Q1 2024 Canadian Natural Resources Ltd Earnings Call
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Operator: Resources
Good morning, we would like to welcome everyone to Canadian Natural's 2024, first quarter earnings conference call and webcast.
Operator: After the presentation, we will conduct a question and answer session.
Operator: <unk> will be given at that time. Please note. This call is being recorded today may two 2024 at seven a M Mountain time.
Operator: Good morning. We would like to welcome everyone to Canadian Natural's 2024 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, this call is being recorded today, May 2, 2024, at 7 a.m. Mountain Time. I would now like to turn the meeting over to our host for today's call, Lance Casson, Manager of Natural Resources. Please go ahead.
Operator: I would now like to turn the meeting over to your host for today's call, Brian Thompson manager of Investor Relations.
Lance Casson: Please go ahead.
Lance Casson: Good morning, everyone.
Lance Casson: Good evening, everyone, and thank you for joining Canadian Natural's first 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 reserves and production before a property. Additionally, I would suggest you review our comments on non-GAAP disclosures in our financial statements.
Lance Casson: Thank you for joining Canadian Natural's first quarter 'twenty 'twenty four earnings conference call.
Lance Casson: 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 Andrew.
Lance Casson: And we report reserves and production before royalties.
Lance Casson: Additionally, I would suggest you you already comment on non-GAAP disclosures in our financial statements.
Lance Casson: Speaking on today's call will be Scott Stauth, our President, and Mark Stainthorpe, our Chief Financial Officer. Scott will first provide highlights on our safe, reliable, and world-class operations and how, through our defined plan, effective and efficient operations, and strong execution, we're targeting robust production in the second half of 2024. Mark will then summarize our finance results, including strong shareholder returns. To close, Scott will summarize prior to opening up the line for questions. With that, over to you, Scott.
Scottsdale: Speaking on today's call will be Scottsdale, with our president and Mark <unk>, Our Chief Financial Officer Scott.
Lance Casson: Scott will first provide highlights on our safe reliable and world class operations and health regard to find plan effective efficient operations and strong execution, we're targeting robust production in the second half of 'twenty 'twenty four.
Lance Casson: Mark will then summarize our financial results, including strong shareholder returns.
Lance Casson: To close Scott will summarize prior to open up the line for questions with that or do you Scott.
Scott G. Stauth: Thank you, Lance, and good morning, everyone. Canadian Natural has been in operation for 35 years and has always been focused on returns on capital and creating value for shareholders. 2024 marks an important milestone as we are delivering 100% of free cash flow to shareholders this year. And with strong crude oil strip pricing for the remainder of the year, we are targeting to generate significant free cash. With our large, diverse assets, we have plenty of growth opportunities to continue to create long-term shareholder value and have the flexibility to manage the pace and timing of these development opportunities.
Scott G. Stauth: Thank you Lance and good morning, everyone.
Scott G. Stauth: Canadian natural has been in operation for 35 years and has always been focused on returns on capital and clean creating value for shareholders.
Scott G. Stauth: 'twenty 'twenty four marks an important milestone as we are delivering 100% of free cash flow to shareholders. This year and with strong crude oil strip pricing for the remainder of the year, we are targeting to generate significant free cash flow.
Scott G. Stauth: With our large diverse assets, we have plenty of growth opportunities to continue to create long term shareholder value and have the flexibility to manage the pace and timing of these development opportunities.
Scott G. Stauth: As we outlined in our 2024 budget, we have significant strategically weighted development in the first half of the year to our longer cycle assets, primarily on thermal, and back end weighted with our conventional growth development as this aligns with increased market access as well as improved forward strip pricing. As a result, we are targeting to finish the year with strong exit rates as the conventional, more shorter cycle growth activity rounds up in the second half of the year.
Scott G. Stauth: As we outlined with our 2020 for budget, we have significant strategically weighted development in the first half of the year to our longer cycle assets primarily on thermal.
Scott G. Stauth: And backend weighted with on a congressional growth development is this aligns with increased market access as well as improved forward strip pricing.
Scott G. Stauth: As a result, we are targeting to finish the year with strong exit rates as the conventional more shorter cycle growth activity ramps up in the second half of the year.
Scott G. Stauth: We continue to find ways to be more effective and efficient, including optimizing our turnaround schedules. For example, we are well prepared for the upcoming turnaround at Horizon, where we will be tying in the final components of the reliability enhancement project, which sets us up for strong utilization and production in the second half of the year and adds 28,000 barrels a day in 2025 when we skip a turnaround. Through early turnaround work in Q1 during the unplanned maintenance activities, we reduced the outage duration of the planned Q2 horizon turnaround from to 28. Health Foundation. Thank you.
Scott G. Stauth: We continue to find ways to be more effective and efficient, including optimizing our turnaround schedules.
Scott G. Stauth: For example, we are well prepared for the upcoming turnaround at horizon, where we will be tying into final components of the reliability enhancement project, which sets us up for stronger utilization and production in the second half of the year and a 28000 barrels a day in 2025.
Scott G. Stauth: When we skip it turnaround.
Scott G. Stauth: Through early turnaround work in Q1 during the unplanned maintenance activities, we reduced the outage duration with a planned for Q2 horizon turnaround from 228 from 30 days in.
Scott G. Stauth: Additionally, we have optimized the commissioning schedule of the Reliability Enhancement Project, which will be brought online in June following the turnaround. We have a deep bottleneck project at the Scotford Upgrader that will be implemented during the turnaround this fall, which will add approximately 5,600 barrels per day net to Canadian Natural. It's the small incremental movements that add up and create additional value for our shareholders as these targeted improvements will help drive stronger production in the second half of this year.
Scott G. Stauth: Additionally, we have optimized the commissioning schedule of the reliability enhancement project, which will be brought online in June following the turnaround.
Scott G. Stauth: We have a debottleneck project at Scott put upgrader that will be implemented during the turnaround this fall, which will add approximately 5600 barrels per day net to Canadian natural.
Scott G. Stauth: It's a small incremental movements that add up and create additional value for our shareholders. As these targeted improvements will help drive stronger production in the second half of this year.
Scott G. Stauth: Longer term, we have our other oil sands mining and upgrading optimization projects, including the NAFTA Recovery Treatment Project, which is targeted to add approximately 6,300 barrels per day late 2027. And beyond that, combining our IPEP technology with paraffinic froth treatment has the potential to add approximately 195,000 barrels per day of additional annual bitumen production while improving environmental performance. Along with growth, we have a defined path to reduce our environmental footprint and continue delivering sustainable, responsibly produced energy that the world needs.
Scott G. Stauth: Longer term, we have or other our other oil sands mining and upgrading and optimization projects, including the naphtha recovery treatment project, which is targeted to add approximately 6300 barrels per day late 2027, and beyond that combining our iPad technology with paraffinic froth treatment.
Scott G. Stauth: <unk> has the potential to add approximately 195000 barrels per day of additional annual bitumen production, while improving environmental performance.
Scott G. Stauth: Along with growth, we have a defined path to reduce our environmental footprint and continue delivering sustainable responsible produced energy that the world needs right.
Scott G. Stauth: We are committed to supporting Canada's and Alberta's climate goals and have robust environmental targets, including zero greenhouse gas emissions in the oil sands by 2050. We are uniquely positioned with diverse, long-life, low-decline assets that are ideal for applying greenhouse gas reduction technologies and providing industry-leading environmental performance. It is important to continue working together with the Canadian and Alberta governments to make sure the Pathways Alliance is a transformative industry collaboration and achieves meaningful greenhouse gas reductions in Canada. We believe Canadian energy is one of the most responsibly produced sources of energy in the world and should be the preferred energy choice.
Scott G. Stauth: We're committed to supporting Canada's in Alberta is climate goals and have robust environmental targets, including zero greenhouse gas emissions in the oil sands by 2050.
Scott G. Stauth: We are uniquely positioned with diverse long life low decline assets, which are ideal for a plane greenhouse gas reduction technologies and providing industry, leading environmental performance.
Scott G. Stauth: It's important to continue working together with the Canadian and Alberta governments to make sure. The pathways Alliance is a transformative industry collaboration and achieve meaningful greenhouse gas reductions in Canada.
Scott G. Stauth: We believe Canadian energy is one of the most responsibly produced sources of energy in the world and should be the preferred energy choice.
Scott G. Stauth: I will now run through our Q1 operational results. Total production in Q1 averaged approximately 1.33 million BOEs per day, including total liquid production of approximately 976,000 barrels per day and natural gas production of approximately 2.15 BCF per day. On the conventional side of the business, primary heavy oil production averaged approximately 78,400 barrels per day in the quarter, which is comparable to production volumes in the first quarter of 2023, reflecting strong results from our multilateral wells in the Manville and Clearwater Fairways, which offset natural field decline.
Scott G. Stauth: I will now run through our Q1 operational results.
Scott G. Stauth: Total production in Q1 averaged approximately $1 three 3 million Boe's per day, including total liquids production of approximately 976000 barrels per day.
Scott G. Stauth: And natural gas production of approximately 2.15 Bcf per day.
Scott G. Stauth: On the conventional side of the business primary heavy oil production averaged approximately 78400 barrels per day in the quarter, which is comparable to production volumes in the first quarter of 2023, reflecting strong results from our multilateral wells and the moundsville and Clearwater, fairways, which offsets natural field declines.
Scott G. Stauth: Primary heavy oil operating costs averaged $19.16 in the first quarter, which is down 11% from the first quarter of 2023, reflecting lower energy costs. Our pelican production averaged just over 45,000 barrels per day in the first quarter, which is down 6% from the first quarter of 2023, reflecting low natural field declines from this long-life asset. Operating costs at Pelican were $9.75 a barrel in the first quarter, comparable with costs in the first quarter of 2023.
Scott G. Stauth: Primary heavy oil operating cost averaged $19.16 in the first quarter, which is down 11% from the first quarter of 2023, reflecting lower energy costs.
Scott G. Stauth: Our Pelican production averaged just over 45000 barrels per day in the first quarter, which is down 6% from first quarter of 'twenty, three reflecting low natural field declines from this long life asset.
Scott G. Stauth: Operating costs at Pelican or 975, a barrel in the first quarter comparable with cost in the first quarter of 2023.
Scott G. Stauth: North American crude oil and natural gas production averaged approximately 114000 barrels a day in the first quarter, which is up 5% from the first quarter of 'twenty three.
Scott G. Stauth: North American crude oil and natural gas production averaged approximately 114,000 barrels a day in the first quarter, which is up 5% from the first quarter of 2023. Operating costs in our light crude oil and NGL operations averaged $15.25 in the first quarter.
Scott G. Stauth: Operating cost or light crude oil and NGL the operations averaged $15.25 in the first quarter, a decrease of 18% compared to the first quarter of 2023, reflecting higher production and lower energy costs.
Scott G. Stauth: A decrease of 18% compared to the first quarter of 2023, reflecting higher production and lower energy. North American natural gas production averaged 2.14 BCF during the first quarter, which is comparable to the first quarter of 2023. Operating costs on a North American natural gas averaged about 27 mcf in the first quarter, which is down 11% compared to the first quarter of 2023, primarily related to lower energy.
Scott G. Stauth: North American natural gas production averaged to one four bcf during the first quarter, which are comparable to the first quarter of 2023.
Scott G. Stauth: Operating costs on our North American natural gas average above 27, a M C up in the first quarter, which is down 11% compared to the first quarter of 2023, primarily related to lower energy costs.
Scott G. Stauth: In our thermal in situ operations, we achieved strong thermal production in the first quarter, averaging just over 268,000 barrels per day. This is up 10% from the first quarter of 2023 as a result of strong execution on CSS and SAG-DPAD developments during 2023. First quarter thermal in situ operating costs averaged $14.05 a barrel, which is down 12% compared to the first quarter of 2023, primarily reflecting higher production volumes and lower energy
Scott G. Stauth: And our thermal in situ operations retrieves achieved strong thermal production in the first quarter, averaging just over 268000 barrels per day. This is up 10% from the first quarter of 2023 as a result of strong execution on CSS and Sag D pad developments during 2023.
Scott G. Stauth: First quarter thermal in situ operating cost averaged $14 five per barrel, which is down 12% compared to the first quarter of 2023, primarily reflecting higher production volumes and lower energy costs.
Scott G. Stauth: In April, we successfully completed the planned turnaround at Jackfish a few days ahead of schedule, and we have upcoming turnarounds at Kirby North in May of 2024. Due to the early completion of the turn-on at Jackfish, the total impact Q2 2024 average production is now targeted to be approximately 15,300 barrels per day, an improvement of 1,800 barrels per day from the previous impact target of 17,100 barrels per day. At Permarose, we are currently drilling two CSS pads, which are targeted for command production in Q2 of 2025.
Scott G. Stauth: In April we successfully completed the planned turnaround at Jackfish, a few days ahead of schedule and we have upcoming turnarounds at Kirby North and May of 'twenty four.
Scott G. Stauth: Due to the early completion of the turnaround jackfish. The total impact to Q2 2024 hour production is now targeted to be approximately 15300 barrels per day, an improvement of 1800 barrels per day from the previous impact target of 17100 barrels per day.
Scott G. Stauth: At Primrose, we are currently drilling to CSS pads, which are targeted to come on production in Q2 of 2025.
Scott G. Stauth: We're also drilling a SAG-D pad at Wolf Lake, which is targeted to come on production in Q1 of 2025. At Jackfish, we drilled two SAGD pads in 2023, the first of which ramped up to its full production capacity in April of this year, which is ahead of schedule. The second pad is targeted to ramp up full production capacity in Q4 of 2024, and this will support continued high utilization rates at the Jackfish facility.
Scott G. Stauth: We're also drilling Sag D pad at Wolf Lake, which is targeted to come on production in Q1 of 2025.
Scott G. Stauth: At Jackfish, we drilled two Sag D pads in 2023 of the first of which ramped up to its full production capacity in April of this year, which is ahead of budget.
Scott G. Stauth: The second pad is targeted to wrap up the full production capacity in Q4 of 2024.
Scott G. Stauth: This will support continued high utilization rates at the jackfish facilities.
Scott G. Stauth: Additionally, we are targeting to drill one SEGD pad at Jackfish in the second half of 2024, with production from this pad targeted to come on in Q3 of 2025. The commercial-scale solvent SAGD-PAD development at Kirby North is approximately 90% complete, and we are targeting to begin solvent injection in July of 2024. The use of solvents is targeted to reduce our SORs and our greenhouse gas emissions intensities by 40 to 50 percent.
Scott G. Stauth: Additionally, we are targeting to drill one sag D pad at Jackfish and the second half of 2024 with production from this pad targeted to come on in Q3 of 2025.
Scott G. Stauth: The commercial scale solvents segue to pad development at Kirby North is approximately 90% complete and we are targeting to begin solvent injection in July of 2024.
Scott G. Stauth: The use of solvents is targeted to reduce our S. O r's entered greenhouse gas emissions intensities by 40% to 50%.
Mark A. Stainthorpe: And our oil sands mining and upgrading operations. In the first quarter, SEO production averaged just over 445,000 barrels per day, 45,000 barrels per day lower than our target for the first quarter, reflecting both planned and unplanned maintenance activities, including the advancement of the Scottford Upgrader plan turnaround from March to April, to March from April. Through improved turnaround and commissioning scheduling, as well as optimization efforts, we are targeting to recover these daily production volumes in the last three quarters of the year.
Scott G. Stauth: In our oil sands mining and upgrading operations. The first quarter SCO production averaged just over 445000 barrels per day 45000 barrels per day lower than our targeted target for the first quarter, reflecting both planned and unplanned maintenance activities, including the advancement of the skull upgrader plant.
Mark A. Stainthorpe: From March to April to March from April.
Mark A. Stainthorpe: Through improved turnaround and commissioning scheduling as well as optimization efforts, we are targeting to recover these daily production volumes in the last three quarters of the year.
Mark A. Stainthorpe: Our operating costs and our oil sands mining and upgrading assets are top tier, averaging $24.85 a barrel in the first quarter, comparable with the first quarter of 2023. Canadian Natural has a proven, effective capital allocation strategy. We have a balance of near, medium, and long-term growth opportunities, as I mentioned at the beginning of my call, not only on our oil sands mining assets but across our entire asset base. And with the strategic weighting of our capital program this year to add growth in the second half of the year and exit 2024 with strong rates, we are targeting strong free cash flow in the last nine months of this year. Now I will turn it over to Mark for a financial review.
Mark A. Stainthorpe: Our operating costs in our oil sands mining and upgrading assets are top tier averaging $24 85 per barrel in the first quarter comparable with the first quarter of 2023.
Mark: Canadian natural has a proven effective capital allocation strategy, we have a balance of near medium and long term growth opportunities as I mentioned at the beginning of my call.
Mark: Not only on our oil sands mining assets, but across our entire asset base.
Mark: And with the strategic weighting of our capital program. This year to add growth in the second half of the year and exit 2024 with strong rates, we are targeting strong free cash flow in the last nine months of this year.
Mark A. Stainthorpe: Now I will turn it over to Mark for a financial review.
Mark A. Stainthorpe: Thanks, Scott, and good morning, everyone. In the first quarter of 2024, we generated solid financial results with an adjusted funds flow of $3.1 billion and adjusted net earnings from operations of $1.5 billion. This drove significant returns to shareholders in the quarter, totaling $1.7 billion, with $1.1 billion in dividends and $600 million in share buybacks through our NCIB program. As we reach net debt of $10 billion at the end of 2023, we are targeting 100% of free cash flow to shareholders in 2024, as per our free cash flow allocation policy, and we'll continue to manage the allocation on a forward-looking annual basis.
Mark: Thanks, Scott and good morning, everyone.
Mark A. Stainthorpe: In the first quarter of 2024, we generated solid financial results with adjusted funds flow of $3 1 billion and adjusted net earnings from operations of $1 5 billion.
Mark A. Stainthorpe: This drove significant returns to shareholders in the quarter totaling $1 7 billion $1 1 billion in dividends and $600 million in share buybacks through our NCI V program.
Mark A. Stainthorpe: As we reached net debt of $10 billion at the end of 2023, we are targeting 100% of free cash flow to shareholders in 2024 as per our free cash flow allocation policy and we will continue to manage the allocation on a forward looking annual basis.
Mark A. Stainthorpe: Our commitment to increasing shareholder returns is evident in our sustainable and growing quarterly dividend, which was previously increased to $1.05 per share from $1.00 per share in March 2024, marking 2024 as the 24th consecutive year of dividend increases. Subsequent to quarter end, the board declared a quarterly dividend of $1.05 per share payable on July 5, 2024. Our financial position is very strong, with debt to EBITDA at 0.6 times at the end of Q1 2024, and we continue to maintain strong liquidity.
Mark A. Stainthorpe: Our commitment to increasing shareholder returns as evident in our sustainable and growing quarterly dividend, which was previously increased to $1 five per share from $1 per share in March 2024 March 2024, as the 24th consecutive year of dividend increases.
Mark A. Stainthorpe: The sequential quarter and the board has declared a quarterly dividend of $1 five per share payable on July five 2024.
Mark A. Stainthorpe: Our financial position is very strong with debt to EBITDA at <unk> six times at the end of Q1, 'twenty four and we continue to maintain strong liquidity.
Mark A. Stainthorpe: Including revolving bank lines, cash, and short-term investments, liquidity at the end of the quarter was approximately $6.8 billion. As Scott has already laid out, when you combine our strategic plan for 2024, our continuous improvement initiatives, and optimized production with strong commodity prices, specifically for WCS and high-value SEO, we are targeting significant free cash flow for the remainder of the year. This results in increasing share returns to our 100% of free casserole allocations. With that, I'll turn it back to you, Scott, for some follow-up.
Mark A. Stainthorpe: Including revolving bank lines cash and short term investments liquidity at the end of the quarter was approximately $6 8 billion.
Mark A. Stainthorpe: As Scott has already laid out when you combine our strategic plan in 2024, our continuous improvement initiatives and optimize production with strong commodity prices specifically for WCS at high value SCO, we are targeting significant free cash flow through the remainder of the year.
Mark A. Stainthorpe: This resulted in increasing shareholder returns through our 100% of free cash flow allocation policy.
Mark A. Stainthorpe: With that I'll turn it back to you Scott for some final comments.
Scott G. Stauth: Thanks, Mark. In summary, here at Canadian Natural, our culture of continuous improvement and ownership alignment with shareholders drives our team to create significant value across all areas of the company. Our effective and efficient operations, combined with flexible capital allocation, drive strong returns on capital and maximize value for our shareholders. With that, I will turn it over to questions.
Scott: Thanks, Mark and summary here at Canadian natural our culture of continuous improvement and ownership alignment with shareholders drives our teams to create significant value across all areas of the company.
Scott G. Stauth: Our effective and efficient operations combined with flexible capital allocation drive strong returns on capital and maximizes value for our shareholders.
Scott G. Stauth: With that I will turn it over for questions.
Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one that's on the phone. You will hear a prompt that your hand has been raised. Questions will be taken in the order received. If you wish to cancel your request, please press the star followed by the. If you are using a speakerphone, please flip the handset before pressing any key.
Speaker Change: Thank you ladies and gentlemen, we will now begin the question and answer session.
Operator: I have a question please press the star.
Operator: All are vital.
Operator: You will hear a better hand has been raised.
Operator: <unk> will be taken in the order received.
Operator: If you wish to cancel your request please press <unk>.
Operator: Followed by that is there.
Operator: You're using a speaker phone please lift the handset before pressing any tier one.
Operator: One moment, please, for your first question. Your first question is from Menno Hulshof from TD Common. Please ask your question.
Speaker Change: One moment. Please for your first question.
Operator: Yeah.
Operator: Yeah.
Menno Hulshof: Your first question is from Menno <unk> from TD Cowen. Please ask your question.
Menno Hulshof: Thanks and good morning everyone. I'll start with a question on the 55,000 barrels per day of additional commitments that you made on Flanagan South in the quarter. Can you elaborate on how that became available and the terms if you're willing to go there, and I'm guessing you're not. And then I guess the follow-up to that is what's the longer-term vision for building a U.S. Gulf Coast access terminal and would you consider building out export capability like some of some other companies have done? Thank you.
Menno Hulshof: Thanks, and good morning, everyone I'll start with a question on the 55000 barrels per day of additional commitments that you've made on Flanagan south in the quarter can you elaborate on how that became available in the terms if you're willing to go there and I'm guessing you're not and then I guess.
Menno Hulshof: A follow up to that is what's the longer term.
Menno Hulshof: <unk> for building a U S Gulf Coast access and would you consider building out export capability like some of some other companies have done. Thank you.
Scott G. Stauth: Good question, and thanks for that. Yeah, the opportunity for Flanagan to gain the additional 55,000 barrels just came through an open season process. We participated in that process, and you're right, I won't be able to disclose the terms, but we just view it as a good deal. It allows us the opportunity to go into expanded markets, and then from that, your additional question is just in terms of further expansions. I think we'd look towards other expansion opportunities on the mainline system, potentially on the TMX system, which we think, over time, is going to create optional additional egress opportunities.
Speaker Change: Good question and thanks for that yeah.
Scott G. Stauth: Opportunity for on Flanagan.
Scott G. Stauth: The gain the additional 55000 barrels.
Scott G. Stauth: Just came through an open season process, we participate in that process.
Scott G. Stauth: Yeah, and you're right I won't be able to disclose the terms, but we just view it as a good deal at all it allows us the opportunity to go to expand in markets and.
Scott G. Stauth: And then from that your additional question just in terms of further expansions I think we'd look towards other.
Scott G. Stauth: And opportunities on the mainline system potentially on the Tms system.
Scott G. Stauth: Which we think over time, it's going to create optional additional egress opportunities.
Scott G. Stauth: Terrific. Thanks for that, Scott.
Speaker Change: Terrific. Thanks for that Scott and then my second question relates to the shift from natural gas activity into the heavies into year end, you talked about heavy well additions, but can you quantify how much things are getting dialed back on the natural gas side of things and I'm thinking along the lines of locations.
Scott G. Stauth: And then my second question relates to the shift from natural gas activity into heavies and to your end. You talked about heavy well additions, but can you quantify how much things are getting dialed back on the natural gas side of things? And I'm thinking along the lines of locations, rigs, and capital.
Scott G. Stauth: And capital.
Scott G. Stauth: Yeah, on the oil side, it's a reduction of about a half dozen gas wells and a pickup of about 12 multilateral wells. So it's about neutral on the capital piece. So we looked at it as a good opportunity to enhance some of the netbacks we're going to be seeing in the second half of the year on our oil side. Thanks again, all.
Speaker Change: Yeah on the on the on the oil side it's.
Scott G. Stauth: It's a reduction of about a half a dozen gas wells.
Scott G. Stauth: And a pickup of about 12 multilateral wells so it's about neutral on the capital piece.
Scott G. Stauth: So we looked at it as a good opportunity to enhance our you know some of them that docs are going to be seen in the second half of the year on our oil side.
Speaker Change: Yeah, Thanks, Ken I'll turn it back.
Menno Hulshof: Thanks again. I'll turn it back.
Menno Hulshof: Okay.
Menno Hulshof: Yeah.
Speaker Change: Thank you.
Operator: Your next question is from Greg Pardy from RBC Capital Market. Please ask your question.
Menno Hulshof: Your next question is from Greg Pardy from RBC capital markets. Please ask your question.
Greg Pardy: Yeah, thanks. Good morning. Thanks for the rundown, guys.
Greg Pardy: Yes. Thanks, good morning, Thanks for the rundown guys.
Greg Pardy: Really two very different questions, but Scott, I continue to be kind of intrigued by what you're doing with Solvents. And I'm wondering if you could perhaps frame the commercial scale project you have now. How are you?
Greg Pardy: Really two very different questions that Scott on and continue to be kind of intrigued on what youre doing with <unk>.
Greg Pardy: So that's and I'm wondering if you could perhaps frame the commercial scale projects you have now how are you.
Greg Pardy: Don't really know what the size of it is ultimately going to look like but.
Scott G. Stauth: I don't really know what the size of it is ultimately going to look like, but is it possible for you to speak maybe to what, you know, the capital efficiency and or operating costs might look like with that project, or is that really going to come?
Scott G. Stauth: Is it possible for you to speak maybe to what the capital efficiency <unk> operating costs might look like with that project or is that really to come.
Scott G. Stauth: Yeah, great. It's a good question. And for sure, some of that is still to come as this project is set up on a, I'll say, a pad scale. We call it a commercial project because, effectively, we would be able to replicate that on future pads as we go forward. So we constructed the injection facilities and the recovery facilities, and really, once we start injecting solvent here in July, we're going to monitor the process.
Scott: Yeah, Greg Good question and for sure. Some of that is still to come as this project is set up on a I'll say a pad scale basis, we call. It a commercial project because effectively we would be able to assimilate that on future pads as we go forward. So we constructed the the injection.
Scott G. Stauth: <unk> and the recovery facilities and really <unk>.
Scott G. Stauth: Once we start injecting solvent here in July we're going to monitor the process, we want to make sure we understand how well the recoveries are of the solvent. It's a key component in terms of the economics.
Scott G. Stauth: We want to make sure we understand how well the recoveries are of the solvent. And we want to ensure that we give it enough run time to fully understand the cycle from a solvent perspective, but essentially, what it does allow you to do is, as I mentioned before, reduce the SORs by roughly half as well as the greenhouse gas emissions by roughly half, and we can scale it up as we add more pads going forward in the future in our SAG-D operation.
Scott G. Stauth: And we want to ensure that we give it enough runtime to fully understand the cycle.
Scott G. Stauth: From a solvent perspective.
Scott G. Stauth: But essentially what it does allow you to do is as I mentioned before has reduced the <unk> by roughly half as well as its greenhouse gas emissions by roughly half and we can scale. It up as we add more pads going forward in the future Interstate operations.
Speaker Change: Okay. Okay terrific kept good a good it'll be good to follow up to that I guess later in the year and I guess even into next year.
Scott G. Stauth: Okay, okay, terrific. Yeah, good. Okay. It'll be good to follow up with that, I guess, later in the year and I guess even into next year. And then the second one, obviously TMX is, you know, is in focus.
Speaker Change: And then the second one obviously TNX is always in focus.
Scott G. Stauth: Could you maybe just comment on how your, well, to the extent you want to, just how your marketing will look, whether you've, you know, already secured tankers. I mean, I'd be very interested as to whether those are, you know, destined for California or they're going to Asia or what have you. There was some press sounding, suggesting, you know, limitations on pilots and so forth in the area, but just any color there would be great.
Speaker Change: Could you maybe just comment on on how your well to the extent you want to just on how you're marketing.
Scott G. Stauth: We'll look whether you've already secure tankers I mean I'd be very interested as to whether those are you know we're destined for California are there going to Asia or what have you. There was some press sounding suggesting you know limitations in pilots and so forth in the area, but just any color there would be great.
Scott G. Stauth: Sure.
Scott G. Stauth: Yeah, it's a good question, Greg. And so we do have a mixture of both land-based sales and marine sales. We'll continue to develop those marine sales. We have secured some marine sales so far. We'll continue to evolve that market as we go forward here. But really, it's a bit of a balance between the land and the marine side. And, you know, some of that, Greg, as you pointed out, may end up going on the marine side, still on the West Coast, or it could move to Asia. Thanks again.
Speaker Change: Yeah. It's a good question, Greg and so we do have a mixture of both our land based sales and marine sales will continue to develop those marine sales. We have secured some marine sales. So far we will continue to evolve that market as we go forward here.
Scott G. Stauth: But really it's bit of a balance of both land and marine side and some of that Greg as you pointed out and they ended up going marine side still onto the west coast or it could move a tangent markets.
Speaker Change: Okay. Thanks again.
Scott G. Stauth: Yes.
Operator: Thank you once again. If you wish to ask a question, please press star 1. Your next question is from Dennis Fong from CIBC World Market. Please ask your question.
Scott G. Stauth: Thank you once again for the rest you ask a question. Please press star one.
Operator: Our next question is from Dennis Fong from CIBC World markets. Please ask your question.
Dennis Fong: Hi, good morning, and thanks for taking my questions. The first one is maybe just following along with Greg's question just on solvents, but more specifically at Primrose, when I take a look at facility capacity, there is an abundance of oil handling capacity, but the limitation may be a little bit more on the steam side. I know you have an ongoing pilot in the region. At what point would you feel more comfortable providing a broader deployment to solvent within the region, and what do you view as being the potential upside from a productivity standpoint for Primrose and Wolf Lake?
Dennis Fong: Hi, good morning, and thanks for taking my questions.
Dennis Fong: The first one is maybe just of Hollywood along with Greg.
Dennis Fong: Greg's question just on on solvent, but more specifically at Primrose when I take a look at facility capacity there isn't a finance of oil ethylene capacity, but the limitation may be a little bit more on the scheme side.
Dennis Fong: I know you've been ongoing to highlight in the region.
Dennis Fong: At what point would you feel more comfortable providing a broader deployment of solvents within the region and what do you view as being the potential upside.
Dennis Fong: From a productivity side for Primrose Primrose Wolf Lake.
Scott G. Stauth: Yeah, good question, Dennis. And we're going to be able to leverage some of the learnings, even from our SAG-D commercial solvent project that we're doing in Kirby North, you know, leverage that towards, you know, understanding the process ability on the solvent side at Primrose. And, yeah, as you noted, there's certainly steam limit constraints on the cyclic side. You know, I think we just want to make sure that we've fully understood the pilot results. They do look good in the steam flood.
Speaker Change: Yeah. Good question, Dennis and we're going to be able to leverage some of the learnings even from our Sag D. Commercial solvent project that we're doing in Kirby north.
Scott G. Stauth: You know leverage that towards.
Scott G. Stauth: Understanding the process ability on the solid side at Primrose and yeah. As you know what else. There's there's there's there's certainly a steam limit constraints on the cyclic side.
Scott G. Stauth: I would say, at this time, we just want to make sure we're focused on the SAG-D solvent side of things. We'll continue to run this pilot at Primrose. We'll continue to add pads at Primrose. And we would look at it as an opportunity for sure. But it's going to lag behind the SAG-D side a bit, though, Dennis, just in terms of really where we believe our focus should be.
Scott G. Stauth: You know I think we just want to make sure that we've fully understood the pilot.
Scott G. Stauth: Results. They do look good on the steam flood.
Scott G. Stauth: I would say at this time, we just want to make sure. We're focused on the safety solvent side of things will continue to run this pilot at Primrose, we'll continue to add pads at Primrose and we would look at as an opportunity for sure.
Scott G. Stauth: It's going to lag behind the safety side, a bit though Dennis just in terms of really where we believe our focus should be.
Dennis Fong: Great. I appreciate that color.
Speaker Change: Great I appreciate that color, maybe switching gears towards the mining side of things.
Speaker Change: As you move forward with.
Scott G. Stauth: Maybe switching gears towards the mining side of things, you've moved forward with, or you're now completing, the more recent kind of Strategic Capital Deployment for Horizon. And you've kind of talked towards kind of this medium opportunity in terms of the nethetic recovery unit, and I know you're in the middle of the IPAP and kind of scale up opportunity here as well. At what point would you feel more comfortable moving forward with some of the longer-term potential expansions around Horizon?
Dennis Fong: Or youre now meeting the.
Scott G. Stauth: More recent kind of.
Scott G. Stauth: Strategic capital deployment for Horizon, and you kind of talk.
Scott G. Stauth: Talk towards kind of the medium opportunity.
Scott G. Stauth: Terms of the.
Scott G. Stauth: Nothing.
Scott G. Stauth: Cover unit.
Scott G. Stauth: I know you are in the middle of the iPad paint.
Scott G. Stauth: The scale up opportunity here as well at what point would you feel more comfortable moving forward with kind of the longer term.
Scott G. Stauth: We do have a little bit more egress, but what are some of the other, we'll call them, key metrics or items that you're looking forward to gain greater confidence in maybe making a decision around that project? Yeah, so
Scott G. Stauth: Potential expansions around horizon, we.
Scott G. Stauth: We do have a little bit more egress, but what are some of the other call. It key metrics or items that youre looking forward to gain greater confidence and maybe maybe making a decision around that project.
Scott G. Stauth: Yeah, so a couple things with that, Dennis. Our teams have been working on, you know, expansion opportunities for the long term. We're looking in and around that 195,000 barrels a day opportunity. What's key to all of it is two fronts. One thing we need to ensure that we have a carbon policy in place. And with that, we're looking towards the Pathways project and having the alignment on a fiscal policy that works for the Pathways company in collaboration with Alberta and the Canadian government. So fiscal policy is absolutely key for us to be able to move any additional expansion volumes forward. And also, what's important in terms of that would be securing and working on enhancing
Speaker Change: Yeah. So a couple of things with that Dennis our teams have been working on expansion.
Scott G. Stauth: Expansion opportunities for the long term.
Scott G. Stauth: We're looking in and around that 195000 barrels a day opportunity.
Scott G. Stauth: What's key to all of it is two fronts. One is we need to ensure that we have a carbon policy in place and with that we're looking towards the pathways project and having the alignment on our fiscal policy that works for the pathways Company Inc.
Scott G. Stauth: Collaboration with Alberta, and the Canadian government's so that fiscal policy is absolutely key for us to be able to move any additional expansion volumes forward.
Scott G. Stauth: And also what's important in terms of that would be securing and working on enhancing egress.
Scott G. Stauth: <unk> is well out of out of the basin.
Scott G. Stauth: Yes.
Dennis Fong: Great. Thanks. I appreciate that color as well. I'll turn it back.
Speaker Change: Great. Thanks, I appreciate that color as well I'll turn it back.
Dennis Fong: Yeah.
Operator: Thank you. Your next question is from Mike Dunn from Stifel. Please ask your question.
Speaker Change: Thank you.
Dennis Fong: Your next question is from Mike Dunn from Stifel. Please ask your question.
Michael Dunn: Good morning. Thanks for taking my question. Just following up on that on the longer-term expansions at Horizon. Perhaps I've missed it previously, but... Looking back through your prior disclosures, is this the first time you've outlined 195,000 barrels a day as the potential expansion of Horizon? from PFT and IPEP. I believe the last number you guys were giving for a while was 75,000. So just wondering what's changed there and whether or not to move forward with such an expansion, you would be just using your Horizon barrels or some of the AOSP leases for the Thanks, you know.
Michael Dunn: Hey, good morning, Thanks for taking my question.
Michael Dunn: Just following following up on that on the longer term expansions at horizon.
Michael Dunn: Perhaps I missed it previously but.
Michael Dunn: Looking back through your prior disclosures is this the first time, you've outlined 195000 barrels a day is the potential expansion of horizon from.
Michael Dunn: From PFT and an iPad.
Michael Dunn: I believe the last number you guys were giving pearl for a while anyway with 75000, so I'm just wondering what's changed there.
Michael Dunn: And whether or not to move forward with such an expansion you'd be just using your horizon barrels or some of the AOSP leases for the north.
Michael Dunn: Yep Yep.
Scott G. Stauth: So your research is 100% correct, Mike, and this is the first time we've talked about 195,000. Previously, it was 75,000. Really, what's evolved out of this as the teams continue to work through this is the scalability side of it, and working through engineering enhancements on the IPEP project for extraction and just increasing the sizability of the froth treatment. That's what's led us towards the 195,000 barrels a day, and yeah, it's primarily related to the horizon operations piece of it there.
Michael Dunn: Yes.
Michael Dunn: So you're.
Scott G. Stauth: Researchers are 100% correct, Mike and this is the first time, we've talked about the 195000 previously it was 75000 really what's evolved out of this as the teams continue to work through this is is a scalability side of it.
Scott G. Stauth: And I'm working with through.
Scott G. Stauth: Engineering enhancements on the iPad.
Scott G. Stauth: Project for extraction, and just increasing the size ability of the froth treatment.
Scott G. Stauth: That's what's led us towards the.
Scott G. Stauth: 195000 barrels a day and yeah, it's primarily related to the horizon operations piece of it there so.
Scott G. Stauth: Yes.
Scott G. Stauth: Okay.
Michael Dunn: Okay, that's all for me. I appreciate the answer.
Speaker Change: Okay. That's all for me I appreciate the answer thank you.
Michael Dunn: Okay.
Operator: Once again, please press star 1 should you wish to ask a question. Your next question is from Neil Mehta from Goldman Sachs. Please ask your question. Hello Neil, your line is now open.
Speaker Change: Once again, please press star one should you wish to ask a question.
Operator: Yeah.
Operator: Your next question is from Neil Mehta from Goldman Sachs. Please ask your question.
Operator: Yeah.
Neil Mehta: Oh, okay, great, terrific. I'm not sure what happened there.
Neil Mehta: Hello, Neel your line is now open.
Neil Mehta: Yes.
Neil Mehta: Anyone there.
Neil Mehta: Yes go ahead.
Neil Mehta: Okay. My first question is just about the natural gas environment. Obviously, it's very soft right now in western Canada and throughout North America. But I just love your perspective as you think about the natural gas side of the portfolio, recognizing that you're also a large consumer of it. But how do you see local prices playing out over time, especially as we work through the startup of LNG Canada, which would hopefully improve local net prices?
Neil Mehta: Okay, Great terrific I don't know Im not sure what happened there okay.
Neil Mehta: That's my first question is just on the natural gas environment. Obviously, it's it is very soft right now in Western Canada.
Neil Mehta: North America, but I'd just love your perspective, as you think about the natural gas side of the portfolio recognizing that Youre also a large consumer of it but how do you see local prices playing out over time, especially especially as we work through.
Neil Mehta: The startup.
Neil Mehta: LNG, Canada, which will hopefully improve local net backs.
Scott G. Stauth: Yeah, you bet. Great question. So, as you pointed out, we are a large consumer of natural gas in our oil sands operation. So we've got about a third of it, acre pricing, a third export, and about a third is [inaudible].
Speaker Change: Yes, you bet a great question. So as you pointed out we are a large consumer of natural gas in our oil sands operations. So we've got about a third of it.
Scott G. Stauth: Acre by acre pricing and a third export and about a third is is for our oil sands.
Scott G. Stauth: Operations in terms of looking forward on the price side of things of course, yes, with LNG, Canada coming online we're seeing strip movements are in.
Scott G. Stauth: In the $3 range and I think what's also important to remember here as well is that you know a lot of the economics are on the on the Montney side are driven by the liquids production. So that carries the strong are the most weight in terms of the economics. There. So we do see price improvements as LNG, Canada.
Scott G. Stauth: Those forward.
Scott G. Stauth: And we'll look to capitalize on those opportunities as much as we possibly can with our balanced portfolio and ensuring that we are directing our capital towards the highest return projects.
Neil Mehta: And then, team, one of the hallmarks of C&Q over the last 10 years has been systematically driving down your cost structure. And the question we often get asked is, what's the low-hanging fruit at this point? I just love your perspective as you guys think about the next couple of years. What are the structural cost reductions that you still see within the business, and can you help bucket them for us?
Scott G. Stauth: And then.
Scott G. Stauth: <unk> one of the hallmarks of <unk>.
Neil Mehta: Last 10 years has been systematically driving down your cost structure and the question, we often get asked is what.
Neil Mehta: What's the low hanging fruit at this point just love your perspective as you guys think about the next couple of years, what our structural cost reductions that you still see within the business and can you can you help bucket them for us.
Scott G. Stauth: I think I would just say in general that, for the most part, the cost reduction opportunities are going to come forward. Simply through our continuous improvement plans that we put in place with our teams, we challenge our teams to bring forward ideas, concepts, and execute on those concepts on an annual basis, and we continue to do that year over year. And so, really, I think that's all we've always looked at doing our business.
Speaker Change: I think I would just say in general that.
Scott G. Stauth: For the most part the.
Scott G. Stauth: The cost reduction opportunities are going to come forward.
Scott G. Stauth: Simply through our.
Scott G. Stauth: Our continuous improvement plans that we've put in place with our teams we challenge our teams to bring forward ideas concepts and execute on those concepts on an annual basis, and we continue to do that year over year and so really I think that's all we have always looked at doing our business, it's making sure that we're focused on.
Scott G. Stauth: It's making sure that we're focused on the continuous improvement piece. You saw over time what we were able to achieve at Horizon with cost reduction. You know, running up into 2019. And so, it's that same type of mentality across all of our business assets, whether it's on the natural gas side, the heavy oil side, oil sands mining, and thermal. We carry that concept of continuous improvement through. So, I'm confident our teams are going to be able to continue to dig through and find opportunities to both decrease the cost and optimize the production, which obviously helps the cost per barrel as well.
Scott G. Stauth: This improvement piece you saw over time, what we were able to achieve at horizon with cost reduction.
Scott G. Stauth: Go running up into 2019, and so it's the same type of mentality across all of our business assets, whether it's on the natural gas side have you all side oil Sands mine in thermal we carry that concept of continuous improvement through so I'm confident our teams are going to get be able to continue to dig through.
Scott G. Stauth: And find opportunities to both decrease the cost and optimize the production was obviously helps to cost per barrel as well.
Neil Mehta: Are there any specific initiatives you're willing to speak to at this point? We'll see them as they come.
Speaker Change: Are there any specific initiatives you are willing to speak to you at this point or.
Speaker Change: You will see them as they come.
Scott G. Stauth: I think we'll see them as they come. I mean, if you think about the vastness of our operations and all the teams that we have working in these areas, there's a significant amount of work activity that they're looking at for continuous improvement. But I would say that when it gets down to the ground year low for the teams, there are small incremental cost savings opportunities, but of course, they all add up. We have our teams focused on saving dollars everywhere in operations. So it adds up everywhere.
Neil Mehta: We will see them as they come in I mean, if you think about the vastness of our operations and all the teams that we are working on these in these areas. There is significant amount of work activity that theyre looking at for continuous improvement, but I would say that when it gets down to the granular over the teams there are small incremental cost savings.
Scott G. Stauth: Opportunities, but of course, they all add up we have our teams focused on saving dollars everywhere in operation. So it adds up everywhere.
Neil Mehta: Terrific. Thanks, team.
Speaker Change: Terrific. Thanks team.
Neil Mehta: Okay.
Operator: Thank you. There are no further questions at this time. Please proceed.
Speaker Change: Thank you there are no further questions at this time. Please proceed.
Operator: Thank you, operator, and thanks everyone for joining us this morning. If you have any follow-up questions, please give us a call. Have a great day!
Speaker Change: Thank you operator, and thanks, everyone for joining us. This morning, if you have any follow up questions. Please give us a call have a great day.
Operator: Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining us. You may all disconnect.
Speaker Change: Thank you ladies and gentlemen, the conference has now ended thank you all for joining you may all disconnect.
Operator: Okay.