Horizon Oil Sands

Overview

Canadian Natural is one of the largest independent crude oil and natural gas producers in the world. Canadian Natural has an effective and efficient, diversified combination of assets in North America, the North Sea and Offshore Africa, with a balanced mix of natural gas, light oil, heavy oil, in-situ oil sands production. Oil sands mining and associated upgrading facilities represent one of the strongest and most diverse asset portfolios of Canadian Natural.

Canadian Natural has a distinctly Canadian-targeted asset base with North America serving as its foundation. The Company holds the largest undeveloped land base in Western Canada, with exposure to conventional, unconventional resource and exploration natural gas play types, along with leases covering all crude oil product types, most notably thermal in-situ oil sands and oil sands mining.

Canadian Natural has expertise in mature-basin exploitation, from years of experience in developing Canadian light crude, conventional natural gas, and primary heavy crude oil. The Company has widened their core competencies for developing their non-conventional assets like the Horizon Oil Sands, thermal in-situ oil sands, and unconventional natural gas properties.

The Horizon Oil Sands successfully and sustainably produced its first barrels of high quality, low-sulphur, 34° API, sweet synthetic crude oil (SCO) in early 2009. First production of SCO was a major milestone for Canadian Natural.

The Horizon Oil Sands include a surface oil sands mining and bitumen extraction plant, complimented by on-site bitumen upgrading with associated infrastructure to produce high quality SCO.

Canadian Natural holds extensive leases that are estimated to contain approximately 14.3 billion barrels of bitumen initially in place (BIIP), with best estimate contingent resources other than reserves of 3.0 billion barrels of bitumen and 2.9 billion barrels of proved and probable SCO reserves.  Due to the massive resource base, the mine and plant facilities are expected to produce for decades to come without production declines normally associated with crude oil production.

The total construction and start up cost for Phase 1 was $9.7 billion, or $88,182 per flowing barrel of capacity. The final cost was 43% above our original estimate of $6.8 billion first set in 2004. However, the total cost of the Horizon Oil Sands comes in well below the industry average for current and future projects with similar facilities. First oil was achieved approximately 7 months beyond the initial target we set upon project sanctioning in 2002. Although both the cost and schedule were over initial targets, the project was built in an extremely volatile and inflationary business environment and in that respect, we consider it a success.

Full production capacity for Phase 1 is targeted to deliver 110,000 bbl/d of fully upgraded, light, sweet, SCO. At full production, the company targets the operating cost for the life of the mine to be between $25 and $35 per barrel of SCO, a low-cost producer within the oil sands industry.

As part of Canadian Natural's disciplined execution strategy to achieve cost certainty for a defined and stepped expansion at its Horizon operation from the current 110,000 bbl/d to 250,000 bbl/d of SCO capacity, the Company's Board of Directors has approved targeted strategic expansion capital expenditures at Horizon for 2012 of approximately $2 billion. It is expected that certain projects will be advanced and contracts finalized in 2011 and 2012 such that the execution of engineering, procurement and construction activities will be undertaken in 2012 resulting in the above noted strategic expansion capital expenditures.  Decisions to proceed with individual projects, or the next stage of the expansion, will be based on then market conditions, the risk factors associated with the project, execution performance to date and the overall strategy to deliver the expansion phase of the project in a cost contained manner.

The Horizon oil sands operation is achieving a 5,000 bbl/d SCO capacity increase in 2011/2012. In 2013/2014, another 10,000 bbl/d capacity
increase is scheduled to take place. Further capacity increases are being considered but no time frame has been decided yet.

Location

The Horizon Oil Sands are located north of Fort McMurray, Alberta in the Athabasca region of Canada. The property covers over 46,319 ha in 11 leases in the Fort McMurray region. The leases being developed for the Horizon Project are 18, 25, 10, 19 and 20.

Fort McMurray is 435 km northeast of Edmonton on Highway 63, about 60 km west of the Saskatchewan border. The population of the area
surrounding Fort McMurray is about 75,000. 

Aboriginal peoples were the first to use bitumen from the Athabasca sands hundreds of years ago to waterproof clothing and canoes. Efforts to commercialize oil sands deposits occurred in the late 19th century and first part of the 20th century, but had limited results. 

Geology & Mineralization

Oil sands are found in three different deposits in northern Alberta: Athabasca, Peace River and Cold Lake. The Athabasca deposit is
the largest of the three and has the most concentrated oil sands development. 

In the area of the Horizon Project, the oil sands resource is found within the Cretaceous McMurray Formation. The McMurray Formation is comprised of a sequence of uncemented quartz sands and associated shales that reside above the unconformity with the underlying Upper Devonian carbonates (limestone) of the Waterways Formation. The McMurray Formation at the site of the Horizon Project is subdivided into three informal members: lower, middle, and upper. These informal divisions correspond to changes in the depositional environments within the McMurray from predominantly fluvial to tidal/estuarine through to tidal/marine conditions. Most of the Horizon Project's oil sands resource is found within the lower and middle McMurray.

The lower McMurray, where present, is comprised of predominantly fluvial channel deposits. The lower McMurray occupies lows on the Devonian (Paleozoic) surface resulting in the thickest McMurray intervals. Clean sands in these fluvial channels result in excellent quality ore. Flood plain deposits of significant thickness are found in the upper portions of the lower McMurray and are typically removed as waste. In the deepest portions of the mine area, the lower McMurray is comprised of "water sands". These sands are barren of bitumen; having never been saturated with bitumen or, in some places, originally containing bitumen that has since been removed from the sands through the movement of basal waters over time producing "swept" zones.

The middle McMurray is comprised of thick estuarine channel successions and tidal flat deposits resulting in interbedded sands and muds. The estuarine channel sands provide good quality ore. The muddier intervals within the channels and the tidal flat deposits within the middle McMurray represent zones of interburden in the mining area.

The upper McMurray consists of shoreface/channel transition deposits and is typically thin, less than 5 m. Locally, this member may be entirely eroded. Exceptional thickness of about 15 m can be found within the upper McMurray. In most cases, the bitumen saturation in the upper McMurray is poor and the material is included with the overburden.

Mining & Operation

Horizon Phase 1 achieved first production of synthetic crude oil during 2009. Phases 2 to 4 have been announced but no formal proposals have been put forward.

The project includes surface oil sands mining, bitumen extraction, bitumen upgrading to produce a 34º - 36º API synthetic light crude oil ("SCO"), and associated infrastructure.

Sweet synthetic crude oil (SCO) was first produced in 2009.

The Horizon oil sands operation is achieving a 5,000 bbl/d SCO capacity increase in 2011/2012. In 2013/2014, another 10,000 bbl/d capacity
increase is scheduled to take place

Processing

Oil sands are crushed into small pieces, then screened and mixed with  hot water. The resulting slurry is transported via pipelines to a
bitumen extracting plant where the slurry undergoes a frothing process that results in the separation of sand and minerals from bitumen. Sand
and water are deposited in a tailings pond while bitumen is mixed with solvent and piped to the primary upgrading plant.

The bitumen is separated from the diluent and then transported to the  cracking unit where it is subjected to high temperatures. This process
produces different hydrocarbon cuts like gas oil, diesel, coke, refinery  fuel gas and naphta. The fuel gas is used in upgrader's furnaces while
coke is trucked to a storage area for future utilization.

The rest of the hydrocarbons are sent to a secondary upgrader as they  need further processing. It is there that hydrogen is added to help
stabilize the hydrocarbons and impurities like nitrogen and sulphur are removed. The emaining hydrocarbons are blended into a mixture called
Synthetic Crude Oil and transported via pipelines to other North American refineries.

The Horizon oil sands operation is achieving a 5,000 bbl/d SCO capacity increase in 2011/2012. In 2013/2014, another 10,000 bbl/d capacity increase is scheduled to take place. Further capacity increases are being considered but no time frame has been decided yet.

Environment & Community

Canadian Natural manages all its operations in a way that identifies, minimizes and mitigates harm to the environment during project planning, exploration, drilling, construction, operations and decommissioning. Canadian Natural recognizes that every employee and contractor has a vital role to play in identifying and mitigating environmental impacts from our operations.

Canadian Natural is committed to ensuring that planning, training and due diligence are key elements in our environmental management programs. Its environmental strategies target corporate standards, operations compliance, liability reduction, air emissions and carbon dioxide management, reduction of fresh water use and minimizing our landscape footprint.

Canadian Natural works co-operatively and effectively with communities, government agencies and stakeholders to reduce potential impacts of its operations and to ensure that all of its operations meet or surpass all industry guidelines, government regulations and company policies.

The company earned the Canadian Natural the Environmental Performance Award during the Canadian Association of Petroleum Producers’ (CAPP) 2009 Steward of Excellence Awards for the development of a 76.7 hectares compensation lake. Trees have also been planted starting with 2009 - some 92,000 trees in that year alone.