EX-99.3 4 eh1700603_ex9903.htm EXHIBIT 99.3
EXHIBIT 99.3




Canadian Natural Resources Limited
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
 

 
CONSOLIDATED BALANCE SHEETS
     
As at
(millions of Canadian dollars, unaudited)
  
Note
    
Mar 31
2017
    
Dec 31
2016
  
ASSETS
                  
Current assets
                  
Cash and cash equivalents
        
$
19
    
$
17
  
Accounts receivable
          
1,390
      
1,434
  
Current income taxes
          
741
      
851
  
Inventory
          
658
      
689
  
Prepaids and other
          
239
      
149
  
Investments
    
4
      
815
      
913
  
Current portion of other long-term assets
    
5
      
280
      
283
  
             
4,142
      
4,336
  
Exploration and evaluation assets
    
2
      
2,383
      
2,382
  
Property, plant and equipment
    
3
      
50,417
      
50,910
  
Other long-term assets
    
5
      
998
      
1,020
  
           
$
57,940
    
$
58,648
  
                         
LIABILITIES
                        
Current liabilities
                        
Accounts payable
          
$
541
    
$
595
  
Accrued liabilities
            
1,947
      
2,222
  
Current portion of long-term debt
    
6
      
3,129
      
1,812
  
Current portion of other long-term liabilities
    
7
      
432
      
463
  
             
6,049
      
5,092
  
Long-term debt
    
6
      
13,175
      
14,993
  
Other long-term liabilities
    
7
      
3,235
      
3,223
  
Deferred income taxes
            
9,104
      
9,073
  
             
31,563
      
32,381
  
SHAREHOLDERS’ EQUITY
                        
Share capital
    
9
      
4,869
      
4,671
  
Retained earnings
            
21,465
      
21,526
  
Accumulated other comprehensive income
    
10
      
43
      
70
  
             
26,377
      
26,267
  
           
$
57,940
    
$
58,648
  
Commitments and contingencies (note 14).

Approved by the Board of Directors on May 3, 2017.
 
Canadian Natural Resources Limited
 1
Three Months Ended March 31, 2017

CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
         
Three Months Ended
  
(millions of Canadian dollars, except per
 common share amounts, unaudited)
  
Note
    
Mar 31
2017
    
Mar 31
2016
  
Product sales
        
$
3,872
    
$
2,263
  
Less: royalties
          
(230
)
    
(85
)
Revenue
          
3,642
      
2,178
  
Expenses
                      
Production
          
1,102
      
1,022
  
Transportation and blending
          
642
      
510
  
Depletion, depreciation and amortization
    
3
      
1,299
      
1,219
  
Administration
            
87
      
86
  
Share-based compensation
    
7
      
27
      
117
  
Asset retirement obligation accretion
    
7
      
36
      
36
  
Interest and other financing expense
            
134
      
92
  
Risk management activities
    
13
      
(52
)
    
70
  
Foreign exchange gain
            
(56
)
    
(315
)
Gain on disposition of properties
            
—
      
(32
)
Loss (gain) from investments
    
4, 5
      
89
      
(159
)
             
3,308
      
2,646
  
Earnings (loss) before taxes
            
334
      
(468
)
Current income tax expense (recovery)
    
8
      
53
      
(192
)
Deferred income tax expense (recovery)
    
8
      
36
      
(171
)
Net earnings (loss)
          
$
245
    
$
(105
)
Net earnings (loss) per common share
                        
Basic
    
12
    
$
0.22
    
$
(0.10
)
Diluted
    
12
    
$
0.22
    
$
(0.10
)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
   
Three Months Ended
  
(millions of Canadian dollars, unaudited)
  
Mar 31
2017
    
Mar 31
2016
  
Net earnings (loss)
  
$
245
    
$
(105
)
Items that may be reclassified subsequently to net earnings (loss)
                
Net change in derivative financial instruments
designated as cash flow hedges
                
Unrealized loss during the period, net of taxes of
$nil (2016 – $3 million)
    
(1
)
    
(24
)
Reclassification to net earnings (loss), net of taxes of
$1 million (2016 – $2 million)
    
(7
)
    
10
  
     
(8
)
    
(14
)
Foreign currency translation adjustment
                
Translation of net investment
    
(19
)
    
(49
)
Other comprehensive loss, net of taxes
    
(27
)
    
(63
)
Comprehensive income (loss)
  
$
218
    
$
(168
)
 
 
Canadian Natural Resources Limited
 2
Three Months Ended March 31, 2017
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
         
Three Months Ended
  
(millions of Canadian dollars, unaudited)
  
Note
    
Mar 31
2017
    
Mar 31
2016
  
Share capital
    
9
              
Balance – beginning of period
          
$
4,671
    
$
4,541
  
Issued upon exercise of stock options
            
160
      
30
  
Previously recognized liability on stock options exercised for
common shares
            
38
      
5
  
Balance – end of period
            
4,869
      
4,576
  
Retained earnings
                        
Balance – beginning of period
            
21,526
      
22,765
  
Net earnings (loss)
            
245
      
(105
)
Dividends on common shares
    
9
      
(306
)
    
(252
)
Balance – end of period
            
21,465
      
22,408
  
Accumulated other comprehensive income
    
10
                  
Balance – beginning of period
            
70
      
75
  
Other comprehensive loss, net of taxes
            
(27
)
    
(63
)
Balance – end of period
            
43
      
12
  
Shareholders’ equity
          
$
26,377
    
$
26,996
  
 

 
Canadian Natural Resources Limited
 3
Three Months Ended March 31, 2017
CONSOLIDATED STATEMENTS OF CASH FLOWS
         
Three Months Ended
  
(millions of Canadian dollars, unaudited)
  
Note
    
Mar 31
2017
    
Mar 31
2016
  
Operating activities
                  
Net earnings (loss)
        
$
245
    
$
(105
)
Non-cash items
                      
Depletion, depreciation and amortization
          
1,299
      
1,219
  
Share-based compensation
          
27
      
117
  
Asset retirement obligation accretion
          
36
      
36
  
Unrealized risk management (gain) loss
          
(40
)
    
74
  
Unrealized foreign exchange gain
          
(60
)
    
(334
)
Loss (gain) from investments
    
4, 5
      
96
      
(147
)
Deferred income tax expense (recovery)
            
36
      
(171
)
Gain on disposition of properties
            
—
      
(32
)
Other
            
22
      
19
  
Abandonment expenditures
            
(41
)
    
(74
)
Net change in non-cash working capital
            
51
      
(21
)
             
1,671
      
581
  
Financing activities
                        
(Repayment) issue of bank credit facilities and commercial    
paper, net
    
6
      
(428
)
    
1,130
  
Repayment of US dollar debt securities
            
—
      
(555
)
Issue of common shares on exercise of stock options
            
160
      
30
  
Dividends on common shares
            
(277
)
    
—
  
             
(545
)
    
605
  
Investing activities
                        
Net (expenditures) proceeds on exploration and evaluation assets
            
(37
)
    
30
  
Net expenditures on property, plant and equipment
            
(768
)
    
(996
)
Investment in other long-term assets
            
—
      
(99
)
Net change in non-cash working capital
            
(319
)
    
(175
)
             
(1,124
)
    
(1,240
)
Increase (decrease) in cash and cash equivalents
            
2
      
(54
)
Cash and cash equivalents – beginning of period
            
17
      
69
  
Cash and cash equivalents – end of period
          
$
19
    
$
15
  
Interest paid, net
          
$
199
    
$
182
  
Income taxes received
          
$
(65
)
  
$
(117
)

 
Canadian Natural Resources Limited
 4
Three Months Ended March 31, 2017

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in millions of Canadian dollars, unless otherwise stated, unaudited)
1. ACCOUNTING POLICIES
Canadian Natural Resources Limited (the “Company”) is a senior independent crude oil and natural gas exploration, development and production company. The Company’s exploration and production operations are focused in North America, largely in Western Canada; the United Kingdom (“UK”) portion of the North Sea; and Côte d’Ivoire, Gabon, and South Africa in Offshore Africa.
The Horizon Oil Sands Mining and Upgrading segment (“Horizon”) produces synthetic crude oil through bitumen mining and upgrading operations.
Within Western Canada, the Company maintains certain midstream activities that include pipeline operations, an electricity co-generation system and an investment in the North West Redwater Partnership ("Redwater Partnership"), a general partnership formed in the Province of Alberta.
The Company was incorporated in Alberta, Canada. The address of its registered office is 2100, 855 - 2 Street S.W., Calgary, Alberta, Canada.
These interim consolidated financial statements and the related notes have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”), applicable to the preparation of interim financial statements, including International Accounting Standard (“IAS”) 34, “Interim Financial Reporting”, following the same accounting policies as the audited consolidated financial statements of the Company as at December 31, 2016. These interim consolidated financial statements contain disclosures that are supplemental to the Company’s annual audited consolidated financial statements. Certain disclosures that are normally required to be included in the notes to the annual audited consolidated financial statements have been condensed. These interim consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, 2016.
2. EXPLORATION AND EVALUATION ASSETS
   
Exploration and Production
    
Oil Sands
Mining and Upgrading
    
Total
  
   
North America
    
North Sea
    
Offshore Africa
              
Cost
                              
At December 31, 2016
  
$
2,306
    
$
—
    
$
76
    
$
—
    
$
2,382
  
Additions
    
33
      
—
      
4
      
—
      
37
  
Transfers to property, plant and equipment
    
(36
)
    
—
      
—
      
—
      
(36
)
At March 31, 2017
  
$
2,303
    
$
—
    
$
80
    
$
—
    
$
2,383
  
 
Canadian Natural Resources Limited
 5
Three Months Ended March 31, 2017
3. PROPERTY, PLANT AND EQUIPMENT
   
Exploration and Production
    
Oil Sands
Mining and Upgrading
    
Midstream
    
Head
Office
    
Total
  
   
North
America
    
North Sea
    
Offshore
Africa
                          
Cost
                                          
At December 31, 2016
  
$
61,647
    
$
7,380
    
$
5,132
    
$
27,038
    
$
234
    
$
395
    
$
101,826
  
Additions
    
491
      
35
      
15
      
227
      
1
      
3
      
772
  
Transfers from E&E assets
    
36
      
—
      
—
      
—
      
—
      
—
      
36
  
Disposals/derecognitions
    
(100
)
    
—
      
—
      
(14
)
    
—
      
—
      
(114
)
Foreign exchange adjustments and other
    
—
      
(57
)
    
(40
)
    
—
      
—
      
—
      
(97
)
At March 31, 2017
  
$
62,074
    
$
7,358
    
$
5,107
    
$
27,251
    
$
235
    
$
398
    
$
102,423
  
Accumulated depletion and depreciation
                                          
At December 31, 2016
  
$
38,311
    
$
5,584
    
$
3,797
    
$
2,828
    
$
115
    
$
281
    
$
50,916
  
Expense
    
793
      
245
      
58
      
195
      
2
      
6
      
1,299
  
Disposals/derecognitions
    
(100
)
    
—
      
—
      
(14
)
    
—
      
—
      
(114
)
Foreign exchange adjustments and other
    
(2
)
    
(67
)
    
(34
)
    
8
      
—
      
—
      
(95
)
At March 31, 2017
  
$
39,002
    
$
5,762
    
$
3,821
    
$
3,017
    
$
117
    
$
287
    
$
52,006
  
Net book value
                                                        
 - at March 31, 2017
  
$
23,072
    
$
1,596
    
$
1,286
    
$
24,234
    
$
118
    
$
111
    
$
50,417
  
 - at December 31, 2016
  
$
23,336
    
$
1,796
    
$
1,335
    
$
24,210
    
$
119
    
$
114
    
$
50,910
  
 
Project costs not subject to depletion and depreciation
Mar 31
2017
  
Dec 31
2016
  
Kirby Thermal Oil Sands – North
  
$
862
    
$
846
  
During the three months ended March 31, 2017, the Company acquired a number of producing crude oil and natural gas properties in the North America Exploration and Production segment for net cash consideration of $9 million. These transactions were accounted for using the acquisition method of accounting. No net deferred income tax liabilities or pre-tax gains were recognized on these acquisitions.
The Company capitalizes construction period interest for qualifying assets based on costs incurred and the Company’s cost of borrowing. Interest capitalization to a qualifying asset ceases once the asset is substantially available for its intended use. For the three months ended March 31, 2017, pre-tax interest of $22 million (March 31, 2016 – $61 million) was capitalized to property, plant and equipment using a weighted average capitalization rate of 3.9% (March 31, 2016 – 3.9%).
On March 9, 2017, the Company announced that it had entered into agreements to acquire 70% of the Athabasca Oil Sands Project, as well as additional working interests in certain other producing and non-producing oil and gas properties, for preliminary total consideration of approximately $12.7 billion, comprised of cash of approximately $8.7 billion and 97,560,975 common shares of the Company, with an estimated value of approximately $4 billion as at the announcement date. The transaction is expected to close in mid-2017, subject to receipt of all required consents and regulatory and other approvals.
 
Canadian Natural Resources Limited
 6
Three Months Ended March 31, 2017
4. INVESTMENTS
As at March 31, 2017, the Company had the following investments:
   
Mar 31
2017
    
Dec 31
2016
  
Investment in PrairieSky Royalty Ltd.
  
$
635
    
$
723
  
Investment in Inter Pipeline Ltd.
    
180
      
190
  
   
$
815
    
$
913
  
Investment in PrairieSky Royalty Ltd.
The Company’s investment of 22.6 million common shares of PrairieSky Royalty Ltd. ("PrairieSky") does not constitute significant influence, and is accounted for at fair value through profit or loss, remeasured at each reporting date. As at March 31, 2017, the Company’s investment in PrairieSky was classified as a current asset.
The loss (gain) from the investment in PrairieSky was comprised as follows:
   
Three Months Ended
  
   
Mar 31
2017
    
Mar 31
2016
  
Fair value loss (gain) from PrairieSky
  
$
88
    
$
(121
)
Dividend income from PrairieSky
    
(4
)
    
(12
)
   
$
84
    
$
(133
)
Investment in Inter Pipeline Ltd.
The Company's investment of 6.4 million common shares of Inter Pipeline Ltd. ("Inter Pipeline") does not constitute significant influence, and is accounted for at fair value through profit or loss, remeasured at each reporting date. As at March 31, 2017, the Company's investment in Inter Pipeline was classified as a current asset.
The loss from the investment in Inter Pipeline was comprised as follows:
   
Three Months Ended
  
   
Mar 31
2017
    
Mar 31
2016
  
Fair value loss from Inter Pipeline
  
$
10
    
$
—
  
Dividend income from Inter Pipeline
    
(3
)
    
—
  
   
$
7
    
$
—
  
5. OTHER LONG-TERM ASSETS
   
Mar 31
2017
    
Dec 31
2016
  
Investment in North West Redwater Partnership
  
$
263
    
$
261
  
North West Redwater Partnership subordinated debt (1)
    
394
      
385
  
Risk Management (note 13)
    
484
      
489
  
Other
    
137
      
168
  
     
1,278
      
1,303
  
Less: current portion
    
280
      
283
  
   
$
998
    
$
1,020
  
(1) Includes accrued interest.
Investment in North West Redwater Partnership
The Company's 50% interest in Redwater Partnership is accounted for using the equity method based on Redwater Partnership’s voting and decision-making structure and legal form. Redwater Partnership has entered into agreements to construct and operate a 50,000 barrel per day bitumen upgrader and refinery (the "Project") under processing agreements that target to process 12,500 barrels per day of bitumen feedstock for the Company and 37,500 barrels per day of bitumen
 
Canadian Natural Resources Limited
 7
Three Months Ended March 31, 2017
feedstock for the Alberta Petroleum Marketing Commission (“APMC”), an agent of the Government of Alberta, under a 30 year fee-for-service tolling agreement.
During 2013, the Company along with APMC, committed each to provide funding up to $350 million by each party by January 2016 in the form of subordinated debt bearing interest at prime plus 6%. To date, each party has provided $324 million of subordinated debt, together with accrued interest thereon of $70 million for a Company total of $394 million. In 2014, the Partnership set the facility capital cost ("FCC") budget at $8,500 million, which was increased by approximately 4% to the current estimate of $8,900 million. The Company and APMC have agreed, each with a 50% interest, to provide additional subordinated debt as required for Project costs in excess of the FCC of $8,500 million to reflect an agreed debt to equity ratio of 80/20 and, subject to the Company being able to meet certain funding conditions, to fund any shortfall in available third party commercial lending required to attain Project completion which is currently targeted for mid-2018. The Company's share of any additional subordinated debt financing resulting from the increase in the FCC in excess of $8,500 million is not expected to be significant.
As at March 31, 2017, Redwater Partnership had additional borrowings of $2,044 million under its secured $3,500 million syndicated credit facility.
Under its processing agreement, beginning on the earlier of the commercial operations date of the refinery and June 1, 2018, the Company is unconditionally obligated to pay its 25% pro rata share of the debt portion of the monthly cost of service toll, including interest, fees and principal repayments, of the syndicated credit facility and bonds, over the tolling period of 30 years.
During the three months ended March 31, 2017, the Company recognized an equity gain from Redwater Partnership of $2 million (March 31, 2016 – gain of $26 million).
Redwater Partnership has entered into various agreements related to the engineering, procurement and construction of the Project. These contracts can be cancelled by Redwater Partnership upon notice without penalty, subject to the costs incurred up to and in respect of the cancellation.
6. LONG-TERM DEBT
   
Mar 31
2017
    
Dec 31
2016
  
Canadian dollar denominated debt, unsecured
            
Bank credit facilities
  
$
2,341
    
$
2,758
  
Medium-term notes
    
3,500
      
3,500
  
     
5,841
      
6,258
  
US dollar denominated debt, unsecured
                
Bank credit facilities (March 31, 2017 - US$902 million;
     December 31, 2016 - US$905 million)
    
1,200
      
1,213
  
Commercial paper (March 31, 2017 - US$250 million;
     December 31, 2016 - US$250 million)
    
333
      
336
  
US dollar debt securities (March 31, 2017 - US$6,750 million;
     December 31, 2016 - US$6,750 million)
    
8,992
      
9,063
  
     
10,525
      
10,612
  
Long-term debt before transaction costs and original issue discounts, net
    
16,366
      
16,870
  
Less: original issue discounts, net (1)
    
(10
)
    
(10
)
transaction costs (1) (2)
    
(52
)
    
(55
)
     
16,304
      
16,805
  
Less: current portion of commercial paper
    
333
      
336
  
current portion of other long-term debt (1) (2)
    
2,796
      
1,476
  
   
$
13,175
    
$
14,993
  
(1) The Company has included unamortized original issue discounts and premiums, and directly attributable transaction costs in the carrying amount of the outstanding debt.
(2) Transaction costs primarily represent underwriting commissions charged as a percentage of the related debt offerings, as well as legal, rating agency and other professional fees.
 
 
Canadian Natural Resources Limited
 8
Three Months Ended March 31, 2017
Bank Credit Facilities and Commercial Paper
As at March 31, 2017, the Company had in place bank credit facilities of $7,350 million available for general corporate purposes, comprised of:
• a $100 million demand credit facility;
• a $1,500 million non-revolving term credit facility maturing April 2018;
• a $750 million non-revolving term credit facility maturing February 2019;
• a $125 million non-revolving term credit facility maturing February 2019;
• a $2,425 million revolving syndicated credit facility maturing June 2019;
• a $2,425 million revolving syndicated credit facility maturing June 2020; and
• a £15 million demand credit facility related to the Company’s North Sea operations.
Each of the $2,425 million revolving facilities is extendible annually at the mutual agreement of the Company and the lenders. If the facilities are not extended, the full amount of the outstanding principal would be repayable on the maturity date. Borrowings under these facilities may be made by way of pricing referenced to Canadian dollar or US dollar bankers’ acceptances, or LIBOR, US base rate or Canadian prime loans.
Borrowings under the $750 million and $125 million non-revolving credit facilities may be made by way of pricing referenced to Canadian dollar bankers’ acceptances or Canadian prime loans. As at March 31, 2017, the $750 million and $125 million facilities were each fully drawn.
Borrowings under the $1,500 million non-revolving credit facility may be made by way of pricing referenced to Canadian dollar or US dollar bankers’ acceptances, or LIBOR, US base rate or Canadian prime loans. As at March 31, 2017, the $1,500 million facility was fully drawn.
The Company’s borrowings under its US commercial paper program are authorized up to a maximum US$2,500 million. The Company reserves capacity under its bank credit facilities for amounts outstanding under this program.
The Company’s weighted average interest rate on bank credit facilities and commercial paper outstanding as at March 31, 2017 was 2.0% (March 31, 2016 – 2.0%), and on total long-term debt outstanding for the three months ended March 31, 2017 was 3.9% (March 31, 2016 – 3.9%).
At March 31, 2017, letters of credit and guarantees aggregating $825 million, including letters of credit of $567 million related to the proposed acquisition of the Athabasca Oil Sands Project, a $39 million financial guarantee related to Horizon and $110 million of letters of credit related to North Sea operations, were outstanding. The letters of credit are supported by dedicated credit facilities.
Medium-Term Notes
The Company has $2,000 million remaining on its base shelf prospectus that allows for the offer for sale from time to time of up to $3,000 million of medium-term notes in Canada, which expires in November 2017. If issued, these securities may be offered in amounts and at prices, including interest rates, to be determined based on market conditions at the time of issuance.
US Dollar Debt Securities
The Company has US$3,000 million remaining on its base shelf prospectus that allows for the offer for sale from time to time of up to US$3,000 million of debt securities in the United States, which expires in November 2017. If issued, these securities may be offered in amounts and at prices, including interest rates, to be determined based on market conditions at the time of issuance.
 
 
Canadian Natural Resources Limited
 9
Three Months Ended March 31, 2017
7. OTHER LONG-TERM LIABILITIES
   
Mar 31
2017
    
Dec 31
2016
  
Asset retirement obligations
  
$
3,234
    
$
3,243
  
Share-based compensation
    
417
      
426
  
Other
    
16
      
17
  
     
3,667
      
3,686
  
Less: current portion
    
432
      
463
  
   
$
3,235
    
$
3,223
  
Asset Retirement Obligations
The Company’s asset retirement obligations are expected to be settled on an ongoing basis over a period of approximately 60 years and have been discounted using a weighted average discount rate of 5.2% (December 31, 2016 – 5.2%). Reconciliations of the discounted asset retirement obligations were as follows:
   
Mar 31
2017
    
Dec 31
2016
  
Balance – beginning of period
  
$
3,243
    
$
2,950
  
Liabilities incurred
    
4
      
3
  
Liabilities acquired, net
    
—
      
30
  
Liabilities settled
    
(41
)
    
(267
)
Asset retirement obligation accretion
    
36
      
142
  
Revision of cost, inflation rates and timing estimates
    
—
      
(68
)
Change in discount rate
    
—
      
493
  
Foreign exchange adjustments
    
(8
)
    
(40
)
Balance – end of period
    
3,234
      
3,243
  
Less: current portion
    
93
      
95
  
   
$
3,141
    
$
3,148
  
Share-Based Compensation
As the Company’s Option Plan provides current employees with the right to elect to receive common shares or a cash payment in exchange for stock options surrendered, a liability for potential cash settlements is recognized. The current portion represents the maximum amount of the liability payable within the next twelve month period if all vested stock options are surrendered for cash settlement.
   
Mar 31
2017
    
Dec 31
2016
  
Balance – beginning of period
  
$
426
    
$
128
  
Share-based compensation expense
    
27
      
355
  
Cash payment for stock options surrendered
    
(1
)
    
(7
)
Transferred to common shares
    
(38
)
    
(117
)
Capitalized to Oil Sands Mining and Upgrading
    
3
      
67
  
Balance – end of period
    
417
      
426
  
Less: current portion
    
339
      
368
  
   
$
78
    
$
58
  
 
Canadian Natural Resources Limited
 10
Three Months Ended March 31, 2017
8. INCOME TAXES
The provision for income tax was as follows:
   
Three Months Ended
  
Expense (recovery)
  
Mar 31
2017
    
Mar 31
2016
  
Current corporate income tax – North America
  
$
38
    
$
(119
)
Current corporate income tax – North Sea
    
6
      
(23
)
Current corporate income tax – Offshore Africa
    
7
      
4
  
Current PRT (1) – North Sea
    
(1
)
    
(55
)
Other taxes
    
3
      
1
  
Current income tax
    
53
      
(192
)
Deferred corporate income tax
    
28
      
33
  
Deferred PRT (1) – North Sea
    
8
      
(204
)
Deferred income tax
    
36
      
(171
)
Income tax
  
$
89
    
$
(363
)
(1)           Petroleum Revenue Tax.
9. SHARE CAPITAL
Authorized
Preferred shares issuable in a series.
Unlimited number of common shares without par value.
   
Three Months Ended Mar 31, 2017
  
Issued common shares
  
Number of shares
(thousands)
    
Amount
  
Balance – beginning of period
    
1,110,952
    
$
4,671
  
Issued upon exercise of stock options
    
4,654
      
160
  
Previously recognized liability on stock options exercised for
   common shares
    
—
      
38
  
Balance – end of period
    
1,115,606
    
$
4,869
  
Dividend Policy
The Company has paid regular quarterly dividends in each year since 2001. The dividend policy undergoes periodic review by the Board of Directors and is subject to change.
On March 1, 2017, the Board of Directors declared a quarterly dividend of $0.275 per common share, an increase from the previous quarterly dividend of $0.25 per common share.
Normal Course Issuer Bid
On March 1, 2017, the Board of Directors approved the Company's application for a Normal Course Issuer Bid to purchase through the facilities of the Toronto Stock Exchange, alternative Canadian trading platforms, and the New York Stock Exchange, up to 27,814,309 common shares, over a 12 month period commencing upon receipt of applicable regulatory and other approvals. For the three months ended March 31, 2017, the Company did not purchase any common shares for cancellation.
 
Canadian Natural Resources Limited
 11
Three Months Ended March 31, 2017
Stock Options
The following table summarizes information relating to stock options outstanding at March 31, 2017:
   
Three Months Ended Mar 31, 2017
  
   
Stock options (thousands)
    
Weighted
average
exercise price
  
Outstanding – beginning of period
    
58,299
    
$
34.22
  
Granted
    
2,893
    
$
42.14
  
Surrendered for cash settlement
    
(188
)
  
$
35.62
  
Exercised for common shares
    
(4,654
)
  
$
34.44
  
Forfeited
    
(1,609
)
  
$
38.92
  
Outstanding – end of period
    
54,741
    
$
34.48
  
Exercisable – end of period
    
16,162
    
$
33.15
  
The Option Plan is a "rolling 9%" plan, whereby the aggregate number of common shares that may be reserved for issuance under the plan shall not exceed 9% of the common shares outstanding from time to time.
10. ACCUMULATED OTHER COMPREHENSIVE INCOME
The components of accumulated other comprehensive income, net of taxes, were as follows:
   
Mar 31
2017
    
Mar 31
2016
  
Derivative financial instruments designated as cash flow hedges
  
$
19
    
$
44
  
Foreign currency translation adjustment
    
24
      
(32
)
   
$
43
    
$
12
  
11. CAPITAL DISCLOSURES
The Company does not have any externally imposed regulatory capital requirements for managing capital. The Company has defined its capital to mean its long-term debt and consolidated shareholders’ equity, as determined at each reporting date.
The Company’s objectives when managing its capital structure are to maintain financial flexibility and balance to enable the Company to access capital markets to sustain its on-going operations and to support its growth strategies. The Company primarily monitors capital on the basis of an internally derived financial measure referred to as its "debt to book capitalization ratio", which is the arithmetic ratio of current and long-term debt divided by the sum of the carrying value of shareholders’ equity plus current and long-term debt. The Company’s internal targeted range for its debt to book capitalization ratio is 25% to 45%. This range may be exceeded in periods when a combination of capital projects, acquisitions, or lower commodity prices occurs. The Company may be below the low end of the targeted range when cash flow from operating activities is greater than current investment activities. At March 31, 2017, the ratio was within the target range at 38%.
Readers are cautioned that the debt to book capitalization ratio is not defined by IFRS and this financial measure may not be comparable to similar measures presented by other companies. Further, there are no assurances that the Company will continue to use this measure to monitor capital or will not alter the method of calculation of this measure in the future.
   
Mar 31
2017
    
Dec 31
2016
  
Long-term debt (1)
  
$
16,304
    
$
16,805
  
Total shareholders’ equity
  
$
26,377
    
$
26,267
  
Debt to book capitalization
    
38%
 
    
39%
 
(1) Includes the current portion of long-term debt.
 
Canadian Natural Resources Limited
 12
Three Months Ended March 31, 2017
12. NET EARNINGS (LOSS) PER COMMON SHARE
      
Three Months Ended
  
     
Mar 31
2017
    
Mar 31
2016
  
Weighted average common shares outstanding
– basic (thousands of shares)
    
1,112,939
      
1,094,915
  
Effect of dilutive stock options (thousands of shares)
    
8,337
      
—
  
Weighted average common shares outstanding
– diluted (thousands of shares)
    
1,121,276
      
1,094,915
  
Net earnings (loss)
  
$
245
    
$
(105
)
Net earnings (loss) per common share
– basic
  
$
0.22
    
$
(0.10
)
 
– diluted
  
$
0.22
    
$
(0.10
)
13. FINANCIAL INSTRUMENTS
The carrying amounts of the Company’s financial instruments by category were as follows:
   
Mar 31, 2017
  
Asset (liability)
  
Financial
assets
at amortized
cost
    
Fair value
through
profit or loss
    
Derivatives
used for
hedging
    
Financial
liabilities at
amortized
cost
    
Total
  
Accounts receivable
  
$
1,390
    
$
—
    
$
—
    
$
—
    
$
1,390
  
Investments
    
—
      
815
      
—
      
—
      
815
  
Other long-term assets
   
394
      
42
      
442
      
—
      
878
  
Accounts payable
    
—
      
—
      
—
      
(541
)
    
(541
)
Accrued liabilities
    
—
      
—
      
—
      
(1,947
)
    
(1,947
)
Long-term debt (1)
    
—
      
—
      
—
      
(16,304
)
    
(16,304
)
   
$
1,784
    
$
857
    
$
442
    
$
(18,792
)
  
$
(15,709
)
 
   
Dec 31, 2016
  
Asset (liability)
  
Financial
assets
at amortized
cost
    
Fair value
through
profit or loss
    
Derivatives
used for
hedging
    
Financial
liabilities at
amortized
cost
    
Total
  
Accounts receivable
  
$
1,434
    
$
—
    
$
—
    
$
—
    
$
1,434
  
Investments
    
—
      
913
      
—
      
—
      
913
  
Other long-term assets
    
385
      
4
      
485
      
—
      
874
  
Accounts payable
    
—
      
—
      
—
      
(595
)
    
(595
)
Accrued liabilities
    
—
      
—
      
—
      
(2,222
)
    
(2,222
)
Long-term debt (1)
    
—
      
—
      
—
      
(16,805
)
    
(16,805
)
   
$
1,819
    
$
917
    
$
485
    
$
(19,622
)
  
$
(16,401
)
(1) Includes the current portion of long-term debt.
 
Canadian Natural Resources Limited
 13
Three Months Ended March 31, 2017
The carrying amounts of the Company’s financial instruments approximated their fair value, except for fixed rate long-term debt. The fair values of the Company’s recurring other long-term assets and fixed rate long-term debt are outlined below:
 
Mar 31, 2017
  
 
Carrying amount
  
Fair value
  
Asset (liability) (1) (2)
    
Level 1
  
Level 2
  
Level 3
  
Investments (3)
  
$
815
    
$
815
    
$
—
    
$
—
  
Other long-term assets (4)
  
$
878
    
$
—
    
$
484
    
$
394
  
Fixed rate long-term debt (5) (6)
  
$
(12,430
)
  
$
(13,249
)
  
$
—
    
$
—
  

 
Dec 31, 2016
  
 
Carrying amount
  
Fair value
  
Asset (liability) (1) (2)
    
Level 1
  
Level 2
  
Level 3
  
Investments (3)
  
$
913
    
$
913
    
$
—
    
$
—
  
Other long-term assets (4)
  
$
874
    
$
—
    
$
489
    
$
385
  
Fixed rate long-term debt (5) (6)
  
$
(12,498
)
  
$
(13,217
)
  
$
—
    
$
—
  
(1) Excludes financial assets and liabilities where the carrying amount approximates fair value due to the liquid nature of the asset or liability (cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities).
(2) There were no transfers between Level 1, 2 and 3 financial instruments.
(3) The fair value of the investments are based on quoted market prices.
(4) The fair value of Redwater Partnership subordinated debt is based on the present value of future cash receipts.
(5) The fair value of fixed rate long-term debt has been determined based on quoted market prices.
(6) Includes the current portion of fixed rate long-term debt.
The following provides a summary of the carrying amounts of derivative financial instruments held and a reconciliation to the Company’s consolidated balance sheets.
Asset (liability)
  
Mar 31
2017
    
Dec 31
2016
  
Derivatives held for trading
            
Foreign currency forward contracts
  
$
(3
)
  
$
10
  
Crude oil price collars
    
43
      
—
  
Natural gas AECO swaps
    
2
      
(6
)
Cash flow hedges
                
Foreign currency forward contracts
    
2
      
16
  
Cross currency swaps
    
440
      
469
  
   
$
484
    
$
489
  
                 
Included within:
                
Current portion of other long-term assets
  
$
233
    
$
222
  
Other long-term assets
    
251
      
267
  
   
$
484
    
$
489
  

For the three months ended March 31, 2017, the Company recognized a gain of $2 million (year ended December 31, 2016 – gain of $7 million) related to ineffectiveness arising from cash flow hedges.
The estimated fair value of derivative financial instruments in Level 2 at each measurement date have been determined based on appropriate internal valuation methodologies and/or third party indications. Level 2 fair values determined using valuation models require the use of assumptions concerning the amount and timing of future cash flows and discount rates. In determining these assumptions, the Company primarily relied on external, readily-observable quoted market inputs as applicable, including crude oil and natural gas forward benchmark commodity prices and volatility, Canadian and United States forward interest rate yield curves, and Canadian and United States foreign exchange rates, discounted to
 
Canadian Natural Resources Limited
 14
Three Months Ended March 31, 2017
present value as appropriate. The resulting fair value estimates may not necessarily be indicative of the amounts that could be realized or settled in a current market transaction and these differences may be material.
Risk Management
The Company periodically uses derivative financial instruments to manage its commodity price, interest rate and foreign currency exposures. These financial instruments are entered into solely for hedging purposes and are not used for speculative purposes.
The changes in estimated fair values of derivative financial instruments included in the risk management asset were recognized in the financial statements as follows:
Asset (liability)
  
Mar 31
2017
    
Dec 31
2016
  
Balance – beginning of period
  
$
489
    
$
854
  
Net change in fair value of outstanding derivative financial instruments
recognized in:
                
Risk management activities
    
40
      
(25
)
Foreign exchange
    
(36
)
    
(304
)
Other comprehensive loss
    
(9
)
    
(36
)
Balance – end of period
    
484
      
489
  
Less: current portion
    
233
      
222
  
   
$
251
    
$
267
  
Net (gains) losses from risk management activities were as follows:
   
Three Months Ended
  
   
Mar 31
2017
    
Mar 31
2016
  
Net realized risk management gain
  
$
(12
)
  
$
(4
)
Net unrealized risk management (gain) loss
    
(40
)
    
74
  
   
$
(52
)
  
$
70
  
Financial Risk Factors
a) Market risk
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. The Company’s market risk is comprised of commodity price risk, interest rate risk, and foreign currency exchange risk.
Commodity price risk management
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 March 31, 2017, the Company had the following derivative financial instruments outstanding to manage its commodity price risk:
Sales contracts
   
Remaining term
  
Volume
  
Weighted average price
  
Index
Crude Oil
                
Price collars
  
Apr 2017 - Dec 2017
  
67,500 bbl/d
  
US$50.00 - US$60.10
  
WTI
                 
Natural Gas
                
AECO swaps
  
Apr 2017 - Oct 2017
  
50,000 GJ/d
  
$2.80
  
AECO
The Company’s outstanding commodity derivative financial instruments are expected to be settled monthly based on the applicable index pricing for the respective contract month.
 
Canadian Natural Resources Limited
 15
Three Months Ended March 31, 2017
Interest rate risk management
The Company 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. The Company periodically enters into interest rate swap contracts to manage its fixed to floating interest rate mix on long-term debt. 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 March 31, 2017, the Company had no interest rate swap contracts outstanding.
Foreign currency exchange rate risk management
The Company 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. The Company is also exposed to foreign currency exchange rate risk on transactions conducted in other currencies and in the carrying value of its foreign subsidiaries. The Company 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. At March 31, 2017, the Company had the following cross currency swap contracts outstanding:
   
Remaining term
  
Amount
  
Exchange rate
(US$/C$)
  
Interest rate
(US$)
  
Interest rate
(C$)
Cross currency
                        
Swaps
  
Apr 2017
—
May 2017
  
US$1,100
  
1.170
    
5.70
%
  
5.10
%
   
Apr 2017
—
Nov 2021
  
US$500
  
1.022
    
3.45
%
  
3.96
%
   
Apr 2017
—
Mar 2038
  
US$550
  
1.170
    
6.25
%
  
5.76
%
All cross currency swap derivative financial instruments were designated as hedges at March 31, 2017 and were classified as cash flow hedges.
In addition to the cross currency swap contracts noted above, at March 31, 2017, the Company had US$2,039 million of foreign currency forward contracts outstanding, with terms of approximately 30 days or less, including US$1,152 million designated as cash flow hedges.
b)  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.
Counterparty credit risk management
The Company’s accounts receivable are mainly with customers in the crude oil and natural gas industry and are subject to normal industry credit risks. The Company 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 March 31, 2017, substantially all of the Company’s accounts receivable were due within normal trade terms.
The Company is also exposed to possible losses in the event of nonperformance 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. At March 31, 2017, the Company had net risk management assets of $488 million with specific counterparties related to derivative financial instruments (December 31, 2016 – $489 million).
The carrying amount of financial assets approximates the maximum credit exposure.
c)  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. The Company 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.
 
Canadian Natural Resources Limited
 16
Three Months Ended March 31, 2017
The maturity dates for financial liabilities were as follows:
   
Less than
1 year
    
1 to less than
2 years
    
2 to less than
5 years
    
Thereafter
  
Accounts payable
  
$
541
    
$
—
    
$
—
    
$
—
  
Accrued liabilities
  
$
1,947
    
$
—
    
$
—
    
$
—
  
Long-term debt (1)
  
$
3,130
    
$
2,370
    
$
4,837
    
$
6,029
  
(1) Long-term debt represents principal repayments only and does not reflect interest, original issue discounts and premiums or transaction costs.
14. COMMITMENTS AND CONTINGENCIES
The Company has committed to certain payments as follows:
   
Remaining 2017
    
2018
    
2019
    
2020
    
2021
    
Thereafter
  
Product transportation and pipeline
  
$
349
    
$
450
    
$
327
    
$
311
    
$
260
    
$
2,317
  
Offshore equipment operating leases
  and offshore drilling
  
$
174
    
$
192
    
$
98
    
$
74
    
$
73
    
$
8
  
Office leases
  
$
32
    
$
43
    
$
43
    
$
42
    
$
40
    
$
152
  
Other
  
$
41
    
$
2
    
$
2
    
$
2
    
$
2
    
$
35
  
In addition to the commitments disclosed above, the Company has entered into various agreements related to the engineering, procurement and construction of Horizon. These contracts can be cancelled by the Company upon notice without penalty, subject to the costs incurred up to and in respect of the cancellation.
The Company is defendant and plaintiff in a number of legal actions arising in the normal course of business. In addition, the Company is subject to certain contractor construction claims. The Company believes that any liabilities that might arise pertaining to any such matters would not have a material effect on its consolidated financial position.
 
Canadian Natural Resources Limited
 17
Three Months Ended March 31, 2017

15. SEGMENTED INFORMATION
   
North America
    
North Sea
    
Offshore Africa
    
Total Exploration and Production
  
(millions of Canadian dollars, unaudited)
  
Three Months Ended
    
Three Months Ended
    
Three Months Ended
    
Three Months Ended
  
   
Mar 31
    
Mar 31
    
Mar 31
    
Mar 31
  
   
2017
    
2016
    
2017
    
2016
    
2017
    
2016
    
2017
    
2016
  
Segmented product sales
    
2,366
      
1,512
      
219
      
121
      
140
      
100
      
2,725
      
1,733
  
Less: royalties
    
(204
)
    
(79
)
    
—
      
—
      
(7
)
    
(5
)
    
(211
)
    
(84
)
Segmented revenue
    
2,162
      
1,433
      
219
      
121
      
133
      
95
      
2,514
      
1,649
  
Segmented expenses
                                                                
Production
    
571
      
567
      
110
      
120
      
46
      
34
      
727
      
721
  
Transportation and blending
    
632
      
493
      
11
      
10
      
—
      
1
      
643
      
504
  
Depletion, depreciation and amortization
    
799
      
897
      
245
      
111
      
58
      
61
      
1,102
      
1,069
  
Asset retirement obligation accretion
    
19
      
17
      
7
      
9
      
2
      
3
      
28
      
29
  
Realized risk management activities
    
(12
)
    
(4
)
    
—
      
—
      
—
      
—
      
(12
)
    
(4
)
Gain on disposition of properties
    
—
      
(32
)
    
—
      
—
      
—
      
—
      
—
      
(32
)
Loss (gain) from investments
    
91
      
(133
)
    
—
      
—
      
—
      
—
      
91
      
(133
)
Total segmented expenses
    
2,100
      
1,805
      
373
      
250
      
106
      
99
      
2,579
      
2,154
  
Segmented earnings (loss) before the following
    
62
      
(372
)
    
(154
)
    
(129
)
    
27
      
(4
)
    
(65
)
    
(505
)
Non–segmented expenses
                                                                
Administration
                                                                
Share-based compensation
                                                                
Interest and other financing expense
                                                                
Unrealized risk management activities
                                                                
Foreign exchange gain
                                                                
Total non–segmented expenses
                                                                
Earnings (loss) before taxes
                                                                
Current income tax expense (recovery)
                                                                
Deferred income tax expense (recovery)
                                                                
Net earnings (loss)
                                                                
 
Canadian Natural Resources Limited
 18
Three Months Ended March 31, 2017


   
Oil Sands Mining and Upgrading
    
Midstream
    
Inter–segment
elimination and other
    

Total
  
                                           
(millions of Canadian dollars, unaudited)
  
Three Months Ended
    
Three Months Ended
    
Three Months Ended
    
Three Months Ended
  
 
Mar 31
    
Mar 31
    
Mar 31
    
Mar 31
  
   
2017
    
2016
    
2017
    
2016
    
2017
    
2016
    
2017
    
2016
  
Segmented product sales
    
1,145
      
524
      
25
      
26
      
(23
)
    
(20
)
    
3,872
      
2,263
  
Less: royalties
    
(19
)
    
(1
)
    
—
      
—
      
—
      
—
      
(230
)
    
(85
)
Segmented revenue
    
1,126
      
523
      
25
      
26
      
(23
)
    
(20
)
    
3,642
      
2,178
  
Segmented expenses
                                                                
Production
    
372
      
297
      
4
      
6
      
(1
)
    
(2
)
    
1,102
      
1,022
  
Transportation and blending
    
20
      
23
      
—
      
—
      
(21
)
    
(17
)
    
642
      
510
  
Depletion, depreciation and amortization
    
195
      
147
      
2
      
3
      
—
      
—
      
1,299
      
1,219
  
Asset retirement obligation accretion
    
8
      
7
      
—
      
—
      
—
      
—
      
36
      
36
  
Realized risk management activities
    
—
      
—
      
—
      
—
      
—
      
—
      
(12
)
    
(4
)
Gain on disposition of properties
    
—
      
—
      
—
      
—
      
—
      
—
      
—
      
(32
)
Loss (gain) from investments
    
—
      
—
      
(2
)
    
(26
)
    
—
      
—
      
89
      
(159
)
Total segmented expenses
    
595
      
474
      
4
      
(17
)
    
(22
)
    
(19
)
    
3,156
      
2,592
  
Segmented earnings (loss) before the following
    
531
      
49
      
21
      
43
      
(1
)
    
(1
)
    
486
      
(414
)
Non–segmented expenses
                                                                
Administration
                                                    
87
      
86
  
Share-based compensation
                                                    
27
      
117
  
Interest and other financing expense
                                                    
134
      
92
  
Unrealized risk management activities
                                                    
(40
)
    
74
  
Foreign exchange gain
                                                    
(56
)
    
(315
)
Total non–segmented expenses
                                                    
152
      
54
  
Earnings (loss) before taxes
                                                    
334
      
(468
)
Current income tax expense (recovery)
                                                    
53
      
(192
)
Deferred income tax expense (recovery)
                                                    
36
      
(171
)
Net earnings (loss)
                                                    
245
      
(105
)
 
Canadian Natural Resources Limited
 19
Three Months Ended March 31, 2017
Capital Expenditures (1)
   
Three Months Ended
  
   
Mar 31, 2017
    
Mar 31, 2016
  
   
Net
expenditures (proceeds)
    
Non-cash
and fair value changes (2)
    
Capitalized
costs
    
Net
expenditures (proceeds)
    
Non-cash
and fair value changes (2)
    
Capitalized
costs
  
                                     
Exploration and
evaluation assets
                                    
Exploration and
   Production
                                    
North America (3)
  
$
33
    
$
(36
)
  
$
(3
)
  
$
(3
)
  
$
(48
)
  
$
(51
)
North Sea
    
—
      
—
      
—
      
—
      
—
      
—
  
Offshore Africa
    
4
      
—
      
4
      
5
      
—
      
5
  
   
$
37
    
$
(36
)
  
$
1
    
$
2
    
$
(48
)
  
$
(46
)
                                                 
Property, plant and
   equipment
                                                
Exploration and
   Production
                                                
North America
  
$
487
    
$
(60
)
  
$
427
    
$
284
    
$
(35
)
  
$
249
  
North Sea
    
35
      
—
      
35
      
16
      
—
      
16
  
Offshore Africa
    
15
      
—
      
15
      
104
      
—
      
104
  
     
537
      
(60
)
    
477
      
404
      
(35
)
    
369
  
Oil Sands Mining and
   Upgrading (4)
    
227
      
(14
)
    
213
      
585
      
(15
)
    
570
  
Midstream
    
1
      
—
      
1
      
1
      
—
      
1
  
Head office
    
3
      
—
      
3
      
6
      
—
      
6
  
   
$
768
    
$
(74
)
  
$
694
    
$
996
    
$
(50
)
  
$
946
  
(1) This table provides a reconciliation of capitalized costs including derecognitions and does not include the impact of foreign exchange adjustments.
(2) Asset retirement obligations, deferred income tax adjustments related to differences between carrying amounts and tax values, transfers of exploration and evaluation assets, transfers of property, plant and equipment to inventory due to change in use, and other fair value adjustments.
(3) The above noted figures for 2016 do not include the impact of a pre-tax gain of $32 million on the disposition of exploration and evaluation assets.
(4) Net expenditures for Oil Sands Mining and Upgrading also include capitalized interest and share-based compensation.

Segmented Assets
 
   
Mar 31
2017
    
Dec 31
2016
  
Exploration and Production
            
North America
  
$
28,444
    
$
28,892
  
North Sea
    
1,976
      
2,269
  
Offshore Africa
    
1,509
      
1,580
  
Other
    
62
      
29
  
Oil Sands Mining and Upgrading
    
24,927
      
24,852
  
Midstream
    
911
      
912
  
Head office
    
111
      
114
  
   
$
57,940
    
$
58,648
  
 
 
Canadian Natural Resources Limited
 20
Three Months Ended March 31, 2017
 
SUPPLEMENTARY INFORMATION
INTEREST COVERAGE RATIOS
The following financial ratios are provided in connection with the Company’s continuous offering of medium-term notes pursuant to the short form prospectus dated October 2015. These ratios are based on the Company’s interim consolidated financial statements that are prepared in accordance with accounting principles generally accepted in Canada.
Interest coverage ratios for the twelve month period ended March 31, 2017:
  
Interest coverage (times)
  
   Net earnings (1)
0.4x
   Funds flow from operations (2)
8.8x
(1) Net earnings plus income taxes and interest expense excluding current and deferred PRT expense and other taxes; divided by the sum of interest expense and capitalized interest.
(2) Funds flow from operations plus current income taxes and interest expense excluding current PRT expense and other taxes; divided by the sum of interest expense and capitalized interest.

 
 
 
Canadian Natural Resources Limited
 21
Three Months Ended March 31, 2017