allowance, which allows for an agreed allowance for certain
pre-approved qualifying field developments. This allowance partially mitigates
the impact of previous supplementary income tax increases. During 2013, the
Company received Brownfield Allowance approvals for the Tiffany and Ninian
fields. At the Tiffany field, during the first quarter, the Company completed 1
injection well conversion and drilled 1 production well with production of
approximately 1,500 bbl/d, exceeding original forecasted volumes. The Company
also commenced drilling in the Ninian field in the fourth quarter of 2013.
The decommissioning activities at the Murchison platform commenced in the fourth
quarter of 2013 and the Company estimates the decommissioning efforts will
continue for approximately 5 years. In October 2013, the Company entered into a
Decommissioning Relief Deed ("DRD") with the UK government. The DRD was
introduced in 2013 and is a contractual mechanism whereby the UK government
guarantees its participation in future field abandonments through a recovery of
PRT and corporate income tax.
Offshore Africa
During the fourth quarter of 2013, the Company contracted a drilling rig for a 6
well drilling program at the Baobab field in Cote d'Ivoire. This rig is expected
to arrive in country no later than the first quarter of 2015. At the Espoir
field, the Company is seeking a drilling rig and is assessing the opportunity to
commence drilling in the latter half of 2014.
Exploration activities continue to progress in both Côte d'Ivoire and South
Africa. In Côte d'Ivoire, the operator in Block CI-514 is expected to commence
drilling 1 exploratory well in March 2014. In South Africa, the operator is
targeting to commence drilling 1 exploratory well in the third quarter of 2014.
LIQUIDITY AND CAPITAL RESOURCES
------------------------------------
Dec 31 Sep 30 Dec 31
($ millions, except ratios) 2013 2013 2012
----------------------------------------------------------------------------
Working capital deficit (1) $ 1,574 $ 969 $ 1,264
Long-term debt (2) (3) $ 9,661 $ 9,393 $ 8,736
Share capital $ 3,854 $ 3,765 $ 3,709
Retained earnings 21,876 21,720 20,516
Accumulated other comprehensive income 42 67 58
----------------------------------------------------------------------------
Shareholders' equity $ 25,772 $ 25,552 $ 24,283
Debt to book capitalization (3) (4) 27% 27% 26%
Debt to market capitalization (3) (5) 20% 21% 22%
After-tax return on average common
shareholders' equity (6) 9% 9% 8%
After-tax return on average capital
employed (3) (7) 7% 7% 7%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Calculated as current assets less current liabilities, excluding the current
portion of long-term debt.
(2) Includes the current portion of long-term debt.
(3) Long-term debt is stated at its carrying value, net of fair value
adjustments, original issue discounts and transaction costs.
(4) Calculated as current and long-term debt; divided by the book value of
common shareholders' equity plus current and long-term debt.
(5) Calculated as current and long-term debt; divided by the market value of
common shareholders' equity plus current and long-term debt.
(6) Calculated as net earnings for the twelve month trailing period; as a
percentage of average common shareholders' equity for the period.
(7) Calculated as net earnings plus after-tax interest and other financing
expense for the twelve month trailing period; as a percentage of average capital
employed for the period.
At December 31, 2013, the Company's capital resources consisted primarily of
cash flow from operations, available bank credit facilities and access to debt
capital markets. Cash flow from operations and the Company's ability to renew
existing bank credit facilities and raise new debt is dependent on factors
discussed in the "Risks and Uncertainties" section of the Company's annual MD&A
for the year ended December 31, 2012. In addition, the Company's ability to
renew existing bank credit facilities and raise new debt is also dependent upon
maintaining an investment grade debt rating and the condition of capital and
credit markets. The Company continues to believe that its internally generated
cash flow from operations supported by the implementation of its ongoing hedge
policy, the flexibility of its capital expenditure programs supported by its
multi-year financial plans, its existing bank credit facilities, and its ability
to raise new debt on commercially acceptable terms will provide sufficient
liquidity to sustain its operations in the short, medium and long term and
support its growth strategy.
The Company established a US commercial paper program in the first quarter of
2013. Borrowings of up to a maximum US$1,500 million are authorized. The Company
reserves capacity under its bank credit facilities for amounts outstanding under
this program.
At December 31, 2013, the Company had in place bank credit facilities of $4,801
million, of which approximately $2,937 million, net of commercial paper
issuances of $532 million, was available.
At December 31, 2013, the Company has maturities of long-term debt aggregating
$912 million over the next 12 months (US$500 million due November 2014, US$350
million due December 2014). It is the Company's intention to retire this
indebtedness utilizing cash flow from operations generated in excess of capital
expenditures and available bank credit facilities as necessary, while
maintaining the ongoing dividend program. On a pro forma basis, reflecting the
retirement of this indebtedness, the available credit under its bank credit
facilities at December 31, 2013 would amount to $2,025 million.
During the first quarter of 2013, the Company repaid $400 million of 4.50%
medium-term notes and US$400 million of 5.15% notes. During the second quarter
of 2013, the $3,000 million revolving syndicated credit facility was extended to
June 2017. Additionally, the Company issued $500 million of 2.89% medium-term
notes due August 2020. Proceeds from the securities issued were used to repay
bank indebtedness and for general corporate purposes.
During the fourth quarter of 2013, the Company filed base shelf prospectuses
that allow for the issue of up to $3,000 million of medium-term notes in Canada
and US$3,000 million of debt securities in the United States until December
2015. If issued, these securities will bear interest as determined at the date
of issuance.
Long-term debt was $9,661 million at December 31, 2013, resulting in a debt to
book capitalization ratio of 27% (September 30, 2013 - 27%; December 31, 2012 -
26%). This ratio is within the 25% to 45% internal range utilized by management.
This range may be exceeded in periods when a combination of capital projects,
acquisitions, or lower commodity prices occurs. The Company may be below the low
end of the targeted range when cash flow from operations is greater than current
investment activities. The Company remains committed to maintaining a strong
balance sheet, adequate available liquidity and a flexible capital structure.
The Company has hedged a portion of its production for 2014 and 2015 at prices
that protect investment returns to ensure ongoing balance sheet strength and the
completion of its capital expenditure programs. Further details related to the
Company's long-term debt at December 31, 2013 are discussed in note 7 to the
Company's unaudited interim consolidated financial statements.
The Company's commodity hedge policy reduces the risk of volatility in commodity
prices and supports the Company's cash flow for its capital expenditure
programs. This policy currently allows for the hedging of up to 60% of the near
12 months budgeted production and up to 40% of the following 13 to 24 months
estimated production. For the purpose of this policy, the purchase of put
options is in addition to the above parameters. As at March 5, 2014, an average
of approximately 272,000 bbl/d of currently forecasted 2014 crude oil volumes
and approximately 8,000 bbl/d of currently forecasted 2015 crude oil volumes
were hedged using price collars and physical crude oil sales contracts with
fixed WCS differentials. An additional 500,000 MMBtu/d of natural gas volumes
were hedged for April 2014 to October 2014 using AECO basis swaps. Further
details related to the Company's commodity derivative financial instruments
outstanding at December 31, 2013 are discussed in note 14 to the Company's
unaudited interim consolidated financial statements.
Share Capital
As at December 31, 2013, there were 1,087,322,000 common shares outstanding
(December 31, 2012 - 1,092,072,000 common shares) and 72,741,000 stock options
outstanding. As at March 4, 2014, the Company had 1,090,824,000 common shares
outstanding and 69,845,000 stock options outstanding.
On March 5, 2014, the Company's Board of Directors approved an increase in the
annual dividend to $0.90 per common share (previous annual dividend rate of
$0.80 per common share), beginning with the quarterly dividend payable on April
1, 2014 at $0.225 per common share. This represents a 13% increase from the
previous quarterly dividend, reflecting the stability of the Company's cash flow
and providing a return to shareholders. The dividend policy undergoes periodic
review by the Board of Directors and is subject to change.
In April 2013, the Company announced a Normal Course Issuer Bid to purchase
through the facilities of the Toronto Stock Exchange ("TSX") and the New York
Stock Exchange ("NYSE"), during the twelve month period commencing April 2013
and ending April 2014, up to 54,635,116 common shares. The Company's Normal
Course Issuer Bid announced in 2012 expired April 2013.
For the year ended December 31, 2013, the Company purchased 10,164,800 common
shares at a weighted average price of $31.46 per common share, for a total cost
of $320 million. Retained earnings were reduced by $285 million, representing
the excess of the purchase price of common shares over their average carrying
value. Subsequent to December 31, 2013, the Company purchased 1,475,000 common
shares at a weighted average price of $35.85 per common share for a total cost
of $53 million.
COMMITMENTS AND OFF BALANCE SHEET ARRANGEMENTS
In the normal course of business, the Company has entered into various
commitments that will have an impact on the Company's future operations. The
following table summarizes the Company's commitments as at December 31, 2013:
($ millions) 2014 2015 2016 2017 2018 Thereafter
----------------------------------------------------------------------------
Product transportation
and pipeline $ 298 $ 293 $ 225 $ 208 $ 176 $ 1,324
Offshore equipment
operating leases and
offshore drilling $ 147 $ 238 $ 81 $ 61 $ 54 $ 17
Long-term debt (1) $ 1,436 $ 400 $ 931 $ 1,750 $ 426 $ 4,776
Interest and other
financing expense (2) $ 441 $ 405 $ 387 $ 323 $ 270 $ 3,803
Office leases $ 35 $ 41 $ 42 $ 45 $ 47 $ 321
Other $ 309 $ 172 $ 71 $ 1 $ 1 $ 1
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Long-term debt represents principal repayments only and does not reflect
fair value adjustments, original issue discounts or transaction costs.
(2) Interest and other financing expense amounts represent the scheduled fixed
rate and variable rate cash interest payments related to long-term debt.
Interest on variable rate long-term debt was estimated based upon prevailing
interest rates and foreign exchange rates as at December 31, 2013.
In addition to the commitments disclosed above, the Company has entered into
various agreements related to the engineering, procurement and construction of
subsequent phases of Horizon. These contracts can be cancelled by the Company
upon notice without penalty, subject to the costs incurred up to and in respect
of the cancellation.
LEGAL PROCEEDINGS AND OTHER CONTINGENCIES
The Company is a defendant and plaintiff in a number of legal actions arising in
the normal course of business. In addition, the Company is subject to certain
contractor construction claims. The Company believes that any liabilities that
might arise pertaining to any such matters would not have a material effect on
its consolidated financial position.
CHANGES IN ACCOUNTING POLICIES
For the impact of new accounting standards, refer to the MD&A and the audited
consolidated financial statements for the year ended December 31, 2012.
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements requires the Company to make estimates,
assumptions and judgments in the application of IFRS that have a significant
impact on the financial results of the Company. Actual results could differ from
estimated amounts, and those differences may be material. A comprehensive
discussion of the Company's significant critical accounting estimates is
contained in the MD&A and the audited consolidated financial statements for the
year ended December 31, 2012.
CONSOLIDATED BALANCE SHEETS
------------------------
As at Dec 31 Dec 31
(millions of Canadian dollars, unaudited) Note 2013 2012
----------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents $ 16 $ 37
Accounts receivable 1,427 1,197
Inventory 632 554
Prepaids and other 141 126
----------------------------------------------------------------------------
2,216 1,914
Exploration and evaluation assets 4 2,609 2,611
Property, plant and equipment 5 46,487 44,028
Other long-term assets 6 442 427
----------------------------------------------------------------------------
$ 51,754 $ 48,980
----------------------------------------------------------------------------
----------------------------------------------------------------------------
LIABILITIES
Current liabilities
Accounts payable $ 637 $ 465
Accrued liabilities 2,519 2,273
Current income taxes 359 285
Current portion of long-term debt 7 1,444 798
Current portion of other long-term
liabilities 8 275 155
----------------------------------------------------------------------------
5,234 3,976
Long-term debt 7 8,217 7,938
Other long-term liabilities 8 4,348 4,609
Deferred income taxes 8,183 8,174
----------------------------------------------------------------------------
25,982 24,697
----------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Share capital 10 3,854 3,709
Retained earnings 21,876 20,516
Accumulated other comprehensive income 11 42 58
----------------------------------------------------------------------------
25,772 24,283
----------------------------------------------------------------------------
$ 51,754 $ 48,980
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Commitments and contingencies (note 15).
Approved by the Board of Directors on March 5, 2014
CONSOLIDATED STATEMENTS OF EARNINGS
Three Months Ended Year Ended
----------------------------------------
(millions of Canadian dollars,
except per common share Dec 31 Dec 31 Dec 31 Dec 31
amounts, unaudited) Note 2013 2012 2013 2012
----------------------------------------------------------------------------
Product sales $ 4,330 $ 4,059 $ 17,945 $ 16,195
Less: royalties (383) (359) (1,800) (1,606)
----------------------------------------------------------------------------
Revenue 3,947 3,700 16,145 14,589
----------------------------------------------------------------------------
Expenses
Production 1,198 1,072 4,559 4,249
Transportation and blending 645 738 2,938 2,752
Depletion, depreciation and
amortization 5 1,272 1,213 4,844 4,328
Administration 93 64 335 270
Share-based compensation 8 65 (41) 135 (214)
Asset retirement obligation
accretion 8 46 38 171 151
Interest and other financing
expense 60 83 279 364
Risk management activities 14 (66) - (77) 120
Foreign exchange loss (gain) 114 58 210 (49)
Gain on corporate
acquisition/disposition of
properties 4,5 - - (289) -
Equity loss from joint venture 6 1 3 4 9
----------------------------------------------------------------------------
3,428 3,228 13,109 11,980
----------------------------------------------------------------------------
Earnings before taxes 519 472 3,036 2,609
Current income tax expense 9 202 189 735 747
Deferred income tax (recovery)
expense 9 (96) (69) 31 (30)
----------------------------------------------------------------------------
Net earnings $ 413 $ 352 $ 2,270 $ 1,892
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net earnings per common share
Basic 13 $ 0.38 $ 0.32 $ 2.08 $ 1.72
Diluted 13 $ 0.38 $ 0.32 $ 2.08 $ 1.72
----------------------------------------------------------------------------
----------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three Months Ended Year Ended
----------------------------------------
(millions of Canadian dollars, Dec 31 Dec 31 Dec 31 Dec 31
unaudited) 2013 2012 2013 2012
----------------------------------------------------------------------------
Net earnings $ 413 $ 352 $ 2,270 $ 1,892
----------------------------------------------------------------------------
Items that may be reclassified
subsequently to net earnings
Net change in derivative financial
instruments designated as cash
flow hedges
Unrealized (loss) income during
the period, net of taxes of $3
million (2012 - $2 million) -
three months ended;$nil (2012 -
$4 million) - year ended (25) 17 (4) 31
Reclassification to net
earnings, net of taxes of $nil
(2012 - $nil) - three months
ended;$nil (2012 - $nil) - year
ended - (3) (1) (7)
----------------------------------------------------------------------------
(25) 14 (5) 24
Foreign currency translation
adjustment
Translation of net investment - (2) (11) 8
----------------------------------------------------------------------------
Other comprehensive (loss) income,
net of taxes (25) 12 (16) 32
----------------------------------------------------------------------------
Comprehensive income $ 388 $ 364 $ 2,254 $ 1,924
----------------------------------------------------------------------------
----------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Year Ended
------------------------
Dec 31 Dec 31
(millions of Canadian dollars, unaudited) Note 2013 2012
----------------------------------------------------------------------------
Share capital 10
Balance - beginning of year $ 3,709 $ 3,507
Issued upon exercise of stock options 130 194
Previously recognized liability on stock
options exercised for common shares 50 45
Purchase of common shares under Normal Course
Issuer Bid (35) (37)
----------------------------------------------------------------------------
Balance - end of year 3,854 3,709
----------------------------------------------------------------------------
Retained earnings
Balance - beginning of year 20,516 19,365
Net earnings 2,270 1,892
Purchase of common shares under Normal Course
Issuer Bid 10 (285) (281)
Dividends on common shares 10 (625) (460)
----------------------------------------------------------------------------
Balance - end of year 21,876 20,516
----------------------------------------------------------------------------
Accumulated other comprehensive income 11
Balance - beginning of year 58 26
Other comprehensive (loss) income, net of
taxes (16) 32
----------------------------------------------------------------------------
Balance - end of year 42 58
----------------------------------------------------------------------------
Shareholders' equity $ 25,772 $ 24,283
----------------------------------------------------------------------------
----------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended Year Ended
----------------------------------------
(millions of Canadian dollars, Dec 31 Dec 31 Dec 31 Dec 31
unaudited) Note 2013 2012 2013 2012
----------------------------------------------------------------------------
Operating activities
Net earnings $ 413 $ 352 $ 2,270 $ 1,892
Non-cash items
Depletion, depreciation and
amortization 1,272 1,213 4,844 4,328
Share-based compensation 65 (41) 135 (214)
Asset retirement obligation
accretion 46 38 171 151
Unrealized risk management
(gain) loss (30) 8 39 (42)
Unrealized foreign exchange
loss 111 254 226 129
Realized foreign exchange
gain on repayment of US
dollar debt securities - (210) (12) (210)
Equity loss from joint
venture 1 3 4 9
Deferred income tax
(recovery) expense (96) (69) 31 (30)
Gain on corporate
acquisition/disposition of
properties - - (289) -
Current income tax on
disposition of properties - - 58 -
Other (92) (94) (19) (47)
Abandonment expenditures (71) (41) (207) (204)
Net change in non-cash working
capital 563 202 (33) 447
----------------------------------------------------------------------------
2,182 1,615 7,218 6,209
----------------------------------------------------------------------------
Financing activities
Issue of bank credit
facilities and commercial
paper, net 52 592 803 172
Issue of medium-term notes,
net 7 - - 98 498
Repayment of US dollar debt
securities - (344) (398) (344)
Issue of common shares on
exercise of stock options 65 30 130 194
Purchase of common shares
under Normal Course Issuer
Bid (46) (118) (320) (318)
Dividends on common shares (136) (115) (523) (444)
Net change in non-cash working
capital (6) (8) (23) (37)
----------------------------------------------------------------------------
(71) 37 (233) (279)
----------------------------------------------------------------------------
Investing activities
Net (expenditures) proceeds on
exploration and evaluation
assets (7) (10) 144 (309)
Net expenditures on property,
plant and equipment (2,013) (1,716) (7,211) (5,795)
Current income tax on
disposition of properties - - (58) -
Investment in other long-term
assets - - - 2
Net change in non-cash working
capital (93) 90 119 175
----------------------------------------------------------------------------
(2,113) (1,636) (7,006) (5,927)
----------------------------------------------------------------------------
(Decrease) increase in cash
and cash equivalents (2) 16 (21) 3
Cash and cash equivalents -
beginning of period 18 21 37 34
----------------------------------------------------------------------------
Cash and cash equivalents -
end of period $ 16 $ 37 $ 16 $ 37
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Interest paid $ 95 $ 104 $ 460 $ 464
Income taxes paid $ 43 $ 105 $ 357 $ 639
----------------------------------------------------------------------------
----------------------------------------------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in millions of Canadian dollars, unless otherwise stated,
unaudited)
1. ACCOUNTING POLICIES
Canadian Natural Resources Limited (the "Company") is a senior independent crude
oil and natural gas exploration, development and production company. The
Company's exploration and production operations are focused in North America,
largely in Western Canada; the United Kingdom ("UK") portion of the North Sea;
and Cote d'Ivoire, Gabon, and South Africa in Offshore Africa.
The Horizon Oil Sands Mining and Upgrading segment ("Horizon") produces
synthetic crude oil through bitumen mining and upgrading operations.
Within Western Canada, the Company maintains certain midstream activities that
include pipeline operations, an electricity co-generation system and an
investment in the North West Redwater Partnership ("Redwater Partnership"), a
general partnership formed in the Province of Alberta.
The Company was incorporated in Alberta, Canada. The address of its registered
office is 2500, 855-2 Street S.W., Calgary, Alberta, Canada.
These interim consolidated financial statements and the related notes have been
prepared in accordance with International Financial Reporting Standards ("IFRS")
as issued by the International Accounting Standards Board ("IASB"), applicable
to the preparation of interim financial statements, including International
Accounting Standard ("IAS") 34, "Interim Financial Reporting", following the
same accounting policies as the audited consolidated financial statements of the
Company as at December 31, 2012, except as discussed in note 2. These interim
consolidated financial statements contain disclosures that are supplemental to
the Company's annual audited consolidated financial statements. Certain
disclosures that are normally required to be included in the notes to the annual
audited consolidated financial statements have been condensed. These interim
consolidated financial statements should be read in conjunction with the
Company's audited consolidated financial statements and notes thereto for the
year ended December 31, 2012.
2. CHANGES IN ACCOUNTING POLICIES
Effective January 1, 2013, the Company adopted the following new accounting
standards issued by the IASB:
a) - IFRS 10 "Consolidated Financial Statements" replaced IAS 27 "Consolidated
and Separate Financial Statements" (IAS 27 still contains guidance for Separate
Financial Statements) and Standing Interpretations Committee ("SIC") 12
"Consolidation - Special Purpose Entities". IFRS 10 establishes the principles
for the presentation and preparation of consolidated financial statements. The
standard defines the principle of control and establishes control as the basis
for consolidation, as well as providing guidance on applying the control
principle to determine whether an investor controls an investee.
- IFRS 11 "Joint Arrangements" replaced IAS 31 "Interests in Joint Ventures" and
SIC 13 "Jointly Controlled Entities - Non-Monetary Contributions by Venturers".
The new standard defines two types of joint arrangements, joint operations and
joint ventures. In a joint operation, the parties with joint control have rights
to the assets and obligations for the liabilities of the joint arrangement and
are required to recognize their proportionate interest in the assets,
liabilities, revenues and expenses of the joint arrangement. In a joint venture,
the parties have an interest in the net assets of the arrangement and are
required to apply the equity method of accounting.
- IFRS 12 "Disclosure of Interests in Other Entities". The standard includes
disclosure requirements for investments in subsidiaries, joint arrangements,
associates and unconsolidated structured entities.
- The Company adopted these standards retrospectively. Adoption of these
standards did not have a material impact on the Company's consolidated financial
statements.
b) IFRS 13 "Fair Value Measurement" provides guidance on the application of fair
value where its use is already required or permitted by other standards within
IFRS. The standard includes a definition of fair value and a single source of
fair value measurement and disclosure requirements for use across all IFRSs that
require or permit the use of fair value. IFRS 13 was adopted prospectively. As a
result of adoption of this standard, the Company has included its own credit
risk in measuring the carrying amount of a risk management liability with no
material impact on the Company's consolidated financial statements.
c) Amendments to IAS 1 "Presentation of Financial Statements" require items of
other comprehensive income that may be reclassified to net earnings to be
grouped together. The amendments also require that items in other comprehensive
income and net earnings be presented as either a single statement or two
consecutive statements. Adoption of this amended standard impacted presentation
only.
d) IFRS Interpretation Committee ("IFRIC") 20 "Stripping Costs in the Production
Phase of a Surface Mine" requires overburden removal costs during the production
phase to be capitalized and depreciated if the Company can demonstrate that
probable future economic benefits will be realized, the costs can be reliably
measured, and the Company can identify the component of the ore body for which
access has been improved. Adoption of this standard did not have a material
impact on the Company's consolidated financial statements.
3. ACCOUNTING STANDARDS ISSUED BUT NOT YET APPLIED
In November 2013, the IASB issued amendments to IFRS 9 "Financial Instruments"
to provide guidance on hedge accounting and associated disclosures as part of
its overall Financial Instruments project to replace IAS 39 "Financial
Instruments - Recognition and Measurement". The new hedge accounting guidance in
IFRS 9 replaces strict quantitative tests of effectiveness with less restrictive
assessments of how well the hedging instrument accomplishes the Company's risk
management objectives for financial and non-financial risk exposures. The new
guidance also allows entities to hedge components of non-financial items.
Previous amendments to IFRS 9 replaced the multiple classification and
measurement models for financial assets and liabilities with a new model that
has only two categories: amortized cost and fair value through profit and loss.
Under IFRS 9, fair value changes due to credit risk for liabilities designated
at fair value through profit and loss would generally be recorded in other
comprehensive income.
As part of the November 2013 amendments to IFRS 9, the IASB removed the January
1, 2015 mandatory effective date, and did not provide a new mandatory effective
date. However, entities may still choose to apply IFRS 9 immediately.
Effective January 1, 2014, the Company adopted IFRS 9 with no material impact on
the Company's consolidated financial statements.
4. EXPLORATION AND EVALUATION ASSETS
Oil Sands
Mining and
Exploration and Production Upgrading Total
----------------------------------------------------------------------------
North North Offshore
America Sea Africa
----------------------------------------------------------------------------
Cost
At December 31, 2012 $ 2,564 $ - $ 47 $ - $ 2,611
Additions 90 - 29 - 119
Transfers to property,
plant and equipment (84) - - - (84)
Disposals - - (39) - (39)
Foreign exchange
adjustments - - 2 - 2
----------------------------------------------------------------------------
At December 31, 2013 $ 2,570 $ - $ 39 $ - $ 2,609
----------------------------------------------------------------------------
----------------------------------------------------------------------------
During the third quarter of 2013, the Company disposed of a 50% interest in its
exploration right in South Africa, for net cash consideration of US$255 million,
including a recovery of US$14 million of past incurred costs, resulting in a
pre-tax gain on sale of exploration and evaluation property of $224 million
($166 million after-tax). In the event that a commercial crude oil or natural
gas discovery occurs on this exploration right, resulting in the exploration
right being converted into a production right, an additional cash payment would
be due to the Company at such time, amounting to US$450 million for a commercial
crude oil discovery and US$120 million for a commercial natural gas discovery.
5. PROPERTY, PLANT AND EQUIPMENT
Oil Sands
Mining
Exploration and and Head
Production Upgrading Midstream Office Total
----------------------------------------------------------------------------
North North Offshore
America Sea Africa
----------------------------------------------------------------------------
Cost
At December
31, 2012 $ 50,324 $4,574 $ 3,045 $ 16,963 $ 312 $ 270 $75,488
Additions 3,630 299 97 2,772 196 38 7,032
Transfers
from E&E
assets 84 - - - - - 84
Disposals/
derecognitions (228) - - (369) - - (597)
Foreign
exchange
adjustments
and other - 327 214 - - - 541
----------------------------------------------------------------------------
At December
31, 2013 $ 53,810 $5,200 $ 3,356 $ 19,366 $ 508 $ 308 $82,548
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Accumulated depletion and
depreciation
At December
31, 2012 $ 24,991 $2,709 $ 2,273 $ 1,202 $ 103 $ 182 $31,460
Expense 3,551 548 134 582 8 21 4,844
Disposals/
derecognitions (228) - - (369) - - (597)
Foreign
exchange
adjustments
and other 1 210 144 (1) - - 354
----------------------------------------------------------------------------
At December
31, 2013 $ 28,315 $3,467 $ 2,551 $ 1,414 $ 111 $ 203 $36,061
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net book
value- at
December
31, 2013 $ 25,495 $1,733 $ 805 $ 17,952 $ 397 $ 105 $46,487
- at
December
31, 2012 $ 25,333 $1,865 $ 772 $ 15,761 $ 209 $ 88 $44,028
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Project costs not subject to depletion and
depreciation 2013 2012
----------------------------------------------------------------------------
Horizon $ 4,051 $ 2,066
Kirby Thermal Oil Sands $ 1,532 $ 1,021
----------------------------------------------------------------------------
----------------------------------------------------------------------------
During 2013, the Company acquired a number of producing crude oil and natural
gas properties in the North American and North Sea Exploration and Production
segments, including properties from the acquisition of Barrick Energy Inc.
effective July 31, 2013, for total cash consideration of $252 million (year
ended December 31, 2012 - $144 million). These transactions were accounted for
using the acquisition method of accounting. In connection with these
acquisitions, the Company assumed associated asset retirement obligations of
$131 million (year ended December 31, 2012 - $12 million) and recognized net
deferred tax assets of $75 million (year ended December 31, 2012 - $nil) related
to temporary differences in the carrying amount of the acquired properties and
their tax bases. Interests in jointly controlled assets were acquired with full
tax basis. No debt obligations were assumed. The Company recognized after-tax
gains of $65 million (year ended December 31, 2012 - $nil) on these
acquisitions.
Subsequent to December 31, 2013, the Company entered into an agreement to
acquire certain producing Canadian crude oil and natural gas properties,
together with undeveloped land, for total cash consideration of approximately
$3,125 million, based on an effective date of January 1, 2014, with a targeted
closing date of April 1, 2014. In connection with the agreement, the Company
negotiated an additional $1,000 million unsecured bank credit facility with a
two-year maturity and with terms similar to the Company's current syndicated
credit facilities, which is available upon closing.
The Company capitalizes construction period interest for qualifying assets based
on costs incurred and the Company's cost of borrowing. Interest capitalization
to a qualifying asset ceases once the asset is substantially available for its
intended use. During 2013, pre-tax interest of $175 million (December 31, 2012 -
$98 million) was capitalized to property, plant and equipment using a
capitalization rate of 4.4% (December 31, 2012 - 4.8%).
6. OTHER LONG-TERM ASSETS
------------------------
Dec 31 Dec 31
2013 2012
----------------------------------------------------------------------------
Investment in North West Redwater Partnership $ 306 $ 310
Other 136 117
----------------------------------------------------------------------------
$ 442 $ 427
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Other long-term assets include an investment in the 50% owned Redwater
Partnership. Based on Redwater Partnership's voting and decision-making
structure and legal form, the investment is accounted for as a joint venture
using the equity method. Redwater Partnership has entered into agreements to
construct and operate a 50,000 barrel per day bitumen upgrader and refinery (the
"Project") under processing agreements that target to process 12,500 barrels per
day of bitumen feedstock for the Company and 37,500 barrels per day of bitumen
feedstock for the Alberta Petroleum Marketing Commission ("APMC"), an agent of
the Government of Alberta, under a 30 year fee-for-service tolling agreement.
During 2012, the Project received board sanction from Redwater Partnership and
its partners.
As at December 31, 2013, Redwater Partnership had interim borrowings of $702
million under credit facilities totaling $1,200 million with original maturities
no later than December 2017. These facilities are secured by a floating charge
on the assets of Redwater Partnership with a mandatory repayment required from
future financing proceeds. At maturity, under its processing agreement, the
Company would be obligated to pay its 25% pro rata share of any shortfall.
In December 2013, Redwater Partnership, the Company and APMC agreed in principle
to amend certain terms of the processing agreements. In conjunction with these
amendments, the Company, along with APMC, each committed to provide additional
funding up to $350 million to attain Project completion based on the revised
Project cost estimate of approximately $8,500 million. The additional funding is
to be in the form of subordinated debt bearing interest at prime plus 6%, which
is anticipated to form part of the equity toll. Should final Project costs
exceed the revised cost estimate, the Company and APMC have agreed, subject to
the Company being able to meet certain funding conditions, to fund any shortfall
in available third party commercial lending required to attain Project
completion.
Redwater Partnership has entered into various agreements related to the
engineering, procurement and construction of the Project. These contracts can be
cancelled by Redwater Partnership upon notice without penalty, subject to the
costs incurred up to and in respect of the cancellation.
Subsequent to December 31, 2013, the credit facility maturity date was amended
to mature on November 28, 2014. At maturity or at such later date as mutually
agreed to by the lenders and Redwater Partnership, the Company will be obligated
to repay its 25% pro rata share of any amount outstanding under the facility. As
at March 4, 2014, interim borrowings under the facilities were $857 million.
7. LONG-TERM DEBT
------------------------
Dec 31 Dec 31
2013 2012
----------------------------------------------------------------------------
Canadian dollar denominated debt, unsecured
Bank credit facilities $ 1,246 $ 971
Medium-term notes 1,400 1,300
----------------------------------------------------------------------------
2,646 2,271
----------------------------------------------------------------------------
US dollar denominated debt, unsecured
Commercial paper (December 31, 2013 - US$500
million; December 31, 2012 - US$nil) 532 -
US dollar debt securities (December 31, 2013 -
US$6,150 million; December 31, 2012 - US$6,550
million) 6,541 6,517
Less: original issue discount on US dollar debt
securities (1) (18) (20)
----------------------------------------------------------------------------
7,055 6,497
Fair value impact of interest rate swaps on US
dollar debt securities (2) 9 19
----------------------------------------------------------------------------
7,064 6,516
----------------------------------------------------------------------------
Long-term debt before transaction costs 9,710 8,787
Less: transaction costs (1) (3) (49) (51)
----------------------------------------------------------------------------
9,661 8,736
Less: current portion of commercial paper 532 -
current portion of other long-term debt (1) (2) (3) 912 798
----------------------------------------------------------------------------
$ 8,217 $ 7,938
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) The Company has included unamortized original issue discounts and directly
attributable transaction costs in the carrying amount of the
outstanding debt.
(2) The carrying amount of US$350 million of 4.90% notes due December 2014 was
adjusted by $9 million (December 31, 2012 - $19 million) to reflect the fair
value impact of hedge accounting.
(3) Transaction costs primarily represent underwriting commissions charged as a
percentage of the related debt offerings, as well as legal, rating agency and
other professional fees.
Bank Credit Facilities and Commercial Paper
As at December 31, 2013, the Company had in place bank credit facilities of
$4,801 million, comprised of:
- a $200 million demand credit facility;
- a $75 million demand credit facility;
- a revolving syndicated credit facility of $1,500 million maturing June 2016;
- a revolving syndicated credit facility of $3,000 million maturing June 2017; and
- a GBP 15 million demand credit facility related to the Company's North Sea
operations.
During the second quarter of 2013, the $3,000 million revolving syndicated
credit facility was extended to June 2017. Each of the $3,000 million and $1,500
million facilities is extendible annually for one-year periods at the mutual
agreement of the Company and the lenders. If the facilities are not extended,
the full amount of the outstanding principal would be repayable on the maturity
date. Borrowings under these facilities may be made by way of pricing referenced
to Canadian dollar or US dollar bankers' acceptances, or LIBOR, US base rate or
Canadian prime loans.
The Company established a US commercial paper program in the first quarter of
2013. Borrowings of up to a maximum US$1,500 million are authorized. The Company
reserves capacity under its bank credit facilities for amounts outstanding under
this program.
The Company's weighted average interest rate on bank credit facilities and
commercial paper outstanding as at December 31, 2013, was 1.9% (December 31,
2012 - 2.2%), and on long-term debt outstanding for the year ended December 31,
2013 was 4.4% (December 31, 2012 - 4.8%).
In addition to the outstanding debt, letters of credit and financial guarantees
aggregating $395 million, including a $65 million financial guarantee related to
Horizon and $226 million of letters of credit related to North Sea operations,
were outstanding at December 31, 2013.
Medium-Term Notes
During the first quarter of 2013, the Company repaid $400 million of 4.50%
medium-term notes.
During the second quarter of 2013, the Company issued $500 million of 2.89%
medium-term notes due August 2020. Proceeds from the securities issued were used
to repay bank indebtedness and for general corporate purposes.
During the fourth quarter of 2013, the Company filed a base shelf prospectus
that allows for the issue of up to $3,000 million of medium-term notes in
Canada, which expires in December 2015. If issued, these securities will bear
interest as determined at the date of issuance.
US Dollar Debt Securities
During the first quarter of 2013, the Company repaid US$400 million of 5.15% notes.
During the fourth quarter of 2013, the Company filed a base shelf prospectus
that allows for the issue of up to US$3,000 million of debt securities in the
United States, which expires in December 2015. If issued, these securities will
bear interest as determined at the date of issuance.
8. OTHER LONG-TERM LIABILITIES
------------------------
Dec 31 Dec 31
2013 2012
----------------------------------------------------------------------------
Asset retirement obligations $ 4,162 $ 4,266
Share-based compensation 260 154
Risk management (note 14) 136 257
Other 65 87
----------------------------------------------------------------------------
4,623 4,764
Less: current portion 275 155
----------------------------------------------------------------------------
$ 4,348 $ 4,609
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Asset Retirement Obligations
The Company's asset retirement obligations are expected to be settled on an
ongoing basis over a period of approximately 60 years and have been discounted
using a weighted average discount rate of 5.0% (December 31, 2012 - 4.3%). A
reconciliation of the discounted asset retirement obligations is as follows:
------------------------
Dec 31 Dec 31
2013 2012
----------------------------------------------------------------------------
Balance - beginning of year $ 4,266 $ 3,577
Liabilities incurred 62 51
Liabilities acquired 131 12
Liabilities settled (207) (204)
Asset retirement obligation accretion 171 151
Revision of estimates 375 384
Change in discount rate (723) 315
Foreign exchange adjustments 87 (20)
----------------------------------------------------------------------------
Balance - end of year $ 4,162 $ 4,266
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Share-Based Compensation
As the Company's Option Plan provides current employees with the right to elect
to receive common shares or a direct cash payment in exchange for stock options
surrendered, a liability for potential cash settlements is recognized. The
current portion represents the maximum amount of the liability payable within
the next twelve month period if all vested stock options are surrendered for
cash settlement.
------------------------
Dec 31 Dec 31
2013 2012
----------------------------------------------------------------------------
Balance - beginning of year $ 154 $ 432
Share-based compensation expense (recovery) 135 (214)
Cash payment for stock options surrendered (4) (7)
Transferred to common shares (50) (45)
Capitalized to (recovered from) Oil Sands Mining
and Upgrading 25 (12)
----------------------------------------------------------------------------
Balance - end of year 260 154
Less: current portion 216 129
----------------------------------------------------------------------------
$ 44 $ 25
----------------------------------------------------------------------------
----------------------------------------------------------------------------
9. INCOME TAXES
The provision for income tax is as follows:
Three Months Ended Year Ended
----------------------------------------
Dec 31 Dec 31 Dec 31 Dec 31
2013 2012 2013 2012
----------------------------------------------------------------------------
Current corporate income tax - North
America $ 133 $ 68 $ 544 $ 366
Current corporate income tax - North
Sea 5 29 23 115
Current corporate income tax -
Offshore Africa 55 56 202 206
Current PRT (1) expense (recovery) -
North Sea 5 31 (56) 44
Other taxes 4 5 22 16
----------------------------------------------------------------------------
Current income tax expense 202 189 735 747
----------------------------------------------------------------------------
Deferred corporate income tax
(recovery) expense (36) (34) 163 -
Deferred PRT (1) recovery - North
Sea (60) (35) (132) (30)
----------------------------------------------------------------------------
Deferred income tax (recovery)
expense (96) (69) 31 (30)
----------------------------------------------------------------------------
Income tax expense $ 106 $ 120 $ 766 $ 717
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Petroleum Revenue Tax.
During the second quarter of 2013, the Government of British Columbia
substantively enacted legislation to increase its provincial corporate income
tax rate effective April 1, 2013. As a result of the income tax rate change, the
Company's deferred income tax liability was increased by $15 million.
During the third quarter of 2012, the UK government enacted legislation to
restrict the combined corporate and supplementary income tax relief on UK North
Sea decommissioning expenditures to 50%. As a result of the income tax rate
change, the Company's deferred income tax liability was increased by $58
million.
10. SHARE CAPITAL
Authorized
Preferred shares issuable in a series.
Unlimited number of common shares without par value.
------------------------------
Year Ended Dec 31, 2013
Number of
shares
Issued common shares (thousands) Amount
----------------------------------------------------------------------------
Balance - beginning of year 1,092,072 $ 3,709
Issued upon exercise of stock options 5,415 130
Previously recognized liability on stock
options exercised for common shares - 50
Purchase of common shares under Normal Course
Issuer Bid (10,165) (35)
----------------------------------------------------------------------------
Balance - end of year 1,087,322 $ 3,854
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Dividend Policy
The Company has paid regular quarterly dividends in January, April, July, and
October of each year since 2001. The dividend policy undergoes periodic review
by the Board of Directors and is subject to change.
On March 5, 2014, the Board of Directors set the regular quarterly dividend at
$0.225 per common share, an increase from the previous quarterly dividend of
$0.20 per common share, which was announced on November 5, 2013.
Normal Course Issuer Bid
In April 2013, the Company announced a Normal Course Issuer Bid to purchase
through the facilities of the Toronto Stock Exchange and the New York Stock
Exchange, during the twelve month period commencing April 2013 and ending April
2014, up to 54,635,116 common shares. The Company's Normal Course Issuer Bid
announced in 2012 expired April 2013.
For the year ended December 31, 2013, the Company purchased for cancellation
10,164,800 common shares at a weighted average price of $31.46 per common share,
for a total cost of $320 million. Retained earnings were reduced by $285
million, representing the excess of the purchase price of common shares over
their average carrying value. Subsequent to December 31, 2013, the Company
purchased 1,475,000 common shares at a weighted average price of $35.85 per
common share for a total cost of $53 million.
Stock Options
The following table summarizes information relating to stock options outstanding
at December 31, 2013:
------------------------------
Year Ended Dec 31, 2013
Weighted
average
Stock options exercise
(thousands) price
----------------------------------------------------------------------------
Outstanding - beginning of year 73,747 $ 34.13
Granted 17,823 $ 32.51
Surrendered for cash settlement (401) $ 23.83
Exercised for common shares (5,415) $ 24.03
Forfeited (13,013) $ 34.93
----------------------------------------------------------------------------
Outstanding - end of year 72,741 $ 34.36
----------------------------------------------------------------------------
Exercisable - end of year 26,632 $ 35.27
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The Option Plan is a "rolling 9%" plan, whereby the aggregate number of common
shares that may be reserved for issuance under the plan shall not exceed 9% of
the common shares outstanding from time to time.
11. ACCUMULATED OTHER COMPREHENSIVE INCOME
The components of accumulated other comprehensive income, net of taxes, were as
follows:
--------------------
Dec 31 Dec 31
2013 2012
----------------------------------------------------------------------------
Derivative financial instruments designated as cash flow
hedges $ 81 $ 86
Foreign currency translation adjustment (39) (28)
----------------------------------------------------------------------------
$ 42 $ 58
----------------------------------------------------------------------------
----------------------------------------------------------------------------
12. CAPITAL DISCLOSURES
The Company does not have any externally imposed regulatory capital requirements
for managing capital. The Company has defined its capital to mean its long-term
debt and consolidated shareholders' equity, as determined at each reporting
date.
The Company's objectives when managing its capital structure are to maintain
financial flexibility and balance to enable the Company to access capital
markets to sustain its on-going operations and to support its growth strategies.
The Company primarily monitors capital on the basis of an internally derived
financial measure referred to as its "debt to book capitalization ratio", which
is the arithmetic ratio of current and long-term debt divided by the sum of the
carrying value of shareholders' equity plus current and long-term debt. The
Company's internal targeted range for its debt to book capitalization ratio is
25% to 45%. This range may be exceeded in periods when a combination of capital
projects, acquisitions, or lower commodity prices occurs. The Company may be
below the low end of the targeted range when cash flow from operating activities
is greater than current investment activities. At December 31, 2013, the ratio
was within the target range at 27%.
Readers are cautioned that the debt to book capitalization ratio is not defined
by IFRS and this financial measure may not be comparable to similar measures
presented by other companies. Further, there are no assurances that the Company
will continue to use this measure to monitor capital or will not alter the
method of calculation of this measure in the future.
------------------------
Dec 31 Dec 31
2013 2012
----------------------------------------------------------------------------
Long-term debt (1) $ 9,661 $ 8,736
Total shareholders' equity $ 25,772 $ 24,283
Debt to book capitalization 27% 26%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Includes the current portion of long-term debt.
13. NET EARNINGS PER COMMON SHARE
Three Months Ended Year Ended
------------------------------------------------
Dec 31 Dec 31 Dec 31 Dec 31
2013 2012 2013 2012
----------------------------------------------------------------------------
Weighted average common
shares outstanding - basic
(thousands of shares) 1,086,271 1,093,925 1,088,682 1,097,084
Effect of dilutive stock
options (thousands of
shares) 1,739 1,604 1,859 2,435
----------------------------------------------------------------------------
Weighted average common
shares outstanding -
diluted (thousands of
shares) 1,088,010 1,095,529 1,090,541 1,099,519
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net earnings $ 413 $ 352 $ 2,270 $ 1,892
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net earnings per common
share - basic $ 0.38 $ 0.32 $ 2.08 $ 1.72
- diluted $ 0.38 $ 0.32 $ 2.08 $ 1.72
----------------------------------------------------------------------------
----------------------------------------------------------------------------
14. FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments by category were as
follows:
----------------------------------------------------------
Dec 31, 2013
----------------------------------------------------------------------------
Fair Financial
Loans and value liabilities
receivables through Derivatives at
at amortized profit used for amortized
Asset (liability) cost or loss hedging cost Total
----------------------------------------------------------------------------
Accounts
receivable $ 1,427 $ - $ - $ - $ 1,427
Accounts payable - - - (637) (637)
Accrued
liabilities - - - (2,519) (2,519)
Other long-term
liabilities - (39) (97) (56) (192)
Long-term debt (1) - - - (9,661) (9,661)
----------------------------------------------------------------------------
$ 1,427 $ (39) $ (97) $ (12,873) $(11,582)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Dec 31, 2012
----------------------------------------------------------------------------
Fair Financial
Loans and value liabilities
receivables through Derivatives at
at amortized profit used amortized
Asset (liability) cost or loss for hedging cost Total
----------------------------------------------------------------------------
Accounts
receivable $ 1,197 $ - $ - $ - $ 1,197
Accounts payable - - - (465) (465)
Accrued
liabilities - - - (2,273) (2,273)
Other long-term
liabilities - 4 (261) (79) (336)
Long-term debt
(1) - - - (8,736) (8,736)
----------------------------------------------------------------------------
$ 1,197 $ 4 $ (261) $ (11,553) $(10,613)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Includes the current portion of long-term debt.
The carrying amounts of the Company's financial instruments approximates their
fair value, except for fixed rate long-term debt as noted below. The fair values
of the Company's other long-term liabilities and fixed rate long-term debt are
outlined below:
---------------------------------------------
Dec 31, 2013
----------------------------------------------------------------------------
Carrying
amount Fair value
----------------------------------------------------------------------------
Asset (liability)(1) Level 1 Level 2
----------------------------------------------------------------------------
Other long-term liabilities $ (136) $ - $ (136)
Fixed rate long-term debt (2)
(3) (4) (7,883) (8,628) -
----------------------------------------------------------------------------
$ (8,019) $ (8,628) $ (136)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Dec 31, 2012
----------------------------------------------------------------------------
Carrying
amount Fair value
----------------------------------------------------------------------------
Asset (liability) (1) Level 1 Level 2
----------------------------------------------------------------------------
Other long-term liabilities $ (257) $ - $ (257)
Fixed rate long-term debt (2)
(3) (4) (7,765) (9,118) -
----------------------------------------------------------------------------
$ (8,022) $ (9,118) $ (257)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Excludes financial assets and liabilities where the carrying amount
approximates fair value due to the liquid nature of the asset or liability (cash
and cash equivalents, accounts receivable, accounts payable and accrued
liabilities).
(2) The carrying amount of US$350 million of 4.90% notes due December 2014 was
adjusted by $9 million (December 31, 2012 - $19 million) to reflect the fair
value impact of hedge accounting.
(3) The fair value of fixed rate long-term debt has been determined based on
quoted market prices.
(4) Includes the current portion of fixed rate long-term debt.
The following provides a summary of the carrying amounts of derivative financial
instruments held and a reconciliation to the Company's consolidated balance
sheets.
------------------------------
Asset (liability) Dec 31, 2013 Dec 31, 2012
----------------------------------------------------------------------------
Derivatives held for trading
Crude oil price collars $ (33) $ (16)
Foreign currency forward contracts (3) 20
Natural gas AECO basis swaps (1) -
Natural gas AECO put options, net of put
premium financing obligations (2) -
Cash flow hedges
Foreign currency forward contracts (1) -
Cross currency swaps (96) (261)
----------------------------------------------------------------------------
$ (136) $ (257)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Included within:
Current portion of other long-term
liabilities $ (38) $ (4)
Other long-term liabilities (98) (253)
----------------------------------------------------------------------------
$ (136) $ (257)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
During 2013, the Company recognized a gain of $4 million (December 31, 2012 -
gain of $1 million) related to ineffectiveness arising from cash flow hedges.
The estimated fair value of derivative financial instruments in Level 1 and
Level 2 at each measurement date have been determined based on appropriate
internal valuation methodologies and/or third party indications. Level 2 fair
values determined using valuation models require the use of assumptions
concerning the amount and timing of future cash flows and discount rates. In
determining these assumptions, the Company primarily relied on external,
readily-observable quoted market inputs including crude oil and natural gas
forward benchmark commodity prices and volatility, Canadian and United States
forward interest rate yield curves, and Canadian and United States foreign
exchange rates, discounted to present value as appropriate. The resulting fair
value estimates may not necessarily be indicative of the amounts that could be
realized or settled in a current market transaction and these differences may be
material.
Risk Management
The Company uses derivative financial instruments to manage its commodity price,
interest rate and foreign currency exposures. These financial instruments are
entered into solely for hedging purposes and are not used for speculative
purposes.
The changes in estimated fair values of derivative financial instruments
included in the risk management liability were recognized in the financial
statements as follows:
------------------------------
Asset (liability) Dec 31, 2013 Dec 31, 2012
----------------------------------------------------------------------------
Balance - beginning of year $ (257) $ (274)
Cost of outstanding put options 9 -
Net change in fair value of outstanding
derivative financial instruments attributable
to:
Risk management activities (39) 42
Foreign exchange 165 (53)
Other comprehensive income (5) 28
----------------------------------------------------------------------------
(127) (257)
Add: put premium financing obligations (1) (9) -
----------------------------------------------------------------------------
Balance - end of year (136) (257)
Less: current portion (38) (4)
----------------------------------------------------------------------------
$ (98) $ (253)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) The Company has negotiated payment of put option premiums with various
counterparties at the time of actual settlement of the respective options. These
obligations are reflected in the risk management liability.
Net (gains) losses from risk management activities were as follows:
Three Months Ended Year Ended
----------------------------------------
Dec 31 Dec 31 Dec 31 Dec 31
2013 2012 2013 2012
----------------------------------------------------------------------------
Net realized risk management (gain)
loss $ (36) $ (8) $ (116) $ 162
Net unrealized risk management
(gain) loss (30) 8 39 (42)
----------------------------------------------------------------------------
$ (66) $ - $ (77) $ 120
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Financial Risk Factors
a) Market risk
Market risk is the risk that the fair value or future cash flows of a financial
instrument will fluctuate because of changes in market prices. The Company's
market risk is comprised of commodity price risk, interest rate risk, and
foreign currency exchange risk.
Commodity price risk management
The Company periodically uses commodity derivative financial instruments to
manage its exposure to commodity price risk associated with the sale of its
future crude oil and natural gas production and with natural gas purchases. At
December 31, 2013, the Company had the following derivative financial
instruments outstanding to manage its commodity price risk:
Sales contracts
Weighted average
Remaining term Volume price Index
----------------------------------------------------------------------------
Crude oil
Price collars
(1) Jan 2014 - Jun 2014 50,000 bbl/d US$80.00 - US$123.09 Brent
Jan 2014 - Dec 2014 50,000 bbl/d US$75.00 - US$121.57 Brent
Jan 2014 - Dec 2014 50,000 bbl/d US$80.00 - US$120.17 Brent
Jan 2014 - Dec 2014 50,000 bbl/d US$90.00 - US$120.10 Brent
Jan 2015 - Dec 2015 2,000 bbl/d US$80.00 - US$122.55 Brent
Jan 2014 - Jun 2014 50,000 bbl/d US$80.00 - US$107.84 WTI
Jan 2014 - Dec 2014 50,000 bbl/d US$75.00 - US$105.54 WTI
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Subsequent to December 31, 2013, the Company entered into an additional
50,000 bbl/d of US$80.00 - US$122.09 Brent collars for the period July 2014 to
September 2014 and an additional 6,000 bbl/d of US$80.00 - US$122.52 Brent
collars for the period January 2015 to December 2015.
Weighted average
Remaining term Volume price Index
----------------------------------------------------------------------------
Natural gas
AECO basis 500,000
swaps Apr 2014 - Oct 2014 MMBtu/d US$0.50 AECO/NYMEX
AECO put options (1)
Apr 2014 - Oct 2014 470,000 GJ/d $3.10 AECO
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Subsequent to December 31, 2013, the Company entered into an additional
280,000 GJ/d of $3.10 AECO put options for the period April 2014 to October 2014
for a total cost of $6 million.
The cost of outstanding put options and their respective periods of settlement
as at December 31, 2013 are as follows:
Q2 2014 Q3 2014 Q4 2014
----------------------------------------------------------------------------
Cost $4 $4 $1
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The Company's outstanding commodity derivative financial instruments are
expected to be settled monthly based on the applicable index pricing for the
respective contract month.
Interest rate risk management
The Company is exposed to interest rate price risk on its fixed rate long-term
debt and to interest rate cash flow risk on its floating rate long-term debt.
The Company periodically enters into interest rate swap contracts to manage its
fixed to floating interest rate mix on long-term debt. Interest rate swap
contracts require the periodic exchange of payments without the exchange of the
notional principal amounts on which the payments are based. At December 31,
2013, the Company had no interest rate swap contracts outstanding.
Foreign currency exchange rate risk management
The Company is exposed to foreign currency exchange rate risk in Canada
primarily related to its US dollar denominated long-term debt, commercial paper
and working capital. The Company is also exposed to foreign currency exchange
rate risk on transactions conducted in other currencies and in the carrying
value of its foreign subsidiaries. The Company periodically enters into cross
currency swap contracts and foreign currency forward contracts to manage known
currency exposure on US dollar denominated long-term debt, commercial paper and
working capital. The cross currency swap contracts require the periodic exchange
of payments with the exchange at maturity of notional principal amounts on which
the payments are based. At December 31, 2013, the Company had the following
cross currency swap contracts outstanding:
Exchange
rate Interest Interest
Remaining term Amount (US$/C$) rate (US$) rate (C$)
----------------------------------------------------------------------------
Cross currency
Swaps Jan 2014 - Aug 2016 US$250 1.116 6.00% 5.40%
Jan 2014 - May 2017 US$1,100 1.170 5.70% 5.10%
Jan 2014 - Nov 2021 US$500 1.022 3.45% 3.96%
Jan 2014 - Mar 2038 US$550 1.170 6.25% 5.76%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
All cross currency swap derivative financial instruments designated as hedges at
December 31, 2013, were classified as cash flow hedges.
In addition to the cross currency swap contracts noted above, at December 31,
2013, the Company had US$2,237 million of foreign currency forward contracts
outstanding, with terms of approximately 30 days or less, including US$500
million designated as cash flow hedges.
b) Credit risk
Credit risk is the risk that a party to a financial instrument will cause a
financial loss to the Company by failing to discharge an obligation.
Counterparty credit risk management
The Company's accounts receivable are mainly with customers in the crude oil and
natural gas industry and are subject to normal industry credit risks. The
Company manages these risks by reviewing its exposure to individual companies on
a regular basis and where appropriate, ensures that parental guarantees or
letters of credit are in place to minimize the impact in the event of default.
At December 31, 2013, substantially all of the Company's accounts receivable
were due within normal trade terms.
The Company is also exposed to possible losses in the event of nonperformance by
counterparties to derivative financial instruments; however, the Company manages
this credit risk by entering into agreements with counterparties that are
substantially all investment grade financial institutions and other entities. At
December 31, 2013, the Company had no net risk management assets with specific
counterparties related to derivative financial instruments (December 31, 2012 -
$18 million).
c) Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting
obligations associated with financial liabilities.
Management of liquidity risk requires the Company to maintain sufficient cash
and cash equivalents, along with other sources of capital, consisting primarily
of cash flow from operating activities, available credit facilities, commercial
paper and access to debt capital markets, to meet obligations as they become
due. The Company believes it has adequate bank credit facilities to provide
liquidity to manage fluctuations in the timing of the receipt and/or
disbursement of operating cash flows.
The maturity dates for financial liabilities are as follows:
1 to less 2 to less
Less than than than
1 year 2 years 5 years Thereafter
----------------------------------------------------------------------------
Accounts payable $ 637 $ - $ - $ -
Accrued liabilities $ 2,519 $ - $ - $ -
Risk management $ 38 $ 35 $ 44 $ 19
Other long-term liabilities $ 21 $ 35 $ - $ -
Long-term debt (1) $ 1,436 $ 400 $ 3,107 $ 4,776
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Long-term debt represents principal repayments only and does not reflect
fair value adjustments, interest, original issue discounts or transaction costs.
15. COMMITMENTS AND CONTINGENCIES
The Company has committed to certain payments as follows:
2014 2015 2016 2017 2018 Thereafter
----------------------------------------------------------------------------
Product transportation
and pipeline $ 298 $ 293 $ 225 $ 208 $ 176 $ 1,324
Offshore equipment
operating leases and
offshore drilling $ 147 $ 238 $ 81 $ 61 $ 54 $ 17
Office leases $ 35 $ 41 $ 42 $ 45 $ 47 $ 321
Other $ 309 $ 172 $ 71 $ 1 $ 1 $ 1
----------------------------------------------------------------------------
----------------------------------------------------------------------------
In addition to the commitments disclosed above, the Company has entered into
various agreements related to the engineering, procurement and construction of
subsequent phases of Horizon. These contracts can be cancelled by the Company
upon notice without penalty, subject to the costs incurred up to and in respect
of the cancellation.
The Company is a defendant and plaintiff in a number of legal actions arising in
the normal course of business. In addition, the Company is subject to certain
contractor construction claims. The Company believes that any liabilities that
might arise pertaining to any such matters would not have a material effect on
its consolidated financial position.
16. SEGMENTED INFORMATION
Exploration and Production
North America North Sea
Three Months Three Months
(millions of Canadian Ended Year Ended Ended Year Ended
dollars,unaudited) Dec 31 Dec 31 Dec 31 Dec 31
--------------------------------------------------
2013 2012 2013 2012 2013 2012 2013 2012
----------------------------------------------------------------------------
Segmented product sales 2,833 3,006 12,659 11,607 229 215 805 928
Less: royalties (281) (277)(1,477)(1,268) - - (2) (2)
----------------------------------------------------------------------------
Segmented revenue 2,552 2,729 11,182 10,339 229 215 803 926
----------------------------------------------------------------------------
Segmented expenses
Production 578 557 2,351 2,165 134 100 431 402
Transportation and
blending 647 735 2,939 2,735 2 2 6 10
Depletion, depreciation
and amortization 905 965 3,568 3,413 184 74 552 296
Asset retirement
obligation accretion 23 21 92 85 9 7 35 27
Realized risk management
activities (36) (8) (116) 162 - - - -
Gain on corporate
acquisition/disposition
of properties - - (65) - - - - -
Equity loss from joint
venture - - - - - - - -
----------------------------------------------------------------------------
Total segmented expenses 2,117 2,270 8,769 8,560 329 183 1,024 735
----------------------------------------------------------------------------
Segmented earnings (loss)
before the following 435 459 2,413 1,779 (100) 32 (221) 191
----------------------------------------------------------------------------
Non-segmented expenses
Administration
Share-based compensation
Interest and other
financing expense
Unrealized risk management
activities
Foreign exchange loss
(gain)
----------------------------------------------------------------------------
Total non-segmented
expenses
----------------------------------------------------------------------------
Earnings before taxes
Current income tax expense
Deferred income tax
(recovery) expense
----------------------------------------------------------------------------
Net earnings
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Exploration and Production
Total Exploration and
Offshore Africa Production
Three Months Three Months
(millions of Canadian Ended Year Ended Ended Year Ended
dollars,unaudited) Dec 31 Dec 31 Dec 31 Dec 31
--------------------------------------------------
2013 2012 2013 2012 2013 2012 2013 2012
----------------------------------------------------------------------------
Segmented product sales 335 158 824 773 3,397 3,379 14,288 13,308
Less: royalties (52) (53) (137) (199) (333) (330)(1,616)(1,469)
----------------------------------------------------------------------------
Segmented revenue 283 105 687 574 3,064 3,049 12,672 11,839
----------------------------------------------------------------------------
Segmented expenses
Production 91 39 191 163 803 696 2,973 2,730
Transportation and
blending - - 1 1 649 737 2,946 2,746
Depletion, depreciation
and amortization 44 58 134 165 1,133 1,097 4,254 3,874
Asset retirement
obligation accretion 6 2 10 7 38 30 137 119
Realized risk management
activities - - - - (36) (8) (116) 162
Gain on corporate
acquisition/disposition
of properties - - (224) - - - (289) -
Equity loss from joint
venture - - - - - - - -
----------------------------------------------------------------------------
Total segmented expenses 141 99 112 336 2,587 2,552 9,905 9,631
----------------------------------------------------------------------------
Segmented earnings (loss)
before the following 142 6 575 238 477 497 2,767 2,208
----------------------------------------------------------------------------
Non-segmented expenses
Administration
Share-based compensation
Interest and other
financing expense
Unrealized risk management
activities
Foreign exchange loss
(gain)
----------------------------------------------------------------------------
Total non-segmented
expenses
----------------------------------------------------------------------------
Earnings before taxes
Current income tax expense
Deferred income tax
(recovery) expense
----------------------------------------------------------------------------
Net earnings
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Oil Sands Mining and
Upgrading Midstream
Three Months Three Months
(millions of Canadian Ended Year Ended Ended Year Ended
dollars,unaudited) Dec 31 Dec 31 Dec 31 Dec 31
--------------------------------------------------
2013 2012 2013 2012 2013 2012 2013 2012
----------------------------------------------------------------------------
Segmented product sales 915 675 3,631 2,871 26 26 110 93
Less: royalties (50) (29) (184) (137) - - - -
----------------------------------------------------------------------------
Segmented revenue 865 646 3,447 2,734 26 26 110 93
----------------------------------------------------------------------------
Segmented expenses
Production 389 372 1,567 1,504 8 8 34 29
Transportation and
blending 15 15 63 61 - - - -
Depletion, depreciation
and amortization 137 114 582 447 2 2 8 7
Asset retirement
obligation accretion 8 8 34 32 - - - -
Realized risk management
activities - - - - - - - -
Gain on corporate
acquisition/disposition
of properties - - - - - - - -
Equity loss from joint
venture - - - - 1 3 4 9
----------------------------------------------------------------------------
Total segmented expenses 549 509 2,246 2,044 11 13 46 45
----------------------------------------------------------------------------
Segmented earnings (loss)
before the following 316 137 1,201 690 15 13 64 48
----------------------------------------------------------------------------
Non-segmented expenses
Administration
Share-based compensation
Interest and other
financing expense
Unrealized risk management
activities
Foreign exchange loss
(gain)
----------------------------------------------------------------------------
Total non-segmented
expenses
----------------------------------------------------------------------------
Earnings before taxes
Current income tax expense
Deferred income tax
(recovery) expense
----------------------------------------------------------------------------
Net earnings
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Inter-segment
elimination and other Total
Three Months Three Months
(millions of Canadian Ended Year Ended Ended Year Ended
dollars,unaudited) Dec 31 Dec 31 Dec 31 Dec 31
--------------------------------------------------
2013 2012 2013 2012 2013 2012 2013 2012
----------------------------------------------------------------------------
Segmented product sales (8) (21) (84) (77) 4,330 4,059 17,945 16,195
Less: royalties - - - - (383) (359)(1,800)(1,606)
----------------------------------------------------------------------------
Segmented revenue (8) (21) (84) (77) 3,947 3,700 16,145 14,589
----------------------------------------------------------------------------
Segmented expenses
Production (2) (4) (15) (14) 1,198 1,072 4,559 4,249
Transportation and
blending (19) (14) (71) (55) 645 738 2,938 2,752
Depletion, depreciation
and amortization - - - - 1,272 1,213 4,844 4,328
Asset retirement
obligation accretion - - - - 46 38 171 151
Realized risk management
activities - - - - (36) (8) (116) 162
Gain on corporate
acquisition/disposition
of properties - - - - - - (289) -
Equity loss from joint
venture - - - - 1 3 4 9
----------------------------------------------------------------------------
Total segmented expenses (21) (18) (86) (69) 3,126 3,056 12,111 11,651
----------------------------------------------------------------------------
Segmented earnings (loss)
before the following 13 (3) 2 (8) 821 644 4,034 2,938
----------------------------------------------------------------------------
Non-segmented expenses
Administration 93 64 335 270
Share-based compensation 65 (41) 135 (214)
Interest and other
financing expense 60 83 279 364
Unrealized risk management
activities (30) 8 39 (42)
Foreign exchange loss
(gain) 114 58 210 (49)
----------------------------------------------------------------------------
Total non-segmented
expenses 302 172 998 329
----------------------------------------------------------------------------
Earnings before taxes 519 472 3,036 2,609
Current income tax expense 202 189 735 747
Deferred income tax
(recovery) expense (96) (69) 31 (30)
----------------------------------------------------------------------------
Net earnings 413 352 2,270 1,892
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Capital Expenditures (1)
Year Ended
------------------------------------------------
Dec 31, 2013
----------------------------------------------------------------------------
Non-cash
Net and fair value Capitalized
expenditures changes(2) costs
----------------------------------------------------------------------------
Exploration and evaluation
assets
Exploration and Production
North America $ 90 $ (84) $ 6
North Sea - - -
Offshore Africa (3) (10) - (10)
----------------------------------------------------------------------------
$ 80 $ (84) $ (4)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Property, plant and
equipment
Exploration and Production
North America $ 3,936 $ (450) $ 3,486
North Sea 334 (35) 299
Offshore Africa 114 (17) 97
----------------------------------------------------------------------------
4,384 (502) 3,882
Oil Sands Mining and
Upgrading (4) 2,592 (189) 2,403
Midstream 197 (1) 196
Head office 38 - 38
----------------------------------------------------------------------------
$ 7,211 $ (692) $ 6,519
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Year Ended
------------------------------------------------
Dec 31, 2012
----------------------------------------------------------------------------
Non-cash
Net and fair value Capitalized
expenditures changes(2) costs
----------------------------------------------------------------------------
Exploration and evaluation
assets
Exploration and Production
North America $ 295 $ (173) $ 122
North Sea - - -
Offshore Africa (3) 14 - 14
----------------------------------------------------------------------------
$ 309 $ (173) $ 136
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Property, plant and
equipment
Exploration and Production
North America $ 3,831 $ 373 $ 4,204
North Sea 254 263 517
Offshore Africa 50 17 67
----------------------------------------------------------------------------
4,135 653 4,788
Oil Sands Mining and
Upgrading (4) 1,610 142 1,752
Midstream 14 - 14
Head office 36 - 36
----------------------------------------------------------------------------
$ 5,795 $ 795 $ 6,590
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) This table provides a reconciliation of capitalized costs including
derecognitions and does not include the impact of foreign exchange adjustments.
(2) Asset retirement obligations, deferred income tax adjustments related to
differences between carrying amounts and tax values, transfers of exploration
and evaluation assets, and other fair value adjustments.
(3) The above noted figures do not include the impact of a pre-tax gain on sale
of exploration and evaluation assets totaling $224 million on the Company's
disposition of a 50% interest in its exploration right in South Africa during
2013.
(4) Net expenditures for Oil Sands Mining and Upgrading also include capitalized
interest and share-based compensation.
Segmented Assets
Total Assets
------------------------
Dec 31 Dec 31
2013 2012
----------------------------------------------------------------------------
Exploration and Production
North America $ 29,234 $ 29,012
North Sea 1,964 1,993
Offshore Africa 981 924
Other 25 36
Oil Sands Mining and Upgrading 18,604 16,291
Midstream 841 636
Head office 105 88
----------------------------------------------------------------------------
$ 51,754 $ 48,980
----------------------------------------------------------------------------
----------------------------------------------------------------------------
SUPPLEMENTARY INFORMATION
INTEREST COVERAGE RATIOS
The following financial ratios are provided in connection with the Company's
continuous offering of medium-term notes pursuant to the short form prospectus
dated November 2013. These ratios are based on the Company's interim
consolidated financial statements that are prepared in accordance with
accounting principles generally accepted in Canada.
Interest coverage ratios for the twelve month period ended
December 31, 2013:
----------------------------------------------------------------------------
Interest coverage (times)
Net earnings (1) 7.7x
Cash flow from operations (2) 18.8x
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Net earnings plus income taxes and interest expense excluding current and
deferred PRT expense and other taxes; divided by the sum of interest expense and
capitalized interest.
(2) Cash flow from operations plus current income taxes and interest expense
excluding current PRT expense and other taxes; divided by the sum of interest
expense and capitalized interest.
CONFERENCE CALL
A conference call will be held at 9:00 a.m. Mountain Time, 11:00 a.m. Eastern
Time on Thursday, March 6, 2014. The North American conference call number is
1-800-565-0813 and the outside North American conference call number is
001-416-340-8527. Please call in about 10 minutes before the starting time in
order to be patched into the call.
A taped rebroadcast will be available until 6:00 p.m. Mountain Time, Thursday,
March 13, 2014. To access the rebroadcast in North America, dial 1-800-408-3053.
Those outside of North America, dial 001-905-694-9451. The pass code to use is
9268845.
WEBCAST
The conference call will also be broadcast live on the internet and may be
accessed through the Canadian Natural website at www.cnrl.com.
FOR FURTHER INFORMATION PLEASE CONTACT:
Steve W. Laut
President
Corey B. Bieber
Chief Financial Officer & Senior Vice-President, Finance
Douglas A. Proll
Executive Vice-President
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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