Title: Canadian Natural Resources Ltd. - CNQ/CNQ (T; N) C$30.15; US$29.36

Price: C$30.15;

StockRating: Outperform

TargetPrice: Cdn$40.00

June 19, 2013

Headline: A Wall Of Free Cash Flow On The Horizon Supports Dividend

The NBF Daily Bulletin

Oil & Gas Exploration and Production

Canadian Natural Resources Ltd. C$30.15; US$29.36

CNQ/CNQ (T; N)

Outperform

Stock Rating:

Cdn$40.00

Target:

(Unchanged)

Average

Risk Rating:

34%

Stock Data - Q1a 2013: 52-week High-Low (Cdn$)

$25.58 - $33.97

Dividend Yield

1.7%

Shares Outstanding (mln)

1,092.3

Market Cap. (mln)

$32,932

Net Debt (mln) Enterprise Value (mln)

$10,500 $43,432

Production

2012a

2013e

2014e

86,077

102,221

109,250

Oil & NGL's (bbls/d)

365,301

392,756

436,162

Nat. Gas (mmcf/d)

1,220.2

1,120.3

1,104.8

Boe/d (6:1)

654,742

681,691

729,540

% Nat. Gas

31%

27%

25%

Oil Sands (bbls/d)

Pricing WTI (US$/bbl)

2012a

2013e

2014e

$94.10

$93.00

$89.00

$111.94

$103.75

$97.25

AECO (Cdn$/mcf)

$2.38

$3.65

$4.00

Estimates

2012a

2013e

2014e

CFPS

$5.48

$6.28

$6.96

EPS

$1.47

$1.84

$2.17

DPS

$0.40

$0.48

$0.56

Cash Flow (mln)

$6,013

$6,840

$7,538

Operating Earnings (mln)

$1,618

$2,009

$2,348

Capex (mln)

$6,308

$6,945

$6,945

Net Debt (mln)

$10,000

$11,351

$11,665

D/CF

1.7 x

1.7 x

1.5 x

D / Capital

30%

32%

31%

Basic Payout (%)

7%

8%

8%

Total Payout (%)

112%

109%

100%

NAV ($/sh)

$32.61

CNAV ($/sh)

$40.52

Valuation

2012a

2013e

2014e

P/E

21.4 x

16.3 x

13.9 x

7.0 x

6.1 x

5.6 x

$65,562

$64,562

$60,758

EV/DACF EV/BOE/D

A Wall Of Free Cash Flow On The Horizon Supports Dividend Growth Strategy

(Unchanged)

Est. Total Return

Brent (US$/bbl)

Investor Day

(Unchanged)

P/CNAVPS

0.7x

HIGHLIGHTS 

Market Access Not a Big Concern; Rail to The Rescue CNQ held its annual investor day in Calgary on June 19, 2013. While market access and differentials were a key discussion topic it was not the central focus of the presentation. CNQ remains confident that the Keystone XL pipeline will get built eventually and believes that rail will easily fill any pipeline shortfalls.



A Wall of Free Cash Flow on The Horizon The main focus of the presentation was on the depth and diversity of CNQ’s asset base and its well defined growth strategy which will lead to significant production growth and a wall of free cash flow in the not too distant future. This naturally led into a discussion on what it plans to do with all that free cash flow (~$6 bln +/-), which at this point sounds like it will be a mix of dividend growth, share buybacks and debt reduction.



Operational Updates and Near-term Catalysts We did not get much of an update on Horizon other than confirmation the turnaround was successful and completed on budget and that production is on track with guidance. The Pelican Lake 20 mbbl/d facility expansion was completed in mid-May (a few weeks ahead of schedule) and is currently facilitating the ramp-up of Pelican and Woodenhouse heavy oil production. The Septimus Montney plant expansion was completed ahead of schedule and is expected to start up July 1st. Kirby South is 97% complete and on budget with first steam expected Q3/13.



Long-term Positive But Near-term Headwinds Persist Overall, it was a good presentation and we continue to be impressed by the scale and diversity of its growth opportunities; however, we expect market access and Horizon concerns to continue weighing on the stock in the near term. Nonetheless, we remain positive on CNQ for the long term and reiterate our Outperform rating and $40 target price.

Source: Company reports, NBF estimates Note: Debt figures include convertible debentures All figures in Cdn$ unless otherwise noted

Industry Rating: Overweight (Oil & Gas Exploration and Production) (NBF Economics & Strategy Group)

Associate: Amy Chang - (403) 290-5627 [email protected] Associate: Marc Corbeil, CFA - (403) 441-0955 [email protected]

For required disclosures, please see end of document.

35,000

$35.00 $34.00

30,000

$33.00 Price ($/sh)

Kyle Preston, CFA, CMA - (403) 290-5102 [email protected]

Stock Performance

$32.00

25,000

$31.00

20,000

$30.00 $29.00

15,000

$28.00

10,000

$27.00

5,000

$26.00 $25.00 Jun-12 Source: Bloomberg

Aug-12

Oct-12

Dec-12

Feb-13

Apr-13

0 Jun-13

Volume (000's)

Company Profile: Canadian Natural Resources is a diversified senior oil and gas producer with upstream operations in Western Canada, the North Sea and offshore West Africa. The company was established over 20 years ago and has grown to be one of the largest oil & gas companies in Canada today and holds claim to being the largest heavy oil producer in Canada. Canadian Natural trades on the TSX (CNQ) and NYSE (CNQ).

Page 2

Investor Day Highlights CNQ held its annual investor day in Calgary on June 19, 2013 which we had the privilege of attending. While market access and differentials was a key discussion topic in the presentation, it was not the central focus of the investor day. In fact, CNQ remains confident that the Keystone XL pipeline will get built eventually and believes that rail will easily fill any pipeline shortfalls. As such we did not get a detailed rail strategy from CNQ as we thought we might. Instead, the main focus of the presentation was on the depth and diversity of its asset base and its well defined growth strategy which will lead to a wall of free cash flow in the not too distant future. The transition to longer-life assets will drive significant production growth and see over 60% of production coming from Horizon, Thermal and Pelican Lake by 2018. This production growth will contribute to a significant wall of free cash flow in 2018 and beyond ($6 bln +/-) as some of the larger-scale projects ramp up while capex requirements subside. This naturally led into a discussion on what it plans to do with all that free cash flow which at this point sounds like it will be a mix of dividend growth, share buybacks and debt reduction. Overall, it was a good overview and we continue to be impressed by the scale and diversity of its growth opportunities; however, we expect market access and Horizon concerns to continue weighing on the stock in the near term. Below we provide more details on some of the key discussion topics/themes from the investor day. Well Defined Growth Profile – All-in-all, the company did a good job highlighting its significant resource and predictable growth potential. CNQ’s asset base is diversified (with exposure to conventional oil/gas, oil sands and international light oil) to mitigate risks with any particular product/jurisdiction. With this predictable growth profile, the company has a significant wall of free cash flow coming in a few years primarily driven by Thermal In-situ oil sands growth and Horizon Phase 2/3 expansions (2018 and beyond). TARGETED TOTAL FREE CASH FLOW

Source: Company reports

Free Cash Flow Likely Directed Towards Dividend Growth and Share Buybacks – CNQ plans to use its significant free cash flow over the next decade to return capital to shareholders (through a balance of dividend increases and share buybacks) and debt reduction. From Jan. 1 to May 31, CNQ re-purchased 4.76 million shares at an average price of $31.35/share (vs. 11 million shares repurchased at an average price of $28.91/share in 2012) and indicated that it would continue to do further share repurchases in the current environment. In addition, the company would consider selective M&A opportunities, but they would need to be accretive and compete with CNQ’s existing assets.

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Will Rail Bridge the Gap? – CNQ touched on its marketing and transportation strategy, emphasizing the use of rail as a scalable solution, but offered little in terms of new strategies to appease concerns if faced with ongoing pipeline delays. As the largest shipper on Keystone XL, CNQ remains convinced that the project will ultimately get approval, and that new pipeline capacity will eventually get built as needed. If projects are delayed, the company believes that incremental rail capacity will be added by industry to bridge the gap. CNQ currently ships ~13,000 bbl/d of its crude by rail to the U.S. Gulf Coast, and has the ability to increase its rail capacity beyond 30,000 bbl/d if needed. However, given the potential lag in adding new unit-train loading capacity and the limited availability of rail cars recently experienced by other producers, we believe CNQ’s “rail-on-demand” strategy could place it at a disadvantage if pipeline delays persist and new incremental rail capacity proves less nimble than originally thought. TAKEAWAY CAPACITY (WITH KEYSTONE XL)

(WITHOUT KEYSTONE XL)

Source: Company reports

Horizon Reliability – With the recent completion of the Horizon turnaround, management indicated that no major concerns were identified and reiterated that it should result in a step change improvement in reliability of the upgrader and improved efficiencies. However, the company did not provide much of an update on the current status at Horizon other than to say the 30-day turnaround was successful (completed end of May,) and was completed on budget. CNQ still expects to meet full -ear guidance of 100-108 mbbl/d, which compares with our forecast at the lower end of this range (~102 mbbls/d). Overall, we believe the market may be disappointed with lack of detail, and believe it could signal that the production ramp-up is taking a bit longer than anticipated.

Page 4

CNQ also discussed its Phase 2/3 Expansion plans to leverage prebuilt infrastructure and investment from Phase 1, which will increase capacity to 250,000 bbls/d of SCO. Between 2013 and 2016, CNQ plans to spend between $2.0 billion to $2.5 billion, per year on the Horizon expansion. Once these phases come online, Horizon itself is expected to generate between $3.5 billion to $4.5 billion of free cash flow from 2018 and beyond. Currently CNQ has approved 59% (versus 43% last year) of capital expenditures, committed 42% (versus 25% last year) and incurred 20% of the costs for Phase 2/3. In terms of operating costs, the company targets Horizon Phase 1 operating costs of ~$40/bbl (in line with our 2013E forecasts but higher than the mid-$30 opex target outlined last year), but the company still expects costs to moderate significantly longer term to $25 to $30/bbl following the completion of Phase 3. Operational Updates and Other Near-Term Catalysts – The following is a brief overview of recent operational updates provided by the company: 

Montney Asset Sale – CNQ selected a broker to market its Montney disposition package which includes 243,000 net acres at Graham/Kobes with access to proposed West Coast LNG projects. With an expected bid deadline in early October, the company expects to conclude a sale or JV by the end of the year, but emphasized that it would not sell unless the price was right.



Pelican Lake – The new 20 mbbl/d crude oil battery was commissioned in mid-May (a few weeks ahead of schedule) which has allowed ramp-up of heavy oil production from Pelican Lake and Woodenhouse with current production of 44,500 bbl/d from 38,020 bbl/d in Q1/13.



Septimus Montney plant expansion – The plant expansion to 125 mmcf/d + 12,200 bbl/d liquids was completed ahead of schedule and expected to start up July 1st which will facilitate growth of +65 mmcf/d of gas and 66,000 bbl/d of liquids.



Duvernay – Given the play’s early stage, CNQ does not have any current plans for full-scale commercial development, but will instead wait until industry players further delineate the play.

Page 5

FINANCIAL & OPERATING SUMMARY - CANADIAN NATURAL RESOURCES (CNQ) STOCK RATING TARGET PRICE TOTAL RETURN RISK RATING

Horizon Oil Sands Project Crude Oil & NGLs Natural Gas Total (boe/d) (6:1) % Natural Gas

Revenue Royalties Op. Costs Transportation Operating Netback Hedging G&A Interest & Tax/Other Cash Flow Netback

Revenue Cash Flow from Operations CFPS (basic) CFPS (diluted) Earnings EPS (basic) EPS (diluted) Capital Expenditures Acquisitions / (Dispositions) Total Dividends DPS Basic Payout Total Payout Net Debt Bank Debt - net of cash Long Term Notes Convertible Debentures D/CF Credit Facility

Shares Outstanding Basic - year-end Fully diluted - year-end Wtd Avg - diluted

OP $40.00 34% A

PRODUCTION MIX 2011a bbls/d 40,434 bbls/d 348,619 mmcf/d 1,256.8 boe/d 598,526 35%

CURRENT SHARE PRICE 52 WK HIGH / LOW MARKET CAP ($mln) ENTERPRISE VALUE ($mln)

$30.15 $33.97 / $25.58 $32,932 $43,432

CORE PROPERTIES 2012a 86,077 365,301 1,220.2 654,742 31%

NETBACKS 2011a 2012a $/boe $61.88 $57.92 -$7.85 -$6.70 -$16.80 -$17.73 -$1.55 -$1.82 $/boe $35.68 $31.67 -$0.46 -$0.68 -$1.08 -$1.13 -$4.17 -$4.77 $/boe $29.97 $25.10 FINANCIAL SUMMARY 2011a 2012a $mln $15,507 $16,195 $mln $6,547 $6,013 $5.98 $5.48 $5.94 $5.48 $mln $2,540 $1,618 $2.32 $1.47 $2.30 $1.47 $mln $6,414 $6,308 $0 $0 $6,414 $6,308 $mln $378 $444 $0.35 $0.40 6% 7% 104% 112% $mln $9,465 $10,000 $796 $971 $7,775 $7,765 NA NA 1.4x 1.7x $4,724 $4,724 SHARES OUTSTANDING 2011a 2012a mln 1096 1092 mln 1123 1121 mln 1103 1097

COMMODITY PRICE ASSUMPTIONS Commodity prices 2011a 2012a WTI Crude oil (US$/bbl) $95.05 $94.10 Brent Crude oil (US$/bbl) $111.07 $111.94 Canadian Par (C$/bbl) $95.36 $86.29 NYMEX gas (US$/mcf) $3.99 $2.75 AECO gas (C$/mcf) $3.62 $2.38 Exchange Rate (US$/C$) $1.01 $1.00 Source: Company reports, NBF estimates

2013e 102,221 392,756 1,120.3 681,691 27%

2014e 109,250 436,162 1,104.8 729,540 25%

2013e $58.96 -$6.29 -$18.35 -$1.74 $32.57 $0.34 -$1.22 -$4.20 $27.49

2014e $59.87 -$6.45 -$17.68 -$1.78 $33.96 $0.00 -$1.16 -$4.49 $28.31

2013e $17,265 $6,840 $6.28 $6.28 $2,009 $1.84 $1.84 $6,945 $0 $6,945 $522 $0.48 8% 109% $11,351 $2,307 $7,848 NA 1.7x $4,723

2014e $18,539 $7,538 $6.96 $6.96 $2,348 $2.17 $2.17 $6,945 $0 $6,945 $607 $0.56 8% 100% $11,665 $2,986 $7,483 NA 1.5x $4,723

2013e 1083 1105 1089

2013e $93.00 $103.75 $90.00 $3.90 $3.65 $0.98

2014e 1083 1105 1083

2014e $89.00 $97.25 $90.25 $4.20 $4.00 $0.96

North Sea

North America

Offshore Africa

NET ASSET VALUE (8%, after tax)* Present Value of Reserves (P+P) Other Assets Other Long-term Liabilities (ARO) Cash / (Net Debt) NET ASSET VALUE (NAV) Contingent Resource Value (risked) CONTINGENT NET ASSET VALUE (CNAV)

$mln $47,616 $3,054 ($4,562) ($10,500) $35,608

$/share $43.60 $2.80 ($4.18) ($9.61) $32.61

$8,640

$7.91

$44,248

$40.52

* debt and share count adjusted for subsequent financings

PDP Other

2012 RESERVES SUMMARY Reserves mmboe % 3,090 39% 1,928 24%

Proved Probable 2P

5,018 2,868 7,886

EV/DACF P/CF P/E EV/BOE/D EV/2P P/NAV P/CNAV

CNQ 6.1x 4.8x 16.3x $64,562 $5.32 0.9x 0.7x

64% 36% 100%

Total

2P RLI years

35.8

VALUATION 2013e 2014e Group Avg. CNQ Group Avg. 6.3x 5.6x 5.9x 5.5x 4.3x 4.9x 16.7x 13.9x 13.5x $72,235 $60,758 $68,277 $8.63 1.0x 0.8x

Page 6

DISCLOSURES: Ratings And What They Mean: PRIMARY STOCK RATING: NBF has a three-tiered rating system that is relative to the coverage universe of the particular analyst. Here is a brief description of each: Outperform – The stock is expected to outperform the analyst’s coverage universe over the next 12 months; Sector Perform – The stock is projected to perform in line with the sector over the next 12 months; Underperform – The stock is expected to underperform the sector over the next 12 months. SECONDARY STOCK RATING: Under Review − Our analyst has withdrawn the rating because of insufficient information and is awaiting more information and/or clarification; Tender − Our analyst is recommending that investors tender to a specific offering for the company’s stock; Restricted − Because of ongoing investment banking transactions or because of other circumstances, NBF policy and/or laws or regulations preclude our analyst from rating a company’s stock. INDUSTRY RATING: NBF has an Industry Weighting system that reflects the view of our Economics & Strategy Group, using its sector rotation strategy. The three tiered system rates industries as Overweight, Market Weight and Underweight, depending on the sector’s projected performance against broader market averages over the next 12 months. RISK RATING: NBF utilizes a four-tiered risk rating system, Low, Average, Above Average and Speculative. The system attempts to evaluate risk against the overall market. In addition to sector-specific criteria, analysts also utilize quantitative and qualitative criteria in choosing a rating. The criteria include predictability of financial results, share price volatility, credit ratings, share liquidity and balance sheet quality. General – National Bank Financial (NBF) is an indirect wholly owned subsidiary of National Bank of Canada. National Bank of Canada is a public company listed on Canadian stock exchanges. 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NBF quarterly ratings summary and the total ratings by month can be found on our website under Research and Analysis/Equities/About NBF Research/Quarterly Ratings Summary (link attached) http://www.nbcn.ca/cmst/site/index.jhtml?navid=803&templateID=249 The NBF Research Dissemination Policy is available on our website under Legal/Research Policy (link attached) http://www.nbcn.ca/cmst/site/index.jhtml?navid=712&templateid=243 Click on the following link to see the company specific disclosures http://www.nbcn.ca/contactus/disclosures.html If a company specific disclosure is not found herein for a listed company, NBF at this time does not provide research coverage or stock rating for the company in question.

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Canadian Natural Resources Ltd (CNQ) - ADDITIONAL COMPANY RELATED DISCLOSURES In the past 12 months NBF has not acted as financial advisor, fiscal agent or underwriter for the company that is the subject of this report. NBF may act in such a capacity in the future and receive, or expect to receive, compensation for such activities. NBF is an indirect wholly owned subsidiary of the National Bank of Canada. From time to time the National Bank of Canada may enter into lending or financial arrangements with companies that are the subject of NBF Research Reports. At the date of this report, National Bank of Canada is a lender to the company which is the subject of this report. NBF and/or its Affiliates may have a position in the securities mentioned herein and may make purchases and/or sales of these securities from time to time in the open market or otherwise. On the last day of the month preceding the date of this report, NBF and its Affiliates held in the aggregate less than 1% of the outstanding shares (of any class of equity securities) of this issuer. (14)