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Rating Action:

Moody's upgrades Canadian Natural Resource's rating to Baa1

07 Oct 2010

Approximately $7.5 billion of debt securities affected

Toronto, October 07, 2010 -- Moody's Investors Service upgraded Canadian Natural Resources Limited's (CNQ) senior unsecured rating to Baa1 from Baa2. The rating outlook is stable.

Upgrades:

..Issuer: Canadian Natural Resources Limited

....Senior Unsecured Medium-Term Note Program, Upgraded to (P)Baa1 from (P)Baa2

....Senior Unsecured Regular Bond/Debenture, Upgraded to Baa1 from Baa2

....Senior Unsecured Shelf, Upgraded to (P)Baa1 from (P)Baa2

RATINGS RATIONALE

"The upgrade reflects Canadian Natural Resources' sizeable debt reduction over the past 20 months, enhanced size and diversity through the successful ramp-up of Horizon Phase 1, and our expectation that the company will continue to generate material free cash flow at today's oil and gas prices." said Terry Marshall, Moody's analyst. "Our expectation is that CNQ will fund growth projects, including future phases of Horizon, largely with internally generated funds."

Canadian Natural Resources Baa1 senior unsecured rating reflects its large production platform, which is poised to grow significantly over the next five to eight years, large inventory of projects that allow flexibility and capital efficiency, and superior cash returns given its oil-weighted production. The rating also considers CNQ's reasonably high leverage for the Baa1 rating and geographic concentration in Western Canada.

The successful ramp up of Horizon Phase 1 has been a positive factor for the rating, significantly increasing CNQ's oil exposure and providing a base for development of future phases. Phase 1 production has ramped up steadily in 2010 and we expect average production in 2011 to approach design capacity of 110,000 bbls/day as the company gains a better understanding of its complex operations and completes a number of debottlenecking projects.

Adopting a conservative business strategy, CNQ generated free cash flow during the depth of the downturn in early 2009 by focusing on higher return, readily available production and reducing capital-intensive drilling prospects. The company has also continued to scale back natural gas drilling activities and shifted capital to higher return oil projects, particularly heavy oil, given the weak natural gas industry fundamentals in North America. As a result, the proportion of oil production relative to natural gas has increased steadily, to 67% in the second quarter of 2010 from approximately 55% in the first quarter of 2009, boosting cash flow.

Since the end of 2008, CNQ has reduced debt by approximately C$3.7 billion despite volatile oil and weak natural gas prices. However, CNQ's leverage remains weak for its Baa1 rating as measured by debt to average daily production ($16,800) and debt to PD reserves ($6.30). (In considering reserves we limit mining oil sands reserves life at 12 years to balance their long reserve life against the materiality and uncertainty of discounted cash flows from distant production.) With anticipated free cash flow generation in 2011 in excess of C$1 billion (at oil and gas prices in the range of $75 and $4.00), we expect CNQ to have the flexibility to meaningfully reduce debt, but our rating action assumes the company may continue to make additional asset acquisitions with that cash flow. We do not, however, expect debt to increase and further expect that leverage will reduce over time as production and reserves increase.

The stable outlook reflects CNQ's substantial production and reserves base and assumes that it will grow its conventional E&P and oil sands reserves in a cost efficient and disciplined manner. Improved leverage and capital productivity would have the most pronounced positive impact on the rating. The rating could come under downward pressure if leverage increases from current levels.

The principal methodology used in rating Canadian Natural Resources Limited was the Independent Exploration and Production (E&P) Industry rating methodology published in December 2008. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.

Canadian Natural Resources Limited, headquartered in Calgary, Alberta is an international oil and gas company with primary operations in Canada, and additional production in the U.K. North Sea and offshore West Africa.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service's information, confidential and proprietary Moody's Analytics' information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of maintaining a credit rating.

MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY'S is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

Toronto
Terry Marshall
VP - Senior Credit Officer
Corporate Finance Group
Moody's Canada Inc.
(416) 214-1635

Toronto
Donald S. Carter, CFA
MD - Corporate Finance
Corporate Finance Group
Moody's Canada Inc.
(416) 214-1635

Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada

Moody's upgrades Canadian Natural Resource's rating to Baa1
No Related Data.
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