BUS419 Advanced Derivative Securities
Canadian Oil and Gas
Presented by: Amjodh Dhillon
Qiyuan Ren
Junheng Cai (Pat)
Jiyuan Chen
Agenda
o
o
o
o
o
Intro
Introduction
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Industry Overview
Canada
• The oil and gas industry is a branch of the Energy Industry
• Oil and Gas Industry components:
 Upstream operation (Exploration)
 Midstream Operation (Refining)
 Downstream Operations (Distribution and sales)
Statistics
• 5th largest production of natural gas
• 5th largest production of crude oil in the world
• 5th largest energy producer in the world
• Largest single private investor in Canada
• 20% of value on Toronto Stock Exchange
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Industry (Forecasting)
•
•
•
•
Industry revenues down one third
WCSB capital investment down 33% ($23 billion)
Well drilling down 30% (3,150 wells) from 2014
Oil and gas share of TSX down from 20% in 2014 to
12% in January in 2015
Industry (Forecasting)
Industry Products-Crude Oil
• Actively traded commodities
• 40% of Canada’s energy demand
• 17% of Canada’s merchandise exports
• 3rd crude oil reserves in the world, after Venezuela and Saudi
Arabia
• Reserves: 4,561 million barrels
• Production: 1.38 million barrels per day (Conventional oil,
2013)
Industry Products-Crude Oil
• Products:
-Gasoline
-Kerosene
-Jet Fuel
-Lubricants
• Substitutes
-Nuclear
Power
-Hydrogen
-hydropower
-Coal
-Methane
-Solar energy
Industry Products-Crude Oil
Industry Products-Crude Oil
Industry Products-Crude Oil
Capital Investment-Crude Oil
Industry Products-Natural Gas
• Natural gas accounts for 30% of Canada’s
energy demand.
• Reserves: 69.3 trillion cubic feet
• Production: 14.1 billion cubic feet per day
Industry Products-Natural Gas
• Price determined in an open market
• Supply of natural gas versus the demand for the fuel
• Price Sensitivity
–
–
–
–
–
–
Residential
Commercial
Industrial
Winter Season
Higher crude oil prices
Economic growth
Industry Products-Natural Gas
Industry Products-Natural Gas
Industry Products-Natural Gas
Regulation on the Industry
Regulation on the Industry
Canadian
• Natural Resources Canada
• National Energy Board
• Environmental Regulations (Environment
Canada)
• Self-regulation:
– Canadian Association of Petroleum Producers
(CAPP)
Risk Management
• Risk Exposures
– General Business
– Environmental/Legal
– Operational
– Credit/Liquidity
– Financial/Commodity
Risk Management
• Objective
– Reduce the risk of adverse price changes in the
physical market
– Perhaps to make a profit
• How?
• Determines a hedge ratio
• Optimal hedge rations should be time-varying
Risk Management
• Sensitivity analysis:
– On cash flows sensitive to:
• Oil and gas prices
• Interest rates
• FX changes
Further Developed with:
• Probability calculations for movements in prices
interest rates and FX
Risk Management
• Derivatives are at the center of risk
management for these companies:
• Major Products for risk management:
– Energy Futures traded din COMEX
– FX futures traded in CME
– OTX Forward contracts (oil, gas, etc.)
– Interest rate and FX SWAPS
– Options: Costless Collar
Risk Management
• Hazards from risk management activities
– Decreased earnings
– Liquidity pressure
– Potential loses from hedging
Canadian Natural Resources
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Overview
• Headquarters in Calgary, Alberta (1973)
• Operates in Western Canada, the North Sea off Scotland, and West Africa
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Overview
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Overview
• Grown rapidly since 1989
• In 2013 CNQ produced 641000 BOE/d
• Bulk of production located in North America, with 25% in light crude
oil, 35% in heavy oil bitumen, and 14% from the Horizon oil sands
mining and upgrading project
• 9% market share of Canadian Oil production
• 8% market share of Canadian gas production
• Canada’s largest heavy oil producer
• Canada’s second largest natural gas producer
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Overview
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Management
N. Murray Edwards:
• Chairman
• Launched Canadian Natural Resources
• Bachelor of Commerce
• Law Degree
• Doctors of Law (Honorary)
Steve W. Laut:
• President & Director
• Bachelor of Science in Mechanical
Engineering
• Joined CNQ In 1991
• President since April 2005
• Compensation for 2013: $9,248,828
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Management
Tim S. McKay
• COO
• Since January 2003
• Salary: $4,053,568
Douglas A. Proll
• Executive Vice-President
• Previously served as CFO/Senior VP of
Finance since 2001
• Salary: $2,158,846
Corey B. Bieber
• CFO (since 2013)
• Senior Vice-President of Finance
• Bachelor of Commerce
• Salary: $2,000,010
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Historical Price
TSX
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Trading and Share
Statistics
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Future Development
Birch Mountain:
• Currently at planning stage
• Completion 2019
• Oil sands thermal in situ project
Gregoire Lake:
• Currently at planning stage
• Completion 2018
• Oil sands thermal in situ project
Grouse:
• Currently at planning stage
• Completion 2018
• Oil sands thermal in situ project
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Reserves
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Risk Management
Risks:
• CNQ is exposed to various operational risks inherent in the exploration,
development, production, marketing of crude oil, NGLs, natural gas, the
mining, and upgrading of bitumen into SCO
• Market Risk
• Commodity Price Risk
• Interest Rate Risk
• Foreign Currency Exchange Risk
• Credit Risk
• Liquidity Risk
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Risk Management
Managing Risk:
• Derivative financial
instruments are
utilized to help
ensure targets are
met and to manage
commodity price,
foreign currency
and interest rate
exposures
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Risk Management
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Risk Management
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Risk Management
Commodity Price Risk
• 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:
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Risk Management
Commodity Price Risk
• The Company’s commodity
hedging program reduces the risk
of volatility in commodity prices
and supports the Company’s cash
flow for its capital expenditures
programs.
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Risk Management
Interest Rate Risk
•
CNQ 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.
• CNQ periodically enters into interest rate swap contracts to manage its fixed to
floating interest rate mix on long-term debt.
• The 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.
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Risk Management
Foreign Currency Exchange Risk
• CNQ 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.
• CNQ is also exposed to foreign currency exchange rate risk on transactions
conducted in other currencies and in the carrying value of its foreign subsidiaries.
• CNQ 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.
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Risk Management
Foreign Currency Exchange Risk
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Risk Management
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Risk Management
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
• CNQ 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.
• CNQ is also exposed to possible losses in the event of non-performance 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
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Risk Management
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.
• CNQ 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.
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Risk Management
Liquidity Risk
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Risk Management
Sensitivity Analysis
• The following table summarizes
the annualized sensitivities of
the Company’s 2013 net
earnings and other
comprehensive income to
changes in the fair value of
financial instruments
outstanding as at December 31,
2013, resulting from changes in
the specified variable, with all
other variables held constant
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Risk Management
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Penn West Exploration
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Overview
• Founded in Calgary, Alberta (1979)
• One of the largest conventional oil and natural gas producers in Canada
• Operates a significant portfolio of opportunities with a dominant position in
light oil in Canada
• Operations are currently focused on light-oil development.
• Approximately 1415 employees, which is 25% less than the previous year
• Streamlined its management structure in July, 2013 by replacing its CEO and
two Senior VPs
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Overview
• In 2013, approximately 50 percent was light and medium oil, 30 percent was
natural gas, 13 percent was conventional heavy oil and 7 percent was NGLs
• Operates throughout western Canada on a land base encompassing
approximately five million acres
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Management
David E. Roberts
•
•
•
•
President and CEO
Joined in June, 2013
More than 30 years of operational experience in the
upstream oil and gas business
Former Executive VP and COO of Marathon Oil
Corporation
Richard L. George
•
•
•
•
•
•
Intro
Chairman, joined in May, 2013
Served as a director and the President and Chief
Executive Officer of Suncor from 1991 to 2012
A director of the Royal Bank of Canada and
Anadarko Petroleum Corporation and a partner of
Novo Investment Group
A Bachelor of Science degree in engineering from
Colorado State University
A law degree from the University of Houston Law
School
A graduate of the Harvard Business School Program
for Management Development
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Management
Todd H.Takeyasu
• Executive VP and CFO
• Joined in 1994
• Charted Accountant
• Over 25 years of experience in oil and natural gas
industry and public accounting experience
Mark P. Fitzgerald
• Senior VP, Development
• Joined in Nov, 2008
• Professional Engineer
• 25 years of experience in field operations, production,
development, business in the oil and gas industry
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Historical Price
TSX
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Trading and Share
Statistics
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Future Development
Cardium Play:
• Expanding waterflood programs in the core areas
• Increasing development activities, primarily in the Lodgepole and Crimson Lake
areas
• $270 million capital budget in 2014
Slave Point:
• Continuing waterflood program in Otter
• Initial a new pilot in Sawn Lake
• $150 million capital budget in 2014
Viking Play:
• Further develop the Dodsland area
• Assessing potential for down spacing with implementation of a waterflood program
in the Avon Hills area
• $150 million capital budget in 2014
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Future Development
Enhanced Oil Recovery
• “Penn West believes that recent results in its key plays and
continuing advancements in drilling, completions and other
technologies will enable it to pursue various enhanced recovery
techniques aimed at increasing oil recovery rates in several of
its large plays”
• “During 2013, Penn West continued to expand its enhanced
recovery programs primarily through the use of waterflood
techniques as outlined above”
• “In 2014, Penn West plans to continue to build on these results
and expand on existing waterflood projects and initiate others
in most of its key areas.”
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Reserves
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Reserves
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Risk Management
Company is are exposed to normal market risks inherent in the oil
and natural gas business, including, but not limited to:
• Commodity price risk
• Foreign currency risk
• Credit risk
• Interest rate risk
• Liquidity risk
• Environmental and climate change risk
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Risk Management
The Company seeks to mitigate these risks through:
• Business processes
• Management controls
from time to time by using financial instruments.
“As at December 31, 2013 and 2012, the only asset or liability measured at fair value on a
recurring basis was the risk management asset and liability, which was valued based on “Level
2 inputs” being quoted prices in markets that are not active or based on prices that are
observable for the asset or liability.”
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Risk Management
Commodity Price Risk
• The most important risk to hedge
• The risk is managend by using swaps, collars and other financial instruments
• “Commodity price risk may be hedged upto a maximum of 50 percent of forecast sales
volumes, net of royalties, for the balance of any current year and one year following and up
to 25 percent of forecast sales volumes, net of royalties, for one additional year thereafter”
•
“Subject to the Board’s approval, our hedging limits may be increased above the maximum
limits”
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Risk Management
Commodity Price Risk
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Risk Management
Commodity Price Risk
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Risk Management
Commodity Price Risk
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Risk Management
Foreign Exchange Risk
•
Prices received for crude oil are referenced to US dollars, thus
Penn West’s realized oil prices are impacted by Canadian
dollar to US dollar exchange rates.
• A portion of the Company’s debt capital is denominated in US
dollars, thus the principal and interest payments in Canadian
dollars are also impacted by exchange rates.
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Risk Management
Foreign Exchange Risk
Company may use financial instruments to fix or collar future
exchange rates to fix the Canadian dollar equivalent of crude oil
revenues or to fix US denominated long-term debt principal
repayments
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Risk Management
Credit Risk
Credit risk is the risk of loss if purchasers or counterparties do not fulfill their
contractual obligations.
To hedge credit risk:
• each counterparty is reviewed on a regular basis for the purpose of assigning a
credit limit and may be requested to provide security if determined to be prudent
(oil and natural gas sales and financial derivatives)
• transacts with counterparties who are members of its banking syndicate or other
counterparties that have investment grade bond ratings (financial derivatives)
• Credit events related to all counterparties are monitored and credit exposures are
reassessed on a regular basis
“In 2013, the maximum exposure to credit risk was $265 million (2012 - $364 million)
being the carrying value of the accounts receivable.”
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Risk Management
Interest Rate Risk
“A portion of the Company’s debt capital is held in floating-rate bank facilities, which
results in exposure to fluctuations in short-term interest rates, which remain at lower
levels than longer-term rates.”
To mitigate interest rate risk:
• increasing the certainty of our future interest rates by entering fixed interest rate
debt instruments
• using financial instruments to swap floating interest rates for fixed rates or to collar
interest rates.
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Risk Management
Interest Rate Risk
“As at December 31, 2013, none of the Company’s long-term debt instruments were
exposed to changes in short-term interest rates (2012 – four percent).”
“As at December 31, 2013, a total of $2.1 billion (2012 – $1.9 billion) of fixed interest
rate debt instruments was outstanding with an average remaining term of 4.5 years
(2012 – 5.5 years) and an average interest rate of 5.8 percent (2012 – 5.8 percent),
including the effects of interest rate swaps.”
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Risk Management
Liquidity Risk
Liquidity risk is the risk that the Company will be unable to meet its financial liabilities
as they come due
To mitigate liquidity risk:
• Using short and long-term financial and capital forecasting programs to ensure
credit facilities are sufficient relative to forecast debt levels, dividend and capital
program levels are appropriate, and that financial covenants will be met
• Regularly reviews capital markets to identify opportunities to optimize the debt
capital structure on a cost effective basis
• In the short term, liquidity is managed through daily cash management activities,
short-term financing strategies and the use of collars and other financial
instruments to increase the predictability of cash flow from operating activities.
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Risk Management
Liquidity Risk
The following table outlines estimated future obligations for non-derivative financial
liabilities as at December 31, 2013:
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Risk Management
Environmental and Climate Change Risk
The oil and gas industry has a number of environmental risks and hazards and is
subject to regulation by all levels of government.
Environmental legislation includes, but is not limited to:
• Operational controls
• Site restoration requirements
• Restrictions on emissions of various substances produced in association with oil
and natural gas operations
Compliance with such legislation could require additional expenditures and a failure to
comply may result in fines and penalties which could, in the aggregate and under
certain assumptions, become material.
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Risk Management
Environmental and Climate Change Risk
To reducing the environmental impact from our operations through:
• Resource conservation
• CO2 sequestration
• Water management
• Site abandonment/reclamation
Operations are continuously monitored to minimize the environmental impact
and sufficient capital is allocated to reclamation and other activities to mitigate the
impact on the areas in which we operate.
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Risk Management
Sensitivity Analysis
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Risk Management
Financial Instruments
Financial instruments included in the balance sheets consist of accounts receivable, fair
values of derivative financial instruments, accounts payable and accrued liabilities,
dividends payable and long-term debt.
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Overview
Canadian Oil Sands (COS):
•
•
•
•
A limited liability, publicly traded
Canadian corporation
Generate income from its oil sands
investment in the Syncrude Joint
Venture.
A major producer of high quality, low
sulphur, light, synthetic crude oil
(“SCO”)
COS hold 36.74% interest in Syncrude
since 2007.
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Market for COS Production
Headquarters is located in Calgary, Alberta
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Board of Directors
Donald J. Lowry
Gerald W. Grandey
•
•
•
•
•
•
•
•
•
Corporate Director
Saskatoon, SK
Joined the COS board in 2011
Degree in geophysical engineering
Law degree
Ryan M. Kubik
Lan A. Bourne
•
•
•
•
•
•
•
•
•
Intro
Chairman of the Board
Joined the COS in 2007
Bachelor of Commerce
(Hons) degree & MBA
Harvard Advanced
Management Program
President and CEO
Bachelor of Commerce
degree
Chartered Accountant
&Chartered Financial
Analyst designations
ICD.D designation
Canadian Natural Resources
Penn West
Corporate Director
Calgary, Alberta
Joined the COS board in 2007
Bachelor of Commerce degree
Director Education Program
Canadian Oil Sands
Q&A
Highlights
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Historical Stock Price
Google Finance
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
2015 Outlook
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Risk Management
•
Risks are categorized based on their probability of occurrence and their potential impact on
Canadian Oil Sands’ financial results, financial condition, corporate reputation and EH&S
performance.
Risk Management
Crude Oil
Price Risk
Intro
Operational
Risk
Competition
Risk
Canadian Natural Resources
Market&Trans
Risk
Environmental
Risk
Penn West
Ownership
Risk
Canadian Oil Sands
Financial
Market Risk
Q&A
Highlights
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Risk Management
Crude Oil Price Risk:
•
•
•
•
The financial results and financial condition of Canadian Oil Sands are significantly
impacted by crude oil prices.
Price is subject to large fluctuations in response to changes in the global and
regional supply and demand for oil
A prolonged period of low crude oil prices could affect the value of our interest in
the Syncrude Project, and result in the impairment of Canadian Oil Sands’ assets
Solution: Maintaining a strong balance sheet and ensuring adequate sources of
financing are available.
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Risk Management
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Responding to Low Oil Price
• Syncrude cost reductions
 -Recent oil price decline intensified efforts already underway to achieve a lower
cost structure
 -Potential cost reductions, net to COS of $260 million to $400 million in 2015
 -Reductions of $294 million have been incorporated into 2015 Outlook
• Reduced dividend
 On January 29, reduced the quarterly dividend from $0.35/share to $0.05/share to
align better with crude oil prices and to preserve balance sheet strength and
liquidity
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Risk Management
Operational Risk:
• Operational Outages:
The shutdown of any part of Syncrude’s operation could significantly impact production of SCO.
 water store
 geology and limestone base
 electrical power
Solution: maintaining appropriate levels of insurance, primarily business interruption (“BI”) and
property insurance.
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Risk Management
Operational Risk:
• Project Execution:
 Risks associated with the execution of Syncrude’s major projects and future growth
and development projects
 Solution (strategic planning function): Identification and evaluation of capital
projects, helps manage these risks with support from Imperial Oil/ExxonMobil
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Risk Management
Competition Risk:
•
Skilled labors
Solution: Competitive industry compensation
A socially and environmentally responsible company
•
Other competitions: longer procurement lead times, distribution and marketing of
petroleum products
Solution: Cost Analysis and Strategy Taskforce in 2014
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Risk Management
Environmental Risk:
• Tailings Management
While Syncrude continues to develop tailings and fluid fine tailings reclamation technologies,
there is a risk of increased costs to develop and implement various measures
• Water Access and Emissions
Legislation significantly restricts or penalizes water use and/or emissions
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Risk Management
Financial Market Risk:
• Foreign Currency Risk
 Fluctuations in the U.S./Canadian currency exchange rates.
 Sales are based in part on a WTI benchmark price in U.S. dollars, while operating expenses
and capital expenditures are primarily in Canadian dollars.
 No any foreign currency hedges in place in 2014 or 2013 COS may hedge foreign currency
rates in the future
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Risk Management
Financial Market Risk:
• Interest Rate Risk:
Changes in market interest rates may affect the Corporation’s financial results and financial
condition.
 Long-term Debt (variable-rate credit facilities)
 short-term investments
- Employee future benefits
- Accrued benefit liability
- Asset retirement obligation
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Risk Management
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Risk Management
The changes in the asset retirement obligation due to increases and decreases
in the risk-free interest rate (2.25 per cent at Dec 31, 2014 VS 3.25 per cent at
Dec 31, 2013)and increases in estimated reclamation and closure expenditures
were recorded as changes in PP&E.
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Risk Management
Financial Market Risk:
• Credit Risk:
 Customer accounts receivable balances, financial counterparties
 Solution: - Credit policy that limits exposure based on credit ratings.
- Credit insurance
 At present, there are no financial assets that are past their maturity or
impaired due to credit risk-related defaults.
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Risk Management
Financial Market Risk
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Risk Management
Financial Market Risk:
• Liquidity Risk:
 Liquidity risk is the risk that Canadian Oil Sands will not be able to meet its
financial obligations
-
The amount and timing of operating commitments,
Future capital expenditure requirements
Debt repayments
Adequacy of financing available
Downgrade in the Corporation's credit ratings
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Risk Management
Financial Market Risk:
• Liquidity Risk:
 The ability to make scheduled payments on or to refinance debt
obligations depends on the financial condition and operating performance
of the Corporation
 Solution: Manages its liquidity through cash, debt and equity management
strategies
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Sensitivity Analysis
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Financial Report
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Financial Report
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Financial Report
Intro
Canadian Natural Resources
Penn West
Canadian Oil Sands
Q&A
Oil and Natural Gas Industry
Any Question
Oil and Natural Gas Industry