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Investor Open House 2012Horizon
May 2012
Premium Value Defined Growth Independent
Horizon Oil Sands
Investor Open HouseMay 2012
Phil Keele, Vice-President, Mining, Horizon OperationsRéal Doucet, Senior Vice-President, Horizon Projects
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Investor Open House 2012Horizon
May 2012
CNQSlide 3
Certain statements relating to Canadian Natural Resources Limited (the “Company”) in this document or documents incorporated herein by referenceconstitute 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” 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”) including the information in the “Outlook” section and the sensitivity analysis 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 expansion, ability to recover insurance proceeds, Primrose, Pelican Lake, the Kirby Thermal Oil Sands Project, the Keystone XL Pipeline US Gulf Coast expansion, 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 and 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 and natural gas 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 natural gas liquids (“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. For additional information refer to the “Risks and Uncertainties” section of this MD&A.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.
Forward Looking StatementsForward Looking Statements
CNQSlide 4
Special Note Regarding Currency, Production and ReservesIn this document, all references to dollars refer to Canadian dollars unless otherwise stated. Reserves and production data are presented on a before royalties basis unless otherwise stated. In addition, reference is made to crude oil and natural gas in common units called barrel of oil equivalent (“boe”). 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 & medium crude oil, primary heavy crude oil, Pelican Lake heavy crude oil, bitumen (thermal oil), and synthetic crude oil.For the year ended December 31, 2011 the Company retained Independent Qualified Reserves Evaluators (”Evaluators”), Sproule Associates Limited and Sproule International Limited (together as “Sproule”) and GLJ Petroleum Consultants Ltd. (“GLJ”), to evaluate and review all of the Company’s proved and proved plus probable reserves with an effective date of December 31, 2011 and a preparation date of February 13, 2012. Sproule evaluated the North America and International crude oil, NGL and natural gas reserves. GLJ evaluated the Horizon SCO reserves. The evaluation and review was conducted in accordance with the standards contained in the Canadian Oil and Gas Evaluation Handbook (“COGE Handbook”) and disclosed in accordance with National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities (“NI 51-101”) requirements. The 2011 reserves disclosure is presented in accordance with Canadian reporting requirements using forecast prices and escalated costs. The recovery and reserves estimates of crude oil, NGL and natural gas reserves provided in this presentation are estimates only and there is no guarantee that the estimated reserves will be recovered. Actual crude oil, NGL and natural gas reserves may be greater than or less than the estimates provided.Reserves estimates provided in this presentation are company gross, before royalties.Resources Other Than ReservesThe contingent resources other than reserves (“resources”) estimates provided in this presentation are internally evaluated by qualified reserves evaluators in accordance with the COGE Handbook as directed by NI 51-101. No independent third party evaluation or audit was completed. Resources provided are best estimates as of December 31, 2011. The resources are evaluated using deterministic methods which represent the expected outcome with no optimism or conservatism.Resources, as per the COGE Handbook definition, are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from know accumulations using established technology or technology under development, but are not currently considered commercially viable due to one or more contingencies. There is no certainty that it will be commercially viable to produce any portion of these resources. Due to the inherent differences in standards and requirements employed in the evaluation of reserves and contingent resources, the total volumes of reserves or resources are not to be considered indicative of total volumes that may actually be recovered and are provided for illustrative purposes only.Petroleum, bitumen or natural gas initially-in-place volumes provided are discovered resources which include: production, reserves, contingent resources and unrecoverable volumes.Special Note Regarding non-GAAP Financial MeasuresThis 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, cash production costs and net asset value. These financial measures are not defined by International Financial Reporting Standards (“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 cash production costs is 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.Volumes shown are Company share before royalties unless otherwise stated.
Reporting DisclosuresReporting Disclosures
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Investor Open House 2012Horizon
May 2012
CNQSlide 5
*Discovered Bitumen Initially in Place and excludes BIIP attributable to Birch Mountain East SAGD property. *Best estimate contingent resources other than reserves.Note: Volumes are gross lease.**Company gross proved and probable reserves at December 31, 2011.
Horizon Oil SandsHorizon Oil Sands
• Mining resources 14.4 billion barrels BIIP* Gross proved plus probable SCO
reserves – 3.4 billion barrels** Best estimate contingent
resources other than reserves –2.6 billion barrels of bitumen Phased development (SCO)
– 110,000 bbl/d capacity (Phase 1)– Target expansion up to
250,000 bbl/d– Target future expansions to
~500,000 bbl/d
• Significant free cash flow generation for decades
World Class Opportunity World Class Opportunity
UTS
SYN
SHC
SYN
SYN
DVN
PCASU
PCA
IOL
ECA
SU
SU
IOL
HSE
XOM
SHC
SU
SynencoSHC
XOM
ECA
ECA
Deer Creek
SU
FortMcMurray
~4
3 m
iles
CNQ
CNQ
CNQHorizon
Oil Sands
CNQSlide 6
UTS
SYN
SHC
SYN
SYN
DVN
PCASU
PCA
IOL
ECA
SU
SU
IOL
HSE
XOM
SHC
SU
SynencoSHC
XOM
ECA
ECA
Deer Creek
SU
FortMcMurray
~43
mil
es
CNQ
CNQ
CNQHorizon
Oil SandsUTS
SYN
SHC
SYN
SYN
DVN
PCASU
PCA
IOL
ECA
SU
SU
IOL
HSE
XOM
SHC
SU
SynencoSHC
XOM
ECA
ECA
Deer Creek
SU
FortMcMurray
~43
mil
es
CNQ
CNQ
CNQHorizon
Oil SandsSU
SYN
RDS
SYNDVN
SUSU
SU
IMO
ECA
SU
SU
IMO
HSE
XOM
RDS
SU
RDS
XOM
ECA
ECA
TOT
SU
TOT
SYN
Horizon Oil SandsSite LayoutHorizon Oil SandsSite Layout
Lease 11
Lease 12
Lease 15
Lease 19
Lease20
Lease 18
Lease25
Ath
abas
ca R
iver
Tailings Pond
NorthwestPit
Northeast Pit
SouthwestPit Southeast
Pit
Plant Site
Overburden Dump
Overburden Dump
HorizonLake
Overburden Dump
60+ Years of Operation at 250,000 bbl/d of SCO60+ Years of Operation at 250,000 bbl/d of SCO
Lease 10
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Investor Open House 2012Horizon
May 2012
CNQSlide 7
Horizon Oil Sands Progressing Towards Operational ExcellenceHorizon Oil Sands Progressing Towards Operational Excellence
• 2011 Organizational optimization
Field verification of all critical operating procedures
Supervisor and operator refresher training
Process Safety Management audit
Safety accountability / reward matrix
• 2012 Third Ore Preparation Plant (OPP 3) commissioned
Critical start up enhancements– Day shift only
– Mandatory procedure confirmation and sign-off
– Mandatory additional supervision, process engineering and panel operators
Robust and rigorous procedure compliance
Continuous improvement– Safe, steady, and reliable vs maximize rates
CNQSlide 8
Horizon Oil SandsOperationsHorizon Oil SandsOperations
• Focus on Operations Discipline Conservative startup practices
Safe, steady, reliable operations
• OPP 3 making a significant difference Q4 2011 OPP availability 81%
April OPP availability 98%
• Reliance on intermediate tanks significantly reduced Froth, dilbit, untreated SCO
• Higher overall reliability expected Steady state upgrader operations
Less maintenance equipment failures
• April production 111,500 bbl/d
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Investor Open House 2012Horizon
May 2012
CNQSlide 9
Horizon Oil SandsThird Ore Preparation PlantHorizon Oil SandsThird Ore Preparation Plant
Brute Force OperationMechanically Complex and DemandingBrute Force OperationMechanically Complex and Demanding
CNQSlide 10
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
1-Au
g16
-Aug
31-A
ug15
-Sep
30-S
ep15
-Oct
30-O
ct14
-Nov
29-N
ov14
-Dec
29-D
ec13
-Jan
28-J
an12
-Feb
27-F
eb13
-Mar
28-M
ar12
-Apr
Horizon Oil Sands Production August 2011– April 2012Horizon Oil Sands Production August 2011– April 2012
Ramp up from Coker fire incident
(bbl/d)
• 5 out of last 8 months of operation >100 Mbbl/d
Aug 201144,628
Sept 2011 108,221
Oct 2011 105,388
Nov 2011 101,990
Dec 2011 101,465
Jan 2012 80,675
Feb 2012 9,313
Mar 2012 46,163
Apr 2012 ~111,500
Fractionator unplanned
maintenance
OPP Apron feeder / frozen surge bin and
Coker line repairsOPP belt OPP Apron
feeder
Conveyor belt replacement /
OPP belt
OPP Was The Weak Link in the ChainOPP Was The Weak Link in the Chain
Conveyor belt spliceH2 Plant trip
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Investor Open House 2012Horizon
May 2012
CNQSlide 11
Horizon Oil Sands Impact of OPP 3 on Plant AvailabilityHorizon Oil Sands Impact of OPP 3 on Plant Availability
• OPP 3 has provided the expected increase in OPP Plant availability OPP availability 2010 71%
OPP availability Q4 2011 81%
OPP availability 2012 YTD 89%
– Jan – 72%
– Feb – NA
– Mar – 96%
– Apr – 98%
• OPP train redundancy has Provided flexibility to OPP maintenance windows with minimal
production impact
Spare OPP train to support unplanned outages
Consistently allowed for stable Froth tank levels required to support successful execution of 48 hour Extraction PM outages every 3 weeks
Supported Froth & Upgrading steady state of operations
Contributed significantly to our ability to deliver “Safe, Steady, Reliable production”
76
78
80
82
84
86
88
90
92
Q4 2011 2012 YTDOPP Availability Target
(%)OPP Availability Q4 2011 vs 2012 YTD
CNQSlide 12
2011 2012F % Change
Production (Mbbl/d) 40 85-95 125%
Sustaining Capital ($ Million) $170 $255
Turnarounds and Reclamations ($ Million) $87 $35
Horizon Oil Sands 2012 PlanHorizon Oil Sands 2012 Plan
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Investor Open House 2012Horizon
May 2012
CNQSlide 13
Horizon Oil SandsWhat’s Different Going Forward?Horizon Oil SandsWhat’s Different Going Forward?
• OPP 3 – significant difference
• Continuous improvementSafe, steady and reliable operations
Focus on operational discipline and execution excellence
• Organizational optimization
CNQSlide 14
Stream day rate 123,000 bbl/dExpected availability 89% - 94%Expected average rate 109,500 - 115,600 bbl/dGuidance 2012 85,000 - 95,000 bbl/d
To meet low end of Guidance:Production required Q2-Q4 97,900 = 80% reliable
To meet high end of Guidance:Production required Q2-Q4 111,300 = 90% reliable
Horizon Oil SandsTargeted Performance Going ForwardHorizon Oil SandsTargeted Performance Going Forward
Focus on Operational Excellence to Achieve Production TargetFocus on Operational Excellence to Achieve Production Target
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Investor Open House 2012Horizon
May 2012
CNQSlide 15
Horizon Oil SandsPhase 2/3 ExpansionHorizon Oil SandsPhase 2/3 Expansion
CNQSlide 16
Horizon Oil SandsEfficiencies Achieved Through ExpansionHorizon Oil SandsEfficiencies Achieved Through Expansion
• Reliability and efficiencies will be achieved through completionof original design of Phase 1,2,3 with higher vacuum yield and an even more integrated energy efficient facility Completion of Reliability – increase reliability and recovery of additional
light oil barrels with our Gas Recovery Plant
Completion of Phase 2A – debottleneck by utilizing pre-invested infrastructure and equipment to expand the Coker plant (current bottleneck)
Completion of Phase 2B – increase bitumen to SCO yield through the Vacuum Unit
Completion of original design to ~250,000 Mbbl/d and reduce operating costs per barrel
Adding spare equipment will add to reliability
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Investor Open House 2012Horizon
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CNQSlide 17
Horizon Oil SandsTargeted Fixed vs Variable Operating CostsHorizon Oil SandsTargeted Fixed vs Variable Operating Costs
Note: Cost estimated with mining, diesel, gas/ energy as the major variable costs. No sustaining Capital or major unplanned outages are included.Based on company internal forecast as Dec 2011.Dependant upon economic, regulatory, and market conditions.
-
500
1,000
1,500
2,000
2,500
Phase 1 Phase 1-2-3
Fixed Variable
-
10
20
30
40
Phase 1 Phase 1-2-3Fixed Variable
($/bbl)($MM)
Targeted Operating Cost per BarrelTargeted Operating Cost per Year
• Significant positive impact on expansion economics
CNQSlide 18
Horizon Oil SandsExecution StrategyHorizon Oil SandsExecution Strategy
• Staged and flexible execution of expansion to 250,000 bbl/d of synthetic crude oil capacity Phase 2/3 is segregated into executable stages to achieve incremental
production capacity– Phase 2A – 10,000 bbl/d
– Phase 2B – 45,000 bbl/d
– Phase 3 – 80,000 bbl/d
Execute for cost certainty, manage projects as cost driven not schedule driven
Decision points are defined (46 projects)
Processes are established to individually approve and control projects
Increase “on the ground” supervision done by Canadian Natural
Peak manpower to be controlled to 5,500 for on-site construction
Peak spending of $2.5 billion annually
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Investor Open House 2012Horizon
May 2012
CNQSlide 19
Horizon Oil SandsChallenges and OpportunitiesHorizon Oil SandsChallenges and Opportunities
• Labour Challenges
– Competing oil sands projects
– Additional recruitment personnel
Opportunities– Continue to use Fly-in Fly-out program
– Labor strategies (Canada / US / International)
– Contractor Development team
• Cost Certainty Challenges
– Modules and manufacturing capacity
– Delay in project execution to achieve cost certainty
Opportunities– Investigating some favorable lump sum pricing opportunities
– Leveraging volume discounts for common equipment
– Execute for cost certainty, manage projects as cost driven not schedule driven
CNQSlide 20
2011 2012F % Change
Project Capital ($ Million)
Reliability – Tranche 2 $170 $145
Directive 74 and Technology 32 195
Phase 2A 125 300
Phase 2B 23 640
Phase 3 47 355
Phase 4 10 15
Owner’s costs and other 74 230
Total $481 $1,880 291%
Horizon Oil Sands 2012 PlanHorizon Oil Sands 2012 Plan
• All capital costs trending at or below cost estimates
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Investor Open House 2012Horizon
May 2012
CNQSlide 21
Phase % AFE % Committed
Reliability 100% 80%
Directive 74 20% 13%
Phase 2A 79% 32%
Phase 2B 41% 30%
Phase 3 38% 8%
Owner’s cost 19% 9%
Total 43% 25%
Horizon Oil SandsPhase 2/3 CommitmentsHorizon Oil SandsPhase 2/3 Commitments
Horizon Phase 2/3 Status – March 2012
• Majority of total committed is lump sum EPC
CNQSlide 22
Horizon Oil SandsReliabilityHorizon Oil SandsReliability
SRU-Reaction Furnace, Boiler and Steam Drum at site SRU-Catalytic Reactor at site
Butane vessel “Bullet” at site
• Reliability – incremental capacity of 5 Mbbl/d to 115 Mbbl/d OPP 3 and Hydrotransport
– Fully integrated into operations in 2012
In progress, targeting completion in 2013– Sulphur Recovery Unit #3
– Butane Treating Unit
– Gas Recovery Unit
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Investor Open House 2012Horizon
May 2012
CNQSlide 23
Horizon Oil SandsDirective 74 and Phase 2AHorizon Oil SandsDirective 74 and Phase 2A
• Directive 74 Mature fine tailings (MFT) re-handling
– Treatment of MFT to meet compliance under ERCB Directive 74– Tree clearing completed over winter, preliminary design work ongoing
• Phase 2A – incremental capacity of 10 Mbbl/d to 125 Mbbl/dExpansion of Coker units and minor modifications to the units
– Engineering and procurement lump sum contract awarded for Coker expansion ~60% complete
– Civil construction starting spring 2012
Additional mining capacity– Electric shovel ordered – Five 400 tonne new haul trucks targeted to be commissioned in 2012
• First truck commissioned February 2012
– Mine shop construction commenced in April 2012
CNQSlide 24
• Phase 2B – incremental capacity of 45 Mbbl/d to 170 Mbbl/dOPP 4 and Hydrotransport 4 – DBM/EDS currently underway Utilities and offsite – engineering and procurement ongoingMajor EPC lump sum contracts awarded
– Hydrotreater – September 2011– Froth Treatment – October 2011– Hydrogen Plant – February 2012– Diluent Recovery Unit / Vacuum Distillation Unit – April 2012
Horizon Oil SandsPhase 2BHorizon Oil SandsPhase 2B
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Investor Open House 2012Horizon
May 2012
CNQSlide 25
• Phase 3 – incremental capacity of 80 Mbbl/d to 250 Mbbl/dAdditional infrastructure and equipment
– Trucks, shovels, support equipment
Combined Distillate and Gasoil HydrotreaterSulphur Recovery Train 4Extraction Trains 3 and 4 with thickeners and cyclones
– E&P work ongoing– Early construction work starting spring 2012
Tailings lines 3 and 4– Engineering work ongoing– Piling commencing spring 2012
Horizon Oil SandsPhase 3Horizon Oil SandsPhase 3
CNQSlide 26
• Horizon is in advantaged position to execute Phase 2-3Execution strategy well defined
Cost discipline
Flexible schedule
If deviation occurs in any of the 46 projects then– Re-strategize
– Re-scope, stop the work and re-bid if necessary
Horizon Oil SandsExpansion on TrackHorizon Oil SandsExpansion on Track
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Investor Open House 2012Horizon
May 2012
CNQSlide 27
Horizon Oil Sands Future Horizon Oil Sands Future
• Phase 4 – incremental capacity of 250 Mbbl/d to 500 Mbbl/d
Scope study commenced on Phase 4
Optimize reserve development
Leverage potential synergies with other Canadian Natural assets
Potential process and product options to increase flexibility and improve asset utilization
• Take advantage of the additional resource
Northern leases, pits 5 and 6
CNQSlide 28
Horizon Oil SandsDecades of Value GrowthHorizon Oil SandsDecades of Value Growth
• World class opportunity
• Phased development (SCO)
110,000 bbl/d 250,000 bbl/d 500,000 bbl/d
• Significant free cash flow generation for decades
• Conditions
Cost certainty
Robust and flexible execution strategy in place
Ability to generate returns and compete for capital