October 23, 2007
JILL S. DAVIS
Branch Chief
United States Securities and Exchange Commission
100 F Street, NE
Washington, D. C. 20549-7410
Dear Ms. Davis:
RE: CANADIAN NATURAL RESOURCES LIMITED
FORM 40-F FOR THE FISCAL YEAR ENDED DECEMBER 31, 2006
FILED MARCH 30, 2007
FILE NO. 333-12138
This letter is in response to your letter dated August 28, 2007.
Canadian Natural Resources Limited acknowledges that:
o The company is responsible for the adequacy and accuracy of the
disclosure in the filing;
o Staff comments or changes to disclosure in response to staff comments
do not foreclose the Commission from taking any action with respect
to the filing; and
o The company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
Your comment and our response are set forth below.
FINANCIAL STATEMENTS
NOTE 1 - ACCOUNTING POLICIES
(D) PROPERTY, PLANT AND EQUIPMENT
WE NOTE YOUR RESPONSE TO OUR PRIOR COMMENT NUMBER ONE THAT INDICATES YOU HAVE
CAPITALIZED DRILLING AND RELATED COSTS TO DEVELOP YOUR MINE PLAN INCLUDING THE
LOCATION OF THE PITS AND PLANT SITE. PLEASE EXPLAIN WHY YOU BELIEVE THESE COSTS
SHOULD BE CAPITALIZED UNDER US GAAP.
We have reviewed our accounting treatment for drilling and related costs
associated with our Horizon Project of $73 million ($43 million after-tax) and
believe that they were properly capitalized as mine development costs under
U.S. GAAP. In particular, we believe that the Horizon Project demonstrated a
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sufficiently high level of bitumen resource definition at the time its primary
lease was acquired to establish that the Project was in the development stage
throughout the entire period it was owned by Canadian Natural. In support of
our position we note the following:
1. The Horizon Project encompasses almost 50,000 acres (approximately 80
square miles) within close proximity to several existing large scale
commercial oil sands mining operations. The geology of the oil sands
bitumen deposits on the Horizon leases is similar in nature to the
geology of the bitumen reserves of these other operations.
2. The terms of the mineral licences acquired and issued by the Department
of Energy of the Government of the Province of Alberta provide
reasonable assurance that all resulting permits, ancillary rights and
authorizations required for mining and processing would be obtained.
For clarification, Alberta law requires a formalized review procedure
(the "Alberta Regulatory Review") to ensure due process and that all
the concerns of affected parties are heard and properly dealt with. To
our knowledge, while there have been amendments and alternations, no
oil sands mining application has been denied by the regulators.
3. Legal title to our primary mineral lease, Lease 18, was acquired in
1999. Prior to our acquisition of the lease, the vendor had completed
extensive exploratory drilling on the lease to establish the existence
of commercial quantities of mineable bitumen such that in May, 1996 the
Alberta Energy and Utilities Board (the "AEUB") recognized Lease 18 as
containing in-place mining reserves as documented in their Crude
Bitumen Reserves Atlas. This level of resource definition enabled us,
shortly after the acquisition of the lease, to move forward with the
mine plan and related project economics for the Horizon Project.
4. As the necessary exploratory activities on Lease 18 had been completed,
in the fall of 2000 a team of professionals with open pit mining
extraction techniques were hired to complete the Alberta Regulatory
Review and commence the project development. This development process
included the preparation and completion of the mine plan, design of the
bitumen upgrading components, overall project economics and various
other aspects related to the regulatory process.
5. We filed our regulatory application in the spring of 2002. At the time
that we submitted our application, we had concluded that our
application would be accepted substantially as filed, subject to
revisions in the normal course, and that all resulting permits,
ancillary rights and authorizations required for mining and processing
would be obtained in a timely fashion. Minor revisions were required to
be made to our filings in 2003 to address specific regulator queries
and to provide additional project definition. This included more
definition of the location of our mine pits and the plant site. We
received final regulatory approval for the Horizon Project in early
2004. Proved reserves under SEC Guide Item 7 were subsequently
recognized in our continuous disclosure filings related to our December
31, 2004 year end upon receipt of Board of Directors' final sanction of
the project.
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6. It should be noted that a significant amount of time and effort devoted
to the regulatory application related to the inclusion in it of the
plan for the upgrading operation at the plant site, which upgrades the
bitumen from a tar-like substance to a 34(degree) Light API Synthetic
Crude Oil. The upgrading process is analogous to a large-scale refinery
coking operation, and is a separate and distinct process from the
bitumen mining operations.
In conclusion, we believe that the Horizon Project demonstrated a sufficiently
high level of bitumen resource definition at the time of acquisition of Lease
18 and throughout the subsequent Alberta Regulatory Review to establish that
the project was in the development stage throughout the entire period of
ownership by Canadian Natural. We have reviewed our accounting treatment
related to drilling and related costs of $73 million ($43 million after-tax)
and believe that they were properly capitalized as mine development costs under
US GAAP. Further, we believe that these costs were immaterial to our
consolidated financial statements.
Yours truly,
/s/ Douglas A. Proll
Douglas A. Proll
Chief Financial Officer and
Senior Vice-President, Finance
cc: PricewaterhouseCoopers LLP, Calgary, AB