EX-99.3 4 a09302019q3fs.htm EXHIBIT 99.3 Exhibit



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Canadian Natural Resources Limited
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018



INTERIM CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
As at
Note
 
Sep 30
2019

 
Dec 31
2018

(millions of Canadian dollars, unaudited)
 
ASSETS
 
 
 
 
 
Current assets
 
 
 
 
 
Cash and cash equivalents
 
 
$
176


$
101

Accounts receivable
 
 
2,405

 
1,148

Inventory
 
 
1,151

 
955

Prepaids and other
 
 
309

 
176

Investments
6
 
567

 
524

Current portion of other long-term assets
7
 
70

 
116

 
 
 
4,678

 
3,020

Exploration and evaluation assets
3
 
2,616

 
2,637

Property, plant and equipment
4
 
68,088

 
64,559

Lease assets
5
 
1,839

 
—

Other long-term assets
7
 
1,311

 
1,343

 
 
 
$
78,532

 
$
71,559

 
 
 
 
 
 
LIABILITIES
 
 
 

 
 

Current liabilities
 
 
 

 
 

Accounts payable
 
 
$
662

 
$
779

Accrued liabilities
 
 
2,561

 
2,356

Current income taxes payable
 
 
85

 
151

Current portion of long-term debt
8
 
4,036

 
1,141

Current portion of other long-term liabilities
5,9
 
511

 
335

 
 
 
7,855

 
4,762

Long-term debt
8
 
18,453

 
19,482

Other long-term liabilities
5,9
 
7,075

 
3,890

Deferred income taxes
 
 
10,355

 
11,451

 
 
 
43,738

 
39,585

SHAREHOLDERS’ EQUITY
 
 
 

 
 

Share capital
11
 
9,314

 
9,323

Retained earnings
 
 
25,382

 
22,529

Accumulated other comprehensive income
12
 
98

 
122

 
 
 
34,794

 
31,974

 
 
 
$
78,532

 
$
71,559

Commitments and contingencies (note 16).

Approved by the Board of Directors on November 6, 2019.


Canadian Natural Resources Limited
1
Nine Months Ended September 30, 2019

CONSOLIDATED STATEMENTS OF EARNINGS
 
 
 
Three Months Ended
 
 
Nine Months Ended
(millions of Canadian dollars, except per
 common share amounts, unaudited)
Note
 
Sep 30
2019

 
Sep 30
2018

 
 
Sep 30
2019

 
Sep 30
2018

Product sales
17
 
$
6,587

 
$
6,327

 
 
$
18,059

 
$
18,451

Less: royalties
 
 
(427
)
 
(428
)
 
 
(1,089
)
 
(1,126
)
Revenue
 
 
6,160

 
5,899

 
 
16,970

 
17,325

Expenses
 
 
 
 
 
 
 
 
 
 
Production
 
 
1,566

 
1,585

 
 
4,629

 
4,837

Transportation, blending and feedstock
 
 
1,248

 
1,031

 
 
3,283

 
3,325

Depletion, depreciation and amortization
4,5
 
1,426

 
1,306

 
 
3,996

 
3,833

Administration
 
 
95

 
77

 
 
249

 
234

Share-based compensation
9
 
7

 
(85
)
 
 
62

 
2

Asset retirement obligation accretion
9
 
50

 
47

 
 
140

 
140

Interest and other financing expense
 
 
231

 
180

 
 
619

 
560

Risk management activities
15
 
(3
)
 
(29
)
 
 
49

 
(116
)
Foreign exchange loss (gain)
 
 
115

 
(168
)
 
 
(341
)
 
281

Gain on acquisition and revaluation of properties
 
 
—

 
(272
)
 
 
—

 
(411
)
Loss from investments
6,7
 
61

 
82

 
 
150

 
219

 
 
 
4,796

 
3,754

 
 
12,836

 
12,904

Earnings before taxes
 
 
1,364

 
2,145

 
 
4,134

 
4,421

Current income tax expense
10
 
161

 
197

 
 
403

 
608

Deferred income tax expense (recovery)
10
 
176

 
146

 
 
(1,088
)
 
446

Net earnings
 
 
$
1,027

 
$
1,802

 
 
$
4,819

 
$
3,367

Net earnings per common share
 
 
 

 
 

 
 
 
 
 
Basic
14
 
$
0.87

 
$
1.48

 
 
$
4.04

 
$
2.75

Diluted
14
 
$
0.87

 
$
1.47

 
 
$
4.03

 
$
2.74



CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
 
Three Months Ended
 
 
Nine Months Ended
(millions of Canadian dollars, unaudited)
 
Sep 30
2019

 
Sep 30
2018

 
 
Sep 30
2019

 
Sep 30
2018

Net earnings
 
$
1,027

 
$
1,802

 
 
$
4,819

 
$
3,367

Items that may be reclassified subsequently to net earnings
 
 
 
 
 
 
 
 
 
Net change in derivative financial instruments
designated as cash flow hedges
 
 

 
 

 
 
 
 
 
Unrealized income (loss) during the period, net of taxes of
$6 million (2018 – $1 million) – three months ended;
$12 million (2018 – $1 million) – nine months ended
 
48

 
8

 
 
97

 
(7
)
Reclassification to net earnings, net of taxes of
$2 million (2018 – $2 million) – three months ended;
$5 million (2018 – $5 million) – nine months ended
 
(13
)
 
(9
)
 
 
(36
)
 
(31
)
 
 
35

 
(1
)
 
 
61

 
(38
)
Foreign currency translation adjustment
 
 

 
 

 
 
 
 
 
Translation of net investment
 
36

 
(44
)
 
 
(85
)
 
73

Other comprehensive income (loss), net of taxes
 
71

 
(45
)
 
 
(24
)
 
35

Comprehensive income
 
$
1,098

 
$
1,757

 
 
$
4,795

 
$
3,402



Canadian Natural Resources Limited
2
Nine Months Ended September 30, 2019

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
 
 
 
Nine Months Ended

(millions of Canadian dollars, unaudited)
Note
 
Sep 30
2019

 
Sep 30
2018

Share capital
11
 
 
 
 
Balance – beginning of period
 
 
$
9,323

 
$
9,109

Issued upon exercise of stock options
 
 
148

 
320

Previously recognized liability on stock options exercised for common shares
 
 
17

 
118

Purchase of common shares under Normal Course Issuer Bid
 
 
(174
)
 
(154
)
Balance – end of period
 
 
9,314

 
9,393

Retained earnings
 
 
 

 
 

Balance – beginning of period
 
 
22,529

 
22,612

Net earnings
 
 
4,819

 
3,367

Purchase of common shares under Normal Course Issuer Bid
11
 
(627
)
 
(720
)
Dividends on common shares
11
 
(1,339
)
 
(1,226
)
Balance – end of period
 
 
25,382

 
24,033

Accumulated other comprehensive income (loss)
12
 
 

 
 

Balance – beginning of period
 
 
122

 
(68
)
Other comprehensive income (loss), net of taxes
 
 
(24
)
 
35

Balance – end of period
 
 
98

 
(33
)
Shareholders’ equity
 
 
$
34,794

 
$
33,393




Canadian Natural Resources Limited
3
Nine Months Ended September 30, 2019

CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 
 
Three Months Ended
 
 
Nine Months Ended
(millions of Canadian dollars, unaudited)
Note
 
Sep 30
2019

 
Sep 30
2018

 
 
Sep 30
2019

 
Sep 30
2018

Operating activities
 
 
 
 
 
 
 
 
 
 
Net earnings
 
 
$
1,027

 
$
1,802

 
 
$
4,819

 
$
3,367

Non-cash items
 
 
 

 
 
 
 
 
 
 
Depletion, depreciation and amortization
 
 
1,426

 
1,306

 
 
3,996

 
3,833

Share-based compensation
 
 
7

 
(85
)
 
 
62

 
2

Asset retirement obligation accretion
 
 
50

 
47

 
 
140

 
140

Unrealized risk management gain
 
 
(2
)
 
(21
)
 
 
(4
)
 
(62
)
Unrealized foreign exchange loss (gain)
 
 
129

 
(182
)
 
 
(323
)
 
158

Realized foreign exchange loss on repayment of US dollar debt securities
 
 
—

 
—

 
 
—

 
146

Gain on acquisition and revaluation of properties
 
 
—

 
(272
)
 
 
—

 
(411
)
Loss from investments
6,7
 
68

 
89

 
 
171

 
240

Deferred income tax expense (recovery)
 
 
176

 
146

 
 
(1,088
)
 
446

Other
 
 
(1
)
 
(20
)
 
 
(101
)
 
(5
)
Abandonment expenditures
 
 
(63
)
 
(57
)
 
 
(212
)
 
(197
)
Net change in non-cash working capital
 
 
(299
)
 
889

 
 
(1,085
)
 
1,067

Cash flows from operating activities
 
 
2,518

 
3,642

 
 
6,375

 
8,724

Financing activities
 
 
 

 
 

 
 
 
 
 
(Repayment) issue of bank credit facilities and commercial paper, net
8
 
(1,182
)
 
(1,468
)
 
 
2,726

 
(1,847
)
Repayment of medium-term notes
8
 
—

 
—

 
 
(500
)
 
—

Repayment of US dollar debt securities
 
 
—

 
—

 
 
—

 
(1,236
)
Payment of lease liabilities
5
 
(64
)
 
—

 
 
(173
)
 
—

Issue of common shares on exercise of stock options
 
 
30

 
47

 
 
148

 
320

Purchase of common shares under Normal Course Issuer Bid
 
 
(169
)
 
(433
)
 
 
(801
)
 
(874
)
Dividends on common shares
 
 
(447
)
 
(409
)
 
 
(1,299
)
 
(1,156
)
Cash flows (used in) from financing activities
 
(1,832
)
 
(2,263
)
 
 
101

 
(4,793
)
Investing activities
 
 
 

 
 

 
 
 
 
 
Net expenditures on exploration and evaluation assets
 
 
(3
)
 
(297
)
 
 
(73
)
 
(361
)
Net expenditures on property, plant and equipment
 
 
(897
)
 
(1,119
)
 
 
(2,563
)
 
(2,992
)
Acquisition of Devon assets
4
 
—

 
—

 
 
(3,412
)
 
—

Investment in other long-term assets
 
 
—

 
—

 
 
—

 
(28
)
Net change in non-cash working capital
 
 
(8
)
 
151

 
 
(353
)
 
(391
)
Cash flows used in investing activities
 
 
(908
)
 
(1,265
)
 
 
(6,401
)
 
(3,772
)
(Decrease) increase in cash and cash equivalents
 
 
(222
)
 
114

 
 
75

 
159

Cash and cash equivalents – beginning of period
 
 
398

 
182

 
 
101

 
137

Cash and cash equivalents – end of period
 
 
$
176

 
$
296

 
 
$
176

 
$
296

Interest paid on long-term debt, net
 
 
$
263

 
$
224

 
 
$
674

 
$
707

Income taxes paid (received)
 
 
$
86

 
$
(118
)
 
 
$
372

 
$
(195
)


Canadian Natural Resources Limited
4
Nine Months Ended September 30, 2019

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 and South Africa in Offshore Africa.
The "Oil Sands Mining and Upgrading" segment produces synthetic crude oil through bitumen mining and upgrading operations at Horizon Oil Sands ("Horizon") and through the Company's direct and indirect interest in the Athabasca Oil Sands Project ("AOSP").
Within Western Canada in the "Midstream and Refining" segment, the Company maintains certain 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 to upgrade and refine bitumen 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, 2018, except as disclosed in note 2. 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, 2018.

2. CHANGES IN ACCOUNTING POLICIES
IFRS 16 "Leases"
In January 2016, the IASB issued IFRS 16 “Leases”, which provides guidance on accounting for leases. The new standard replaced IAS 17 “Leases” and related interpretations. IFRS 16 eliminates the distinction between operating leases and financing leases for lessees and generally requires balance sheet recognition for all leases. Certain short-term (less than 12 months) and low-value leases (as defined in the standard) are exempt from the requirements, and the Company continues to treat these leases as expenses. Leases to explore for or use crude oil, natural gas, minerals and similar non-regenerative resources are also exempt from the standard.
The Company adopted IFRS 16 on January 1, 2019 using the modified retrospective approach with no impact to opening retained earnings at the date of adoption. In accordance with the transitional provisions in the standard, balances reported in the comparative periods have not been restated and continue to be reported using the Company's previous accounting policy under IAS 17.
On adoption, the Company applied the following practical expedients under the standard. Certain expedients are on a lease-by-lease basis and others are applicable by class of underlying assets:
•
the use of a single discount rate to a portfolio of leases with reasonably similar characteristics;
•
leases with a remaining lease term of less than twelve months as at January 1, 2019 were treated as short-term leases;
•
exclusion of initial direct costs for the measurement of lease assets at the date of initial application; and
•
the application of the Company's previous assessment for onerous contracts under IAS 37, instead of re-assessing impairment on the Company's lease assets as at January 1, 2019.
The Company did not apply any practical expedients pertaining to grandfathering of leases assessed under the previous standard.
In connection with the adoption of IFRS 16, the Company recognized lease liabilities (included in other long-term liabilities) of $1,539 million, measured at the present value of the remaining lease payments, discounted at the Company's incremental borrowing rate at the transition date. Lease assets were measured at an amount equal to the lease liability. The adoption of IFRS 16 resulted in increases in depletion, depreciation and amortization expense and interest expense

Canadian Natural Resources Limited
5
Nine Months Ended September 30, 2019

and corresponding decreases in production, transportation and administration expenses. Under the new standard, the Company reports cash outflows for payment of the principal portion of the lease liability as cash flows from financing activities. The interest portion of the lease payments is classified as cash flows from operating activities.
Further details of the Company's lease assets and lease liabilities on transition to the new Leases standard at January 1, 2019 and as at September 30, 2019 are shown in note 5.
Effective January 1, 2019, the Company's accounting policy for Leases is as follows:
At inception of a contract, the Company assesses whether a contract is, or contains a lease. A contract is, or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Company assesses whether: the contract involves the use of an identified asset; the Company has the right to obtain substantially all of the economic benefits from the use of the asset throughout the period of use; and, the Company has the right to direct the use of the asset.
The Company recognizes a lease asset and a lease liability at the commencement date of the lease contract, which is the date that the lease asset is available to the Company. The lease asset is initially measured at cost. The cost of a lease asset includes the amount of the initial measurement of the lease liability, lease payments made prior to the commencement date, initial direct costs and estimates of the asset retirement obligation, if any. Subsequent to initial recognition, the lease asset is depreciated using the straight-line method over the earlier of the end of the useful life of the lease asset or the lease term.
Lease liabilities are initially measured at the present value of lease payments discounted at the rate implicit in the lease, or if not readily determinable, the Company's incremental borrowing rate. Lease payments include fixed lease payments, variable lease payments based on indices or rates, residual value guarantees, and purchase options expected to be exercised. Subsequent to initial recognition, the lease liability is measured at amortized cost using the effective interest method. Lease liabilities are remeasured if there are changes in the lease term or if the Company changes its assessment of whether it is reasonably certain it will exercise a purchase, extension or termination option. Lease liabilities are also remeasured if there are changes in the estimate of the amounts payable under the lease due to changes in indices or rates, or residual value guarantees.
Lease assets are reported in a separate caption in the consolidated balance sheet. Lease liabilities are reported within other long-term liabilities in the consolidated balance sheet.
Depreciation on lease assets used in the construction of property, plant and equipment is capitalized to the cost of those assets over their period of use until such time as the property, plant and equipment is substantially available for its intended use.
Where the Company acts as the operator of a joint operation, the Company recognizes 100% of the related lease asset and lease liability. As the Company recovers its joint operation partners' share of the costs of the lease contract, these recoveries are recognized as other income in the consolidated statements of earnings.
Effective January 1, 2019 on adoption of IFRS 16, the Company has applied the following significant accounting estimates and judgments in respect of lease accounting:
Purchase, extension and termination options are included in certain of the Company's leases to provide operational flexibility. To measure the lease liability, the Company uses judgment to assess the likelihood of exercising these options. These assessments are reviewed when significant events or circumstances indicate that the likelihood of exercising these options may have changed. The Company also uses estimates to determine its incremental borrowing costs if the interest rate implicit in the lease is not readily determinable.
Changes in other accounting policies
In October 2017, the IASB issued amendments to IAS 28 "Investments in Associates and Joint Ventures" to clarify that the impairment provisions in IFRS 9 apply to financial instruments in an associate or joint venture that are not accounted for using the equity method, including long-term assets that form part of the net investment in the associate or the joint venture. The Company retrospectively adopted the amendments on January 1, 2019. These amendments did not have a significant impact on the Company's consolidated financial statements.
In June 2017, the IASB issued IFRIC 23 "Uncertainty over Income Tax Treatments". The interpretation provides guidance on how to reflect the effects of uncertainty in accounting for income taxes where IAS 12 is unclear. The Company adopted the interpretation on January 1, 2019. The interpretation did not have a significant impact on the Company's consolidated financial statements.


Canadian Natural Resources Limited
6
Nine Months Ended September 30, 2019

3. EXPLORATION AND EVALUATION ASSETS
 
Exploration and Production
Oil Sands
Mining and Upgrading

Total

 
North America

North Sea

Offshore Africa

 
 
Cost
 
 
 
 
 
At December 31, 2018
$
2,348

$
—

$
37

$
252

$
2,637

Additions
38

—

35

—

73

Acquisition of Devon assets (note 4)
91

—

—

—

91

Transfers to property, plant and equipment
(185
)
—

—

—

(185
)
At September 30, 2019
$
2,292

$
—

$
72

$
252

$
2,616


4. PROPERTY, PLANT AND EQUIPMENT
 
Exploration and Production
 
Oil Sands
 Mining and Upgrading


Midstream and Refining


Head
Office

 
Total

 
North
America


North Sea


Offshore
Africa

 
 
 
 
 
 
 
 
Cost
 
 
 
 
 
 
 
 
 
 
 
 
 
At December 31, 2018
$
67,007

 
$
7,321

 
$
5,471

 
$
43,147

 
$
441

 
$
435

 
$
123,822

Additions
2,170


237


171


1,316


9


26

 
3,929

Acquisition of Devon assets
3,325


—


—


—


—


—

 
3,325

Transfers from E&E assets
185


—


—


—


—


—

 
185

Disposals/derecognitions and other
(393
)

—


(1,515
)

(166
)

—


(3
)
 
(2,077
)
Foreign exchange adjustments and other
—

 
(219
)
 
(175
)
 
—

 
—

 
—

 
(394
)
At September 30, 2019
$
72,294

 
$
7,339

 
$
3,952

 
$
44,297

 
$
450

 
$
458

 
$
128,790

Accumulated depletion and depreciation
 
 

 
 

 
 

 
 

 
 

At December 31, 2018
$
43,881

 
$
5,735

 
$
4,203

 
$
4,981

 
$
138

 
$
325

 
$
59,263

Expense
2,309

 
174

 
172

 
1,126

 
11

 
18

 
3,810

Disposals/derecognitions
(393
)
 
—

 
(1,515
)
 
(166
)
 
—

 
(3
)
 
(2,077
)
Foreign exchange adjustments and other
(3
)
 
(152
)
 
(138
)
 
(1
)
 
—

 
—

 
(294
)
At September 30, 2019
$
45,794

 
$
5,757

 
$
2,722

 
$
5,940

 
$
149

 
$
340

 
$
60,702

Net book value
 
 
 
 
 
 
 
 
 
 
 
 
 
 - at September 30, 2019
$
26,500

 
$
1,582

 
$
1,230

 
$
38,357

 
$
301

 
$
118

 
$
68,088

 - at December 31, 2018
$
23,126

 
$
1,586

 
$
1,268

 
$
38,166

 
$
303

 
$
110

 
$
64,559

Project costs not subject to depletion and depreciation
 
Sep 30
2019

 
Dec 31
2018

Thermal Oil Sands
 
$
165

 
$
1,424

During the nine months ended September 30, 2019, the Company acquired a number of producing crude oil and natural gas properties in the North America Exploration and Production segment, excluding the impact of the acquisition disclosed below, for net cash consideration of $62 million and assumed associated asset retirement obligations of $20 million. No net deferred income tax liabilities or pre-tax gains were recognized on these net transactions.

Canadian Natural Resources Limited
7
Nine Months Ended September 30, 2019

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 nine months ended September 30, 2019, pre-tax interest of $45 million (September 30, 2018 – $50 million) was capitalized to property, plant and equipment using a weighted average capitalization rate of 4.0% (September 30, 2018 – 3.9%).
Acquisition of Thermal In Situ and Primary Heavy Crude Oil Assets
On June 27, 2019, the Company completed the acquisition of substantially all of the assets of Devon Canada Corporation ("Devon") including thermal in situ and heavy crude oil assets, for total cash purchase consideration of $3,412 million, subject to final closing adjustments.
In connection with the acquisition, the Company arranged a new $3,250 million committed term facility (note 8) and assumed certain product transportation commitments (note 16).
The acquisition has been accounted for as a business combination using the acquisition method of accounting. The allocation of the purchase price was based on management's best estimates of the fair value of the assets and liabilities acquired as at the acquisition date. Key assumptions used in the determination of estimated fair value were future commodity prices, expected production volumes, quantity of reserves, asset retirement obligations, future development and operating costs, discount rates, and income taxes.
The following provides a summary of the net assets acquired and (liabilities) assumed relating to the acquisition:
Property, plant and equipment
$
3,325

Exploration and evaluation assets
91

Inventory, prepaids and other long-term assets
195

Accrued liabilities
(21
)
Asset retirement obligations
(178
)
Net assets acquired
$
3,412

The above amounts are estimates, and may be subject to change based on the receipt of new information.
As a result of the acquisition, revenue increased by approximately $770 million to $16,970 million and revenue, less production and transportation, blending and feedstock expenses increased by approximately $320 million to $9,058 million for the nine months ended September 30, 2019.
If the acquisition had been completed on January 1, 2019, the Company estimates that pro forma revenue, net of blending costs would have increased by approximately $1,010 million and pro forma revenue, net of blending costs, less production and transportation and feedstock expenses would have increased by approximately $670 million for the nine months ended September 30, 2019. Readers are cautioned that pro forma estimates are not necessarily indicative of the results of operations that would have resulted had the acquisition actually occurred on January 1, 2019, or of future results. Pro forma results are based on available historical information for the assets as provided to the Company and do not include any synergies that have or may arise subsequent to the acquisition date.







Canadian Natural Resources Limited
8
Nine Months Ended September 30, 2019

5. LEASES
Lease assets
 
Product transportation and storage

 
Field equipment and power

 
Offshore vessels and equipment

 
Office leases and other

 
Total

At January 1, 2019 (1)
$
823

 
$
332

 
$
252

 
$
132

 
$
1,539

Additions
444

 
40

 
12

 
6

 
502

Depreciation
(76
)
 
(40
)
 
(50
)
 
(20
)
 
(186
)
Derecognitions
—

 
(4
)
 
—

 
—

 
(4
)
Foreign exchange adjustments and other
(4
)
 
1

 
(9
)
 
—

 
(12
)
At September 30, 2019
$
1,187

 
$
329

 
$
205

 
$
118

 
$
1,839

(1) The Company adopted IFRS 16 "Leases" on January 1, 2019 using the modified retrospective approach. At December 31, 2018, the Company did not report any finance leases in accordance with its previous accounting policy for leases.
Lease assets, by Segment
 
 
Sep 30
2019

Exploration and Production
 
 
North America
 
$
309

North Sea
 
50

Offshore Africa
 
164

Oil Sands Mining and Upgrading
 
1,217

Head office
 
99

 
 
$
1,839

Lease liabilities
The Company measures its lease liabilities at the discounted value of its lease payments during the lease term. Lease liabilities at September 30, 2019 were as follows:
 
 
Sep 30
2019

Lease liabilities
 
$
1,855

Less: current portion
 
244

 
 
$
1,611

In addition to the lease assets disclosed above, on an ongoing basis the Company enters into short-term leases related to its Exploration and Production and Oil Sands Mining and Upgrading activities.
Other amounts included in net earnings for the period are provided below:
 
 
Three Months Ended

 
Nine Months Ended

 
 
Sep 30
2019


Sep 30
2019

Expenses relating to short-term leases (1)
 
$
110

 
$
336

Interest expense on lease liabilities
 
$
18

 
$
52

Variable lease payments not included in the measurement of lease liabilities
 
$
37

 
$
89

(1) In addition, during the three months ended September 30, 2019, the Company capitalized $70 million (nine months ended September 30, 2019 - $229 million) of short-term leases as additions to property, plant and equipment.

Canadian Natural Resources Limited
9
Nine Months Ended September 30, 2019

 
 
Three Months Ended

 
Nine Months Ended

 
 
Sep 30
2019


Sep 30
2019

Total cash outflows for leases during the period (1)
 
$
299

 
$
879

(1) Comprised of cash outflows relating to lease liabilities, short-term leases, and variable lease payments.
Impacts to the consolidated financial statements on transition
On transition to IFRS 16, the Company recognized $1,539 million of lease liabilities and corresponding lease assets. Lease liabilities were measured at the discounted value of lease payments using a weighted average incremental borrowing rate of 4.0% at January 1, 2019.
A reconciliation showing the impact of adoption of the standard is provided below:
 
 
Jan 1
2019

Leases previously reported as commitments at December 31, 2018 (1) (2) 
 
$
1,430

Impact of discounting
 
(317
)
Leases previously reported as commitments, discounted at January 1, 2019
 
1,113

 
 
 
Leases recognized at adoption on January 1, 2019:
 
 
Lease extension options and renewals reasonably certain to be exercised
 
243

Arrangements determined to be leases under IFRS 16
 
83

Leases entered into on behalf of a joint operation (3) 
 
100

Lease liabilities recognized at January 1, 2019
 
$
1,539

(1)
At December 31, 2018, the Company did not report any finance leases in accordance with its previous accounting policy for leases.
(2)
Commitments for operating leases, previously reported in note 16, are now reported as part of lease liabilities and included in other long-term liabilities in note 9. Operating leases previously reported in note 16 have been aggregated into one line in the reconciliation table. Other non-lease commitments continue to be reported in the table in note 16.
(3)
In accordance with the previous accounting for operating leases used in joint operations, the Company reported commitments and related expenses in accordance with the Company's proportionate interest in the joint operation. Under IFRS 16, where the Company acts as the operator of a joint operation, the Company recognizes 100% of the related lease asset and lease liability.























Canadian Natural Resources Limited
10
Nine Months Ended September 30, 2019

6. INVESTMENTS
As at September 30, 2019, the Company had the following investments:
 
 
Sep 30
2019

 
Dec 31
2018

Investment in PrairieSky Royalty Ltd.
 
$
418

 
$
400

Investment in Inter Pipeline Ltd.
 
149

 
124

 
 
$
567

 
$
524

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, measured at each reporting date. As at September 30, 2019, the Company’s investment in PrairieSky was classified as a current asset.
The (gain) loss from the investment in PrairieSky was comprised as follows:
 
 
Three Months Ended
 
 
Nine Months Ended
 
 
Sep 30
2019

 
Sep 30
2018

 
 
Sep 30
2019

 
Sep 30
2018

Fair value (gain) loss from PrairieSky
 
$
(2
)
 
$
73

 
 
$
(18
)
 
$
212

Dividend income from PrairieSky
 
(4
)
 
(5
)
 
 
(13
)
 
(13
)
 
 
$
(6
)
 
$
68

 
 
$
(31
)
 
$
199

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, measured at each reporting date. As at September 30, 2019, the Company's investment in Inter Pipeline was classified as a current asset.
The (gain) loss from the investment in Inter Pipeline was comprised as follows:
 
 
Three Months Ended
 
 
Nine Months Ended
 
 
Sep 30
2019

 
Sep 30
2018

 
 
Sep 30
2019

 
Sep 30
2018

Fair value (gain) loss from Inter Pipeline
 
$
(18
)
 
$
14

 
 
$
(25
)
 
$
23

Dividend income from Inter Pipeline
 
(3
)
 
(2
)
 
 
(8
)
 
(8
)
 
 
$
(21
)
 
$
12

 
 
$
(33
)
 
$
15













Canadian Natural Resources Limited
11
Nine Months Ended September 30, 2019

7. OTHER LONG-TERM ASSETS
 
 
Sep 30
2019

 
Dec 31
2018

Investment in North West Redwater Partnership
 
$
73

 
$
287

North West Redwater Partnership subordinated debt (1)
 
636

 
591

Prepaid cost of service toll
 
113

 
62

Risk management (note 15)
 
329

 
373

Other
 
230

 
146

 
 
1,381

 
1,459

Less: current portion
 
70

 
116

 
 
$
1,311

 
$
1,343

(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 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 2018, Redwater Partnership commenced commissioning activities in the Project's light oil units while continuing work on the heavy oil units. In the first quarter of 2019, the light oil units transitioned from pre-commissioning and startup to operations and are processing synthetic crude oil into refined products. Repairs to certain stainless steel piping were substantially complete in the third quarter of 2019 and the design modifications to the reactor burners in the gasifier unit are ongoing and will continue into the first quarter of 2020. In the third quarter of 2019, the light oil refinery entered a planned maintenance shutdown targeted to be completed in December 2019. Following startup, the light oil refinery will continue to process synthetic crude feedstock until the heavy oil units can reliably commence commercial processing of bitumen. As at September 30, 2019, the total estimate of capital costs incurred for the Project, net of margins from pre-commercial sales, was approximately $10 billion.
During 2013, the Company and APMC agreed, each with a 50% interest, to provide subordinated debt, bearing interest at prime plus 6%, as required for Project costs to reflect an agreed debt to equity ratio of 80/20. As at September 30, 2019, each party has provided $439 million of subordinated debt, together with accrued interest thereon of $197 million, for a Company total of $636 million. Any additional subordinated debt financing is not expected to be significant.
Pursuant to the processing agreements, on June 1, 2018 the Company began paying its 25% pro rata share of the debt portion of the monthly cost of service tolls, currently consisting of interest and fees, with principal repayments beginning in 2020 (see note 16). The Company is unconditionally obligated to pay this portion of the cost of service toll over the 30-year tolling period. As at September 30, 2019, the Company had recognized $113 million in prepaid cost of service tolls (December 31, 2018 - $62 million).
Redwater Partnership has a secured $3,500 million syndicated credit facility, of which $2,000 million is revolving and matures in June 2021 and the remaining $1,500 million is fully drawn on a non-revolving basis and matures in February 2020. As at September 30, 2019, Redwater Partnership had borrowings of $2,490 million under the syndicated credit facility.
During the three months ended September 30, 2019, the Company recognized an equity loss from Redwater Partnership of $88 million (three months ended September 30, 2018 – loss of $2 million; nine months ended September 30, 2019 – loss of $214 million; nine months ended September 30, 2018 – loss of $5 million). The equity loss for the nine months ended September 30, 2019 includes the impact of $149 million of interest expense and $62 million of depletion, depreciation and amortization expense recognized following the completion of commissioning and startup activities in the light oil units.






Canadian Natural Resources Limited
12
Nine Months Ended September 30, 2019

8. LONG-TERM DEBT
 
 
Sep 30
2019


Dec 31
2018

Canadian dollar denominated debt, unsecured
 
 
 
 
Bank credit facilities
 
$
2,403

 
$
831

Medium-term notes
 
4,800

 
5,300

 
 
7,203

 
6,131

US dollar denominated debt, unsecured
 
 

 
 

Bank credit facilities (September 30, 2019 – US$3,613 million;
     December 31, 2018 – US$2,954 million)
 
4,785

 
4,031

Commercial paper (September 30, 2019 – US$365 million;
     December 31, 2018 – US$104 million)
 
483

 
141

US dollar debt securities (September 30, 2019 – US$7,650 million;
     December 31, 2018 – US$7,650 million)
 
10,131

 
10,439

 
 
15,399

 
14,611

Long-term debt before transaction costs and original issue discounts, net
 
22,602

 
20,742

Less: original issue discounts, net (1)
 
17

 
17

transaction costs (1) (2)
 
96

 
102

 
 
22,489

 
20,623

Less: current portion of commercial paper
 
483

 
141

current portion of other long-term debt (1) (2)
 
3,553

 
1,000

 
 
$
18,453

 
$
19,482

(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.
Bank Credit Facilities and Commercial Paper
As at September 30, 2019, the Company had in place revolving bank credit facilities of $4,975 million, of which $4,504 million was available. Additionally, the Company had in place fully drawn term credit facilities of $7,200 million. Details of these facilities are described below. This excludes certain other dedicated credit facilities supporting letters of credit.
•
a $100 million demand credit facility;
•
a $1,000 million non-revolving term credit facility maturing May 2020;
•
a $2,200 million non-revolving term credit facility maturing October 2020;
•
a $750 million non-revolving term credit facility maturing February 2021;
•
a $2,425 million revolving syndicated credit facility maturing June 2021;
•
a $2,425 million revolving syndicated credit facility maturing June 2022;
•
a $3,250 million non-revolving term credit facility maturing June 2022; and
•
a £15 million demand credit facility related to the Company’s North Sea operations.
During the third quarter of 2019, the Company repaid and cancelled $800 million of the $1,800 million non-revolving term credit facility scheduled to mature in May 2020. Subsequent to September 30, 2019, the Company repaid and cancelled an additional $500 million of the remaining $1,000 million outstanding on this non-revolving term credit facility.
During the second quarter of 2019, the Company entered into a $3,250 million non-revolving term credit facility to finance the acquisition of assets from Devon (note 4). The facility matures in June 2022 and is subject to annual amortization of 5% of the original balance.
Borrowings under the Company's non-revolving term credit facilities may be made by way of pricing referenced to Canadian dollar bankers' acceptances, US dollar bankers’ acceptances, LIBOR, US base rate or Canadian prime rate. As at September 30, 2019, the non-revolving term credit facilities were fully drawn.
During the second quarter of 2019, the Company extended $330 million of the $2,425 million revolving syndicated credit facility originally due June 2019 to June 2021. The revolving credit facilities are 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 bankers' acceptances, US dollar bankers' acceptances, LIBOR, US base rate or Canadian prime rate.

Canadian Natural Resources Limited
13
Nine Months Ended September 30, 2019

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 revolving 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 September 30, 2019 was 2.5% (September 30, 2018 – 2.5%), and on total long-term debt outstanding for the nine months ended September 30, 2019 was 4.0% (September 30, 2018 – 3.9%).
As at September 30, 2019, letters of credit and guarantees aggregating to $444 million were outstanding.
Medium-Term Notes
During the second quarter of 2019, the Company repaid $500 million of 3.05% medium-term notes.
In July 2019, the Company filed a new 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 August 2021, replacing the Company's previous base shelf prospectus, which would have expired in August 2019. 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
In July 2019, the Company filed a new 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 August 2021, replacing the Company's previous base shelf prospectus, which would have expired in August 2019. 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.

9. OTHER LONG-TERM LIABILITIES
 
 
Sep 30
2019

 
Dec 31
2018

Asset retirement obligations
 
$
5,334

 
$
3,886

Share-based compensation
 
172

 
124

Lease liabilities (note 5)
 
1,855


—

Risk management (note 15)
 
4

 
17

Deferred purchase consideration (1)
 
95

 
118

Other
 
126

 
80

 
 
7,586

 
4,225

Less: current portion
 
511

 
335

 
 
$
7,075

 
$
3,890

(1) Relates to the acquisition of the Joslyn oil sands project in 2018, payable in annual installments of $25 million over the next four years.

Canadian Natural Resources Limited
14
Nine Months Ended September 30, 2019

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 discounted using a weighted average discount rate of 4.0% (December 31, 2018 – 5.0%) and inflation rates of up to 2% (December 31, 2018 – up to 2%). Reconciliations of the discounted asset retirement obligations were as follows:
 
 
Sep 30
2019

 
Dec 31
2018

Balance – beginning of period
 
$
3,886

 
$
4,327

Liabilities incurred
 
3

 
19

Liabilities acquired, net
 
198

 
6

Liabilities settled
 
(212
)
 
(290
)
Asset retirement obligation accretion
 
140

 
186

Revision of cost, inflation rates and timing estimates
 
146

 
(111
)
Change in discount rates
 
1,199

 
(334
)
Foreign exchange adjustments
 
(26
)
 
83

Balance – end of period
 
5,334

 
3,886

Less: current portion
 
98

 
186

 
 
$
5,236

 
$
3,700


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 of the liability represents the maximum amount of the liability payable within the next twelve month period if all vested stock options are surrendered.
 
 
Sep 30
2019

 
Dec 31
2018

Balance – beginning of period
 
$
124

 
$
414

Share-based compensation expense (recovery)
 
62

 
(146
)
Cash payment for stock options surrendered
 
(1
)
 
(5
)
Transferred to common shares
 
(17
)
 
(120
)
   Charged to (recovered from) Oil Sands Mining and Upgrading, net
 
4

 
(19
)
Balance – end of period
 
172

 
124

Less: current portion
 
124

 
92

 
 
$
48

 
$
32

Included within share-based compensation liability as at September 30, 2019 was $29 million related to performance share units granted to certain executive employees (December 31, 2018 – $13 million).

Canadian Natural Resources Limited
15
Nine Months Ended September 30, 2019

10. INCOME TAXES
The provision for income tax was as follows:
 
 
Three Months Ended
 
 
Nine Months Ended
Expense (recovery)
 
Sep 30
2019

 
Sep 30
2018

 
 
Sep 30
2019

 
Sep 30
2018

Current corporate income tax – North America
 
$
133

 
$
169

 
 
$
374

 
$
566

Current corporate income tax – North Sea
 
15

 
12

 
 
72

 
20

Current corporate income tax – Offshore Africa
 
14

 
22

 
 
37

 
43

Current PRT (1) – North Sea
 
(4
)
 
(9
)
 
 
(89
)
 
(29
)
Other taxes
 
3

 
3

 
 
9

 
8

Current income tax
 
161

 
197

 
 
403

 
608

Deferred corporate income tax
 
176

 
145

 
 
(1,089
)
 
428

Deferred PRT (1) – North Sea
 
—

 
1

 
 
1

 
18

Deferred income tax
 
176

 
146

 
 
(1,088
)
 
446

Income tax
 
$
337

 
$
343

 
 
$
(685
)
 
$
1,054

(1) Petroleum Revenue Tax
In the second quarter of 2019, the Government of Alberta enacted legislation that decreased the provincial corporate income tax rate from 12% to 11% effective July 2019, with a further 1% rate reduction every year on January 1 until the provincial corporate income tax rate is 8% on January 1, 2022. As a result of these corporate income tax rate reductions, the Company's deferred corporate income tax liability decreased by $1,618 million.


































Canadian Natural Resources Limited
16
Nine Months Ended September 30, 2019

11. SHARE CAPITAL
Authorized
Preferred shares issuable in a series.
Unlimited number of common shares without par value.
 
 
Nine Months Ended Sep 30, 2019
Issued common shares
 
Number of shares
(thousands)

 
Amount

Balance – beginning of period
 
1,201,886

 
$
9,323

Issued upon exercise of stock options
 
4,470

 
148

Previously recognized liability on stock options exercised for common shares
 
—

 
17

Purchase of common shares under Normal Course Issuer Bid
 
(22,150
)
 
(174
)
Balance – end of period
 
1,184,206

 
$
9,314

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 6, 2019, the Board of Directors declared a quarterly dividend of $0.375 per common share, an increase from the previous quarterly dividend of $0.335 per common share.
Normal Course Issuer Bid
On May 21, 2019, the Company's application was approved 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 59,729,706 common shares, over a 12-month period commencing May 23, 2019 and ending May 22, 2020. The Company's Normal Course Issuer Bid announced in May 2018 expired on May 22, 2019.
For the nine months ended September 30, 2019, the Company purchased 22,150,000 common shares at a weighted average price of $36.16 per common share for a total cost of $801 million. Retained earnings were reduced by $627 million, representing the excess of the purchase price of common shares over their average carrying value. Subsequent to September 30, 2019, the Company purchased 1,350,000 common shares at a weighted average price of $33.70 per common share for a total cost of $45 million.
Stock Options
The following table summarizes information relating to stock options outstanding at September 30, 2019:
 
 
Nine Months Ended Sep 30, 2019
 
 
Stock options
(thousands)

 
Weighted
 average
 exercise price

Outstanding – beginning of period
 
46,685

 
$
37.92

Granted
 
15,924

 
$
34.79

Surrendered for cash settlement
 
(689
)
 
$
34.80

Exercised for common shares
 
(4,470
)
 
$
33.05

Forfeited
 
(2,777
)
 
$
38.03

Outstanding – end of period
 
54,673

 
$
37.44

Exercisable – end of period
 
16,150

 
$
37.52

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.




Canadian Natural Resources Limited
17
Nine Months Ended September 30, 2019

12. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The components of accumulated other comprehensive income (loss), net of taxes, were as follows:
 
 
Sep 30
2019

 
Sep 30
2018

Derivative financial instruments designated as cash flow hedges
 
$
74

 
$
9

Foreign currency translation adjustment
 
24

 
(42
)
 
 
$
98

 
$
(33
)

13. CAPITAL DISCLOSURES
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 net current and long-term debt divided by the sum of the carrying value of shareholders’ equity plus net 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 September 30, 2019, the ratio was within the target range at 39.1%.
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.
 
 
Sep 30
2019

 
Dec 31
2018

Long-term debt, net (1)
 
$
22,313

 
$
20,522

Total shareholders’ equity
 
$
34,794

 
$
31,974

Debt to book capitalization
 
39.1%

 
39.1%

(1)
Includes the current portion of long-term debt, net of cash and cash equivalents.
The Company is subject to a financial covenant that requires debt to book capitalization as defined in its credit facility agreements to not exceed 65%. At September 30, 2019, the Company was in compliance with this covenant.

14. NET EARNINGS PER COMMON SHARE
 
 
 
Three Months Ended
 
 
Nine Months Ended
 
 
 
Sep 30
2019

 
Sep 30
2018

 
 
Sep 30
2019

 
Sep 30
2018

Weighted average common shares outstanding
– basic (thousands of shares)
 
1,185,589

 
1,218,784

 
 
1,193,184

 
1,223,449

Effect of dilutive stock options (thousands of shares)
 
1,533

 
6,083

 
 
2,143

 
6,186

Weighted average common shares outstanding
– diluted (thousands of shares)
 
1,187,122

 
1,224,867

 
 
1,195,327

 
1,229,635

Net earnings
 
$
1,027

 
$
1,802

 
 
$
4,819

 
$
3,367

Net earnings per common share
– basic
 
$
0.87

 
$
1.48

 
 
$
4.04

 
$
2.75

 
– diluted
 
$
0.87

 
$
1.47

 
 
$
4.03

 
$
2.74



Canadian Natural Resources Limited
18
Nine Months Ended September 30, 2019

15. FINANCIAL INSTRUMENTS
The carrying amounts of the Company’s financial instruments by category were as follows:
 
 
Sep 30, 2019
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
 
$
2,405

 
$
—

 
$
—

 
$
—

 
$
2,405

Investments
 
—

 
567

 
—

 
—

 
567

Other long-term assets
 
636

 
1

 
328

 
—

 
965

Accounts payable
 
—

 
—

 
—

 
(662
)
 
(662
)
Accrued liabilities
 
—

 
—

 
—

 
(2,561
)
 
(2,561
)
Other long-term liabilities (1)
 
—

 
(4
)
 
—

 
(1,950
)
 
(1,954
)
Long-term debt (2)
 
—

 
—

 
—

 
(22,489
)
 
(22,489
)
 
 
$
3,041

 
$
564

 
$
328

 
$
(27,662
)
 
$
(23,729
)
 
 
Dec 31, 2018
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
 
$
1,148

 
$
—

 
$
—

 
$
—

 
$
1,148

Investments
 
—

 
524

 
—

 
—

 
524

Other long-term assets
 
591

 
12

 
361

 
—

 
964

Accounts payable
 
—

 
—

 
—

 
(779
)
 
(779
)
Accrued liabilities
 
—

 
—

 
—

 
(2,356
)
 
(2,356
)
Other long-term liabilities (1)
 
—

 
(17
)
 
—

 
(118
)
 
(135
)
Long-term debt (2)
 
—

 
—

 
—

 
(20,623
)
 
(20,623
)
 
 
$
1,739

 
$
519

 
$
361

 
$
(23,876
)
 
$
(21,257
)
(1)
Includes $1,855 million of lease liabilities (December 31, 2018 – $nil) and $95 million of deferred purchase consideration payable over the next four years (December 31, 2018 – $118 million).
(2)
Includes the current portion of long-term debt.

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 investments, recurring other long-term assets (liabilities) and fixed rate long-term debt are outlined below:
 
 
 
Sep 30, 2019
 
 
Carrying amount
 
 
 Fair value
Asset (liability) (1) (2)
 
 
 

 
Level 1

 
Level 2

 
Level 3 (4) (5)

Investments (3)
 
 
$
567

 
$
567

 
$
—

 
$
—

Other long-term assets
 
 
$
965

 
$
—

 
$
329

 
$
636

Other long-term liabilities
 
 
$
(99
)
 
$
—

 
$
(4
)
 
$
(95
)
Fixed rate long-term debt (6) (7)
 
 
$
(14,818
)
 
$
(16,594
)
 
$
—

 
$
—


Canadian Natural Resources Limited
19
Nine Months Ended September 30, 2019

 
 
 
Dec 31, 2018
 
 
Carrying amount
 
 
Fair value
Asset (liability) (1) (2)
 
 
 
 
Level 1

 
Level 2

 
Level 3 (4) (5)

Investments (3)
 
 
$
524

 
$
524

 
$
—

 
$
—

Other long-term assets
 
 
$
964

 
$
—

 
$
373

 
$
591

Other long-term liabilities
 
 
$
(135
)
 
$
—

 
$
(17
)
 
$
(118
)
Fixed rate long-term debt (6) (7)
 
 
$
(15,620
)
 
$
(15,952
)
 
$
—

 
$
—

(1)
Excludes financial assets and liabilities where the carrying amount approximates fair value due to the short-term nature of the asset or liability (cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, and purchase consideration payable), as well as lease liabilities, where carrying amount approximates fair value.
(2)
There were no transfers between Level 1, 2 and 3 financial instruments.
(3)
The fair values of the investments are based on quoted market prices.
(4)
The fair value of the deferred purchase consideration included in other long-term liabilities is based on the present value of future cash payments.
(5)
The fair value of Redwater Partnership subordinated debt is based on the present value of future cash receipts.
(6)
The fair value of fixed rate long-term debt has been determined based on quoted market prices.
(7)
Includes the current portion of fixed rate long-term debt.
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 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)
 
Sep 30
2019

 
Dec 31
2018

Derivatives held for trading
 
 
 
 
Foreign currency forward contracts
 
$
1

 
$
8

Natural gas AECO basis swaps
 
(2
)
 
1

Natural gas AECO fixed price swaps
 
(2
)
 
3

Crude oil WCS (1) differential swaps
 
—

 
(17
)
Cash flow hedges
 
 

 
 

Foreign currency forward contracts
 
7

 
70

Cross currency swaps
 
321

 
291

 
 
$
325

 
$
356

 
 
 
 
 
Included within:
 
 

 
 

Current portion of other long-term assets
 
$
17

 
$
92

Current portion of other long-term liabilities
 
(4
)
 
(17
)
Other long-term assets
 
312

 
281

 
 
$
325

 
$
356

(1)
Western Canadian Select
For the nine months ended September 30, 2019, the Company recognized a gain of $2 million (year ended December 31, 2018 – gain of $2 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 interest rate yield curves, and Canadian and United States forward foreign exchange rates, discounted to 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.

Canadian Natural Resources Limited
20
Nine Months Ended September 30, 2019

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)
Sep 30
2019
 
 
Dec 31
2018

Balance – beginning of period
 
$
356

 
$
101

Net change in fair value of outstanding derivative financial instruments
recognized in:
 
 

 
 

Risk management activities
 
4

 
35

Foreign exchange
 
(103
)
 
260

Other comprehensive income (loss)
 
68

 
(40
)
Balance – end of period
 
325

 
356

Less: current portion
 
13

 
75

 
 
$
312

 
$
281

Net (gain) loss from risk management activities were as follows:
 
 
Three Months Ended
 
Nine Months Ended
 
 
Sep 30
2019

 
Sep 30
2018

 
Sep 30
2019

 
Sep 30
2018

Net realized risk management (gain) loss
 
$
(1
)
 
$
(8
)
 
$
53

 
$
(54
)
Net unrealized risk management gain
 
(2
)
 
(21
)
 
(4
)
 
(62
)
 
 
$
(3
)
 
$
(29
)
 
$
49

 
$
(116
)
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 September 30, 2019, the Company had the following derivative financial instruments outstanding to manage its commodity price risk:
 
Remaining term
Volume
Weighted average price
Index
Natural Gas
 
 
 
 
 
 
 
 
AECO basis swaps
Nov 2019
–
Mar 2020
95,000 MMbtu/d
 
 
US$0.96
NYMEX
AECO fixed price swaps
Apr 2020
–
Oct 2020
102,500 GJ/d
 
 
$1.51
AECO
 
 
 
Oct 2019
115,000 GJ/d
 
 
$1.32
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.
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 September 30, 2019, the Company had no interest rate swap contracts outstanding.




Canadian Natural Resources Limited
21
Nine Months Ended September 30, 2019

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 September 30, 2019, 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
Oct 2019
–
Nov 2021
US$500
1.022

3.45
%
3.96
%
 
Oct 2019
–
Mar 2038
US$550
1.170

6.25
%
5.76
%
All cross currency swap derivative financial instruments were designated as hedges at September 30, 2019 and were classified as cash flow hedges.
In addition to the cross currency swap contracts noted above, at September 30, 2019, the Company had US$4,531 million of foreign currency forward contracts outstanding, with original terms of up to 90 days, including US$3,978 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 September 30, 2019, 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 September 30, 2019, the Company had net risk management assets of $327 million with specific counterparties related to derivative financial instruments (December 31, 2018 – $361 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
22
Nine Months Ended September 30, 2019

The maturity dates of the Company’s financial liabilities were as follows:
 
Less than
1 year

 
1 to less than
2 years

 
2 to less than
5 years

 
Thereafter

Accounts payable
$
662

 
$
—

 
$
—

 
$
—

Accrued liabilities
$
2,561

 
$
—

 
$
—

 
$
—

Long-term debt (1)
$
4,040

 
$
3,112


$
7,067


$
8,383

Other long-term liabilities (2)
$
273

 
$
205


$
435


$
1,041

Interest and other financing expense (3)
$
936

 
$
786

 
$
1,771

 
$
5,038

(1)
Long-term debt represents principal repayments only and does not reflect interest, original issue discounts and premiums or transaction costs.
(2)
Lease payments included within other long-term liabilities reflect principal payments only and are as follows; less than one year, $244 million; one to less than two years, $180 million; two to less than five years, $390 million; and thereafter $1,041 million.
(3)
Includes interest and other financing expense on long-term debt and other long-term liabilities. Payments were estimated based upon applicable interest and foreign exchange rates at September 30, 2019.

16. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company has committed to certain payments. The following table summarizes the Company’s commitments as at September 30, 2019 (1):
 
2019

 
2020

 
2021

 
2022

 
2023

 
Thereafter

Product transportation (2)
$
177


$
719


$
688


$
615


$
502


$
4,722

North West Redwater Partnership service toll (3)
$
17


$
118


$
163


$
148


$
158


$
2,854

Offshore vessels and equipment
$
26


$
70


$
64


$
9


$
—


$
—

Field equipment and power
$
13


$
20


$
21


$
20


$
21


$
274

Other
$
7


$
25


$
21


$
18


$
17


$
48

(1)
Subsequent to the adoption of IFRS 16, the Company reports its payments for lease liabilities in the maturity table in note 15.
(2)
On June 27, 2019, the Company assumed $2,381 million of product transportation commitments related to the acquisition of assets from Devon.
(3)
Pursuant to the processing agreements, on June 1, 2018 the Company began paying its 25% pro rata share of the debt portion of the monthly cost of service toll, which currently consists of interest and fees, with principal repayments beginning in 2020. Included in the cost of service toll is $1,126 million of interest payable over the 30 year tolling period (see note 7).
In addition to the commitments disclosed above, the Company has entered into various agreements related to the engineering, procurement and construction of its various development projects. 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
23
Nine Months Ended September 30, 2019

17. SEGMENTED INFORMATION

 
 North America
North Sea
Offshore Africa
Total Exploration and Production
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
Nine Months Ended
Three Months Ended
Nine Months Ended
Three Months Ended
Nine Months Ended
Three Months Ended
Nine Months Ended
 
Sep 30
Sep 30
Sep 30
Sep 30
Sep 30
Sep 30
Sep 30
Sep 30
(millions of Canadian dollars,
unaudited)

2019

2018

2019

2018

2019

2018

2019

2018

2019

2018

2019

2018

2019

2018

2019

2018

Segmented product sales
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Crude oil and NGLs
2,661

2,162

6,797

6,331

218

201

563

535

226

230

538

424

3,105

2,593

7,898

7,290

Natural gas
199

265

823

834

9

45

45

112

16

18

52

53

224

328

920

999

Other (1)
1

—

6

—

1

—

3

—

3

—

6

—

5

—

15

—

Total segmented product sales
2,861

2,427

7,626

7,165

228

246

611

647

245

248

596

477

3,334

2,921

8,833

8,289

Less: royalties
(266
)
(247
)
(690
)
(685
)
—

—

(1
)
(1
)
(14
)
(22
)
(35
)
(42
)
(280
)
(269
)
(726
)
(728
)
Segmented revenue
2,595

2,180

6,936

6,480

228

246

610

646

231

226

561

435

3,054

2,652

8,107

7,561

Segmented expenses
 

 

 
 
 

 

 
 
 

 

 
 
 
 
 
 
Production
624

576

1,797

1,816

103

96

270

271

37

52

79

121

764

724

2,146

2,208

Transportation, blending and feedstock
793

613

1,893

2,046

5

6

15

18

—

—

1

1

798

619

1,909

2,065

Depletion, depreciation and
amortization
858

795

2,391

2,353

83

53

210

169

80

69

192

139

1,021

917

2,793

2,661

Asset retirement obligation
accretion
27

22

68

66

6

7

21

21

1

2

4

7

34

31

93

94

Risk management activities (commodity derivatives)
7

(32
)
36

(19
)
—

—

—

—

—

—

—

—

7

(32
)
36

(19
)
Gain on acquisition and revaluation of properties
—

(272
)
—

(272
)
—

—

—

(139
)
—

—

—

—

—

(272
)
—

(411
)
Equity loss from investments
—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

Total segmented expenses
2,309

1,702

6,185

5,990

197

162

516

340

118

123

276

268

2,624

1,987

6,977

6,598

Segmented earnings (loss) before the following
286

478

751

490

31

84

94

306

113

103

285

167

430

665

1,130

963

Non–segmented expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Administration
 

 

 
 
 

 

 
 
 

 

 
 
 
 
 
 
Share-based compensation
 

 

 
 
 

 

 
 
 

 

 
 
 
 
 
 
Interest and other financing
expense
 

 

 
 
 

 

 
 
 

 

 
 
 
 
 
 
Risk management activities (other)
 

 

 
 
 

 

 
 
 

 

 
 
 
 
 
 
Foreign exchange loss (gain)
 

 

 
 
 

 

 
 
 

 

 
 
 
 
 
 
(Gain) loss from investments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total non–segmented expenses
 

 

 
 
 

 

 
 
 

 

 
 
 
 
 
 
Earnings before taxes
 

 

 
 
 

 

 
 
 

 

 
 
 
 
 
 
Current income tax expense
 

 

 
 
 

 

 
 
 

 

 
 
 
 
 
 
Deferred income tax expense (recovery)
 

 

 
 
 

 

 
 
 

 

 
 
 
 
 
 
Net earnings
 

 

 
 
 

 

 
 
 

 

 
 
 
 
 
 

Canadian Natural Resources Limited
24
Nine Months Ended September 30, 2019

 
 Oil Sands Mining and Upgrading
Midstream and Refining
 Inter–segment
elimination and other
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
Nine Months Ended
Three Months Ended
Nine Months Ended
Three Months Ended
Nine Months Ended
Three Months Ended
Nine Months Ended
 
Sep 30
Sep 30
Sep 30
Sep 30
Sep 30
Sep 30
Sep 30
Sep 30
(millions of Canadian dollars,
unaudited)

2019

2018

2019

2018

2019

2018

2019

2018

2019

2018

2019

2018

2019

2018

2019

2018

Segmented product sales
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Crude oil and NGLs (2)
3,117

3,219

8,707

9,683

21

26

62

78

81

129

336

290

6,324

5,967

17,003

17,341

Natural gas
—

—

—

—

—

—

—

—

33

32

117

111

257

360

1,037

1,110

Other (1)
1

—

4

—

—

—

—

—

—

—

—

—

6

—

19

—

Total segmented product sales
3,118

3,219

8,711

9,683

21

26

62

78

114

161

453

401

6,587

6,327

18,059

18,451

Less: royalties
(147
)
(159
)
(363
)
(398
)
—

—

—

—

—

—

—

—

(427
)
(428
)
(1,089
)
(1,126
)
Segmented revenue
2,971

3,060

8,348

9,285

21

26

62

78

114

161

453

401

6,160

5,899

16,970

17,325

Segmented expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Production
784

842

2,420

2,570

4

5

15

16

14

14

48

43

1,566

1,585

4,629

4,837

Transportation, blending and (2)
  feedstock
357

265

976

913

—

—

—

—

93

147

398

347

1,248

1,031

3,283

3,325

Depletion, depreciation and
amortization
401

385

1,192

1,161

4

4

11

11

—

—

—

—

1,426

1,306

3,996

3,833

Asset retirement obligation
accretion
16

16

47

46

—

—

—

—

—

—

—

—

50

47

140

140

Risk management activities (commodity derivatives)
—

—

—

—

—

—

—

—

—

—

—

—

7

(32
)
36

(19
)
Gain on acquisition and revaluation of properties
—

—

—

—

—

—

—

—

—

—

—

—

—

(272
)
—

(411
)
Equity loss from investments
—

—

—

—

88

2

214

5

—

—

—

—

88

2

214

5

Total segmented expenses
1,558

1,508

4,635

4,690

96

11

240

32

107

161

446

390

4,385

3,667

12,298

11,710

Segmented earnings (loss) before the following
1,413

1,552

3,713

4,595

(75
)
15

(178
)
46

7

—

7

11

1,775

2,232

4,672

5,615

Non–segmented expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Administration
 

 

 
 
 

 

 
 
 

 

 
 
95

77

249

234

Share-based compensation
 

 

 
 
 

 

 
 
 

 

 
 
7

(85
)
62

2

Interest and other financing
expense
 

 

 
 
 

 

 
 
 

 

 
 
231

180

619

560

Risk management activities (other)
 

 

 
 
 

 

 
 
 

 

 
 
(10
)
3

13

(97
)
Foreign exchange loss (gain)
 

 

 
 
 

 

 
 
 

 

 
 
115

(168
)
(341
)
281

(Gain) loss from investments
 
 
 
 
 
 
 
 
 
 
 
 
(27
)
80

(64
)
214

Total non–segmented expenses
 

 

 
 
 

 

 
 
 

 

 
 
411

87

538

1,194

Earnings before taxes
 

 

 
 
 

 

 
 
 

 

 
 
1,364

2,145

4,134

4,421

Current income tax expense
 

 

 
 
 

 

 
 
 

 

 
 
161

197

403

608

Deferred income tax expense (recovery)
 

 

 
 
 

 

 
 
 

 

 
 
176

146

(1,088
)
446

Net earnings
 

 

 
 
 

 

 
 
 

 

 
 
1,027

1,802

4,819

3,367

(1) 'Other' includes recoveries associated with the joint operation partners' share of the costs of lease contracts and other income of a trivial nature.
(2) Includes blending and feedstock costs associated with the processing of third party bitumen and other purchased feedstock in the Oil Sands Mining and Upgrading segment.

Canadian Natural Resources Limited
25
Nine Months Ended September 30, 2019

Capital Expenditures (1) 
 
Nine Months Ended
 
 
Sep 30, 2019
 
Sep 30, 2018
 
 
Net
 expenditures

 
Non-cash
and fair value changes (2)  

 
Capitalized
 costs

 
Net expenditures

 
Non-cash
and fair value changes (2)

 
Capitalized
 costs

 
 
 
 
 
 
 
 
 
 
 
 
 
Exploration and
evaluation assets
 
 
 
 
 
 
 
 
 
 
 
 
Exploration and
   Production
 
 
 
 
 
 
 
 
 
 
 
 
North America (3)
 
$
129

 
$
(185
)
 
$
(56
)
 
$
114

 
$
—

 
$
114

North Sea
 
—

 
—

 
—

 
—

 
—

 
—

Offshore Africa
 
35

 
—

 
35

 
29

 
—

 
29

Oil Sands Mining and Upgrading (4)
 
—

 
—

 
—

 
218

 
(3
)
 
215

 
 
$
164

 
$
(185
)
 
$
(21
)
 
$
361

 
$
(3
)
 
$
358

 
 
 
 
 
 
 
 
 
 
 
 
 
Property, plant and
   equipment
 
 

 
 

 
 

 
 

 
 

 
 

Exploration and
   Production
 
 

 
 

 
 

 
 

 
 

 
 

North America (3)
 
$
4,372

 
$
915

 
$
5,287

 
$
1,953

 
$
(113
)
 
$
1,840

North Sea
 
133

 
104

 
237

 
73

 
220

 
293

Offshore Africa (5)
 
145

 
(1,489
)
 
(1,344
)
 
129

 
—

 
129

 
 
4,650

 
(470
)
 
4,180

 
2,155

 
107

 
2,262

Oil Sands Mining and
   Upgrading (6)
 
1,004

 
146

 
1,150

 
812

 
(178
)
 
634

Midstream and Refining
 
9

 
—

 
9

 
11

 
—

 
11

Head office
 
26

 
(3
)
 
23

 
14

 
—

 
14

 
 
$
5,689

 
$
(327
)
 
$
5,362

 
$
2,992

 
$
(71
)
 
$
2,921

(1)
This table provides a reconciliation of capitalized costs, reported in note 3 and note 4, to net expenditures reported in the investing activities section of the statements of cash flows. The reconciliation excludes the impact of foreign exchange adjustments.
(2)
Derecognitions, asset retirement obligations, transfer of exploration and evaluation assets, and other fair value adjustments.
(3)
Includes cash consideration paid of $91 million for exploration and evaluation assets and $3,126 million for property, plant and equipment acquired from Devon in the second quarter of 2019.
(4)
In the third quarter of 2018, total purchase consideration for the acquisition of the Joslyn oil sands project included $222 million for exploration and evaluation assets and $4 million for asset retirement obligations assumed.
(5)
Includes a derecognition of $1,515 million following the FPSO demobilization at the Olowi field, Gabon in the first quarter of 2019.
(6)
Net expenditures for Oil Sands Mining and Upgrading also include capitalized interest and share-based compensation.
Segmented Assets
 
 
Sep 30
2019

 
Dec 31
2018

Exploration and Production
 
 
 
 
North America
 
$
31,770

 
$
27,199

North Sea
 
1,751

 
1,699

Offshore Africa
 
1,576

 
1,471

Other
 
70

 
33

Oil Sands Mining and Upgrading
 
41,728

 
39,634

Midstream and Refining
 
1,420

 
1,413

Head office
 
217

 
110

 
 
$
78,532

 
$
71,559


Canadian Natural Resources Limited
26
Nine Months Ended September 30, 2019

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 July 2019. 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 September 30, 2019:
 
Interest coverage (times)
 
   Net earnings (1)
4.7x
   Adjusted funds flow (2)
11.6x
(1)
Net earnings plus income taxes and interest expense; divided by the sum of interest expense and capitalized interest.
(2)
Adjusted funds flow plus current income taxes and interest expense; divided by the sum of interest expense and capitalized interest.



Canadian Natural Resources Limited
27
Nine Months Ended September 30, 2019