Canadian Natural Resources Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 2, 2023

There are 13 speakers on the call.

Operator

Good morning. We would like to welcome everyone to the Canadian Natural Resources 2023 Third Quarter Earnings Conference Call and Webcast. After the presentation, we will conduct a question and answer session. Instructions will be given at that time. Please note that this call is being recorded today, November 2, 2023, at 9 am Mountain Time.

Operator

I would now like to turn the meeting over to your host for today's call, Lance Kasdan, Manager of Investor Relations. Please go ahead.

Speaker 1

Good morning, everyone, and thank you for joining Canadian Natural's Q3 2023 earnings conference call. As always, before we begin, I'd like to remind you of our forward looking statements, and it should be noted that in our reporting disclosures, Everything is in Canadian dollars unless otherwise stated and we report our reserves and production before royalties. Additionally, I would suggest review our comments on non GAAP disclosures in our financial statements. Speaking on today's call will be Tim McKay, our President and Mark Sainthorpe, our Chief Financial Officer. Tim will first speak to how strong execution has resulted in record quarterly production and he'll provide additional specifics on our safe, reliable and world class operations.

Speaker 1

Mark will then summarize our strong financial results, including significant free cash flow generation and increasing shareholder returns. To close, Tim will summarize our call prior to opening up the line for questions. With that, I'll turn it over to you, Tim.

Speaker 2

Thank you, Lance. Good morning, everyone. In the Q3, we achieved record quarterly production of approximately 1,390,000 BOEs per day, which included both record liquids production at approximately 1,035,000 barrels a day Our natural gas production at approximately 2.15 Bcf a day as a result of effective and efficient operations across all our assets. This combined with our diverse product mix, we generated significant free cash flow, resulting in more shareholder returns through our sustainable growing dividend and significant share repurchases. As well, Canadian Natural continues to be a leader in environmental, in support of both Alberta and Canada's climate goals through our participation in the Pathways Alliance.

Speaker 2

As we move forward to lower our carbon emissions with our target to reduce the absolute scope 1, scope 2 emissions by 40% By 2,035, from our 2020 baseline on our journey to achieve our goal of net 0 GHG emissions in the oil sands by 2,050. I'll now do a brief overview of the assets starting with natural gas. Overall, Q3 natural gas production was a record at 2.15 Bcf a day, which was higher than Q3 2022 production. From North American operations, Q3 2023 natural gas was also a record at approximately 2.14 Bcf a day versus Q3 2022. As well, we added volumes to our drill to fill strategy, adding low cost, Our North American Q3 natural gas operating cost was $1.22 per Mcf, a decrease of 8% compared to Q3 2022 An increase of 8% compared to Q3 2022 of $1.13 primarily due to higher service costs.

Speaker 2

Our teams will continue to focus on effective and efficient operations and cost control across all areas. For North American light, Oil and NGL Q3 production was approximately 109,000 barrels a day, comparable to Q3 2022 of 109,252 barrels a day. Q3 operating costs were $15.49 per barrel, a decrease of 7% from Q3 Our international assets in Q3 had oil production of 24,719 barrels a day, which is comparable to Q3 2022 levels of 24,493 barrels a day. Our international assets Heavy oil production was 76,377 barrels a day in Q3 2023, up 11% of Q3 2022 production of 68,933 barrels a day, primarily due to increased drilling activity, Strong drilling results offsetting natural field declines. Operating costs in Q3 'twenty three We're at $19.68 per barrel, down 8% compared to our Q3 2022 operating costs of $21.30 per barrel, primarily reflecting higher volumes in the quarter.

Speaker 2

During the quarter, the company drilled 34 net heavy oil wells, which were multilateral across our land base from Bonneville, Lloydminster to Clearwater area with all meeting targeted results. A key component of our long life low decline assets is our world class Pelican Lake Pool, where our leading edge polymer flood continues to deliver significant value. Q3 production was 46,897 barrels a day, down 6% versus Q3 2022 average of 50,051 barrels per day, reflecting the low decline nature of the property. The polymer injection rates, which were reinstated in February of 'twenty three, have been successful in returning the field back to more historical decline rate, which was approximately 5%. The team continues to focus on operational excellence and with Q3 operating cost of $8.02 per barrel, decreasing 10% from our Q3 2022 operating cost of $8.89 primarily reflecting effective and efficient operations, lower power costs offsetting the lower production volumes.

Speaker 2

With Pelican Light's slow decline and very low operating costs, it continues to generate excellent netback. In our thermal in situ areas in Q3 2023 as a result of strong execution combined with effective and efficient operations, Q3 2023 thermal production was 287,085 barrels a day, up approximately 44,000 barrels a day from Q3 2022 production of 243,393 barrels a day. Q3 operating costs were $11.47 per barrel, down 27% when compared to Q3 2022 operating costs of $15.63 largely as a result of higher production and lower natural gas fuel costs. At Kirby, current production is approximately 65,000 barrels a day as the company has grown it by approximately 15,000 barrels a day from Q4 2022 level. The significant production growth is due to the development of 4segg deep pads, The first which reached full capacity in Q3 'twenty three.

Speaker 2

The remaining three targets are targeted to ramp up to full production over the Next 9 months of 24 at a pace of 1 pad per quarter maintaining this production level. At Jackfish, 2 Segg D pads were drilled in the first half of twenty twenty three with production from these pads targeted to ramp up to full production capacity in Q3 'twenty four in Q4 2024, supporting continued high utilization. Oil Sands Mining, at the company's world class Well, Sam's mining upgrading assets, we had Q3 production averaging 490,853 barrels a day of SCO versus production of 487,553 in Q3 2022, with Q3 operating costs that were $22.12 per barrel versus Q3 'twenty 2 of $2,235 per barrel. The Reliability Enhancement Project continues to move forward targeting to add approximately 14,000 barrels a day of additional SEO capacity in 2025 as a result of shifting the maintenance schedule from once per year Also here with me today as part of our succession plan, I have Scott Stoute, Trevor Cassidy, Jay Frak and Robin Zivak. As part of my succession, Scott Strouse will be taking over the role of President effective February 28, 2024.

Speaker 2

Scott and I met a little over 26 years ago. And over the years, Scott has excelled in every role he has had with the company. I know he will do a great job. Should anyone have any questions for Scott, feel free to ask when we move to the Q and A session. Jay Frock, currently our Senior Vice President of Oil Sands Mining, will place Scott in his previous role as CEO of Oil Sands.

Speaker 2

As well, in Q4, Trevor Cassidy, after 24 years with Canadian Natural, will be retiring. We wish to thank Trevor for all his contribution over the many years And Robert Sabek, who has been with the company 20 years and who is currently our Senior VP of Exploitation, will assume the role of COO, exploration and production. I'll now turn it over to Mark for a financial review.

Speaker 3

Thanks, Tim, and good morning, everyone. The Q3 of 2023 was a strong financial quarter as we generated adjusted funds flow of $4,700,000,000 and adjusted net earnings from operations of $2,900,000,000 This was due to strong pricing and good cost control, which contributed to robust netbacks on record quarterly production. Our diversified portfolio, including our long life low decline assets, combined with effective and efficient operations, allowed us to continue to deliver robust returns to shareholders through dividends, repurchasing shares and reducing debt. Year to date, up to and including November 1, 2023, we have returned approximately $6,100,000,000 to shareholders through dividends and share repurchases. Subsequent to quarter end, the Board of Directors has approved an 11% increase to our base quarterly dividend to $1 per common share from $0.90 per common share, demonstrating the confidence the Board has in the sustainability of our business model, our strong balance sheet and the strength of our diverse long life flow decline reserves and asset base.

Speaker 3

This dividend increase combined with the increase in March 2023 results in an 18% increase to $4 per share annually, meaning 2024 will be the 24th consecutive year of dividend increases with a compound annual growth rate of 21% over that time. Our financial position is very strong today with debt to EBITDA at 0.7 times at the end of Q3 and we continue to maintain strong liquidity, Including revolving bank facilities, cash and short term investments, liquidity at the end of the quarter was approximately 6,100,000,000 We target to continue strong operational performance in Q4, 2023 and beyond. And based on current strip pricing, we are quickly approaching our net debt level of $10,000,000,000 which we forecast to achieve in Q1 2024, at which time we target to increase returns to shareholders to 100% of free cash flow. When you combine our leading execution with our large, balanced, low risk, high value reserves and production, effective and efficient operations and

Speaker 2

Thanks, Mark. Canadian Natural's advantage is our ability to effectively allocate cash flow to our 4 pillars. We have a well balanced, diverse and large asset base, which a significant portion is long life, low decline assets, which require less capital to maintain volumes. We are delivering top tier free cash flow generation, which is unique, Sustainable, robust and clearly demonstrates our ability to both economically grow the business and deliver returns to shareholders by balancing our 4 pillars. With our robust, sustainable free cash flow through our free cash flow allocation policy, Returns to shareholders continue to be significant, which includes our growing dividend that will be increased for 24 consecutive years in 2024.

Speaker 2

In summary, we continue to focus on safe, reliable operations, enhancing our top tier operations and we will continue to drive top tier environmental performance. With that, I will now open it up for questions.

Operator

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Your first question comes from Dennis Wong from CIBC World Markets. Please go ahead.

Speaker 4

Hi, good morning. And I guess first off, congrats Tim on your upcoming retirement and to Scott on the promotion. My first question here just is related to, obviously, we're entering the winter here. There's a little bit of cooler weather. I know that there's been A focus on remediating some of the potential impacts of harsher operating environment Given the cooler weather, can you just remind us about what has been changed or completed in operations as well as equipment to show, kind of strong uptime through January and

Speaker 2

Yes. Well, in general, every fall, the teams start to make sure that all areas of Potential freeze up are insulated, heat traced is checked. As you can appreciate in a lot of areas, The heat tracing basically gets turned off during the summer months. So we got to make sure that all works. So generally, it's Just what I would consider routine business to make sure that we have methanol, heat tracing and insulation Covering all the areas of potential freeze ups.

Speaker 2

So and generally, we monitor it quite rigorously as we move towards winter.

Speaker 4

Great, great. Thanks. I appreciate that. And then my second question is just related to the optimization that you're driving to at the Oil Sands Mining Business Unit, as you see higher and higher production levels, how should we be thinking about the ability to kind of lower unit OpEx? And what's maybe your Target once you are able to line up the facility at an even higher level?

Speaker 2

Yes, that's a very good question. So, Obviously, through the Reliability Project, the key there is that you're not taking a shutdown. And so typically, In the oil sands, the shutdowns are usually about a month per year. So as you can appreciate, during that 1 month that we're down, all the fixed costs Are still, so we say, adding to the account. So that includes your mining trucks and such.

Speaker 2

So to me, the way to think of it is by keeping it running, you basically Get that 1 month of same cost per se, but you're getting all that extra volume. So that's the way I would look at it because the mines, as You're seeing with the operating costs are pretty steady in terms of overall costs. And to me, it's all about Making those extra barrels each and every day.

Speaker 4

Perfect. Appreciate that color. I'll turn it back. Again, congratulations. Thank you.

Operator

Thank you. The next question comes from Neil Mehta at Goldman Sachs. Please go ahead.

Speaker 5

Yes. Thank you and congrats, Scott, and congrats, Tim, on your retirement too. Yes, maybe that's where I'll start, which is over the last 5 years, stock has done really well. It's a CAD 100,000,000,000 Company at this point in terms of market cap, Scott, as you transition into this new role and Tim as you retire, how do you think about the next 5 years? What's the next leg of value creation?

Speaker 5

Is it the same playbook or is there any strategic change that you see as necessary to get to the next level.

Speaker 2

Is that question for Scott there, Neil? Sorry. Good to hear. You know what, Canadian Natural I'll start first. Canadian Natural is very fortunate in that we have a huge reserve base.

Speaker 2

So I look at it going forward. We've got to continue to do what we do best, Drive top tier operations, high reliability, controlling our costs, be disciplined. And we're very fortunate in that we have that huge reserve base that We can basically grow production methodically, should we decide to grow over time. And If you look at something like Horizon, we've talked about that we could easily double Horizon at some point. There's also been the dilbit, paraffinic dilbit that we could do there.

Speaker 2

There's opportunities in the thermal side, Ghaz and Montney. So to me, we just have to keep Doing what we do well. And on top of that, as always, there always is opportunistic acquisitions that Can come our way and we're very good at doing those should that opportunity come that way. So I don't really see any real change to our business. I think it's if you look at our succession, everybody is well ingrained in the company and understands all the opportunities that we have.

Speaker 2

And we constantly work on those opportunities to make sure we're ready to I'll start with those opportunities should that time happen. Scott? Yes. Yes.

Speaker 6

Neil, I agree with everything Tim said And with just the robust nature of our assets, free cash flow generation that the company's I've been able to develop over the years and continue to work on and improve, and I don't see our focus changing. Tim outlined everything that we've done in the past and we're going to continue to work on in the future. So I think that you should see much of the same In the future is what you've seen in the past.

Speaker 5

Thanks, Tim and Scott. The follow-up is just on consolidation. South of the border, we've seen Some really big deals here over the last couple of weeks in the E and P space by the majors. And I'm just curious on your views On whether there's room for further consolidation in Canada and perspectives on C&Q's potential growth there?

Speaker 2

Yes. I mean, So I mean, consolidation could happen here in Canada as well. But the key is that for us anyways is we have a Huge reserve base. And so we don't have to do any acquisitions to create We're finding more reserves. So we have that part in the peg.

Speaker 2

To me, we can sit back, Do what we do best and that's just exploit those opportunities, be methodical with our growth plan. And should something opportunistic happen our way, that may happen. But to me, we've got One of the largest reserve opportunities in the world. So that's the key for us. Okay.

Speaker 2

Thanks.

Operator

Thank you. The next question comes from Greg Pardy at RBC Capital Markets. Please go ahead.

Speaker 7

Yes, thanks. Good morning and thanks for the rundown. So first off, Tim, congratulations. You've been great to work with and we're glad you're not going until the summer and absolutely welcome Scott and others as well.

Speaker 2

So I want to stay

Speaker 7

a little bit on the successorship. I was going through your info circular recently and It looks as though there's a very I mean, A, there's a strong culture of promoting within, but there's also almost like a defined game plan for folks on the management Committee in terms of how successorship works and so forth. Could you talk about that a little bit?

Speaker 2

Well, I don't know really what how I could talk more to it. Every year, we do a very thorough job of our succession plan. And so to me, it's never a surprise. It's well thought out. People are generally moved to different positions for grooming or learning, however you want to call it.

Speaker 2

And as people grow at the company and they perform, they generally move right along. So it's To me, the longevity of the people that come here, they love the culture, they love working with people and they love the opportunities the company has So to me, it's just a great place to work and a great place that We can develop our own people internally and promote within.

Speaker 7

Okay, got it, Tim. And then I'll completely switch gears maybe and just fire 1 at Mark. But in terms I mean, huge cash flow generation, Working capital impacts obviously in the quarter. I'm curious how you sort of see the balance of the year going or the Q4 going in terms of network Capital changes. And then just with respect to Trans Mountain, I know you've got just under 100,000 barrels a day on that.

Speaker 7

When you go into Line Pack, is that going to materially increase working capital as you go into the Q1? It was something that Synovus just flagged on their call. I was just curious how much it impacted you guys.

Speaker 3

Yes, sure, Greg. So I mean, in Q4, Like I kind of mentioned earlier, we're targeting strong operational performance. So given this pricing environment and our netbacks, We're looking at strong cash flow generation and free cash flow generation in the quarter. When you look at working capital, I mean, to me, the biggest thing is look, think about receivables. So in September, very strong operational month, pricing month, but we don't get paid for that until October.

Speaker 3

So that's really one of the main drivers of the working capital. The other being, of course, when you have turnaround activity in 1 quarter, you tend to Have the payables happen in the following quarter. So those are just natural ways the business runs. So to comment on exactly what working capital would be like in the 4th quarter Somewhat difficult, but you can just kind of take that away that the receivables are one of the big things. And then as far as TMX, yes, there'll be Our working capital build for TMX Linefield, but that is not going to be significant to us at all.

Speaker 8

And of course,

Speaker 2

Right now, we don't know if that will happen here in the Q4 or early into next year. Obviously, if it happens earlier this Here, between now and the end of the year, that's actually very positive in the sense that that should start to tighten in The WCF diffs and such. So, but we haven't yet to be getting information that they would be doing that, but We hope that we'll hear from them soon on that.

Speaker 7

Okay. Got it. Thanks, guys.

Speaker 2

Thanks, Craig.

Operator

Thank you. The next question comes from Menno Helfshof of TD Securities. Please go ahead.

Speaker 9

Thanks and good morning everyone. I'll start with a question on autonomous haul trucking. 1 of your peers just achieved full fleet conversion with Reasonable cost savings and just going through the transcripts, I understand that you haven't shown much of an interest in the past. But has your thinking changed at all? And if so, what could the staging for deployment of autonomous Holling look like at Horizon or even the AOSB, I believe you had a pilot going there at Jack Pine a number of years ago.

Speaker 9

Any color there would be helpful.

Speaker 2

Sure. I'll just have Scott because that's a perfect lead in for that's his area of expertise. So I'll have Scott, talk to that.

Speaker 6

Yes. Thanks, Tim. So we continue to evaluate the opportunities for autonomous haul on our equipment in the mines. We have looked at it in the past number of years. We pay close attention to what our peers are doing and what's going on in the rest of the hard rock mining world.

Speaker 6

But at this time, we've looked through it, reviewed it. And with a lot of the efficiencies that we've been able to achieve In our mining operation, we have very close to the equivalent of autonomous haul. In fact, We believe we're at the equivalency of autonomous haul efficiencies. So from our perspective, we'll continue to watch the technology as it improves over the years And stay abreast from the vendors of anything breaking through from news from that perspective. But really, we're Quite strong in terms of our efficiencies that our folks in the mining operations have been able to deliver.

Speaker 6

So we like what we see from that perspective.

Speaker 9

Thanks, Scott. And just to clarify, is that pilot at Jack Pine still running? Or did you wind that down?

Speaker 6

There was an original pilot years ago and but it was more from collision avoidance That Shell had carried on before our time that we took over in 2017.

Speaker 9

Okay. Got it. And then maybe just moving on to the heavy oil program in the Lloydminster Manville, given The reemergence of that play, what is old is new. It looks like you drilled 34 multilaterals in the quarter. Can you just update us on what you're seeing in terms of And how is the Manville competing for capital with your other liquids growth opportunities?

Speaker 2

Yes. I mean, the multilaterals is working out very well. Obviously, as you step out, you'll find areas where The viscosity is a little bit too thick, I would say, or too viscous and the productivities aren't as good. But generally, we're in the generally lower viscosity areas and the productivities have been excellent. And from a Capital perspective, when we look overall, it's they're basically very similar to whether you're drilling in the Clearwater, Which is, in my mind, kind of the same thing.

Speaker 2

To me, it's all about the areas you pick, how Your drilling costs and how your access costs can be lower. So, in the Bonneville Lloydminster area, we see lower Cost of entrance because of the access and to compete very well against the Clearwater.

Speaker 9

Perfect. Thanks a lot, Tim. Congratulations and I'll turn it back.

Operator

Thank you. The next question comes from Patrick O'Rourke at HEB Capital Markets. Please go ahead.

Speaker 10

Okay, guys. Thank you very much for taking my questions. And first off, obviously, congratulations to Tim and Scott on everything that's gone on here with the Just first question with respect to TMX here on the cusp of line fill, whether it's in Q4 or Q1. And maybe if you can give us some sort of view of how you think about extracting value through marketing barrels On this asset and maybe breakdown, you've got a lot of synthetic barrels there, you've got dilbit. How do you anticipate You'll break that down when the pipe comes on.

Speaker 2

Yes. Well, when TMX does call for oil And it's operational. First of all, it's going to take roughly about 4,500,000 barrels out of the market. So that will be Positive for differentials and give us gives Western Canada more egress. So I look at that as very constructive for Western Canada.

Speaker 2

As far as the marketing of the barrels, Just like any area, what will happen is and you alluded to, we have quite a slate of different Varieties of oil that we can supply to that market. So, when it does come Our marketing group has got some ideas in terms of the types of slate that will be opportune in those areas. But As the market develops, there may be certain markets that want certain types of crudes. Like, let's say, it may be more advantageous for synthetic to move to that market versus where it's going today. So part of that is going to be how the market develops and how different customers I want or would like certain slates that we have available.

Speaker 2

So it's pretty early to say, but I would look at it that as TMX gets up and running, we'll optimize our slate to maximize the netback of those barrels.

Speaker 10

Okay. And just second question, kind of shifting gears a little bit, but maybe a bit interrelated Here, you talked about the ebbs and flows of sort of working capital builds from quarter to quarter here. I'm just wondering how that is impacting sort of the projections The philosophy is around the return of capital structure in particular, with share buybacks going forward over, say, the next 2, 3, 4 quarters.

Speaker 3

Hey, Patrick, it's Mark. The impact to the Share returns is minimal. I mean, we've got a policy in place that, we have our funds full lesser dividend. And currently until we get to the $10,000,000,000 50 percent is going to buybacks and 50% to the balance sheet. And that will Turn to 100% here as we forecast currently to get to that $10,000,000,000 in Q1.

Speaker 3

The working capital moves in my view are just regular business that happened because you have accounting closes on certain months. So to me, there's very little impact for that going forward As we manage that increasing returns to shareholders.

Speaker 10

Okay. Thank you very much.

Operator

Thank you. The next question comes from John Royall at JPMorgan. Please go ahead.

Speaker 11

Hi, good morning. Thanks for taking my question. So I have a question on capital allocation. I think you're tracking A little under your 50% allocation year to date. If I did the math right, it's about 40%.

Speaker 11

Should we expect a catch up in 4Q? Or Conversely, does it make more sense to pull back a little in 4Q and get to that floor more quickly?

Speaker 3

Yes. We'll evaluate as we go through the quarter here. We're going to get close. We try and manage as close as we can to the policy. Of course, you've seen based on the numbers I reported here this morning that in October, the buyback program has increased from the pace we've gone through for the rest of the year.

Speaker 3

But Yes. So we'll manage as best we can to close to that 50% for now until again we get to that $10,000,000,000 and then it moves to 100%.

Speaker 11

Great. And then just another on capital allocation. This one's on the dividend hike. Can you talk about why the 11% is the right level for the hike and also the frequency. I think it's been 3 hikes now, I think up 33% over the past 5 quarters.

Speaker 11

Should we think about this as kind of a gradual reset on a view of structurally higher earnings? Or is it simply maybe that your policy was a little bit more Servitive than it needed to be before, and you're catching that up or some combination. Just any color there would be helpful.

Speaker 3

Yes. I mean, every quarter, of course, the Board reviews Free cash flow generation, how the effect of operations, the sustainable dividend is there at lower commodity prices. And we take that and look at the balance sheet and how we're approaching that, dollars 10,000,000,000 of net debt along with the ongoing buyback program. The dividend increase made sense at this time and at that level. I can't necessarily speak for the Board on Cadence and when those happen, but I know the dividend level will be reviewed at every meeting, like I said.

Speaker 3

And with low breakevens, low decline production, Our business can support further dividend increases. So it's got to just be taken in context with all the shareholder term profile given the significant buyback program going on as

Speaker 11

Thank you.

Operator

Thank you. Next question comes from Manav Gupta from UBS. Please go ahead. Good morning, guys. My question

Speaker 12

is on the oil sands Mining upgrade volumes, very strong rebound versus 3Q was kind of expected, but still pretty strong number. Can you share some data around October? And then how should we think about the 4th quarter Versus the Q3 as it relates to oil sands volumes?

Speaker 2

Sorry. In terms of well, I would say that after The turnaround, we should be pretty steady. So to me, I feel a good run is between the kind of that 490 to 500 range is what I would call top tier runs. And so that's always our target is to be within that kind of range. Obviously, there's always Your turnarounds, you have to make sure you model in.

Speaker 2

But that to me is From my perspective, I'd like to see a number that's 490 plus.

Speaker 12

Perfect. And also if you could give us Some of your views on the both near and medium term differentials, we have seen some widening on the WCS side and then I think Synthetic is now below TI. It was trading over TI. So in your view, when the line actually does start to fill, Should we expect these diffs to narrow or when the line actually I mean I'm trying to understand will the line still actually impact the differentials The line would have to flow to impact the differentials. What's your view over there?

Speaker 2

Yes. Well, I'll give you my opinion on it. To me, When TMX calls, the differentials will shrink again. I think this is a short term lift. Obviously, Many companies, including themselves, had incremental volumes coming on in the fall here based on TMX being up So I look at it as a short term pressure on the differentials.

Speaker 2

Also, the refineries, we're doing Some maintenance, those refinery programs are pretty much wrapped up. So they'll that pressure will come off. And As far as crack spreads, again, the differential is kind of wide. So I see that Putting a little pressure on synthetic in the short term, but in general, crack spreads are strong and synthetic We'll probably stay at a little bit of a premium. So I just think this is just a short term pressure Because the nominations were higher, you've seen the apportionment move up about 24%.

Speaker 2

And really once TMX is calls for oil and starts moving it, That pressure will come off the apportionment. Thank you so much.

Speaker 12

You're welcome.

Operator

Next question comes from Doug Leggate from Bank of America. Please go ahead.

Speaker 8

Hey, guys. Good morning. This is Clay on for Doug. So thanks very much for taking my questions. I guess this one is a follow-up to Manav's question.

Speaker 8

You've addressed some of the tension between the volumes and the WCS pricing, but I guess I'm thinking about this more in the context of 2024 Planning Because it looks like the industry is trying to ramp up into TMX, but start up still looks fairly uncertain. So I'm wondering as you're going through that budgeting process, What does the scenario planning look like?

Speaker 2

Yes. You know what, for me, it doesn't change our 2024 Our plan, when I look at it, TMX is coming very quickly. Last reports, they were 97% done. So To me, it's just a matter of which month it will start the line fill and then start to ramp up its operations. So If you look at Western Canada, the storage levels are 30% or whatever it is and pretty steady.

Speaker 2

So as long as The FDA egress pipelines are run reasonably well. Egress is the pipe the storage piece is not climbing That high. I mean, we've had much higher storage levels in Western Canada in the past. And so I just look at it, it's just It's more of a timing issue and that it will not impact 2024 impact at all in my mind.

Speaker 8

Got it. I appreciate that. Maybe for the next one, I'm hoping that I can get you to comment on your long term outlook for natural gas pricing. And it's really in the context of LNG Canada starting up sometime in the near future. So as that comes up, do you see a new dynamic For Canadian Natural Gas emerging or do you think that the scale of the Canadian gas resource sort of keeps returns for gas at a more modest premium?

Speaker 8

And how does that play into your views of gas M and A in the basin?

Speaker 2

Yes, that's a boy, a tough question to say. I mean, I look at Western Canada, it does have egress issues in terms of whether it's oil or natural gas. And so it's Very important that these incremental egress operations run reliably and consistently. I really do not know the timing of LNG Canada. I've heard it looks like into next year, mid next year.

Speaker 2

But So I think you'll still because there are so many good opportunities in natural gas, Montney primarily In Western Canada that any egress that does open up, I think that The companies here in Western Canada are very efficient in terms of filling that space, so provided that the pricing is right. So difficult to say Where it will all level out, but I do know that the Montney in all areas is quite prolific. And we've had Very good results in our Montney operations, both on the oil side and natural gas side. So, I just see that incremental egress will be filled In short time.

Speaker 8

Got it. I appreciate that. And we look forward to seeing Mark and Houston for our conference in a couple of weeks. Take care,

Speaker 2

guys. Thank you. Thank you.

Operator

Thank you. There are no further questions. I will turn the call back over for closing comments.

Speaker 1

Thank you, operator, and thanks everyone for joining us this morning. If you have any follow-up questions, please give us a call. Thanks and have a great day.

Operator

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and we ask that you please disconnect your lines.

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Key Takeaways

  • Canadian Natural achieved record quarterly production of approximately 1,390,000 BOE/d—driven by a liquids average of 1,035,000 bbl/d and 2.15 Bcf/d of natural gas—which fueled significant free cash flow and share buybacks.
  • The company reaffirmed its role in the Pathways Alliance, targeting a 40% reduction in absolute Scope 1 and 2 emissions by 2035 (from a 2020 baseline) and net-zero GHG emissions in its oil sands by 2050.
  • Across its asset base, costs declined year-over-year: North American gas operating costs fell to $1.22/Mcf, heavy oil costs dropped to $19.68/bbl, and in situ thermal costs improved to $11.47/bbl while production grew.
  • Financially, Q3 delivered an adjusted funds flow of C$4.7 billion and C$2.9 billion of operational earnings, with C$6.1 billion returned YTD; the board approved an 11% dividend lift to C$1.00/share, marking 24 consecutive years of increases.
  • A leadership transition is set for February 28, 2024, with Scott Stoute named President and internal promotions reinforcing Canadian Natural’s succession planning and long-term strategy.
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Earnings Conference Call
Canadian Natural Resources Q3 2023
00:00 / 00:00