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BUS419 Advanced Derivative Securities Canadian Oil and Gas

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Title: BUS419 Advanced Derivative Securities Canadian Oil and Gas


1
BUS419 Advanced Derivative Securities Canadian
Oil and Gas
  • Presented by Amjodh Dhillon
  • Qiyuan Ren
  • Junheng Cai (Pat)
  • Jiyuan Chen

2
Agenda
  • Introduction
  • Canadian Natural Resources
  • Penn West
  • Canadian Oil Sands
  • QA

Intro Canadian Natural Resources Penn
West Canadian Oil Sands QA
3
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 QA
4
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

5
Industry (Forecasting)
6
Industry Products-Crude Oil
  • Actively traded commodities
  • 40 of Canadas energy demand
  • 17 of Canadas 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)

7
Industry Products-Crude Oil
  • Products
  • -Gasoline
  • -Kerosene
  • -Jet Fuel
  • -Lubricants
  • Substitutes
  • -Nuclear Power
  • -Hydrogen
  • -hydropower
  • -Coal
  • -Methane
  • -Solar energy

8
Industry Products-Crude Oil
9
Industry Products-Crude Oil
10
Industry Products-Crude Oil
11
Capital Investment-Crude Oil
12
Industry Products-Natural Gas
  • Natural gas accounts for 30 of Canadas energy
    demand.
  • Reserves 69.3 trillion cubic feet
  • Production 14.1 billion cubic feet per day

13
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

14
Industry Products-Natural Gas
15
Industry Products-Natural Gas
16
Industry Products-Natural Gas
17
Regulation on the Industry
18
Regulation on the Industry
  • Canadian
  • Natural Resources Canada
  • National Energy Board
  • Environmental Regulations (Environment Canada)
  • Self-regulation
  • Canadian Association of Petroleum Producers (CAPP)

19
Risk Management
  • Risk Exposures
  • General Business
  • Environmental/Legal
  • Operational
  • Credit/Liquidity
  • Financial/Commodity

20
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

21
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

22
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

23
Risk Management
  • Hazards from risk management activities
  • Decreased earnings
  • Liquidity pressure
  • Potential loses from hedging

24
Canadian Natural Resources
Intro Canadian Natural Resources Penn
West Canadian Oil Sands QA
25
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 QA
26
Overview
Intro Canadian Natural Resources Penn
West Canadian Oil Sands QA
27
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
  • Canadas largest heavy oil producer
  • Canadas second largest natural gas producer

Intro Canadian Natural Resources Penn
West Canadian Oil Sands QA
28
Overview
Intro Canadian Natural Resources Penn
West Canadian Oil Sands QA
29
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 QA
30
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 QA
31
Historical Price TSX
Intro Canadian Natural Resources Penn
West Canadian Oil Sands QA
32
Trading and Share Statistics
Intro Canadian Natural Resources Penn
West Canadian Oil Sands QA
33
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 QA
34
Reserves
Intro Canadian Natural Resources Penn
West Canadian Oil Sands QA
35
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 QA
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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 QA
37
Risk Management
Intro Canadian Natural Resources Penn
West Canadian Oil Sands QA
38
Risk Management
Intro Canadian Natural Resources Penn
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39
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 QA
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Risk Management
Commodity Price Risk
  • The Companys commodity hedging program reduces
    the risk of volatility in commodity prices and
    supports the Companys cash flow for its capital
    expenditures programs.

Intro Canadian Natural Resources Penn
West Canadian Oil Sands QA
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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
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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 QA
43
Risk Management
Foreign Currency Exchange Risk
Intro Canadian Natural Resources Penn
West Canadian Oil Sands QA
44
Risk Management
Intro Canadian Natural Resources Penn
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45
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
    Companys 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 QA
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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 QA
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Risk Management
Liquidity Risk
Intro Canadian Natural Resources Penn
West Canadian Oil Sands QA
48
Risk Management
Sensitivity Analysis
  • The following table summarizes the annualized
    sensitivities of the Companys 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 QA
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Risk Management
Intro Canadian Natural Resources Penn
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50
Intro Canadian Natural Resources Penn
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51
Intro Canadian Natural Resources Penn
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Penn West Exploration
Intro Canadian Natural Resources Penn
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53
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
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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 QA
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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
  • 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

Intro Canadian Natural Resources Penn
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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 QA
57
Historical Price TSX
Intro Canadian Natural Resources Penn
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58
Trading and Share Statistics
Intro Canadian Natural Resources Penn
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59
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 QA
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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 QA
61
Reserves
Intro Canadian Natural Resources Penn
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62
Reserves
Intro Canadian Natural Resources Penn
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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
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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
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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 Boards approval, our hedging
    limits may be increased above the maximum limits

Intro Canadian Natural Resources Penn
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Intro Canadian Natural Resources Penn
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Risk Management
Commodity Price Risk
Intro Canadian Natural Resources Penn
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Risk Management
Commodity Price Risk
Intro Canadian Natural Resources Penn
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69
Risk Management
Commodity Price Risk
Intro Canadian Natural Resources Penn
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Risk Management
Foreign Exchange Risk
  • Prices received for crude oil are referenced to
    US dollars, thus Penn Wests realized oil prices
    are impacted by Canadian dollar to US dollar
    exchange rates.
  • A portion of the Companys 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
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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
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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
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Risk Management
Interest Rate Risk
  • A portion of the Companys 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
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Risk Management
Interest Rate Risk
As at December 31, 2013, none of the Companys
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
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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
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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
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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
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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
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Risk Management
Sensitivity Analysis
Intro Canadian Natural Resources Penn
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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
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Intro Canadian Natural Resources Penn
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Intro Canadian Natural Resources Penn
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Intro Canadian Natural Resources Penn
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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
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Market for COS Production
Headquarters is located in Calgary, Alberta
Intro Canadian Natural Resources Penn
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Board of Directors
  • Gerald W. Grandey
  • Corporate Director
  • Saskatoon, SK
  • Joined the COS board in 2011
  • Degree in geophysical engineering
  • Law degree
  • Donald J. Lowry
  • Chairman of the Board
  • Joined the COS in 2007
  • Bachelor of Commerce (Hons) degree MBA
  • Harvard Advanced Management Program
  • Ryan M. Kubik
  • President and CEO
  • Bachelor of Commerce degree
  • Chartered Accountant Chartered Financial Analyst
    designations
  • ICD.D designation
  • Lan A. Bourne
  • Corporate Director
  • Calgary, Alberta
  • Joined the COS board in 2007
  • Bachelor of Commerce degree
  • Director Education Program

Intro Canadian Natural Resources Penn
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Highlights
Intro Canadian Natural Resources Penn
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Historical Stock PriceGoogle Finance
Intro Canadian Natural Resources Penn
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2015 Outlook
Intro Canadian Natural Resources Penn
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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 EHS
    performance.

Intro Canadian Natural Resources Penn
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Highlights
Intro Canadian Natural Resources Penn
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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
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Risk Management
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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
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Risk Management
  • Operational Risk
  • Operational Outages
  • The shutdown of any part of Syncrudes 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
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Risk Management
  • Operational Risk
  • Project Execution
  • Risks associated with the execution of Syncrudes
    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
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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
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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

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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 QA
100
Risk Management
  • Financial Market Risk
  • Interest Rate Risk
  • Changes in market interest rates may affect the
    Corporations 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 QA
101
Risk Management
Intro Canadian Natural Resources Penn
West Canadian Oil Sands QA
102
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 PPE.
Intro Canadian Natural Resources Penn
West Canadian Oil Sands QA
103
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 QA
104
Risk Management
Financial Market Risk
Intro Canadian Natural Resources Penn
West Canadian Oil Sands QA
105
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 QA
106
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 QA
107
Sensitivity Analysis
Intro Canadian Natural Resources Penn
West Canadian Oil Sands QA
108
Financial Report
Intro Canadian Natural Resources Penn
West Canadian Oil Sands QA
109
Financial Report
Intro Canadian Natural Resources Penn
West Canadian Oil Sands QA
110
Financial Report
Intro Canadian Natural Resources Penn
West Canadian Oil Sands QA
111
Oil and Natural Gas Industry
Any Question
112
Oil and Natural Gas Industry
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