Canadian Natural Resources Limited Q1 2023 Earnings Call
Good morning, we would like to welcome everyone to <unk>.
Natural resources, 2020th Street first 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 may four at 2023 at eight a M Mountain time.
Jim meeting over to your host for today's call Ms. Catherine manager of Investor Relations. Please go ahead.
Thank you operator, good morning, everyone.
Welcome to the Actuals first quarter 2023 earnings conference call.
As always before we begin I'd like to remind you about forward looking statements and it should be noted that in our reporting disclosures everything is in Canadian dollars unless otherwise stated.
Our reserves and production before royalties.
Additionally, I would say.
Yes, you review our comments on non-GAAP disclosures in our financial statements.
With me. This morning is Tim Mckay, our president and Mark Sanford, Our Chief Financial Officer.
Tim will first speak to connect to how Canadian natural is a leader in environmental social and governance fallback specifics on our safe reliable world class operations, including details on targeted production growth from our long life low decline assets.
Generally strong returns on capital and maximize shareholder value.
Eric will then summarize our solid financial resort results.
Doing significant returns to shareholders. So far this year and our strong financial position.
Jim will summarize our call cardio or prior to opening up the call for questions with that I'll turn it over to you Tim.
Morning, everyone in the first quarter, we achieved strong quarterly production of approximately 132 million Boe per day, including record natural gas production at approximately $2. One four bcf per day and liquids production of 900, and approximately 963000 barrels a day, reflecting strong off.
Operational performance across our assets, including our long life zero decline well, hence findings.
Trading assets, comprising approximately 50% of the coal companies liquids production. This quarter are hard value value SCO captured approximately a $2 premium <unk> in the quarter driving strong SCO pricing and generating significant free cash for the company.
Canadian natural is a leader in environmental social governance and has made it a priority towards collaborating with industry peers and governments to achieve meaningful GHT emission reductions and support at full Alberta, and Canada Climate Corp.
The Alberta government recently announced emission reduction in energy development plan builds upon the province, longstanding climate leadership and achievements and emission reduction.
We look forward to supporting the province, and continuing to provide affordable reliable responsibly produced energy, while reducing emissions and aspiring towards a net zero economy in 2015.
Canadian Natural's current G. H Street goals support Albertus climate plan, where large scale carbon capture and storage projects like pathways have a significant role in reducing ghd admissions.
Moving to the assets.
Now I'll do a brief overview.
Overall in Q1 2023 natural gas production was approximately $2 one four Bcf, which was a record for the company, 7% increase over Q1 2022.
For North American operations.
Q1, 2023 natural gas production was strong at approximately $2 one three bcf per day, an increase of approximately.
139 million cubic feet over Q1 2022.
Primarily as a result of the company's strategic decision to invest in our drill to fill strategy, adding low cost high value liquids rich natural gas production volumes.
During the quarter the company drilled 21, net wells of which 19 were brought on in the quarter meeting targeted rates because well during this.
The quarter to a.
Third party pipeline impacted both natural gas by about 33 million a day and associated <unk> of approximately 3500.
Barrels per day for Q1, North American natural gas operating cost was.
43, which is up 12% compared to Q1 2022 of $1 28, our team's continued focus on operational excellence and cost control for North American light oil and Ngls Q1 production was 108000.
531 barrels per day comparable to Q1 2022, primarily a result of strong drilling results Q1 operating costs were $18 62 per barrel up from Q1 2022 operating cost of $15 24 pounds, primarily due to increased power and service costs in the quarter.
During the quarter, we drilled 16 net wells as part of our light oil development fund, which target to come on production in both Q2 and Q3 of this year.
Wimbley the company finished drilling a five well light oil at five well light oil pad late in Q1, which is targeted to come on may 15th with initial production rates of approximately 4000 barrels a day of electric and 14 million cubic feet per day of natural gas. This pad as part of the company's budgeted level health program in the greater <unk>.
<unk> area.
Our international ex asset from Q1, 'twenty three has oil production of 27331 barrels a day, which is down from Q1 2022 levels of approximately 31000 barrels a day, primarily due to declines in maintenance in North Sea and offshore Africa.
Our international assets continue to generate good free cash flow and value for the company.
Moving to heavy oil production was 77690 barrels a day in Q1 2023 up 23% from Q1 2022.
Primarily due to strong drilling results and 2020 to.
Operating costs in Q1, 'twenty three were $21 47 per barrel comparable to Q1 2022 operating cost of $22 per ounce.
During the quarter the company drilled 42, net heavy oil wells of which 26 wells for multi lat.
Across our land based <unk> administered to the Clearwater area with production results on target and good luck.
A key component of our long life low decline assets is our world class Pelican pool, where our leading edge polymer flood continues to deliver significant value.
Q1 production was 48244 barrels a day down 7% from Q1 2022.
Average F <unk>.
51991 barrels per day, reflecting the decline.
The decline nature of the property.
Polymer injection rates were reinstated in February 2023, and the field is targeted to return to its historical decline rate of approximately 5% in the second half for 2023.
Team continues to focus on mitigating cost pressures and we had a good Q1 'twenty three operating cost of $9 63 per barrel an increase from our Q2 2022 operating cost of 748 per barrel, primarily due to high power costs in the quarter.
With our low decline and very low operating cost Pelican Lake continues to have excellent and FX.
In our thermal in situ operations in Q1, we continued to leverage our continuous improvement culture, and our expertise to deliver effective and efficient operations.
Q1, 2023 production was 242884 barrels a day down from Q1 production Q1 2022 production of 261743 barrels has forecasted as a result of natural decline.
Q1, 'twenty three operating costs were $5 94 per barrel hotfoot comparing to Q1 2022 operating cost of $14 35 per barrel, primarily a result of higher power costs and service costs.
Offset by lower natural gas costs.
I'll now update our on our thermal growth plan.
<unk> the company is targeting to grow production by approximately 25000 barrels a day from Q4 2022 to Q4 2023 levels.
Primarily from its results for the two Tcf pads drilled in 2020 to first production cycle from these pads is targeted to begin in Q3 2023.
Which targets strong quarterly production at Primrose of approximately 100000 barrels a day in the fourth quarter of this year.
At Kirby the company is targeting to grow production by approximately 15000 barrels a day from Q4 2022 levels to approximately 65000 barrels a day from Q4 2023 as the company progress development.
<unk> pads in 2023.
Production from the first pad drilled in 2022 is targeted ramp up to full production capacity in Q3 2023.
The three remaining pads are targeted to ramp up to full production.
Over the first nine months of 2024 at a pace of one pad per quarter.
Jackfish construction has been very strong averaging approximately 115000 barrels a day with minimal capital since acquiring the asset representing its long life low decline nature of <unk>.
Company is currently drilling two Sag D pads production from these pads as target to ramp up to full production capacity in Q3 of 24 in Q4 of 2024.
Secondly, supporting our continued high utilization at that facility.
Subsequent to the quarter end the company commenced planned turnarounds at Primrose East and will flake, which target to impact Q2, 2023 production volumes by approximately 15000 barrels a day and are reflected in the companys previous announced annual production guidance.
Thermal in situ production is targeted to increase in the second half of 2023 into 2024 with new pads that were drilled in 2022 and pads targeted finished drilling in the first half of 2023.
Production is targeted to grow by approximately 30000 barrels a day from Q4 to Q.
Q4, 2020 to Q4 2003.
Averaging approximately 280000 barrels a day and with the strip of WCS WCS WCS differentials tightening this could add incremental cash flow.
And the company's World class oil sands mining and upgrading assets. We had Q1 production was approximately of exact.
Exactly of 458228 barrels a day of SCO with Q1 2023 operating costs that were $25 46 per barrel during the quarter as fuel prices were strong resulting in premium pricing for a CEO at approximately $2 per barrel U S above.
WHI, adding additional cash flow.
Subsequent to Q1 2023 as previous announced the planned turnaround activities at the non operated Scott.
Dr. Greater began April 10th with the mines targeted to operate at reduced rates for approximately 73 days impacting the 2023 annual production by approximately 8300 barrels a day for.
For horizon to plant turnaround is targeted to begin may 16th we had full plant outage.
Of getting for approximately 28 days impacting the 2023 annual production by approximately 21000.
600 barrels a day.
At Horizon, the 14th for reliability enhancement project is progressing as planned and tie ends are targeted to be complete during this turnaround. This project targets to extend major turnaround maintenance cycles from one per year to one every second year, increasing SCO fraction capacity by approximately 5000 barrels a day.
<unk> in 2023, increasing to approximately 14000 barrels a day in 2025.
I will now turn it over to Mark for a financial review.
Thanks, Tim in the first quarter of 2023, we generated solid financial results with adjusted funds flow of $3 4 billion and adjusted net earnings from operations of $1 9 billion.
This drove material free cash flow in the quarter of $1 4 billion after dividends and base capital.
Balanced allocation to our four pillars continues including significant returns to shareholders in the quarter and year to date.
Up to including May three 2023 year to date returns to shareholders totaled $2 8 billion, including $1 9 billion in dividends and <unk> 9 billion in share repurchases.
Our commitment to increasing shareholder returns as evidenced in our sustainable and growing quarterly dividend, which was increased to <unk> 90 per share from <unk> 85 per share in March 2023, marking 2023, as the 23rd consecutive year of dividend increases.
Subsequent to quarter end. The board has declared a quarterly dividend of <unk> 90 per share payable on July five 2023.
As debt levels have decreased significantly over the last few years returns to shareholders are targeted to increase in the near term as our free cash flow allocation policy states that once that debt reaches that $10 billion level, a 100% of free cash flow will be allocated to shareholder returns.
We are in a very strong financial position with debt to EBITDA at five times at the end of Q1 'twenty three.
And we continue to maintain strong liquidity.
Including our revolving bank facilities cash and short term investments liquidity at the end of Q1 'twenty three was approximately $6 1 billion.
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At Canadian natural we have several competitive advantages, including our diverse long life low decline production.
Ported by our large high value reserves and effective and efficient operations.
This combined with our people culture and commitment to continuous improvement targets to continue to drive material free cash flow and strong returns on capital going forward.
With that I'll turn it back to you Tim for some final comments.
Canadian Natural's advantage is our ability to effectively allocate cash flow to our four pillars and we have allowed balanced diverse asset base with a significant portion of long life low decline assets, which require less maintenance capital to maintain volumes.
We will continue to allocate cash flow to our four pillars in a disciplined manner to maximize value for our shareholders.
Which is driven by effective capital allocation effective and efficient operations and by our teams for delivering top tier returns.
We have a robust sustainable free cash flow and through our free cash flow allocation.
Policy returns to shareholders are significant our dividend was increased by 13% and March Mark in 2023 is the 23rd year of consecutive increases and has a CAGR of approximately 21% over that time in summary, we will continue to focus on safe reliable operations.
Enhancing our top tier operations and will continue to drive environmental performance.
We're in a strong position and being nimble enhances our capacity to create value for our shareholders.
We will continue to apply the same drive to ESG.
Governance, social and environment, a significant factor in our long term.
Sustainability as we move forward to a lower to lower our carbon emissions with our first target to reduce our absolute scope, one and scope two emissions by 40% by 2035 from our 2020 baseline.
On our journey to achieve our goal of net zero Ghd and <unk> by 2015 Canadian natural is 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 four pillars with that I will open the call for questions.
Thank you ladies and gentlemen, do you have a question. Please press the star followed by the one on your Touchtone phone if you'd like to.
Which all your request please press the star followed by the Q1 moment. Please for your first question.
Yes. Thanks, good morning, Thanks for the thanks for the rundown.
How does the.
How does your D&C program look in the second half just given the movement in commodity prices beyond the.
Although thermal that feels like it's very much in motion right now and I'm thinking more about just generally shorter cycle time heavy versus drilling gas.
Yeah. Good question Greg.
During the.
This period here, we start to just really look at.
The forward pricing on both gas and oil.
And.
In the original plan, we had a very balanced program.
Proximately 10 rigs for.
Really for the rest of the year. So to me it will be a question of the value of that.
Each commodity.
Create here over the next kind of short cycle. So.
So.
<unk> I would suspect that.
From a capital allocation point of view.
Gas will not compete relative to oil in the short term and so we may end up doing a few less gas wells.
And then doing a few more fire loss, but that's still to be determined.
Just looking at commodity prices today that would that could be.
What will end up doing.
Okay understood and then maybe just shifting gears.
Just for Mark I mean, we're just getting that question do you expect to get to the $10 billion net debt this year or just given the choppiness, we're seeing in commodity prices, maybe that's more of a 24%.
Yeah great.
As you know, it's going to depend on where commodity prices settle out here. So.
I don't think its unrealistic to get there at the end of this year still but if prices continue to decrease or stay level. Then it may push out early I think the message still early into 24 I think the message, though is to just remember that we are generating a lot of free cash flow now so we're executing on the balanced approach to our four pillars.
And that does include of course, some significant returns to shareholders.
Today, just increasing as we get there and it is in the near term.
Okay. Thanks, very much to both.
Thanks, Craig.
Your next question comes from Dennis Fong from CIBC. Please go ahead.
Hi, good morning, and thanks for taking my questions. The first one really as you see egress issues out of Western Canada, alleviate including additional potential access to the west coast.
You look at your portfolio of assets and maybe even the geographic diversification of the production that you have.
Essentially you're obviously, giving.
Involving physical frameworks as well as some of the.
Focus capital allocation within Canada.
Hum.
If you're specifically talking to just digress Dennis.
In the short term I would say, it's very constructive for oil so.
I believe that the tightening in the WCS differential is and part of it.
Result of the aggressive.
Not having any grass issue on the oil side, and then with <unk> coming on.
I believe that you'll keep it tight because those barrels have options to go.
On the west coast or down to the Gulf Coast in the U S.
Terms of natural gas.
With the maintenance that we see with TC energy here over the summer here it may be a little choppy.
And then strengthening towards the fourth quarter.
Obviously with the incremental drilling thats happened in Western Canada.
It is putting some pressure on the <unk> and as such will put.
To.
Some pressure on the local pricing in the short term.
Great great. Thanks, maybe if.
We can shift a little bit more to Primrose Wolf Lake I appreciate the incremental color you gave in your prepared remarks.
When we think about the ramp up of production eventually from that region, how should we be thinking about operating costs steam oil ratio GST mission impacts and then.
Second follow up there on Primrose around solvency.
Sure so with the.
With the incremental production that we have obviously with the newer pads Slr's will decrease.
And a lot of these areas, we haven't drilled any saggy pads or Tcs wells for a number of years. So so we will see the Srs.
Obviously production go up and then to have Lee with.
So our celerity youll have lower operating costs. So.
That's usually the case.
The one thing is the Sag D. When you start steaming takes some time to ramp up and then it plateaus, giving you the the lowest S who are at the full ramp up whereas the see the cyclic types Youre first cycle is your lowest desks, who are followed by second and third and fourth cycle at <unk>.
<unk> has a higher <unk>, but in.
In the short term when you.
These wells are on stream.
<unk> is a very low operating costs were very good.
Great. Thanks, and my follow up is just around potential deployment of <unk>.
Hi, sulfate within Primrose as well.
You're obviously seeing some a purging results how quickly could you convert.
Some of the pilot information in some of the design, there and just kind of a broader more commercial development that progress. Thanks.
That's a good question to asset.
So we are doing a commercial development at Kirby North which is on the safety side.
And so will.
We're really actually just stepping into it.
To me, it's all about making sure that our designs and the economics are there that support that to solve it so sorry.
Sag D side, we feel very comfortable and what we would do is as.
We progress that development, we would do one pad it Tony So you can't because of the nature.
The area.
To hold or nothing in terms of development of your inflationary cost would be.
<unk>.
Down at Primrose once the pilot is complete.
We'll make that assessment.
And then look to do two.
To expand out there.
It really is about stepping in and making sure that we achieve the goals that we want to maximize returns.
Great great. Thanks, I'll turn it off.
I'll turn it back thank.
Thank you.
Your next question comes from Neil Mehta from Goldman Sachs. Please go ahead.
Yes. Thanks, so much. Our first question is just sort of the M&A environment to the extent.
The market Choppiness continues you guys have done a great job being counter cyclical.
And picking up assets and recognizing you have no gaps in your portfolio, but do you see an opportunity to be proactive and countercyclical the extent.
These conditions conditions worsen.
Yes.
Really good question Neal.
If you look at our track record, it's really been all about when.
When we do an M&A, it's about how much value long term value does that acquisition that so.
It's really not even about counter cyclical.
It's really about what value can we.
Achieve to that acquisition so.
That's really all I can say is we're not.
Not in the market, but.
Any acquisition, we do.
And you've seen it in the past is it how much incremental value does it create long term for our shareholders.
Okay.
That makes sense.
Follow up is just that.
The pipeline movements here and updates.
That had been a pretty active in the last couple of weeks. So the first one would be around the mainline do you think that.
The pending agreement has the potential to tighten up.
WCS differentials and then.
As it relates to the Tms has any of the cost overruns here how much of it.
He is being.
You know potentially pushed through onto Uh huh.
Onto onto the suppliers. Thank you.
Thanks Nils.
Two very good questions.
First on the Enbridge one.
It's difficult to say I think what what's positive is the party says gosh.
Got together and agreed on a fair.
<unk> agreements. So we'll see what that does that I think can just general having.
More egress available.
Available.
Is really the driving force between before differentials in terms of <unk>.
We committed we are committed shipper on there for 94000 barrels a day in and no different than Enbridge you go through the process to make sure the costs.
There.
The tool piece is correct for.
That service. So it's to me it's no different in Enbridge, you have to step through that process to understand the cost and what is allocated to.
Today into the colon.
Thanks, Tim.
Yes.
Ladies and gentlemen, as a reminder, should you have a question. Please press star one.
Your next question comes from Menno also from TD Securities. Please go ahead.
Thanks, Tim Good morning, everyone I just have one question on <unk>.
IPad, especially given some of the negative press on tailings ponds of late can we get an update on the timeline for getting the demonstration plant up and running and then realistically when can we expect it to be deployed.
Commercially and then maybe you could also speak to whether you are fully committed to moving iPad and PFT forward together at this stage.
Yeah.
Those are good questions those are.
For iPad, we would still have to do another.
More commercial size demonstration path so.
IPad is a great opportunity, but from the work that we've been doing in the background are engineers.
<unk> believed that if you were to do high path, then you would need to do.
You know really something else like paraffin I can actually do two items at the same time, because it is a large cost to to go that way.
In terms of tailings.
We have a very good program, we have a very robust group out there, making sure that to our tailings are compliant so.
To me, it's as always I mean, we're always looking for opportunities to continuous continually improve our environmental performance, whether it's in water tailings <unk> and we have a great team of engineers.
And people working our technology innovation group that are looking at all the opportunities that we can do to reduce our environmental footprint.
Everywhere in the company.
Thanks, Tim that's all I had.
Presenters there are no further questions at this time. Please proceed with your closing remarks.
Thank you operator, and thank you for joining us. This morning, if you have any follow up questions. Please give us a call thanks and have a great day.
Ladies and gentlemen, this concludes your conference call for today, we thank you for joining you may now sets you may disconnect your lines. Thank you.
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