CALGARY -- Canadian Natural Resources Ltd. (CNQ.TO) has set out a $3.9-billion capital budget for the year ahead, while emphasizing the potential to ramp up or retreat on spending depending on the market.

"A trademark of Canadian Natural is our capital flexibility," said president Steve Laut during a Thursday conference call with analysts.

Laut said there's room to increase spending on exploration and drilling by up to $525 million and to spend $70 million to debottleneck operations at Horizon if market conditions are encouraging. But, he added, if oil prices retreat Canadian Natural could cut back spending as much as $900 million.

The Calgary-based oil and gas company says the 2017 capital budget will allocate about $1.1 billion to its Horizon oilsands expansion, down from $1.9 billion forecast for this year, as it works to complete the phase three expansion.

Finishing the third phase will add production capacity of 80,000 barrels a day when it comes online late in 2017, while the completion of the Horizon Phase 2B expansion this past October will help raise overall liquids production for the year by about nine per cent or 45,000 barrels per day.

In November, Canadian Natural announced it would restart work on its Kirby North steam-driven oilsands project. However, the company said spending in 2017 will be a relatively modest $30 million as it works to optimize the project before going ahead with the rest of its $650 million capital requirements in anticipation of a 2020 production target.

Spending on exploration and production projects will rise by $465 million, to $1.79 billion, and spending on thermal oilsands projects apart from Horizon will rise by $195 million to $365 million.

The increased spending will see the company drill 563 wells in 2017, up from 193 wells drilled this year.

The company says next year's capital spending program will be well within the company's ability to generate cash from operations.

Canadian Natural estimates it will generate between $2.6 billion and $3 billion of free cash flow, before paying US$1.1 billion in dividends at the current rate. It said it will take a balanced approach to allocating available funds.