DBRS Comments on Impact of Canadian Natural Resources’s Upgrader Fire

DBRS notes that Canadian Natural Resources (the Company) is investigating the cause of the January 6, 2011 upgrader fire at its Horizon oil sands facility (Horizon) in Fort McMurray, Alberta. The Company has started the procurement process for the replacement of components and parts for the repair and restoration of the equipment and infrastructure damaged by the fire. The extent of the damage, the repair costs and insurance coverage are still unknown. Despite the negative impact on cash flow, DBRS believes the incident will not have any material rating impact in the near term (the Company’s long-term credit rating is BBB (high) with a Stable trend), given the Company’s diverse production base, strong financial metrics and continued favourable crude oil prices. The $2 billion insurance package for Horizon should cover a significant portion of the repair costs, with business interruption insurance effectively covering on-site operating costs 90 days after the incident.

Horizon represents about 16% of the Company’s projected 2011 production volumes. DBRS expects that the remaining cash flow from other production should cover most of the planned average capex of approximately $5.8 billion (including about $1 billion for Horizon). The Company’s December 2, 2010 guidance on projected cash operating costs of $30 to $36 per barrel of bitumen production will likely increase as a result of lower production levels from the average 108,000 b/d projected.

Note:
All figures are in Canadian dollars unless otherwise noted.

The applicable methodology is Rating Oil and Gas Companies, which can be found on our website under Methodologies.