Original Source: FD (FAIR DISCLOSURE) WIRE
OPERATOR: Good morning, ladies and gentlemen. Welcome to the Canadian Natural Resources first quarter 2008 conference call.
I would now like to turn the meeting over to Mr. John Langille, Vice Chairman of Canadian Natural Resources. Please go ahead, Mr. Langille..
JOHN LANGILLE, VICE CHAIRMAN, CANADIAN NATURAL RESOURCES: Thank you, operator or good morning or afternoon as the case may be. Thank you for attending this conference call giving us the opportunity to review our first quarter results for 2008 and review the development of our projects. Participating with me today are Allan Markin our Chairman, Steve Laut, our President and Chief Operations Officer, Doug Proll, our Senior Vice President of Finance and Real Doucet, our Senior Vice President of Oil Sands.
Before we start, I would like to refer you to the forward-looking statements contained in our press release and also note that all dollar amounts are in Canadian dollars and production and reserves are both before royalties unless otherwise stated. Before I turn the call over to Allan, Steve, Real and Doug I would like to make a couple of initial comments.
Our cash flow was very strong in the first quarter as we saw a number of things. Firstly, our production volumes were all within our budgeted guidance in all segments of our business. The sale price of oil remains strong throughout the quarter.
The sales price of natural gas began to show a strong recovery. And both the price of oil and natural gas have continued their strengths beyond the first quarter resulting in very beneficial strip prices for our commodities going forward. The differential off West Texas Intermediate price for heavy oil narrowed as crack spreads were at a level to influence the demand for heavy oil and we continued to control our costs.
This resulted in our first quarter cash flow almost equaling our CapEx, which is not usual in the first quarter of the year as we direct more CapEx to our winter only drilling areas. As a result of this strong cash flow our balance sheet continues to improve and we ended the first quarter at a debt to book capitalization back within our targeted ranges.
Early in 2008 we made the decision to increase our total forecasted CapEx on the Horizon project to protect the targeted completion date of Phase one. The project continues to target first oil in the third quarter of this year. Realizing that target, of course, will result in very strong future cash flows from the sale of synthetic crude oil from this mining project.
Allan, would you like to make a comment or two?
ALLAN MARKIN, CHAIRMAN, CANADIAN NATURAL RESOURCES: Yes. Thank you, John. Good morning, everyone. It has been a good start to the year for Canadian Natural.
Operationally we had an efficient and well executed winter drilling program that was completed well in advance of spring breakup with all budgeted wells drilled and all planned tie-ins completed. The continued benefit of our high graded natural gas drilling program were seen as expected. As we maximize the value of every dollar spent with focus placed on efficiency and execution.
Our crude oil drilling program also produced good results, particularly at our Pelican Lake operations and our heavy oil projects continue to be some of the highest returning projects within our portfolio of assets. And we look forward to the developments at Primrose East, the next step in our thermal expansion plans. Overall our conventional operations produced to our expectations within original budgets. All went as planned.
We were faced with some weather-related challenges during the first quarter with several weeks of extremely cold weather conventionally and at our Horizon project site. Once the weather became warmer, efficiencies improved as expected and the project continues on schedule for first oil targeted in the third quarter of this year. We are mindful, however, that a significant amount of work remains before first production.
That being said I have the confidence in our team's ability to work through these remaining challenges and any new ones that may arise. Our long term objectives have been changed -- or have not changed. The first quarter of this year was a good example of that.
We are committed to consistent value creation for our shareholders through efficient execution, long term growth opportunities and capital discipline. We have the people and the projects in crude oil, natural gas as well as the Oil Sands, that once again affirm that we are the premium value defined growth independent. Thank you.
STEVE LAUT, PRESIDENT AND CHIEF OPERATING OFFICER, CANADIAN NATURAL RESOURCES: Thanks, Al, and good morning, everyone. As both Al and John have pointed out, the first quarter was a strong quarter. Production was at the midpoint of guidance for gas and near the top end for oil. Costs in our conventional business are on track with the budget and Horizon -- at Horizon we are tracking well within our revised costs estimate.
Also at Horizon we are making good steady progress with start-up targeted for Q3 2008. I think that's the third time you've heard it already. You'll hear it a couple more times before we are done. Briefly updating you on each of our projects starting with gas. Our gas assets are strong and our production rates look good.
Our Q1 program was right in line with our expectations both on the rate and of costs side. Considering we drilled only 161 gas wells in Q1 versus 201 gas wells in 2007 Q1 and 462 gas wells in Q1 2006, our gas volumes have held up remarkably well. Our Q1 gas drilling in 2008 was actually only 35% of the wells we drilled in Q1 2006. With the recent increase in gas prices the relative economics between gas and oil has improved particularly in B.C.
In Alberta it's a different story. Provincial government will receive 75% of the price increases for normal conventional gas well in 2009. In other words, as the gas prices have gone from $6 to $10, $3 of the $4 increase will be paid to the Alberta in the form of royalties. The message here is although the gas prices have gone up the price increases producers see at the wellhead is significantly less in Alberta than in B.C.
As you know, Canadian Natural has a deep inventory of gas locations a dominant infrastructure and a very strong technical and operational teams to add significant value from our gas assets in a relatively quick and effective manner. Clearly this turnaround will be delayed in Alberta until significantly higher prices are realized. Fortunately for Canadian Natural our asset base is well balanced and our inventories in oil are as deep or deeper than our gas inventories. This is where the majority of our capital will be …