DBRS Comments on Canadian Natural Resources’ Proposed Upgrader Project with NWU

DBRS notes that Canadian Natural Resources Limited (CNRL or the Company) has announced that it has entered into a partnership agreement with North West Upgrading Inc. (NWU) to proceed with detailed engineering, regarding the construction and operation of a bitumen refinery near Redwater, Alberta (the Partnership), although the project has not been sanctioned. Furthermore, the Partnership has entered into an agreement to process bitumen supplied by the Government of Alberta (the Government) under the Bitumen Royalty In Kind (BRIK) initiative to upgrade its bitumen share of royalties from Alberta producers. The foregoing emanates from a joint proposal submitted to the Government in January 2010, which indicated that the Company had agreed to acquire 50% of the assets of NWU subject to a number of conditions.

DBRS expects that the proposed bitumen refinery project, if sanctioned, would require substantial capex at the multi-billion dollar level based on similar upgrader projects that have been concluded and/or announced, with project financing likely to play a major role. However, considerable Government support is anticipated in order to enhance the economics of the project and help to underpin support for the associated debt through tolling arrangements. CNRL’s initial cash outlay, near term, should be modest and manageable. DBRS expects CNRL to prudently manage the various development projects, including the Partnership, within the parameters of the current credit rating of BBB (high) with a Stable trend, as seen in the past.

DBRS will further assess the project upon receipt of additional information, including CNRL’s overall capex plans for 2011 and beyond, including the financial and operational impact of the upgrader fire at its Horizon oil sands project (Horizon) in January 2011 and development plans for further phases of Horizon.

The formation of the Partnership is in line with Alberta’s initiative to create value by keeping refining in Alberta and also supports the Company’s strategy to ensure conversion capacity for its products. Should the project be sanctioned following detailed engineering, Phase 1 of the project will process 50,000 bbl/d of bitumen to finished products and will incorporate an integrated CO2 management solution. The facility can be expanded in two additional identical phases of 50,000 bbl/d of bitumen at a future date. The Company has agreed to provide 12,500 bbl/d of bitumen to Phase 1 of the facility.

Notes:
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.

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