Canadian Natural Resources Q3 2024 Earnings Report

Canadian Natural Resources EPS Results

• Actual EPS: $0.97
• Consensus EPS: $0.67
• Beat/Miss: Beat by +$0.30
• One Year Ago EPS: $0.96

Canadian Natural Resources Revenue Results

• Actual Revenue: $7.62 billion
• Expected Revenue: $6.40 billion
• Beat/Miss: Beat by +$1.23 billion
• YoY Revenue Growth: N/A

Canadian Natural Resources Announcement Details

• Quarter: Q3 2024
• Date: 10/31/2024
• Time: Before Market Opens
• Conference Call Date: Thursday, October 31, 2024
• Conference Call Time: 11:00AM ET

Canadian Natural Resources (NYSE:CNQ) (NYSE: CNQ) is a Calgary-based independent oil and natural gas exploration and production company. Established in the early 1970s and publicly listed in Canada and the United States, the company is principally engaged in the exploration, development, production, and marketing of crude oil, natural gas and natural gas liquids. Its asset base spans conventional and unconventional reservoirs and includes oil sands mining and in-situ thermal projects, midstream processing and upgrading capacity, and related field operations.

The company’s operations are concentrated in Western Canada, where it develops heavy crude, bitumen from oil sands and conventional light crude and natural gas resources. Canadian Natural is known for large-scale oil sands mining and bitumen upgrading projects as well as steam-assisted gravity drainage (SAGD) in-situ developments. In addition to its Canadian portfolio, the company maintains international producing and exploration interests, supporting a diversified operational footprint and a range of production types across multiple basins.

Canadian Natural’s business model covers the full upstream cycle from exploration and reservoir development to production, processing and sales, supported by technical and operations teams focused on cost control and long-life inventory. The company is publicly traded and reports under Canadian regulatory standards; corporate governance and executive leadership are disclosed in its annual and regulatory filings. Its combination of oil sands assets, conventional production and international interests positions it as one of Canada’s larger independent energy producers.

Canadian Natural Resources Q3 2024 Earnings Call Transcript

Key Takeaways

• Canadian Natural achieved record monthly SCO production of 529,000 barrels per day in August and maintained top-tier Q3 operating costs of C$20.67 per barrel at its oil sands mining and upgrading operations.
• The company agreed to acquire Chevron’s 20% interest in AOSP and 70% of Duvernay assets, adding approximately 62,500 barrels per day of long‐life SCO and 1,000 BOE per day of light crude, with closings targeted in Q4 2024.
• Q3 results featured adjusted funds flow of C$3.9 billion and net earnings of C$2.1 billion, returning C$1.9 billion to shareholders through dividends and buybacks, and announcing a 7% dividend increase for January 2025.
• In support of market diversification and stronger netbacks, the company will expand its TMX contracted capacity by 75,000 barrels per day to 169,000 barrels per day starting December 1, 2024.
• Amid continued low natural gas prices, Canadian Natural reduced its 2024 dry gas drilling plan by 17 net wells to 74, while maintaining annual gas production guidance of 2.12–2.23 Bcf per day.

Presentation

[Operator]

Good morning. We would like to welcome everyone to Canadian Natural's 2024 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, October 31st, 2024, at 9:00 A.M. Mountain Time. I would now like to turn the meeting over to your host for today's call, Lance Casson, Manager of Investor Relations.

[Lance Casson, Manager of Investor Relations at Canadian Natural Resources]

Thank you, Operator. Good morning, everyone, and thank you for joining Canadian Natural's third quarter 2024 earnings conference call. 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. Also, I would suggest you review our advisory section and our financial statements that includes comments on non-GAAP disclosures. Speaking on today's call will be Scott Stauth, our President, and Mark Stainthorpe, our Chief Financial Officer.

[Lance Casson, Manager of Investor Relations at Canadian Natural Resources]

Scott will provide highlights of our strong operational quarter that includes some asset-specific production records and top-tier operating costs. Mark will then summarize our financial results that include robust adjusted funds flow, earnings, and returns to shareholders. To close, Scott will summarize prior to opening up the time for questions. With that, over to you, Scott.

[Scott Stauth, President at Canadian Natural Resources]

Thank you, Lance, and good morning, everyone. Our unique and diverse asset base provides us with a competitive advantage as we can allocate capital to the highest return projects without being reliant on any one commodity. Our consistent and top-tier results are driven by safe and reliable operations. Our commitment to continuous improvement is supported by a strong team culture in all areas of our company that focus on improving our cost, driving execution of growth opportunities, and increasing value to shareholders. We achieved strong average production of approximately 1.363 million BOEs in the third quarter, consisting of 1.022 million barrels of liquids and over 2 BCF of natural gas. Our world-class oil sands mining and upgrading assets delivered strong results in the quarter, including a record monthly production of approximately 529,000 barrels per day of SCO in August.

[Scott Stauth, President at Canadian Natural Resources]

Importantly, these assets continued to deliver strong operational performance and high utilization rates, which resulted in top-tier quarterly operating costs of $20.67 per barrel in the third quarter. Subsequent to the quarter end on October 7th, we announced an agreement with Chevron Canada Limited to acquire their 20% interest in AOSP, which includes the Muskeg River Mine and Jack Pine Mine, the Scotford Upgrader, and the Quest Carbon Capture and Storage Facility. This acquisition will bring Canadian Natural's total current working interest in AOSP to 90% and is targeted to add approximately 62,500 barrels per day of long-life, no-decline SCO production to the company. In addition, Canadian Natural also agreed to acquire Chevron's 70% operator working interest of light crude oil and liquid-rich assets in the Duvernay play, Alberta.

[Scott Stauth, President at Canadian Natural Resources]

These assets are targeted to average approximately 60,000 BOEs per day in 2025 and provide the opportunity for meaningful near-term growth while contributing additional free cash flow. The effective date for these acquisitions is September 1st of 2024 and are targeted to close in the fourth quarter of 2024. Additionally, commencing December 1st, 2024, in support of our long-term strategy of targeting the expanded refining markets, driving stronger netbacks, and reducing exposure to crude oil egress constraints, we will increase our contracted crude oil transportation capacity on TMX by 75,000 barrels per day to 169,000 barrels per day. I will now run through our Q3 operational results.

[Scott Stauth, President at Canadian Natural Resources]

On the conventional side of the business, primary heavy oil production averaged approximately 76,800 barrels per day in the third quarter, which is a 1% increase compared to the production volumes in the third quarter of 2023, reflecting strong results from multilateral wells on our extensive heavy oil land base, which is the largest in Canada and includes the Mannville and Clearwater fairways. As a result of optimized longer well designs and the technical expertise of our teams, we continue to see excellent results from our multilateral wells, driven by our culture of continuous improvement. In the first nine months of 2024, we drilled 76 net multilateral wells, maintaining top-tier average initial peak rates of approximately 230 barrels per day per well, an increase of approximately 30% compared to our budget average initial peak rates of 175 barrels per day per well.

[Scott Stauth, President at Canadian Natural Resources]

Primary heavy oil operating costs averaged CAD 18.69 in the quarter, which is down 5% from the third quarter of 2023, primarily reflecting lower operating costs. Our Pelican Lake production averaged approximately 45,100 barrels per day in the quarter, which is down 4% from the third quarter of 2023, reflecting low field declines from this long-life asset. Operating costs at Pelican were CAD 8.74 per barrel in the third quarter, a 9% increase compared to the third quarter of 2023, which was primarily due to higher maintenance activities in the quarter, partially offset by lower energy costs. North American light crude oil and NGL production averaged approximately 106,300 barrels per day in the third quarter, which is down 3% from the third quarter of 2023. The decrease was primarily the result of temporary processing facility outages and rail transportation restrictions, offset by strong drilling results.

[Scott Stauth, President at Canadian Natural Resources]

Operating costs in our light crude oil and NGLs averaged CAD 13.73 in the third quarter, a decrease of 11% compared to the third quarter of 2023 due to lower energy costs. North American natural gas production averaged 2 BCF during the third quarter, a decrease of 5% compared to the third quarter of 2023, primarily reflecting previous announced deferrals of natural gas on-stream timing in response to natural gas pricing, the impacts of heat and wildfire conditions in Q3 of 2024, and natural fuel declines. This decrease in production was partially offset by strong results from our Montney and Deep Basin wells.

[Scott Stauth, President at Canadian Natural Resources]

Operating costs on our North American natural gas averaged CAD 1.23 per MCF in the third quarter, comparable to the third quarter a year ago. As we outlined in our first quarter results, we reallocated capital from certain dry natural gas development activity to multilateral heavy oil wells.

[Scott Stauth, President at Canadian Natural Resources]

Due to continued low natural gas prices in 2024, we are further reducing dry natural gas drilling capital. We now target drilling a total of 74 net natural gas wells, 17 fewer compared to the 2024 budget. Our 2024 corporate annual natural gas guidance of 2.12 BCF to 2.23 BCF remains unchanged. In our thermal in-situ operations, we achieved strong thermal production in the quarter, averaging just over 271,500 barrels per day. This is down 5% from the third quarter of 2023, primarily due to the cyclical nature of production from CSS pads, Primrose, and natural field declines, partially offset by thermal pad add development at Kirby and Jackfish. Third quarter thermal in-situ operating costs averaged CAD 10.52 a barrel, which is down 8% compared to the third quarter of 2023, primarily reflecting lower energy costs.

[Scott Stauth, President at Canadian Natural Resources]

At Jackfish, we achieved record quarterly production of approximately 128,000 barrels a day in Q3, primarily due to strong results from pad additions and effective and efficient operations. Additionally, we are currently drilling a SAGD pad at Jackfish with production from this pad targeted to come on in Q3 of next year. At Primrose, we are targeting to bring on a CSS pad on production in Q4 of 2024, which is ahead of schedule. A second CSS pad has been drilled and is also targeted to come on production ahead of schedule in Q1 2025. This pad was originally budgeted to come on in Q2 of 2025. At Kirby North, we began solvent injection in June of 2024, and all eight wells are now injecting solvent. Early results have been positive with SOR reductions of approximately 30%, trending towards a targeted reduction of 40%-50%.

[Scott Stauth, President at Canadian Natural Resources]

Solvent recoveries are in excess of 85% and are meeting expectations. As the project advances, we will continue to monitor SORs, solvent recovery, and production trends. In our oil sands mining and upgrading operations, third quarter SCO production averaged approximately 498,000 barrels per day, an increase of approximately 7,000 barrels per day compared to the third quarter of 2023. The increase in production for the third quarter included planned turnaround activities at the non-operated Scotford Upgrader, which began on September 9th and were successfully completed on October 18th.

[Scott Stauth, President at Canadian Natural Resources]

Oil sands mining and upgrading achieved a new monthly production record of approximately 529,000 barrels per day of SCO in August of this year. This was primarily due to high utilization at both Horizon and AOSP, as well as the completion of the reliability enhancement project at Horizon during our planned turnaround in the second quarter.

[Scott Stauth, President at Canadian Natural Resources]

Operating costs in oil sands mining and upgrading assets are top tier, averaging CAD 20.67 per barrel in the third quarter, a 7% decrease compared to the third quarter of 2023. This primarily reflects higher production volumes from reduced planned turnaround activity and lower energy costs. The Scotford Upgrader, the planned turnaround was executed in 40 days relative to the original budget of 49 days, while achieving higher utilization rates during that 40-day window. As a result, the annual net production impact from AOSP from the third quarter turnaround activities is 5,400 barrels per day, a significant improvement compared to the budgeted annual net production impact of 11,000 barrels per day. A debottleneck project was completed during the Scotford turnaround, which increases the total gross capacity by 8,000 barrels a day.

[Scott Stauth, President at Canadian Natural Resources]

Upon closing of the acquisition of Chevron's 20% interest at AOSP, the net capacity to Canadian Natural increases to 7,200 barrels per day. A debottleneck project was completed during the Scotford turnaround, which increases gross capacity to 8,000 barrels per day. Upon closing Chevron's 20% interest, the net capacity to Canadian Natural increases to 7,200 barrels per day. Canadian Natural is delivering top-tier free cash flow generation, which is unique and sustainable and robust, and clearly demonstrates our ability to both economically grow the business and deliver returns to shareholders by balancing our four pillars of capital allocation. With that, I will now turn it over to Mark for financial review.

[Mark Stainthorpe, CFO at Canadian Natural Resources]

Thanks, Scott, and good morning, everyone. In the third quarter, our strong operational execution led to excellent financial results. We generated adjusted funds flow of CAD 3.9 billion and adjusted net earnings from operations of CAD 2.1 billion.

[Mark Stainthorpe, CFO at Canadian Natural Resources]

This drove significant returns to shareholders in the quarter, totaling CAD 1.9 billion, with approximately CAD 1.1 billion in dividends and CAD 740 million in share buybacks through our NCIB program. Year to date, up to and including yesterday, October 30th, we have distributed significant value to shareholders, totaling approximately CAD 6.7 billion, including our sustainable and growing dividend and share buybacks. Given our strong financial position and significant and sustainable free cash flow generation, as previously announced, the Board of Directors has agreed to increase the quarterly dividend by 7% to CAD 0.5625 per share payable at the next regular quarterly dividend payment in January 2025. This will mark 2025 as the 25th consecutive year of dividend increases by Canadian Natural, with a compound annual growth rate of 21% over that time.

[Mark Stainthorpe, CFO at Canadian Natural Resources]

This increase in the quarterly dividend demonstrates the confidence the Board of Directors has in the company's world-class assets and its ability to generate significant and sustainable free cash flow. Our financial position is very strong, with net debt at CAD 9.3 billion and debt to EBITDA at 0.6 times at the end of Q3 2024. Liquidity remains strong, and including revolving bank facilities and cash, liquidity at the end of the quarter was approximately CAD 6.2 billion. Subsequent to quarter end, and as previously announced, in connection with the agreement to acquire assets from Chevron, we obtained a fully committed CAD 4 billion non-revolving term loan facility. We have also extended the maturity of our CAD 2.425 billion revolving credit facility from June 2025 to June 2028.

[Mark Stainthorpe, CFO at Canadian Natural Resources]

Our asset base is underpinned by top-tier long-life, low-decline assets, a strong balance sheet, and safe, effective, and efficient operations, all of which combine to provide us with unique competitive advantages in terms of capital efficiency, flexibility, and sustainability, driving strong returns on capital. With that, I'll turn it back to you, Scott, for some final comments.

[Scott Stauth, President at Canadian Natural Resources]

Thanks, Mark. In summary, our consistent and reliable results are underpinned by safe and reliable operations. Our commitment to continuous improvement is driven by a strong team culture in all areas of our company that focus on improving our cost, strong execution of growth opportunities, and increasing value to shareholders. So with that, I'll turn it over for questions.

[Operator]

We will now begin the question and answer session. If you would like to ask a question, press Star, followed by the 1 on your telephone keypad.

[Operator]

Your first question comes from the line of Dennis Fong with CIBC World Markets. Please go ahead.

[Dennis Fong, Equity Research Analyst at CIBC Capital Markets]

Yes. Hi, good morning, and thanks for taking my question. Also, congratulations on another strong quarter. First question here is just on Horizon and, frankly, the oil sands mining and operations. Obviously, a really strong August, as you highlighted in your comments. Just curious, as we go into next year in 2025, can you talk towards a little bit of the potential of cost savings with the lack of turnaround at Horizon, as well as some of the improvements in terms of runtime and productive capacity that you've been able to unlock with the two assets?

[Scott Stauth, President at Canadian Natural Resources]

Right. Well, in terms of cost at Horizon, you could look at that when we're doing in a non-turnaround year, you'd estimate the savings to be around CAD 75 million, Dennis.

[Scott Stauth, President at Canadian Natural Resources]

In terms of the utilization, we can see that we're having strong production results coming out of that completion of the reliability project. We'll continue that, focus on that going into next year. In terms of other costs at Horizon and AOSP, our teams continuously focus on areas for improvement through basic continuous improvement projects. So we're just going to stay focused on our base business there in oil sands mining, Dennis, optimizing production, and working to reduce costs.

[Dennis Fong, Equity Research Analyst at CIBC Capital Markets]

Great. Great. I appreciate that context there. My second question, and just turning my attention towards the thermal in-situ projects, obviously, a lot of things going on there and obviously strong production at Jackfish. I was just curious, I know in the 2024 budget, you guys mentioned Pike as a phase one, as an opportunity that you guys were looking into a little bit more.

[Dennis Fong, Equity Research Analyst at CIBC Capital Markets]

Can you talk about any progress you've made? I think drilling and pipeline work was supposed to start in late 2024. Is that still on the docket, and how are you thinking about that project?

[Scott Stauth, President at Canadian Natural Resources]

Yeah, good question, Dennis. And yes, the Pike 1 project involves the pipeline running from the Pike 1 area to be tied back into our Jackfish facilities. That work has commenced. We'll continue on with that pipeline activity into 2025, along with drilling our first pads, and that's the plan for 2025.

[Dennis Fong, Equity Research Analyst at CIBC Capital Markets]

Great. Thanks. I'll turn it back.

[Operator]

Your next question comes from the line of Neil Mehta with Goldman Sachs. Please go ahead.

[Neil Mehta, Head of Americas Natural Resources Equity Research at Goldman Sachs]

Yeah. Thanks so much. And one of the keys to the CNQ story over time has been continuous progress around costs. And so just curious, in a lower commodity price environment, what are the opportunities to capture cost and capital efficiency?

[Neil Mehta, Head of Americas Natural Resources Equity Research at Goldman Sachs]

In that spirit, any early thoughts on how 25 budgets could play out?

[Scott Stauth, President at Canadian Natural Resources]

I think it's just really important, as we always do, Neil, to focus on overall optimization of our production. The more we can optimize our production, the better impact that has on our overall operating costs. Our low operating cost structure is top tier, and it certainly allows for significant free cash flow and low commodity cycles. In terms of continuous improvement activities, I can tell you that every single year, our teams come up with projects that are new to work on, finding efficiencies, working with our vendors and our suppliers to help reduce costs, become more efficient and effective. It's an ongoing program that we've been utilizing for many, many years, and we're going to continue to focus on that, Neil.

[Neil Mehta, Head of Americas Natural Resources Equity Research at Goldman Sachs]

And just thoughts on 25 as we kind of bridge from the 5,400 this year into next year. What are some moving pieces that we need to keep in mind, recognizing you can give us some more clarity here in the coming days?

[Scott Stauth, President at Canadian Natural Resources]

Yeah. I think, Neil, you can look for us to come out closer to year-end here with our budget for next year. So we're still working through all the details, prioritizing our projects that drive the best returns. So we're going to be focused on that, and we're working through that right now. So I don't have any additional details to provide you at this time.

[Neil Mehta, Head of Americas Natural Resources Equity Research at Goldman Sachs]

All right. Well, thank you. Thanks.

[Operator]

Your next question comes from the line of Greg Pardy with RBC Capital Markets. Please go ahead.

[Greg Pardy, Research Analyst at RBC Capital Markets LLC]

Yeah. Thank you. Thanks for the rundown, guys.

[Greg Pardy, Research Analyst at RBC Capital Markets LLC]

I was wondering if you could just maybe dig a little bit into the solvent pilot, commercial pilot, I guess you're running at Kirby North. And so I guess you're seeing, as you indicate, you're seeing great results and so on. If this is successful, is this something that you would sort of apply on a go-forward basis? I'm trying to get a sense as to how much of a broader application is this something that you could use at Jackfish on new pads and so forth, or how limited maybe is the scope of this if it is commercial?

[Scott Stauth, President at Canadian Natural Resources]

Yeah, Greg. So again, still early stages in terms of seeing the results. So far, I agree. And as we stated, they're very positive. We still need some time to work through that.

[Scott Stauth, President at Canadian Natural Resources]

I'm expecting that we'll feel more confident in terms of the overall results as time goes on here. Looking into June of 2025, it'll be a full year of runtime, so we'll have a lot more meaningful numbers. If you look forward to the future, under your circumstance, that looking for adding solvents to future pad adds, it fits well with future development because it helps the total steam requirements of the area, and so you'd apply that. We'd look at applying that to future pad adds in Kirby and Jackfish as we move forward and look towards potentially bringing reserves forward with that type of concept of solvent injection.

[Greg Pardy, Research Analyst at RBC Capital Markets LLC]

Okay. Okay. Thanks very much for that, and then haven't really dug into the numbers on some of this, but just with respect to OpEx at Horizon, AOSP, very good operating costs.

[Greg Pardy, Research Analyst at RBC Capital Markets LLC]

I'm just wondering how much of that was due to just very high run rates versus the pullback in ACO pricing. Just trying to get a sense as to how enduring the operating cost is that we saw in the third quarter.

[Scott Stauth, President at Canadian Natural Resources]

Yeah, Greg, it's a bit of both, actually. So very strong volumes, as you noted. ACO prices are certainly lower. And as you know, great thing about Canadian Natural, we do have a natural hedge in terms of our overall gas production because of our fuel gas requirements and our thermal and oil sands mining developments. So it's a little bit of both, Greg. I don't have the exact breakdown here for you at this moment, but they're both significant.

[Greg Pardy, Research Analyst at RBC Capital Markets LLC]

Understood. Thanks very much.

[Operator]

Your next question comes from the line of Manav Gupta with UBS. Please go ahead.

[Manav Gupta, Executive Director at UBS]

Good morning.

[Manav Gupta, Executive Director at UBS]

So my first question is, can you help us remind what's your all-in breakeven for WTI with dividend? And then if you could provide some insights as you get these Chevron assets and integrate them, and there are synergy benefits, does that move that breakeven in any direction once those assets are fully integrated?

[Mark Stainthorpe, CFO at Canadian Natural Resources]

Hi, Manav. It's Mark. There's a lot of different assumptions that go into the breakeven, but when I look at it, we're somewhere in the low 40s WTI in that neighborhood. Of course, when you bring on these new assets with free cash flow coming with them, you probably have a modest benefit to it. When you look at the overall decline rate of the company today, we sit at probably 11%.

[Mark Stainthorpe, CFO at Canadian Natural Resources]

And of course, that's what drives the low maintenance capital and ability to cover that, as well as a dividend, as well as our dividend in a lower commodity price environment.

[Manav Gupta, Executive Director at UBS]

Perfect. My second question is a little more on the international side. Sometimes we tend to bucket them together, but the portfolio on the offshore West Africa actually has growth and stuff, while North Sea is kind of more in a decline. So how would you say those two assets are slightly different from each other? One has growth, and the other one is kind of more in a decline?

[Scott Stauth, President at Canadian Natural Resources]

Right. Yeah. So as you're alluding to, the North Sea is on a declining production, and we'll continue to work towards cessation of production as time goes on here. We have extensive abandonment programs in place over the next several years.

[Scott Stauth, President at Canadian Natural Resources]

Then offshore West Africa, yes, potential future development opportunities exist in that area as well. Yeah, so again, it's not a significant portion of our portfolio in terms of production, but we certainly have benefited from the significant cash flow that's come from those areas over the past few decades.

[Manav Gupta, Executive Director at UBS]

Thank you so much for taking my questions.

[Operator]

Your next question comes from the line of Menno Hulshof with TD Securities. Please go ahead.

[Menno Hulshof, Managing Director and Institutional Equity Research at TD Securities]

Thanks. Yeah, thanks. Good morning, everyone. I'll start with a question on the Chevron transaction, where you talked about the Duvernay competing for capital with the Montney, which didn't surprise everybody, but it did surprise some people. So the question is, were there specific parts of the Montney that you had in mind as competing head-to-head with the Duvernay for capital?

[Menno Hulshof, Managing Director and Institutional Equity Research at TD Securities]

And on a related note, how does the Clearwater currently stack up with those two plays?

[Scott Stauth, President at Canadian Natural Resources]

Yeah. If you look at the Duvernay, Menno, in terms of the acquisition, the average liquids rate is in the range of 40%. So from that perspective, it's very comparable with the Montney because of the high liquids production, so resulting in strong capital efficiency numbers. If you're looking at in terms of comparison to Clearwater and the Mannville, very comparable in terms of overall economics from our Mannville and our Clearwater as well. The great thing about Canadian Natural's, we have these great assets that can deliver significant free cash flow. Certainly, where our focus is going to be going forward here.

[Menno Hulshof, Managing Director and Institutional Equity Research at TD Securities]

Okay. Thanks for that, Scott. The second question is on basin egress. You've made a pretty big push on that front.

[Menno Hulshof, Managing Director and Institutional Equity Research at TD Securities]

You have new commitments on TMX planning in South, which was announced a while back, and even a bit more on Keystone. How much of that is a function of your own internal growth aspirations versus opportunistically taking it on simply because it's available, like we probably saw with PetroChina? And more generally, how are you thinking about the West Coast and Gulf Coast as competing markets for your barrels, given current market dynamics?

[Scott Stauth, President at Canadian Natural Resources]

I think it's a little bit of both, Menno. But certainly, when you take a look at the opportunities off the West Coast to further expand and diversify to additional refining destinations, that provides a significant forward-looking opportunity for us. So it helps the basin maintain very competitive heavy oil netbacks, stabilizes the market more so than it ever was before.

[Scott Stauth, President at Canadian Natural Resources]

And then just in terms of you look at our portfolio of development, it certainly helps secure those barrels, which would otherwise be potentially an egress constraint situation under those circumstances. So it's a really good opportunity for us, strategic from that perspective. And we look to further enhance our netbacks as we go forward.

[Menno Hulshof, Managing Director and Institutional Equity Research at TD Securities]

Thank you. I'll turn it back.

[Operator]

Your next question comes from the line of Patrick O'Rourke with ATB Capital Markets. Please go ahead.

[Patrick O'Rourke, Managing Director and Institutional Equity Research at ATB Capital Markets]

Hey, good morning, guys. And thank you for taking my question. I guess maybe a little bit further to Menno's question there, specific to the 75,000 on TMX. If I were to look at that pipe today, and it's just based on the fiscal report, broker reports we see, transport is slightly off-market relative to the regulated toll.

[Patrick O'Rourke, Managing Director and Institutional Equity Research at ATB Capital Markets]

I'm just wondering if you can give any more color with respect to that deal. Is it sort of at the market at the regulated toll, or are there any other aspects to that?

[Scott Stauth, President at Canadian Natural Resources]

Yeah, Patrick. So I can tell you that it is very similar to our existing contract that we have for our 94,000 barrels a day. So it turns essentially same from that perspective. So that's why it was a good fit for us, but probably more importantly, securing those barrels, the opportunity to have achieved stronger pricing either through deliveries to West Coast and California or further Asian markets. So it's a good opportunity for us from those perspectives in total.

[Patrick O'Rourke, Managing Director and Institutional Equity Research at ATB Capital Markets]

Great. And then sort of shifting gears and thinking about capital allocation here, obviously, you've taken on a little bit more leverage to get the AOSP, Chevron, and Duvernay assets in there.

[Patrick O'Rourke, Managing Director and Institutional Equity Research at ATB Capital Markets]

Just wondering, with where the balance sheet sits today, with your view on sort of the opportunity set out there, what would the appetite for further M&A be from here for CNQ?

[Scott Stauth, President at Canadian Natural Resources]

Yeah, Patrick, it's a good question, but I think if you look at the overall position of our company, we do have great assets. And we'll continue to look at opportunities as we have in the past in areas where assets may come up for sale. They're a good fit into our core areas. We will look at them like we always have in the past, and history states that. So we'll remain with that forward-looking view and just ensuring that any acquisition we do do, Patrick, we do a really good job of maximizing the value for the company and our shareholders.

[Patrick O'Rourke, Managing Director and Institutional Equity Research at ATB Capital Markets]

Okay. Thank you.

[Operator]

I'll now turn the call back over to Lance Casson for closing remarks. Please go ahead.

[Lance Casson, Manager of Investor Relations at Canadian Natural Resources]

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

[Operator]

Ladies and gentlemen, this concludes today's conference. Thank you all for joining, and you may now disconnect.

Participants

Executives

• Mark Stainthorpe, CFO
• Lance Casson, Manager of Investor Relations
• Scott Stauth, President

Analysts

• Patrick O'Rourke, Managing Director and Institutional Equity Research at ATB Capital Markets
• Manav Gupta, Executive Director at UBS
• Greg Pardy, Research Analyst at RBC Capital Markets LLC
• Dennis Fong, Equity Research Analyst at CIBC Capital Markets
• Menno Hulshof, Managing Director and Institutional Equity Research at TD Securities
• Neil Mehta, Head of Americas Natural Resources Equity Research at Goldman Sachs