Q3 2024 Canadian Natural Resources Ltd Earnings Call
Good morning, we would like to welcome everyone to Canadian natural's 2024 3rd Quarter Ernest Conference Call and Webcast.
After the presentation, you will conduct a question and answer session. Instructions will be given at that time.
Please note that this call is being recorded. Today, October 31st, 2024 at 9 a.m. on time.
I would now like to turn the meeting over to your host for today's call Lance Casson, Manager of Investor Relations
Thank you, Operator. Good morning, everyone. And thank you for joining Canadian Natural's third quarter, 2024, earnings conference call.
Before we begin, I'd like to remind you of our forward-looking statements.
and should be noted that in our reporting disclosures, evidenceing Canadian dollars in less otherwise stated, and be report and reserves and production before our realties.
Also, I would suggest you to your advisory section in our finance statements that includes comments on non-gap scores.
Speaking on today's call, we've got Stauth, our president and Mark Stainthorpe, our chief financial officer.
Scott will provide highlights of our strong operation, and includes some of the asset specific production records and talk to your operating costs.
Mark will then celebrate summer night or fun and results and include robust adjusts of fun slow, earnings and returns to shareholders.
To close Scott will summarize prior to open up financial questions.
with that over use God.
Thank you, Lance, and tomorrow in everyone. Our unique and diverse asset base provides us with a competitive advantage, as we can allocate capital to the highest return projects with all three in re-reliant on anyone commodity.
Our consistent and talk to your results are driven by safe and reliable operations.
Our commitment to continue its improvement is supported by a strong team culture in all areas of our company that focus on improving our cost, driving execution of girls opportunities and increasing value to shareholders.
We achieved strong average production of approximately 1.363 million Bouis in the third quarter consisting of 1.022 million barrels of liquids and over 2 BC of natural gas.
Our world class oil stands mining and upgrading assets, delivered strong results in the quarter, including a record monthly production of approximately 529,000 barrels per day of SEO in August.
Importantly, these assets continue to deliver strong operational performance and high utilization rates, which resulted in top tier quarterly operating costs of $20.67 per barrel into third order.
Substaclent to the quarter end on October 7th. We announced an agreement with Chevron Canada limited to acquire their 20% interest in AOSP, which includes the Mutskig River in Jack Pine Mines, the Scott Furrow creator and the Quest Carbon Capture and Storage Facility.
This acquisition will bring Canadian natural toll current working interest in AOSP to 90% and is targeted to add approximately 62,500 barrels per day, along life, no decline SEO production to the company.
In addition, Canadian National also will lead to a choir's Chevron 70% off-reader working interest of light crude oil and liquid-rich assets in the Doverney Plain Alberta.
These assets are targeted to average approximately 60,000 B.O.E.s per day in 2025 and provide the opportunity for meaningful near-term growth while contributing additional free cash flow.
The effect of date for these acquisitions is September 1st of 24.
and are targeted to close in the fourth quarter of 2024.
Additionally, Command C and December 1st 2024
In support of our long-term strategy of targeting the expanded refining markets.
Driving stronger netbacks and reducing exposure to crude oil egress constraints.
We will increase our contracted crude oil transportation capacity on TMS by 75,000 barrels per day to 169,000 barrels per day.
The End
and when they'll run through our Q3 operational results.
On the conventional side of the business.
Primary Heavy OO production averaged approximately 76,800 barrels per day in the third quarter
which is a 1% increase compared to the production volumes in 3rd quarter of 2023. Refructing strong results.
from multilateral wells on our extensive heavy oil land base, which is the largest in Canada and includes the mound built in clear water fairways.
As a result of optimized longer well designs and the technical expertise of our teams, we continue to see excellent results from our multi-lateral wells, driven by our culture continues improvement.
In the first nine months of 2024, we drilled 76 net multilateral wells
Maintaining top tier average initial peak rates of approximately 230 barrel per day per well and increase of approximately 30% compared to our budget average initial peak rates of 175 barrels per day per well.
I'm Mary Heavy Oil Operating Cost, average $18.69 in the quarter, which is down 5% from the third quarter of 23. Primarily reflecting lower operating costs.
Our Pelican Lake production average approximately 45,100 barrels per day in the quarter, which is down 4% from the third quarter of 23 reflecting low field declines from this long life offset.
Operating constant pelican, great 74 per barrel in the third quarter, a 9% increase compared to the third quarter of 2023, which is primarily due to higher maintenance activities in the quarter, partially offset by lower energy cost.
North American Lake, Kudol and J.L. Production Advorge, approximately 106,000, 300 barrels per day in the third quarter, which is down 3% from the third quarter of 23.
The decrease was primarily the result temporary processing facility, outages and rail transportation restrictions offset by strong drilling results
Operating costs in our Lake Huda on NGL's average $13.73 in the third quarter, a decrease of 11% compared to the third quarter of 23 due to lower energy costs.
North American Natural Gas Production averaged 2 BCF during the third quarter, the decrease of 5% compared to the third quarter, 23. Primarily reflecting previous announced deferrals of natural gas on-stream timing and response to natural gas pricing.
The impacts of heat and welfare conditions can cue three of 24 and natural feet of declines.
This decrease in production was partially offset by strong results from remontning and deep basemales.
Operating costs are North American natural gas, which is a total of 23 grams CF and a third quarter comparable to the third quarter year ago.
As we all line in the first quarter results, we reallocated capital from certain dry natural gas development activity to multi-lateral heavy oil wells.
Due to continued low-knows workout prices in 24, we are further reducing dry natural gas joined capital. We now target a total of 74 net natural gas wells, 17 fewer compared to the 2024 budget.
Our 2024 Corp Adanial Natural Gap guidance of 2.12 BCF, 2.23 BCF remains unchanged.
In our thermal and situ operations, we achieved strong thermal production in the quarter, averaging just over 271,500 barrels per day.
This is down 5% from the third quarter of 23. I'm early due to the cyclical nature of production from CSS as a Primrose and Natural Field Decline. Firstly, I'll sit by Thermal Pad Ad Development at Kirby and Jackfish.
Third Court of Thermal in situ operating costs average $10.52 a barrel, which is down 8% compared to the third quarter of 23 primarily reflecting low-energy costs.
A Jack Fish, we achieved record quarter-uvering production of approximately 120,000 barrels a day. In Q3, primarily due to strong results from padded dishes and effective and efficient operations.
Additionally, you're currently drawing the SAGD Padded Jackfish with production from this tag targeted to come on in Q3 of next year.
At Primrose, we're targeting to bring on the CSS Pat on Production and Q4, 24, which is a head of schedule.
A second CSS pad has been drilled and is also targeted to come off production ahead of schedule into 1.25 This pad was originally budgeted to come on in Q2 of 2025
A Kirby North, we began solvent injection in June of 2024 and all eight wells are now injecting solvent. Early results have been positive with SOR reductions of approximately 30% trending towards a targeted reduction of 40 to 50%.
Solving recoveries are an excess of 85% in our meeting expectations.
As a project of Vance as we will continue to monitor SLR's, solve and recoverate and production trends.
In a Royal Sense mining and upgrading operations, third quarter SEO production approximately 498,000 barrels per day, and increase approximately 7,000 barrels per day compared to the third quarter of 2020.
The increase in production for the third quarter included plan turnaround activities at the non-operative Scott Frutta Prater which began on September 9th and were successfully completed on October 18th.
Oil Sense mining upgrading achieved a new monthly production record of approximately 529,000 barrels per day of SEO and August of this year.
This was primarily due to high utilization of both Verizon and AOSP as well as the completion of the reliability and enhancement project that Verizon during her planned turnaround in the second quarter.
Operating cost and loyal sense mining and upgrading assets are topped here, averaging $20.67 per barrel in the third quarter, a 7% decrease compared to the third quarter of 2023.
This primarily reflects higher production volumes from reduced plan turn on activity and lower energy costs.
Disco offered up creator the plan turnaround was executed in 40 days relative to the original budget of 49 days while achieving higher utilization rates during that 40 day window.
As a result of the annual net production impact from AOSPF from the third quarter turner on activities is 54 hundred barrels per day, a significant improvement compared to the budgeted annual net production impact of 11,000 barrels per day.
A deep bottle neck project was completed during the Scott Fratera, which increases the total growth capacity by 8,000 barrels a day. Upon closing up the acquisition of Chevron's 20% interest at AOSP, the capacity net to 18 natural increases to 72,000 barrels per day.
The bottom that project was completed during the Scott fraternum which increases the growth capacity, 8,000 barrels per day upon closing, Chevron's 20% interest, the capacity that took me an out of 1 increase is to 72,000 barrels per day.
Canadian actual delivering top tier free Casson generation, which is unique and sustainable and robust and clear to demonstrates our ability to both economically grow the business and deliver returns to shareholders by balancing our forepilers of capital allocation.
With that, I will now turn it over to Mark for financial review.
Mark: Thanks Scott for playing good morning everyone. In the third quarter, our strong operational execution led to excellent financial results.
We generated a just-it-fun-flow of 3.9 billion and adjusted net earnings from operations of 2.1 billion.
This drove significant returns to shareholders in the quarter totaling 1.9 billion with approximately 1.1 billion in dividends and 740 million in share by-backs through our NCIB program.
Here today, up to an including yesterday October 30th, we have distributed significant value shareholders totaling approximately 6.7 billion including our sustainable and growing dividend and share by-bax.
Given our strong financial position and significant and sustainable free cash flow generation, as previously announced, the Board of Directors has agreed to increase the quarterly dividend by 7% to 56 and 1.4 cents per share payable at the next regular quarterly dividend payment in January 2025.
This will mark 2025 as the 25th consecutive year of dividend increases by Canadian natural, with a compound annual growth rate of 21% over that time.
This increase in the quarterly dividend demonstrates the confidence the Board of Directors has in the company's world-class assets and its ability to generate significant and sustainable free cash flow.
Our financial position is very strong with net debt at 9.3 billion and debt to EBITDA 0.6 times at the end of Q324.
The liquidity remains strong and including revolving bank facilities in cash, liquidity at the end of the quarter was approximately 6.2 billion.
Substant Corder N and is previously announced in connection with the agreement to a car assets from Chevron. We obtained a fully committed $4 billion non-revolving term mobility facility.
We have also extended the maturity of our 2.45 billion revolving credit facilities from June 2025 to June 2028.
Our asset base is under thin by top tier, Long Life Loady Client Assets, a strong balance sheet and safe, effective and efficient operations.
All of which combine to provide us with unique competitive advantages in terms of capital efficiency, flexibility and sustainability, driving strong returns on capital.
With that I'll turn it back to you Scott for some final comments.
Thanks Mark in summary, our consistent and reliable results are underpinned by saved and reliable operations.
Our commitment to continuous improvement is driven by a strong team culture in all areas of our company that focus on improving our cost. Strong execution of growth opportunities and increasing value to shareholders.
So without alternative questions.
Speaker Change: We will now begin the question in answer session. If you would like to ask the question, first start, I would like to one on the telephone keypad.
If there's a question, comes from the life of Dennis Fong with CIBC World Market
Please go ahead.
Yes, hi, good morning and thanks for taking my question. Also congratulations on another strong quarter.
First question here is just on Verizon and frankly the oil stand mining and operations. Obviously, it really strong.
August as you highlighted in your comments. Just curious as to as we go into next year in 2025, do you talk towards the little bit of the potential of cost savings?
with the Wacitorner and Verizon, as well as some of the improvements in terms of run time and productive capacity that you've been able to unlock with the two assets.
The End
Speaker Change: We can see that we're having strong production results coming out of that completion of the reliability project.
will continue that focus on that, going into next year in terms of in a weather cost at right in an AOSP, our teams continuously focus on areas for improvement.
to Basic Continues Improvement Project. So we're just going to stay focused on our base business there in O Sense mining. That's up to my use of production and working to reduce costs.
The End.
Clay.
Appreciate that context there. My second question in just turning my attention towards the thermal institute projects. Obviously a lot of things going on there and obviously strong production at
at Jack Fish. I'm just curious, I know in the 2024 budget you guys mentioned.
Pike as a Phase 1 as an opportunity that you guys were looking into a little bit more. Can you talk towards any progress you've made? I think drilling and pipeline work was to start in late 2024. Is that still on the dotted and how are you thinking about that project?
You know, good question, Dennis, and yes, the Pike 1 project involves the pipeline running from the Pike 1 area to be tied back into our Jackfish facilities.
that works as command. We'll continue on with that finalized pipeline activity into 2025 along with join our first bats and that's the plan for 2025.
Great, thanks, all, I'll turn it back.
Speaker Change: Next question from some line of new meta with Goldman Sachs.
Speaker Change: Come go ahead.
Speaker Change: Yeah, thanks so much and one of the key to the C-C story over time has been continued with progress around cost. So just curious in a lower commodity price environment, where do the opportunities to capture cost and capital efficiency? And in that spirit, any early thoughts on how 25 budgets are.
Speaker Change: Good play out.
Well, I think it's just really important as we always do need to focus on overall optimization of a production, the more we can optimize a production, the better impact that house on our overall operating costs.
Our role operating cost structure is top tier and it certainly allows for significant pre-cache low and low-commonity cycles.
In terms of continuous improvement activities, I can't tell you that every single year our teams come up with
Projects that are new to work on finding efficiencies, working with our vendors and our suppliers to help reduce costs become more efficient and effective. So it's an ongoing program that we've been utilizing for...
Many, many years, and we're going to continue to focus on that meal.
and just thoughts on 25 as we kind of bridge from the 5,400 this year into next year, what are some moving pieces that we need to keep in mind, recognize you can get us more clarity here in the coming days.
Speaker Change: Yeah, I think Neil, you can look for us to come out
Speaker Change: Closer to your end here with our budget for next year. So we're still working through all the details, prioritizing our projects, that drive the best returns. So we're going to be focused on that and we're working through that right now, so I don't have any additional details to provide you at this time.
Alright, we'll take you thanks.
Speaker Change: In that question comes some line of Craig Party with RBC Capital Markets.
Please go ahead.
Thank you. Thanks for the rundown guys. I'm just wondering if you could just maybe dig a little bit into the solvent, pilot commercial pilot, I guess you're running at Kobi North.
Speaker Change: and so I guess you're seeing, you know, as you indicate, you're seeing great results and so on.
If this is successful or this is something that you would
and a sort of plan of go forward basis and trying to get a sense of the hummets of a broader application. This is something that you could use at Jack Fish on, Newpads and so forth. Or how limited, maybe, is the scope of this to fit this commercial.
Greg, so again, you know, still are lead stages in terms of...
Dean the results so far, I agree, and as we stated, they're very positive. We still need some time to work through that, I'm expecting that we'll feel more confident in terms of the overall results. His time goes on here, looking into.
June of 2025, it will be a full year of run time so we'll have a lot more meaningful numbers.
If you look forward to the future under your circumstance that looking for adding solvents to future paddads.
It fits well with future development because it...
helps the total steam requirements of the area. And so you'd apply that. You'd look at applying that to future paddads in Kirby and Jack Fish.
As we move forward and look towards bringing potentially bringing reserves for with that type of concept of solvent injection.
Okay, okay thanks very much for that and then haven't really dug into the numbers on some of this, but just with respect to Off-Ex, that horizon they always feel, very good operating cost. I'm just wondering how much of that.
was due to just very high-run rates versus the pullback in April price. And just trying to get a sense as to how enduring the operating cost is that we're shouldn't be selling the third quarter.
Yeah, I agree. It's a bit of both actually. So, very strong volumes, as you noted, April prices are certainly lower and as you know, we...
Speaker Change: and creating look at any of the actual, we do have a natural hedge in terms of our overall gas production because of our field-gas requirements in our thermal and oil-sense mining developments.
So it's a little bit of both Greg, I don't have the exact breakdown here for you at this moment, but they're both significant
Greg: I'm just dead thanks very much.
Speaker Change: Thanks for watching!
Next question comes from the line of the Nav, the Tata, with you again. Please go ahead.
Speaker Change: Good morning up.
So my first question is can you help us remind what you're all in Breakeven for WTI with dividend and then if you could provide some insights as you get this Chevron assets and integrate them and there are synergy benefits does that move that Breakeven in any direction once those assets are fully integrated?
Hi, I'm Annabets Mark. You know, there's a lot of different assumptions that go into the break even, but you when I look at it, we're somewhere in the low 40s WTI in that neighborhood.
Speaker Change: Of course, when you bring on these new assets with free cash flow coming with them, you probably have a modest benefit to it. When you look at the overall decline rate of the company today, we set out a probably 11%.
and of course that's what drives the low-meat and scapula and ability to cover that as well as a dividend as well as our dividend in a lower-quality operation environment.
The perfect, second question is a little more on the international side.
Sometimes we tend to bucket them together, but the portfolio on the offshore Africa actually has growth and stuff, but not see it's kind of more in a decline. So how would you say those two assets are slightly different from each other?
One has grew up in what other one is kind of more in a decline.
Speaker Change: Great!
Speaker Change: Yeah, so as you're living into the North Sea is on a decline production and we'll continue toward towards
Speaker Change: Association of Production is as time goes on here. We have an extensive development programs in place over the next several years.
Speaker Change: and the North Shore West Africa, yes, potential future development opportunities exist in that area as well.
and yeah, so it's again, it's not a significant portion of our portfolio in terms of production, but we certainly have benefited from the significant cash flow that's come from those areas over the past few decades.
Thank you so much for taking my questions.
Speaker Change: In the next question comes from the line of Menno Kulsov with Tony David Securities
Menno Kulsov: Please go ahead. Thanks, and yeah, thanks and good morning everyone. I'll start with a question on
The Chevron Transaction, where you talked about the duivernaid competing for capital with the Montman, which didn't surprise everybody, but it did surprise some people. So the question is, were there specific parts of the Montman that you had in mind is competing?
Speaker Change: Head to head with the Dovernafer Capital and on a related note how does the clear water currently stack up with those two glists?
Yeah, absolutely good to do over an eight.
Speaker Change: in terms of the acquisition.
The average liquids rates is in the range of 40% per cent.
So from that perspective, it's very comparable with the Montney because it'll highlight what's production, so it's resulting in strong capital efficiency numbers.
and if you're looking at terms of comparison to Clearwater and Amnball, very comparable in terms of overall economics.
and from my...
Speaker Change: Our map bill and our clear water as well so...
The great thing about Canadian nationals, we have these great assets that can deliver significant, free, free cash flow. And so certainly where our focus is going to be going forward here.
Okay, thanks for that, Scott, and then the second question is on.
Based in the rest, you've made a pretty big push on that front, you have new commitments on TMX, Flanagan south, which was announced a while back and you're going to bit more on Keystone. How much of that is a function of your own internal growth aspirations versus?
Alperchinistically taking it all on simply because it's available like we probably saw with Petra China. And more generally, how are you thinking about the the rest coast and the off coast is competing markets?
for you girls, give them current Marka Dunn Alex.
I like this a little bit of both mental, but certainly when you take a look at the opportunities off the west coast of further expand and diversify to...
Additional refining destinations that provides a significant forward-looking opportunity for us. So, you know, it helps the basin be maintained very competitive heavy oil in that box.
Speaker Change: Stabilizes the market.
More so than it ever was before and then just in terms of you look at our portfolio of development.
is certainly helped secure those barrels, which would otherwise be potentially an egress constraint situation under those circumstances. So it's a really good opportunity for us, strategic from that perspective.
and we looked at further enhance our netbacks as we go forward.
Thank you all for all the turn-of-back.
The next question comes from the line of Patrick O'Rourke with ATB Capital Market.
Speaker Change: Please go ahead.
Patrick O'rourke: Hey, good morning guys and thank you for taking my question. I guess you know, maybe a little bit further to Menos question there and meet specific to 75,000 on TMAX
If I were to look at that pipe today and it's just based on the physical report, you know, broker reports, we see
Transport is...
Slightly off-market relative to the regulated toll, and I'm just wondering...
You know if you can give any more color with respect to that deal. Is it sort of at the market at the regulated toll or are there any other aspects to that?
Patrick Soob.
I can tell you that it is very similar to our existing contract that we have for our 94,000 brels a day so it turns essentially same from that perspective.
Patrick O'rourke: That's why it was a good fit for us, but probably more importantly securing those barrels, the opportunity to have.
and Chiefs, stalker pricing, either through deliveries to West Coast and California or further Asian markets. So it's a good opportunity for us all from those perspectives and total.
and then, Sir Shipton Gears and Think of a Capital location here, obviously you've taken on a little bit more leverage to get the OSP, Chevron and Dibbon A assets in there, just wondering, up with where the balance is.
Speaker Change: Sheetsets today with your view on sort of the opportunity set out there. What would the appetite for further M&A be from here for seeing you?
Yeah, that should get to good question, but I think if you look at the overall position of our company, we do have great assets.
and we'll continue to look at opportunities as we have in the past in areas where...
Speaker Change: Assets make them up for sale, they're good fit into our quarter-ares. We will look at them all, like we've always had in the past and history states that. So we'll remain, you know.
with that forward-looking view and just...
ensuring that any acquisition we do to Patrick, we do a really good job of maximizing the value for the company and our shareholders.
Speaker Change: Well, now turn the call back over to Lance Casson for closing the marks. Please go ahead. Thank you, operator, and thanks everyone for joining us this morning. If you have any questions, please give us a call. Thanks, and have a great day.
Please enjoy our members' concludes today's conference. Thank you all for joining me and I'm now disconnect.