Prepared For: York University Student Investment Fund

Canadian Natural Resources Ltd. Artour Gassanov Sasa Stosic Justina Ha Sara Troka Natural Resources February 22nd, 2016

TSE: CNQ

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The information contained herein is intended only for educational and non-commercial purposes. The York University Student Investment Fund (YUSIF) disclaims the use of this information for any specific financial, legal, tax, or accounting advice, and assumes no responsibility or liability for the reproduction and consequences of any actions taken on the basis of the contained information. Any redistribution of this content without YUSIF’s express written consent is prohibited. In preparation of these pages, every effort has been made to offer the most current, correct, and clearly expressed information possible. Nevertheless, YUSIF is not in the business of advising and various factors may affect the accuracy of information contained within our documents.

Company Overview Business Model Canadian Natural Resources Limited is an independent oil and gas producer. Mainly downstream with operations in North America, offshore Africa, and UK (North Stream). Production includes heavy, medium, and light crude, bitumen, as well as dry and liquefied natural gas.

Management

Share Price History

N. Murray Edwards • Non-independent director • Chairman & founder of CNQ • Holds largest stake in CNQ • Canadian O&G industry leader, also holds Ensign Energy Services and Penn West Petrol Steve W. Laut • Non-independent director • President since April 2005 and Principal Executive Officer • Been with CNQ for 25 years, starting as engineer • Holds Bachelor of Science from University of Calgary Overview

Key Statistics Current Price: $29.00 Market Cap: $31.92B 52Week Range: $21.27 – 42.46 LTM EPS: $0.39 Dividend & Yield: 0.92 & 3.32%

*all in CDN

Segmentation Production Mix

Geographical Production

P2 Reserves

North America

Light, NGLs & SCO 30%

In Situ

108 mbbl/d

2312 mmbbl

Mining

111 mbbl/d

3593 mmbbl

283 mbbl/d

1173 mmbbl

1527 mmcf/d

7926 bcf

Crude Oil & NGLs

12 mbbl/d

149 mmbbl

Natural Gas

21 mmcf/d

98 bcf

Crude Oil & NGLs

17 mbbl/d

308 mmbbl

Natural Gas

7 mmcf/d

114 bcf

Oil Sands 35%

Heavy & Bitumen

Crude Oil & NGLs Natural Gas Offshore Africa

35% Natural Gas

• •

•

North Sea

Canadian Natural Resources Limited has garnered a diverse resource base with fairly equal weighing in their production mix; this allows for better responsiveness to any headwinds Has 8.89 mmboe P2 reserves, one of the largest in the entire industry, which allows CNQ to consistently beat production records and realize economies of scale • CNQ is able to outperform in capital deployment and technological advancement due to their size; for example polymer floor technology allowed record production at Pelican Lake play • Building SAGD (steam assisted gravity drainage) facilities in oil sands to facilitate greater production in bitumen segment Production is visibly dominantly in oil sands, thus push for In Situ method and SAGD technology Overview

Recent Developments Two Year Share Performance

1

2

1

The beginning of the oversupply and glut. Crude oil prices fell and along with them went the stock prices of all upstream players, CNQ included Overview

2

The second wave of collapsing crude oil prices beginning in 3Q2015, per bbl prices fell further from ~$60 to under $30 as glut continued & OPEC tossed limits

Industry Outlook Recent Developments

•

•

Overview

"Super" Shale Oil Fields (2007-2016) 2.0

1.5 mbbl/d

•

A nuclear arms deal with Iran has been reached and international sanctions have been lifted • Plan to immediately add ~1mbbl/d oil to the market Saudi Arabia and Russia have tentatively agreed upon a deal to cap production at current levels • Contingent on the rest of OPEC cooperating which is unlikely • The market has responded accordingly to such a dubious agreement • Capping at current levels does not solve supply glut issues China continues to devalue currency in attempt at stimulus, no recovery in demand • US rate hiking may be stifled for now, but USD remains high which continues to hurt USD denominated O&G Shale plays have began to wind down production in 2015, as hedges begin to expire the high yield credit market shakes up

1.0 Permian 0.5

Bakken Eagle Ford

0.0 07

08

09

10

11

12

13

14

15

16

Tepid Demand Forecasts Oil Demand (2015/2016)

50

40 31.3

mbbl/d

•

Shale Production Tapering

31.4

31.9

32.6

30

20 14.4

14.4

10

8.1 4

4.9

4.2

8.3

4.9

0 Africa

NA

Asia

Europe

CIS

Middle East

Thesis I Technological Advancement •

•

In Situ is a new alternative method to bitumen extraction (rather than conventional mining) • Uses SAGD (steam assisted gravity drainage) technology, where steam is injected into oil sand layers to detach bitumen • The bitumen is the upgraded like it would be with the mining method These methods create synthetic crude (SCO) and generally heavy crude which has been doing better than historically as refiners cultivate capacity to upgrade/refine it in time

Horizons Plays •

•

Project completion in the near term, this will allow normalization of capex, increase in production and cash flows • The Horizons projects use conventional mining to extract bitumen (this is still considered unconventional oil) Decreasing WCS-WTI spread is crucial Investment Thesis

SAGD

Highly Generous FCF Forecasts

Thesis II Best in Class Balance Sheet • •

•

Debt to EBITDA of 1.3 is lowest leverage ratio of its kind in industry Debt to book capitalization of 33% is also industry leading • With stress on netbacks and the high breakeven of West Canada operations this position allows CNQ to weather liquidity strains better than competitors Large resource base, as well as balanced operating segments, allow CNQ to generate relatively strong cash flows going forward • Record cash flows from operations in 2014 of 9.6B CDN

Shift in Asset Base •

Shift in asset base towards longer life low decline assets • By 2018 these assets should constitute over 60% of oil and NGL production • Operations such as the Coker plant in the Horizons play will increase efficient production and increase % liquids Investment Thesis

CNQ Leverage & Financials

Liquids Growth & Horizons

Valuation: Comparables Comps Table Company

Share Price Market Cap

EV

Div Yield

EV/DACF

EV/Daily Prod

P/CF

Cenovus Energy Inc

$

14.97

Encana Corp

$

Suncor Energy Inc

12.4B

17.0B

6.5

7.2x

62.9x

8.3x

-2.09

1.6

4.85

4.2B

15.0B

7.8

4.1x

37.7x

1.9x

-47.37

3.9

$

33.00

47.4B

62.9B

3.5

7.6x

107.9x

6.9x

0.46

1.6

Husky Energy Inc

$

13.44

13.5B

28.2B

8.8

5.4x

84.7x

3.5x

0.34

1.8

Imperial Oil Ltd

$

42.28

35.5B

43.9B

1.3

10.7x

122.7x

16.4x

-2.39

2.8

7.0x

83.2x

7.4x

-10.21

2.4

7.5x

57.1x

5.0x

2.07

2.5

Average

Canadian Natural Resources Ltd

$

29.00

32.1B

44.9B

3.1

FCF Yield (%) Net Debt/CF

Comps Table •

•

•

CNQ has a relatively low dividend yield largely due to higher share price, actual dividend of $0.92 CDN per share is in line Enterprise/Debt Adjusted Cash Flow shows that CNQ is undervalued; like we said in the investment thesis the market is undervaluing CNQ’s significant cash flows which is also indicated by their relatively high FCF yield and low P/CF • This is also an indicator of their relatively good leverage and liquidity position as indicated by their Net Debt/FCF and aforementioned leverage numbers Overall CNQ looks in great shape relative to competitors Valuation

Valuation: Net Asset Value NAV Output Net Asset Value (NAV) for CNQ NPV Total development costs % development/year

$ 67,029.00 20.0%

Total E&P Oil

Reserves 2P Production MMbbls MMbbls 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040

6,036.0 5,776.0 5,516.0 5,256.0 4,996.0 4,736.0 4,476.0 4,216.0 3,956.0 3,696.0 3,436.0 3,176.0 2,916.0 2,656.0 2,396.0 2,136.0 1,876.0 1,616.0 1,356.0 1,096.0 836.0 576.0 316.0 56.0 -

Total NPV Total E&P

260.0 260.0 260.0 260.0 260.0 260.0 260.0 260.0 260.0 260.0 260.0 260.0 260.0 260.0 260.0 260.0 260.0 260.0 260.0 260.0 260.0 260.0 260.0 56.0 6,036.0

Natural Gas

Price $/bbl

$36.45 $48.60 $56.70 $64.80 $65.77 $66.76 $65.00 $65.00 $65.00 $65.00 $65.00 $65.00 $65.00 $65.00 $65.00 $65.00 $65.00 $65.00 $65.00 $65.00 $65.00 $65.00 $65.00 $65.00 $65.00

Reserves 2P Production Bcf 6,973.0 6,405.4 5,837.9 5,270.3 4,702.7 4,135.1 3,567.6 3,000.0 2,432.4 1,864.8 1,297.3 729.7 162.1 -

Bcf

567.6 567.6 567.6 567.6 567.6 567.6 567.6 567.6 567.6 567.6 567.6 567.6 162.1 6,973.0

Revenues

Price $/MMcf

$2.25 $3.00 $3.50 $4.00 $4.25 $4.31 $4.25 $4.25 $4.25 $4.25 $4.25 $4.25 $4.25 $4.25 $4.25 $4.25 $4.25 $4.25 $4.25 $4.25 $4.25 $4.25 $4.25 $4.25 $4.25

Oil

Natural Gas

Total

$MM

$MM

$MM

$9,477.0 $12,636.0 $14,742.0 $16,848.0 $17,100.7 $17,357.7 $16,900.0 $16,900.0 $16,900.0 $16,900.0 $16,900.0 $16,900.0 $16,900.0 $16,900.0 $16,900.0 $16,900.0 $16,900.0 $16,900.0 $16,900.0 $16,900.0 $16,900.0 $16,900.0 $16,900.0 $3,640.0 -

$1,277.0 $1,702.7 $1,986.5 $2,270.3 $2,412.2 $2,446.2 $2,412.2 $2,412.2 $2,412.2 $2,412.2 $2,412.2 $2,412.2 $688.9 -

$10,754.0 $14,338.7 $16,728.5 $19,118.3 $19,512.9 $19,803.9 $19,312.2 $19,312.2 $19,312.2 $19,312.2 $19,312.2 $19,312.2 $17,588.9 $16,900.0 $16,900.0 $16,900.0 $16,900.0 $16,900.0 $16,900.0 $16,900.0 $16,900.0 $16,900.0 $16,900.0 $3,640.0 406,358.5

Production Costs $/boe $MM

$14.67 $14.67 $14.67 $14.67 $14.67 $14.67 $14.67 $14.67 $14.67 $14.67 $14.67 $14.67 $14.67 $18.25 $18.25 $18.25 $18.25 $18.25 $18.25 $18.25 $18.25 $18.25 $18.25 $18.25 $18.25

Development Total Pre-Tax Tax After-Tax Costs Cash Flows Rate Cash Flows $MM $MM % $MM

$3,814.2 $3,814.2 $3,814.2 $3,814.2 $3,814.2 $3,814.2 $3,814.2 $3,814.2 $3,814.2 $3,814.2 $3,814.2 $3,814.2 $3,814.2 $4,745.0 $4,745.0 $4,745.0 $4,745.0 $4,745.0 $4,745.0 $4,745.0 $4,745.0 $4,745.0 $4,745.0 $1,022.0 $0.0

$13,405.8 $13,405.8 $13,405.8 $13,405.8 $13,405.8

98,056.6

67,029.0

$50,264 $3,437

EV

$53,701

Current portion of long-term debt Long-term debt

1,673.0 14,837.0

Valuation

($6,466.0) ($2,881.3) ($491.5) $1,898.3 $2,292.9 $15,989.7 $15,498.0 $15,498.0 $15,498.0 $15,498.0 $15,498.0 $15,498.0 $13,774.7 $12,155.0 $12,155.0 $12,155.0 $12,155.0 $12,155.0 $12,155.0 $12,155.0 $12,155.0 $12,155.0 $12,155.0 $2,618.0 $0.0 241,272.9

25% 25% 25% 25% 25% 25% 25% 25% 25% 25% 25% 25% 25% 25% 25% 25% 25% 25% 25% 25% 25% 25% 25% 25% 25%

($4,843.0) ($2,158.1) ($368.1) $1,421.8 $1,717.4 $11,976.3 $11,608.0 $11,608.0 $11,608.0 $11,608.0 $11,608.0 $11,608.0 $10,317.3 $9,104.1 $9,104.1 $9,104.1 $9,104.1 $9,104.1 $9,104.1 $9,104.1 $9,104.1 $9,104.1 $9,104.1 $1,960.9 $0.0 180,713.4

$50,264 $3,437

EV

$53,701

Current portion of long-term debt Long-term debt Cash & Investments Net Debt

1,673.0 14,837.0 30.0 16,480.0

Equity Value

37,221.1

Shares outstanding

1,093.0

Share price

$34.05

Risks & Catalysts Royalty Spin-off •

Management is working on a spin-off of certain land assets • A newly created firm would hold said lands and market them to the public for royalty interest income • In the current environment especially his may be a good direction as it generates cash flow without any need for capex or further exploration

Commodity Price Risk •

•

Currency • •

The CDN has greatly fallen in value in tandem with commodity prices, a lot of Canada’s economic activity is resources Commodities are USD denominated; a weakening CDN and strengthening USD will create some exchange earnings for CNQ

Oil and gas prices will have a very obvious effect on CNQ’s netbacks and value of reserves/production; low prices have already forced industry-wide capex, workforce, and dividend slashes A regression analysis shows a significant amount of variability around the mean in CNQ stock price can be explained in variability in WTI price • However, this is far from the single factor; company specific factors and how they interplay with industry factors also accounts for significant amount

Operational Risks • •

The strain on netbacks from low O&G prices can lead to cash flow issues Given that CNQ is a large player with healthy cash flows from operations over the past few years, credit issues are not as likely • However, cuts to capex, exploration, workforce, and dividend have begun Recommendation

Recommendation Street Numbers

Our Target • •

Our Call Scotia TD BMO

•

Morningstar

RBC JPMorgan $-

$10.00

$20.00

$30.00

$40.00

Considering both our NAV and comparable valuation methods, using weighing that we found appropriate, we have a target of $34.00 This represents a ~17% upside plus a ~3% dividend; • This is a reasonable long range call but is contingent on some level of commodity price recovery • Sustained sub-$30/bbl O&G prices can wipe out target clean and even go below the all time low of ~$21/share Our call is more about safety in the current industry environment; CNQ can and has been weathering the storms better than competitors and we believe this player (if one has to tie up money in E&P at all) is the safest option

$50.00

Recommendation

Appendix

Price Deck Actual 2012

Actual Actual Actual 2013 2014 2015

2016

Projected Annual Forecast 2017 2018 2019 2020

2021

Benchmarks Select a case (1-best, 2-base, 3-weak) Strong case Base case Weak case North Sea Brent ($/Bbl) Strong case Base case Weak case West Texas Int. Strong case Base case Weak case Henry Hub Price $US/Mmbtu Realized prices Crude oil & liquids (Mbbls/d) Select a case (1-best, 2-base, 3-weak)

$111.42 $108.52 $99.51

$94.19

$2.79

2012

$97.98 $93.00

$3.68

2013

$4.28

2014

$53.64

$55.00 $45.00 $40.00 $45.00

$70.00 $60.00 $50.00 $60.00

$80.00 $70.00 $60.00 $70.00

$90.00 $80.00 $70.00 $80.00

$91.20 $81.20 $71.20 $81.20

$92.42 $82.42 $72.42 $82.42

$48.80

$55.00 $45.00 $40.00 $45.00

$70.00 $60.00 $50.00 $60.00

$80.00 $70.00 $60.00 $70.00

$90.00 $80.00 $70.00 $80.00

$91.20 $81.20 $71.20 $81.20

$92.42 $82.42 $72.42 $82.42

$2.63

$2.75 $2.25 $1.75 $2.25

$3.50 $3.00 $2.50 $3.00

$4.00 $3.50 $3.00 $3.50

$4.50 $4.00 $3.50 $4.00

$4.75 $4.25 $3.75 $4.25

$4.81 $4.31 $3.81 $4.31

2015

2016

$43.58 89%

84% 84% 84% 84% 84% 84% 81% 81% 81% 81% 81% 81% 78% 78% 78% 78% 78% 78% $36.45 $48.60 $56.70 $64.80 $65.77 $66.76 81% 81% 81% 81% 81% 81%

Strong case Base case Weak case Differential

$72.44 77%

$73.81 $77.04 75% 83%

Natural Gas ($/MMcf) Strong case Base case Weak case Differential

$2.70 97%

$3.58 97%

$4.83 113%

$3.22 122%

105% 100% 95% $2.25 100%

2017

105% 100% 95% $3.00 100%

2018

105% 100% 95% $3.50 100%

2019

105% 100% 95% $4.00 100%

2020

105% 100% 95% $4.25 100%

2021

105% 100% 95% $4.31 100%