Q4 2019 Earnings Call

Cash 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 March 2020 at nine Am Mountain time, I'd now like to turn the meeting over to your host for today's call Corey Bieber Executive advisor. Please go ahead Mr. Peter Thank you.

Thank you operator, good morning, everyone and thank you for joining or fourth quarter and you're in 2019 conference call.

Me. This morning are Steve Laut, Executive Vice Chairman, Jim Mckay, President Scott Stealth Chief operating officer for oil Sands during the victory Chief operating officer exploration and production and Merck Sting Threepar Chief Financial Officer.

Before we begin I wouldn't like to refer you to the special note regarding non-GAAP financial measures contained in our press release. These measures used to evaluate the company's performance should not be considered to be more meaningful than those determined in accordance with high for us.

I would also like to refer you to the comments regarding forward looking statements contained in our press release and also note that all amounts are in Canadian dollars and production reserves are expressed as before royalties unless otherwise stated.

I don't past call over to Steve.

Thank you Corey and good morning, everyone.

Are you seeing clean naturals fourth quarter was a very strong.

During strong sustainable free cash flow.

Very few companies can deliver this level sustainable free cash flow that is safe secure and provide substantial upside going forward.

I'll leave Jim Darrens, Scott and Mark to provide more fulsome comments now clean naturals leveraged our competitive advantages.

Optimize cash allocation between EUR four pillars, and as a result, maximized, our free cash flow and driven top tier value creation.

I'll spend a bit of time talking about how we see the future unfolding for the oil and gas sector and how clean natural is advantaged and all outcomes.

Hey, natural views the role natural gas if future based on the <unk> latest forecast to grow with the downside case flat at today's levels.

We expect all demand to be bracket between the are you stated policy and sustainable scenarios. The downside of 65 million barrels a day by 2040 in a sustainable scenario.

For reference the more aggressive scenarios in the December 2018, UN Intergovernmental panel on climate change report for one and a half degree limit as the midpoint of old man at roughly 70 million barrels a day in 2040 pretty much the same as Cie a sustainable scenario.

Oil demand is still substantial.

In the downside scenario Canadian oil sands mining and upgrading projects are advantaged with long life No decline no reserve replacement cost or risk.

It's essentially a manufacturing operation with low total cost and importantly, a strong likelihood that net zero greenhouse gas emissions are achievable to technology and innovation.

Natural gas and in particular Canadian Natural's gas assets are advantaged with low emissions intensity and low cost.

Canadian natural is in a very strong position going forward, even in the downside scenarios.

Yes, you performance is becoming increasingly important as it should be and in Canada, and the Canadian oil and gas sector not surprisingly leads the global pack with outstanding performance.

Last Summer conference calls I spent some time talking about the environment I won't go through all the details as I have in the past, but summarize a key points of what I consider to be very impressive Canadian success story.

That's already been telling to a broader Canadian audience.

It's a success story that all Canadians can be proud of and.

That's been greeted with some surprise and strong support a story, we continue to tell to an even broader audience.

Because when it comes the environmental performance Canadian natural and deeds entire Canadian oil and gas sector has delivered game changing environmental performance.

Clean natural candidates oil and gas sector recognized the need to reduce greenhouse gas emissions and we've been able to leverage technology and Canadian junior to the ingenuity delivering impressive results.

Essentially Ken as oil and gas sectors taken what was branded as high intensity on 2009.

What I would call to premium while on the global stage.

All in 10 years, and the Canadian oil and gas sector is committed to do even better in the future.

Okay Naturals already use our overall corporate emissions intensity by 29% since 2012.

Horizon or intensity is down 37% and our primary heavy oil intensity is down 70% and we are leading capture and sequester of Seo too when you all gas sector worldwide.

And just see three areas can you naturals, taking the equivalent of over 2 million cars off the road equivalent to 5% of the entire because in Canada.

This is just for key naturals done the entire industry has achieved similar equally impressive results.

For the record, 100% of Canadian Natural's, Alberta oil sands in tissue and money emissions, our third party verified.

Canadian ingenuity, and our ability to innovate and leverage technology has taken what was very high intensity oil wells to combustion basis in 2009 to below the go leverage.

The success story is just getting started.

We can win new projects leverage technology, and Canadian ingenuity to do even better.

Okay natural aspirationally goal of reaching net zero emissions.

It's not 2009 anymore Canadian oil and gas is now the premium product something all Canadians should be product.

Hey, natural has multiple pathways to achieve net zero with actions identified in the near mid and long term.

You can check our website for more details on the technology will help us get there.

The strength, Okay Naturals model is evidenced in all aspects of the company, including SG.

Where we are delivering leading SG performance.

Our assets advantage for the downside scenarios and we have a track record of leveraging technology innovation and continuous improvement.

Liver ever improving environmental performance with multiple pathways to attain net zero missions in oil sands.

Okay, all sounds because asset advantages long life, no decline and manufacturing style operations and one of the clearest routes if not the clearest route the nets zero up any global oil asset.

And I'm wondering how to be limit world, even the downside scenario oil and natural gas will still have the statute rule and providing the energy the world needs, who should supply the energy should be those are deliberate the high CSG standards and the lowest greenhouse gas intensity.

As a result, Canadian natural should be at TSG investment priority.

It's clear, but not well understood that getting Canadian oil and gas on global markets reduces global greenhouse gas emissions.

If you believe action needs to be taken on climate change then you should you must advocate for greater market access for Canadian oil and natural gas.

It's very clear that deliver encanas oil natural gas to global markets should be a climate change and economic priority for Canada.

Yep.

Thank you Steve good morning, everyone.

Canadian Natural's had top tier operational results for 2019.

Production from our assets with strong as we executed our curtailment optimization strategy and over and above that we continue to drive effective and efficient operations, reducing their operating costs, even under curtailment in Alberta.

This is a reflection of our operational excellence of our people the strength of our bass, well balanced and diverse asset base and our ability to effectively execute our curtailment optimization strategy.

Maximize free cash flow for our shareholders.

We have a history of capital disciplined operational excellence and we have robust economic long life low decline assets and relative to most of our pillage peers, the ability to enhance our margins and grow production.

As we talked about the last few quarters Canadian natural continues to strongly support the government decision to curtail production has differentials for both WCS and synthetic gold and 29 team have stabilized to more reasonable level.

Yes outcome of this decision has been very positive and proven very infective in helping to manage the volatility of differentials in the market when egress restrictions occur as they did in October 2019, even at storage levels grows the discount for Canadian oil stayed within reason versus what we experienced in Q4 28.

Okay.

We see improved egress in 2020 and bridge expression based Keystone pipeline, each targeting an additional 50000 barrels a day and NW are targeting to start taking incremental heavy oil approximately 40000 barrels a day. So a total of 190000 barrels a day of additional egress capacity.

TMX looks to be progressing forward as well crude by rail in December was approximately 350000 barrels a day all positive momentum for Canadian producers I will now do a brief overview of our conventional assets than Scottsdale, Chief operating officer for oil Sands, we'll do a brief overview of our oil sand assets.

Starting with natural gas overall annual production of 1.49 Bcf was down from a 2018 production of 1.548 Bcf as expected with North American annual natural gas production of 1.44 as a result to the Companys.

The strategic decision to reduce investment natural gas.

We continue to focus on operational excellence and our annual North American natural gas natural gas operating costs was very strong at a buck 16 per Mcf, which is down 7% when compared to 2018 at $1.25.

Fourth quarter, North American production was 1.41 Bcf versus 1.42 Bcf for Q3 operating costs were $1.11 as expected up from Q3 of about seven due to seasonal differences impressive operating cost performance in light of our strategic decision to low natural gas production.

The decline.

At Septimus, the company's high value less liquid rich mountain area that third production cycle has now commenced and most importantly proven the lakes concept as a reminder, the lakes process uses dry natural gas and as Reinject. It into the reservoir and then the liquids rich gas is produced pad, which.

Actual to increased liquid rates and recovery, but 30% to 70% adding significant value.

The compressor will now be moved to the Wembley area in Alberta with injections targeted to start late Q2. This will further de risks the legs potential in the liquids rich areas of the Montney, which could add significant long term value to the company.

The fourth quarter, the Canadian natural Canadian operations realized natural gas price $2.52 per Mcf cannot show has a diverse natural gas sales portfolio of which 44% is used in operations, 34% is exported and only 22% is exposed to April pricing.

Based on 2019 production.

Our 20, our 2019 annual North American light oil NGL production was 96984 barrels a day up 3% for 2018 annual operating costs were strong at 15 21 per barrel, which is slightly lower than the 2018 annual operating costs of 15 29.

Q4 production was 93909 barrels per day down 2% when comparing Q3 2019 fourth quarter operating cost.

15, 41 per barrel as compared to Q3 operating cost of 14 96.

Overall, our international assets had a strong year with annual oil production of 49000.

Approximately 49300 barrels a day, a 13% increase over 2018, which generates significant free cash flow and value for the company.

Offshore Africa production with 21371 barrels a day when compared to 2018 of 19662 due to the successful they have that drilling program completed in early 2019 offset by natural field decline TDR high operating cost in 2019 were strong enough.

And 21 per barrel, a decrease of 16% from 2018.

In the North Sea annual production averaged 27900 night 19 barrels a day in 2019 up from 2018 of 23965 barrels a day as a result of the successful drilling program that was completed in Q3 with annual operating cost of 36, 39, which is down.

9% come 2018 in South Africa. The operator has secured a rig and is targeting but the exploration well Q2, 2020, and contingent unresolved and additional exploration well could be drilled on the block as it targets gas condensate on identified structures that could have significant potential.

Annual heavy oil production.

With eight 2189 barrels a day in 2019 versus.

86312 barrels a day in 2018, reflecting the impact of the lack of investment to do the Alberta curtailment rules offset by the additional Devon volumes acquired mid 2019.

We'll operating costs were strong at 16 66 per barrel compared to the 2018 operating cost of 16 60, reflecting the company's focus on cost control and capturing synergies with the acquired dividend properties.

Fourth quarter production was 94262 barrels a day up from Q3 of 88, approximately 88000 barrels a day as volumes were optimized as per our curtailment strategy. While operating costs were very strong 15 or three per barrel down 12% from Q3.

Of 2019.

And.

17.

Right.

11% compared to 2018 Q4.

The company remains focused on effective efficient operations and the ability to capture synergies.

A key component of our long life low decline asset is a world class Pelican Lake pool.

For our leading edge polymer flood continues to drop deliver significant value.

2019 annual production was 58855 barrels a day versus 2018 averaged 63082 barrels.

Which was impacted by limited investment to the Alberta curtailment and the temporary shut in due to the wildfires in the summer of last year. The team continues to do a great job and we have strong annual operating costs of 622 per barrel, a 7% reduction versus 2018 operating costs of 672.

Fourth quarter production was 59000, approximately 59000 barrels a day slightly down from the Q3 of 60000 60146 barrels a day operating costs were very strong 538 per barrel versus Q3 operating costs of 610 at Pelican Lake.

Team continues to drive operational excellence and has been able to mitigate the impact the decline in production over the last four years holding our annual operating costs on a beauty basis below $7 a barrel an excellent accomplished by the team.

With our low decline and very low cost Pelican Lake continues to have excellent netback overall strength of our conventional assets our ability to be nimble with our capital and having effective and efficient operations gave us top two results curtailed environment in 2019.

I will now turn it over to Scott do a brief overview of the also.

Thank you Tim Scott here, I will talk to both thermal and mining assets.

Starting with thermo.

We had a very strong year in our thermal operations in 2019, because we continue to leverage our continuous improvement culture, and our expertise to delivery effective and efficient operations.

In 2019 or thermal production reached a record of approximately 168000 barrels per day as we optimize production throughout the year under our curtailment optimization strategy successfully integrated the acquired jackfish assets in the third quarter of 2019.

We immediately began capturing operational synergies that jackfish, which supported annual thermal operating costs 10, 83 per barrel a decrease of 18% from 2018 levels of 13 20 per barrel.

In the fourth quarter production reached a record of to approximately 259000 barrels per day and our thermal operating costs were very strong at age 65 per barrel a decrease of 35% from the fourth quarter 2018 of 13 28 per barrel.

This strong performance reflects increased production from economic pad additions at Primrose wrapping up production at Kirby North and additional cost synergies captured a jackfish.

In the fourth quarter, the Kirby project area, which includes both the north and south areas Reece achieved a combined production of approximately 47000 barrels per day.

Primrose production was approximately 106000 barrels per day as we optimize production from our successful Primrose Pat ads to maximize overall corporate production.

And adjusted funds flow.

Hi, Jackfish production in the fourth quarter averaged approximately 102000 barrels per day, 5% increase over Q3 2019, as we optimize volumes under our curtailment strategy.

We have successfully integrated the jackfish operations and have captured synergies with our Kirby operations and now target 2020 operating costs.

Between eight and $9 per barrel, including fuel a reduction of 350 per barrel or 30% at the midpoint from original targeted operating cost at the time of the acquisition.

In the fourth quarter. We also completed the previously announced well tie ins of jackfish for a low incremental cost of $8 million.

These wells are targeted to have peak production capacity of 21000 barrels per day and will be available to the company as part of our curtailment optimization strategy.

Moving to Canadian Natural's World Class oil sands mining and upgrading operations, we delivered another strong year.

Our mining operations achieved annual production of approximately 395000 barrels per day with industry, leading operating cost at 20 to 56 per barrel slightly higher than our record low of 21 75 per barrel in 2018.

Impressive results given our proactive decision to replace piping at our hydrogen plant at horizon in the fourth quarter.

Throughout two 2019 or teams continued to capture synergies between or to mine sites, leveraging our technical expertise and shared services focusing on operational excellence to reduce operating costs, excluding fuel by $91 million from 2018 levels.

Since completing the A.O.S.P. acquisition in 2017 Canadian natural has successfully increased gross production capacity at the Albion mines by approximately 40000 barrels per day to 320000 barrels per day, representing 14% increasing capacity, while reducing AOL.

Piece operating costs by approximately 34% or $10 a barrel since the announcement of the acquisition through increased reliability process improvements and optimization projects a great job by our teams.

As well as part of the company's overall strategy to maximize value and enhance margins discomfort upgrader is targeting to increase capacity to approximately 320000 barrels per day in Q3 of this year, which will match the capacity of the oil being mines.

This additional capacity at Aaos HPE will allow for increased flexibility margin improvements and additional options to manage through the companys curtailment optimization strategy.

Horizon.

During posts turnaround startup and as part of the company's proactive inspections.

The team identified a need to repair piping and one of the hydrogen manufacturing units.

In light of curtailment, and Canadian Natural's unique ability to optimize corporate curtailment volumes, we made the strategic decision to replace the piping in December and enhance reliability and performance going forward.

As a result.

Ryzen ran at restricted rates of approximately 170500 barrels per day and returned to full rates by January 19th performance at horizon. Since returning to full rates has been strong with February achieving record FCO production of 262600 barrels per day.

We continue to advance engineering of the identified growth opportunities at horizon in a disciplined manner.

As we look to optimize cost and preserve our growth opportunities of 75 to 95000 barrels per day as we wait for clarity on market access.

And finally, we continue to work on the high Pep pilot.

Which looks very positive and we're making enhancements on the technology to improve performance and we'll continue piling piloting it throughout the year.

With that and I will turn it over to Darren.

Thank you Scott.

Good morning.

We gave you a reserve update.

Firstly I'd like to note that 100% of our reserves are externally evaluated and reviewed by independent qualified reserve Valuator.

In 2019 reserve disclosures presented in accordance with Canadian rig record reporting requirements using forecast prices and escalated costs.

The Canadian centers also require disclosure reserves on a company working interest share before royalties.

Okay that 19 proved reserves increased 11% to $11 billion.

And proved plus probable reserves increased 6% to 14.3 billion Boe.

It is also important to note that 73% of our total proved reserves.

Our proved developed producing reserves at 8 billion.

Finding and development costs and reserve replacements are key indicators of the company's asset strength.

In 2019 gain natural delivered impressive results and our strong performance is reflected in our finding and development costs.

The corporate finding development and acquisition costs, excluding changes in future development costs.

Our $4.52 per be we've approved.

And $5.34 per view for proved plus probable reserves.

Okay, Naturals, finding development and acquisition costs, including changes in future development costs are $7.45 per view if approved.

And $5.75 per be wafer proved plus probable.

We replaced 2019 production by 194% for proved developed producing reserves.

By 374% for approved.

And by 317% for proved plus probable reserves.

Evidence of Canadian Natural's transition to a long life low decline asset base.

Our top tier reserve liabilities are an impressive 20.2 years for proved developed producing.

27.8 years for approved.

And 36 years for proved plus probable reserves.

The net present value of future net revenue before income taxes, using a 10% discount rate rate.

And including the full company Arrow.

It's $107.6 billion for proved reserves.

And $127.8 billion for proved plus probable reserves.

In summary.

Excellent results are our rate our results reflect the ability to execute.

As well as the strength of our asset base.

Now I will hand over to Mark for the financial highlights.

Thanks, Darren Canadian Natural's had a strong finish to 2019 with fourth quarter financial results as follows.

Net earnings of approximately 600 million.

Adjusted net earnings of approximately 685 million.

Cash flow from operations, approximately 2.5 billion and adjusted funds for approximately two and a half billion.

As Tim Scotton, Darrin discussed our culture of continuous improvement.

Our ability to be effective and efficient.

And the relentless focus that Canadian natural in controlling our costs led to the solid financial results.

Canadian Natural's unique long life low decline asset base continues to generate significant free cash flow.

In Q4 free cash flow was approximately 1 billion after net capital expenditures of 1.5 billion and dividends at 444 million.

This free cash flow in Q4 contributed to full year 2019 free cash flow of $4.6 billion after net capital expenditures and dividends and excluding the Devon acquisition capital.

Significant results and speaks to the uniqueness of our asset base to deliver over the long term.

Thanks debt was reduced by approximately one and a half billion in the quarter when compared to Q3 19 levels, including the impacts of foreign exchange.

Included in this debt reduction was a repayment and cancellation of the remaining 1 billion on the LSP acquisition facility ahead of its maturity in May 2020.

And the repayment of a 500 million medium term note upon maturity.

We also successfully increased to turn facility in the quarter by $450 million and extended the maturity to 2023.

Our balance sheet metrics remained strong and we exited 2019 at 1.9 times debt to adjusted EBITDA and 37.4% debt to book App.

These are impressive results as they represent improved levels from 2018 get include both the acquisition of Devon, Canada in 2019, and significant returns to shareholders through the year.

Share buybacks for full year 2019 totaled 25.9 million shares for 941 million.

Including a $140 million in Q4 19.

And dividends totaled 1.7 billion for an impressive return to shareholders of over $2.6 billion in 2019.

Given the confidence in the strength and robustness of our assets and the sustainability of our free cash flow profile. The board of directors has increased the dividend for the twentyth consecutive year with a 13% increase to $1.70 per share annually with the first quarterly payment on April onest.

Additionally, in 2020 through to March 4th we have purchased for cancellation 6.6 million shares for approximately $260 million.

We continued to execute our free cash flow allocation policy, we're free cash flow is defined as adjusted funds flow less capital expenditures and dividends.

We target to allocate this free cash flow, 50% to debt and 50% to share buybacks with targets of 15 billion, an absolute debt and one and a half times debt to EBITDA.

Finally available liquidity represented by bank facilities and cash at quarter end was approximately 4.9 billion an increase of approximately 200 million over Q3, 19 levels, providing flexibility to manage through the business and commodity price cycles.

Our financial results throughout 2019 demonstrate our commitment to effective and efficient operations, our capital and operating discipline.

And our effective execution in our four pillars of capital allocation.

With that I'll turn it back to you Tim Thanks Mark.

As Youre aware deep took the role of executive Vice Chairman two years ago.

And has been an integral part of Canadian natural for 28 years and has now decided to retire this may.

Steve has done a ventass Dick job over the many years has the company transitioned to the more robust long life low decline company we are today.

As well through the many years, Steve has mentored all of the MCM members, ensuring a smooth transition, which has a strength to the company in the people we develop.

We look forward to continue to work with Steve as you will continue to contribute to our success has enough to board member.

And then naturals advantage is our ability to effectively allocate cash flow to our four pillars.

We will continue balance optimize our capital allocation deliver free cash flow and strengthen our balance sheet.

We have a well balanced diverse large asset base, a significant portion of our asset base as long life low decline assets, which require less capital to maintain volumes, we're balancing our commodities with approximately 49% of our view, we've light crude oil and FCO, 28% heavy and 23% natural gas.

Which lessens our exposure to the volatility in any one commodity as we move through 2020.

Okay, and natural we'll continue to allocate cash flow to our four pillars in a disciplined manner to maximize value for our shareholders, which is all driven by effective capital allocation effective efficient operations and by our teams who deliver top tier results.

We have robust sustainable free cash flow and in 2019 returns to shareholders were significant 1.7 billion dividends.

9.9 billion in share purchases for a total of $2.6 billion.

Today, our dividend was increased by 13% and we have 20 consecutive years of dividend increases, which has a CAGR of 20%.

Sure purchases in 2020, approximately 6.6 million shares or $260 million year to date as we continue as per our free cash flow Alec station policy.

In 2020.

As a result on the volatility of oil pricing can natural has reduced its capital budget by approximately $100 million in our oil sands business.

Referring work into 2020 that we can plant and execute more effectively and efficiently which has no impact on 2020 production volume.

In 2020, we will continue to drive our environmental performance to meet and exceed our targets. We set in December 2019. In summary, we will continue to focus on safe reliable operations and enhancing our top tier operations.

We're in a very strong position and being nimble, which is hence our capacity to create value for our shareholders.

Our curtailment optimization strategies reflection, our ability to be nimble and operate with excellence.

Canadian natural is delivering top tier free cash flow generation and its unique sustainable and robust clearly demonstrates our ability to both economically grow the business and deliver returns to shareholders by balancing our four pillars with that we will open up the call for questions if you'd like to ask a question at this time please press.

Star then the number one on your telephone keypad I'd like to withdraw your question at Prestea Pankey. Your first question comes from Greg Pardy with RBC capital markets.

Thanks, Good morning, and I guess, just first off so Steve all the all the very best I think it's like 20 years or something of meetings. So thanks for tolerating the over that over that timeframe.

Just maybe a couple of things on the on the iPad App I'm wondering if you could dig into that a little bit.

Maybe just in terms of progress or the milestones that we should be looking for and once you're through the piloting process.

What's possible maybe in terms of implementation down the road.

Okay. Greg holds get Scottsdale to just give you a little bit of a rundown of where we're appetite.

Yes, Greg so.

So Greg Yes, we are.

Continue to implement changes as we work through the pilot process here there is different components that were adding to help augment.

Possibility positive process ability of the.

Getting dry sand and recovery of the bitumen. So we're just stepping through that process.

Probably every year.

Several months here, we're making changes to improve it Greg and we're working on.

At the same time, we're working on a DBM to try to come up with so what it will look like for estimates in terms of a commercial operation now would probably be out a few years from now in terms of getting to that stage probably in the 2023 range. Craig is what we're estimating right now but for this year its focus on the pilot.

To get the recovery that we want to achieve and the dry sound that we want to troops chief So that's the focus 2019 2020.

2020.

And do you think by the end of this year you you're in a position where you can say, we we think this works on a pilot level and then it's really a question whether you can scale it or or is that exploration process going to extend do you think into next year.

Yes, it will partially extend into next year, Greg I think it's too early to say that we're having that 100% confidence right now, but I think we.

You know as each quarter goes by we make adjustments make improvements and we look back at the results in and it's been very successful. Thus far. So we just want to make sure we stepped through cautiously and and continue the engineering efforts there to improve it.

Okay. Thanks.

And then the second one.

He's asking modeling questions, but your new and improved guidance is just a little skinnier than we're used to seeing.

Two thoughts there one is that the new standard and then secondly is especially as it relates to.

Cash tax could we use the guidance you provided back in December as you know as a reasonable indication under what was then strip.

Hey, Greg It's Mark of course, when you look at the previous guidance for cash tax you. Just obviously have to be cognizant of the pricing assumptions used. So we can help you through the IR groupon on that but that's going to be a big driver. So you just depending on what what price deck you are using.

Okay, and just guidance wise I mean, I know you guys had super detailed guidance for the quarter and I know that beg to questions at times, but.

Is this going to be the new standard.

Yes. It is.

Okay.

Alright, thanks very much.

Next question comes from Benny Wong with Morgan Stanley.

Hi, good morning.

Good morning, guys. Thanks for taking my question just first off just wanted congrats Steve Florida retirement.

The best of luck.

Just first question is really how do you think about your budget, especially with where commodity prices are today.

Comfortable with it as long as your cash flow covers your cash commitments and I guess if needed how much flexibility to do you have do you think you have to reduce capital further if you need to.

Hi, Penny it's to Mckay here, yes, we're very comfortable with our budget, obviously, when we announced it back in December 2018. It was a very conservative budget based on the fact that were being curtailed.

Alberta for 2020.

So if you look at our maintenance capital. It's approximately 3.7. So so we could if needed to we reduced the capital further by a probably.

Anywhere from three to 400 million if needed. So we're very comfortable that we have low maintenance capital, which is a big strength of our company.

Got it thanks for details there and just wanted to follow up on the color around a scotford upgrade or capacity increase can you maybe provides.

So couple of some color about what you're doing there and any associated costs that comes with it and how do we think about the product yield afterwards particular between.

Premium synthetic and heavy synthetic.

And just any thoughts around if your partner plans to expand our scoffer refinery or should we think the incremental volumes gets sold into market.

So as far as the Scotford refinery.

That.

Expansion piece was.

Planned by our partner shells for many years and so this just it was part of the execution plan that gross cost is approximately $70 million.

And they're looking to execute it here in the fall obviously.

Really.

What's happened with great work of our team up but Albion is that.

The Albion mine has now been able to outpace the upgrade or so so really it's a it's a really nice fit in the fact that.

The oil Sands Albion can pace at 320000 barrels a day and basically keep that upgrade or full after its expansion here in the fall.

Thank you so much.

Next question comes from Dennis long with Canaccord Genuity.

Hi, good morning, and thanks for taking my question.

The first if I would just maybe delving a little bit the opex cost jackfish.

I know that you outlined a little bit within the context of your Investor Open house on some of the cost savings there.

And kind of indicated about a six month window to achieve about 25% of it.

Can you talk a little bit about on the the cadence of some of those improvements and maybe some of the major items that contribution you.

The cash cost savings is the more volume related the technology related and so forth and I have a second question.

Sure to really.

What we talked about with Jackfish is that.

With Kirby Kirby North Kirby, South and Jackfish debt, we felt very comfortable we could capture.

Economies of scale and capture synergies between all the sites so.

We know we talked about logistics did we had each had an airport soldiers, there's two different airports to a different aerodromes.

In terms of parts.

And.

Services, we were able to consolidate those very quickly. So so right now we've have similar to what we did with data soapy.

We have tremendous people and on both sides that we are essentially.

Salt and pepper and across the organization. So some of the Jackfish people are now at in Kirby in the Kirby areas and some of the Canadian natural people are in the jackfish areas. So.

You get new set of eyes people look for opportunities to drive operational efficiencies and create value for the company long term. So I don't believe it's anything unique so much as we're very effective in terms that we we operate in the way we integrate operations to.

Maximize value.

Great. Thanks.

And then maybe just a bit of an extension in terms of B the maintenance capital.

On the from any question.

Given that you guys are looking at we'll call it trading a little bit of within your curtailment management policy from the obviously the lower decline long lived assets in your thermal production areas versus the more conventional heavy oil areas, how should they be thinking about the 3.7 billion dollar I mean cap.

On that you guys outlined.

Just prior to and in the context of obviously, a larger wedge of those long lived assets in low decline asset.

Yes, Im not sure FFO. The 3.7 billion that we've quoted was essentially to keep production flat.

Based on our 10% decline what we're doing under curtailment is essentially flexing.

Our asset. So good example is that don't primrose with the cyclic nature of the.

Of that product when we do a turnaround and for example in late Q1 will be doing a turnaround at jackfish and.

The we can supplement volumes out of Primrose to backfill those.

Losses, So you speak when we do maintenance and that's exactly what we will be doing win.

Scotford goes around on its turnaround in April is we'll be using our levers to ensure that we can make our curtailment volumes. So it's you don't we have lots of levers that we were able to use.

I can see and the conventional side the heavy oil side, we're doing exactly the same thing we slowdown to managed our to meet our curtailment volumes and when we have operational issues or planned maintenance, we're able to back it crank those up and backfill those volumes.

Maybe then just maybe up slightly differently is there any preference to running the 21000 barrels a day of potential incremental volumes that jackfish versus more conventional volumes that you guys could produce.

The heavy oil regions that you guys are kind of between the border, Alberta, Ashwin and how should they be thinking about your prioritization of producing we'll call it like barrel.

So our prototype position is quite simple in that fact that we go with the highest netback first so obviously.

Whatever we make the most money on Steve's on and then we use the other less valuable barrels, let's say primary heavy oil.

As an example, too.

Curtailed volumes so.

As you can see we've never code Carol Pelican assets with $6 operating costs it.

Does.

Has better Netbacks in primary heavy oil.

Okay perfect. Thank you.

Next question comes from Asit Sen with Bank of America.

Thanks, Good morning.

Tim Thanks for all the details on capital flexibility and sustaining Capex just wondering how the capital plan could change in a sustained 45 builder WT scenario, how long do you'd have to see a low price environment to further adjust in other words, the sensitivity on timing and could you update us on on your hedging policy our strategy.

In this environment.

Sure.

So.

Right now.

As I talked earlier, we could reduce our capital anywhere from 300 $400 million there right now we're going into breakup. So really we have very little spend here for the next few months. So we'll just evaluate to.

After in kind of the April may timeframe, how it's looking into Q3 at Q4 to make those decisions on the various.

Products, depending on commodity prices so.

We don't look at that we have to spend the money.

But we will monitor the pricing on a go forward basis, and just make those decisions as we move through the year.

In terms of hedging policy.

We've never been a big hedger.

You know we look to.

Products.

Alan on daily basis to maximize value and.

I don't think curve position on hedging has this changed.

Great. Thanks, and then moving onto the incremental margin capture great progress in 2019, but could you speak to the additional line hundred million dollar growth opportunity, where the main areas of savings what are the main buckets in wearable to focus be in 2000 $24 million to $180 million.

Please.

So it's across all the asset base. So so the way we work as a company is every area every group every product has goals and.

Targets that they're looking to hit and so.

That's really all I can say is that.

You see it in the oil sands that they had $91 million worth to savings conventional it's across the board Pelican. There is not one area that doesn't have a target where goals to achieve in trying to capture more margins.

Okay. Thank you.

Next question comes from Manav Gupta with credit Suisse.

Guys I actually wanted to them back to you and your dividend hike actually beat even the most bullish estimates on the street in an environmental if some of the global makers that are being forced to bottle to pay dividend good actually raising dividends and also paying down debt, which is the speaks for the quality of assets.

My question I can you do leads to horizon you hit a record production of 262.6 in February can you talk a little bit about what drove that wage and how should we model this asset going ahead.

Really the horizon did have a great to create February but to.

From my perspective, our matter is really safe reliable.

Consistent production so while it was a great achievement.

I I feel.

Very confident team understands the operation and that.

Really.

Typical run rate is around the 250 to 55 range on it.

Calendar day, and that's that's really I would say.

You should kind of look at it.

But.

The reason that people are doing great job and as well, they're doing a great job on your operating costs.

Thank you for your typically fall.

Second quick follow up service.

We've seen some positive developments on the pipeline I could just front even today, we heard some positive news on TMX can you talk a little bit about how you feel about the exist solutions as they are coming along in Canada.

It is very positive.

Looking ahead.

We are seeing both positive.

Elements not only on the.

Brownfield sites that.

Incremental.

Opportunities across the board, but TMX as well so.

Obviously, we we feel very positive looking forward, but until you know.

We get pipe in the ground and oil going through the pipes.

We're still very cautious.

Thank you for taking my questions.

Thank you.

Next question comes from Neil Mehta with Goldman Sachs.

Hi, This is an we check on behalf of Neil.

Just first question here is just around the given current right realized that the sent this year.

Should we think about that going forward and maybe just on.

The cap more tons front line do you guys provided some guidance for the buyback in 2019 isn't a number in mind for 2020 at all.

Hi family, it's Mark here.

Lastly, the board showed some confidence in the.

Free cash flow profile sustainability of the assets with the dividend increase this quarter I think going forward. Obviously, that's a board decision going forwards the stress trees hard too.

Sort of articulate in the call today, I think though of course the board focuses mainly on the sustainability of that dividend throughout the business and commodity price cycles.

I think the other thing that's important to recognizes the margin growth that we've talked about here that is driving that additional free cash flow overall.

As far as the free cash allocation policy. It's I think it's relatively simple we try and.

By bite on a go forward basis. So when you take your adjusted funds full less the capital unless your current dividend.

50% of that is going to be allocated to share buybacks over a period of time, so depending on your forecast for commodity prices and things like that will drive a little bit of changes in that share buyback program.

That's helpful and just one follow up on follow longer dated but last year, we did see an application.

Okay, Great Joslin into the Horizon mine plan can you give us can you provide some color as to when the current horizon mine will be completed and when you would expect to need.

Thanks, Kian black to extend through horizon, South and perhaps any initial thoughts are anticipated capital costs, then production applied if any thank you.

Yes that lease you're talking about was the jostling lease which we.

Purchase to the few years ago.

It's all part of our mine mine plan.

It's just being integrated into horizon.

It's one of these excellent opportunities, where we're able to leverage our infrastructure and capture value.

So all from mining plan all it is instead of going North we're headed south for a bit but.

Really there is that there is what I would call zero impact in terms of our capital differences.

Going north.

Going south.

And just any sense of timing on that please.

It starts in 22 to count so we'll be it's Scott here and really and so we'll be staging through.

Into the Jonathan mind area over the next couple of years here.

You mentioned and it's just progression as we finish out to sell fit we move into the joslyn lease.

Great. Thank you.

Next question comes from Phil Gresh with JP Morgan.

Hey, Good morning, this is John Royal putting in per Phil.

So first question is further to the earlier discussion of the buyback.

Given the current price environment. If you got me thoughts to changing your 50 50 split.

Perhaps dialing back on the buyback a bit to Richard that we're quickly.

I mean not at this time.

The allocation policy still kind of in effect and what we are driving towards I mean, we monitor it with the board all the time.

So the board will give us some direction on that as we go forward, but I think if you look at the cash flow and again, we've talked to both the asset base and sustainability of the free cash flow and because of maintenance capital and operating costs are our low in our business, we're able to generate free cash flow even at these lower prices. So that continues to be able to drive that debt reduction.

And shared that per day.

Great. Thank you and then the next one gone royalties from looks like the rate is up a fair amount sequentially in Fourq you in North America public would be.

I was wondering what the drivers were there given the lower price environment would have been no.

All right are you referring to our guidance are you referring.

No I'm, sorry, I was referring to the Fourq results.

Q4 results and Youre comparing to Q.

I have to get back to you on that I'm not sure yet right off hand.

Okay.

Yes.

Next question comes from Mike Dunn with Stifel first energy.

Thanks, Hi, everyone. Two questions for me first maybe for Mark or for Steve seeing Us Steve's on the board.

The question I asked us Suncor, a few weeks ago, but.

With respect to your dividend policy.

Can you just maybe frame for us how you're thinking about.

What you can afford to pay under maybe what oil price.

I think with respect to Suncor, there, we're thinking about a mid fortys Wi Fi price to funds.

Sustaining capital in the dividend.

I think you guys are somewhere in the same facility in terms of where your head spaces, Although I don't know if you formalized.

That policy, maybe as much as suncor has thanks.

Thanks, Mike Steve here so.

We look at the dividend to be sustainable through the price cycle and clearly with them on a free cash flow. We have we're very sustainable in the dividend. We believe it can grow keep that track record up.

Our breakeven cash flow prices probably in that.

35 to $40 range, depending what kind of a differential you have and I will cover the dividends. So we're in really good shape here and.

As you can see the board feel very confident in the strength of the assets are believed to deliver effective efficient operations and execute.

And thats, where the increasing dividends so.

As Mark said, we can't predict what the board will decide but I think they're very committed to.

Long term growth in dividends.

Okay. Thanks, Steven just to clarify that 35 to 40 range that was the fund sustaining capital and the dividend correct.

Okay.

Second question separate topic, but.

Could you just walk us through where the capacity at the Scotford Upgrader has.

Has gone to in the last few years I know effort.

The stage two I think the nameplate was to 55, there was some de bottlenecking and.

I believe I've seen on shelves website recently, they had listed the capacity of Scotford at 300000.

So should we be thinking about.

The this year's de bottlenecking is adding another 20000, there or or not.

Yeah, if you look at.

What we did here in the in the fourth quarter roughly on a gross basis 306000 barrels a day. So we were basically pacing.

Our restricting or our production at Albion to match Scotford. So.

There are they can run upwards of three or five but really if you want to use 300 as good average that's fine too, but so they're looking to expand that to 320000. So.

Depending on what you wanted to use it's between 15 and 20000.

Okay, and then when you bought.

70% stake in SP.

With Scotford capable of 300000 at that time.

That was there nameplate, but.

But what they were doing is.

Centrally using some of the Albion production as well as purchasing.

Third party barrels to match.

Fill up the upgrader right.

Okay. That's all for me thank you everyone.

At this time I will turn the call over to the presenters.

Thank you operator, and thank you everyone for attending our conference call. This morning, Canadian Natural's large well diverse asset base continues to drive significant shareholder value the ability of our teams to deliver effective and efficient operations with top tier performance is contributing to substantial and sustainable free cash flow. This together with effective capital allocation contribute.

Turning to achieve it contributes to achieving our goal of maximizing shareholder value. If you have any further questions. Please don't hesitate to give us a show thank you and goodbye.

This concludes today's conference call you may now disconnect.

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