Q3 2024 Canadian Natural Resources Ltd Earnings Call
Tcf remains unchanged.
And our thermal in situ operations, we achieved strong thermal production in the quarter, averaging just over 271500 barrels per day. This is down 5% from the third quarter of 2003, primarily due to the cyclical nature of production from CSS pads criminals and natural field declines partially.
Offset by thermal pad developments at Kirby and Jackfish.
Third quarter thermal in situ operating costs averaged $10 52 per barrel, which is down 8% compared to the third quarter of 23, primarily reflecting lower energy costs.
At Jackfish, we achieved record quarterly production of approximately 128000 barrels a day in Q3, primarily due to strong results from pad additions and effective and efficient operations. Additionally, we are currently drilling the safety pad at Jackfish with production from this pad targeted to come on in Q3 of next year.
At Primrose, we are targeting to bring off CSF pad on production in Q4 of 24, which is ahead of schedule.
Our second CSF pad has been drilled and is also targeted to come on production ahead of schedule. In Q1 25. This pad was originally budgeted to come on in Q2 of 2025.
At Kirby North we began solvent injection in June 2024, and all eight wells are now injecting solvent early results have been positive with <unk> reductions of approximately 30%.
Turning towards our targeted reduction of 40% to 50%.
Solvent recoveries are in excess of 85% and are meeting expectations is.
As the project advances, we will continue to monitor <unk> solid recovery and production trends.
In our oil sands mining and upgrading operations third quarter SCO production averaged approximately 498000 barrels per day, an increase of approximately 7000 barrels per day compared to the third quarter of 2020.
The increase in production for the third quarter included planned turnaround activities at the non operated coffered upgrader, which began on September nine.
And were successfully completed on October 18th.
Oil sands mining and upgrading achieve them new monthly production record of approximately 529000 barrels per day of SCO in August of this year.
This was primarily due to high utilization at both horizon and AOSP as well as the completion of the reliability enhancement project at horizon during our planned turnaround in the second quarter.
Operating cost and oil sands mining and upgrading assets are top tier 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 planned turnaround activity and lower energy costs.
The <unk> upgrader the plant turnaround was executed 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 AOSP from the third quarter turnaround activities.
5400 barrels per day, a significant improvement compared to the budgeted annual net production impact of 11000 barrels per day.
A debottleneck project was completed during the Scott for turnaround, which increases the total gross capacity by 8000 barrels a day.
Upon closing of the acquisition of Chevron's, 20% interest at AOSP the capacity net Canadian natural increases to 7200 barrels per day.
A debottleneck project was completed.
Completed.
During the Sculpsure turnaround, which increases gross capacity.
<unk> thousand barrels per day.
Upon closing.
Everyone's 20% interest the capacity not draconian actual increases to 7200 barrels per day.
Canadian natural is delivering top tier free cash flow generation, which is unique and sustainable and robust and clearly demonstrates our ability to both economically grow the business and deliver returns to shareholders by balancing our four pillars of capital allocation.
With that I will now turn it over to Mark for a financial review.
Mark: Thanks, Scott and good morning, everyone in the third quarter, our strong operational execution led to excellent financial results.
We generated adjusted funds flow of $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 buybacks through our <unk> program.
Year to date up to and including yesterday October 30, we have distributed significant value to shareholders totaling approximately $6 7 billion, including our sustainable and growing dividend and share buybacks.
Given our strong financial position and significant and sustainable free cash flow generation as previously announced the board of directors has agreed to increase the quarterly dividend by 7% to <unk> 56 in one quarter 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.
Mark: This increase in the quarterly dividend demonstrates the confidence the board of directors has on 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 at <unk> six times at the end of Q3 dollars 24.
Mark: Liquidity remains strong and including revolving bank facilities and cash liquidity at the end of the quarter was approximately $6 2 billion.
Mark: Subsequent to quarter end and as previously announced in connection with the agreement to acquire assets from Chevron, we obtained a fully committed $4 billion non revolving term loan facility.
We have also extended the maturity of our $2 45 billion revolving credit facility from June 2025 to June 2028.
Our asset base is in by top tier long life low decline assets, a strong balance sheet and safe effective and efficient operations.
All of which combine to provide us with unique competitive advantages in terms of capital efficiency.
Mark: Flexibility and sustainability.
Driving strong returns on capital.
With that I'll turn it back to you Scott for some final comments. Thanks.
Thanks, Mark in summary, our consistent and reliable results are underpinned by safe and reliable operations.
Scott: Our commitment to continuous improvement is driven by a strong team culture and all areas of our company that focus on improving our cost strong execution of growth opportunities.
And increasing value to shareholders.
So with that I'll turn it over for questions.
Speaker Change: We will now begin the question and answer session I would like to ask a question press star.
Oh and by the one on your telephone keypad.
Your first question comes from the line of Dennis Fong.
Speaker Change: With CIBC World markets.
Mark: Please go ahead.
Yes, hi, good morning, and thanks for taking my question also congratulations on another strong quarter.
Dennis Fong: First the first question here is just on horizon, and frankly, the oil sands mining and operations.
We are really strong.
I'll get that you highlighted in your comments just curious as we go into next year in 2025 can you talk towards a little bit of the potential cost savings.
Dennis Fong: The lack of turnaround at horizon as well as from the <unk>.
Mark: Improvements in terms of run time and production capacity that you've been able to unlock with the two assets.
Right well in terms of cost at horizon.
Look that that when we're doing.
Speaker Change: And our non turnaround year, you'd estimate the savings to be in around $75 million Dennis.
Mark: In terms of the utilization.
Mark: <unk>.
We can see that we are having strong production results coming out of that.
<unk> of the reliability project will continue that focus on that going into next year.
In terms of other.
Other cost at Horizon, and AOSP, our teams continuously focus on on areas for improvement.
Through basic continuous improvement projects. So we're just going to stay focused on our base business there in the oil sands mining thus optimizing production.
And are working to reduce costs.
Great Great I appreciate that context there.
Speaker Change: My second question and just turning my attention towards V. A thermal and tissue project, obviously, a lot of things going on there and obviously strong production at at.
Speaker Change: At Jackfish.
Speaker Change: Curious I know in the 2020 budget you guys mentioned Pike.
Speaker Change: One is 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 supposed to start in late 'twenty 'twenty four is that still on the docket and how are you thinking about that project.
Yes, good question, Dennis and yes, the pipe one project.
Involved as the pipeline running from the pipeline area.
Speaker Change: To be tied back into our jackfish fish facilities.
Work has commenced will continue on without pipeline pipeline activity into 2025, along with drawing our first pads and that's the plan for 2025.
Great. Thanks, I'll turn it back.
Your next question comes from the line of Neil.
Speaker Change: No matter.
Speaker Change: With Goldman Sachs.
Speaker Change: Please go ahead.
Yeah. Thanks, Thanks, so much and.
One of the keys to the <unk> story every time, it's been at.
Dangerous progress around cost and so just curious in a lower commodity price environment, what are the opportunities to capture cost and capital efficiency and in that spirit any any early thoughts on on how twenty-five budgets could play out.
Well I think it's just really important.
As we always do kneeled focus on overall optimization of production and the more we can optimize our production better impact on how its on our overall operating costs.
Our low operating cost structure as talked here and it certainly allows for significant free cash flow and low commodity cycles.
In terms of continuous improvement activities I can tell you that every single year, our teams come up with.
Projects that are new.
To work on finding efficiencies working with our vendors and our suppliers to help reduce costs become more efficient and effective so it's an ongoing program.
Speaker Change: We've been utilizing for.
Speaker Change: Many many years and we're going to continue to focus on that Neil.
And just thoughts on 25, as we kind of bridge from the 5400. This year into next year, what are some moving pieces that we need to keep in mind recognize you can give us some more clarity here in the coming days.
Yeah, I think Neil you can look for us to come out.
Speaker Change: Closer to year end year end here.
Our budget for next year. So we're still working through all the details of 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, well thank you thanks.
Your next question comes from the line of Greg Pardy with RBC capital markets.
Speaker Change: Please go ahead.
Thank you. Thank you thanks for the rundown guys.
I was wondering if you could just maybe dig a little bit into the into the solvent pilot commercial pilot I guess youre running at Kirby North.
Speaker Change: And so I guess Youre seeing you know as you indicate you're seeing great results and so on.
If this is successful or is this something that you would.
Sort of a plan a go forward basis, I'm trying to get a sense as to how much a ball broader application is this something that you could use at jackfish on new pads and so forth.
How limited maybe as the scope of this if it if it is commercial.
Yeah, Greg So again still early stages in terms of.
<unk> seen the results so far I agree and as we've stated they are very positive.
Speaker Change: We still need some time to work through that I'm expecting that we'll feel.
I'm more confident in terms of the overall reserves.
Results as time goes on here looking into <unk>.
June of 2025, it'll be a full year of run time. So we'll have a lot more meaningful numbers. If you look forward to the future.
Speaker Change: Under your circumstance that are looking for.
Speaker Change: Adding solvents to future pad adds it fits well with future development because it <unk>.
Speaker Change: Helps the total steam requirements of the area.
Speaker Change: And so you can apply that we'd look at applying that to future pad adds.
Speaker Change: In Kirby and Jackfish.
Speaker Change: As we move forward and look towards bringing potentially bring in reserves for with that type of a concept of solvent injection.
Okay. Okay. Thanks, very much for that and then haven't really dug into the numbers and some of this but just with respect to opex at horizon and AOSP at very very good operating cost I'm, just wondering how much of that.
It was due to very high run rates versus the pull back in April pricing, just trying to get a sense as to how.
And during the the operating costs too.
Speaker Change: On the third quarter.
Speaker Change: Yeah, Greg it's a bit of both actually so very strong volumes as you noted.
April prices are certainly lower and as you know we are embracing what Canadian naturals, we do have a natural hedge in terms of our overall golf production because of our fuel graphs requirements in our thermal and oil sands mining developments. So it's a little bit of both Greg I don't have the exact breakdown here for you.
At this moment, but.
Speaker Change: They are both significant.
Speaker Change: Understood Thanks very much.
Speaker Change: The next question.
Lesson comes from the line of Manav.
Speaker Change: <unk>.
Speaker Change: Thank you.
Speaker Change: Please go ahead.
Speaker Change: Uh huh.
Speaker Change: Good morning.
My first question is can you help us remind what's your all in breakeven put WP I with dividend and then if you could provide some insights as you get these chevron athletes and integrate them and then our synergy benefits does that move that breakeven in any direction. Once those assets are fully integrated.
Hey, even out of its mark.
There's a lot of different assumptions that go into the breakeven but.
Speaker Change: When I look at it we're somewhere in the low forties W. T I.
Speaker Change: In that neighborhood.
Of course, when you bring on these new assets with free cash flow.
Speaker Change: Coming with them.
We have a modest benefit to it when.
Speaker Change: When you look at the overall decline rate of the company today.
Today, we sit at a probably 11% and of course, that's what drives the low maintenance capital and ability to cover that as well as a dividend as well as our dividend.
Speaker Change: Commodity price environment.
Perfect. Thanks second question is it a little more on the international side, sometimes we tend to bucket them together, but the portfolio on the offshore Africa actually has gorilla can stockpile not see it as kind of more than a decline. So how would you say you know those two assets are slightly.
Speaker Change: Different from each other one hospital depend a lot what other one is kind of more on a decline.
Speaker Change: Right.
Yeah. So.
As you are alluding to the North Sea is on a decline in production and we will continue to work towards.
Speaker Change: Cessation of production.
Production is as time goes on here, we have an extensive abandonment programs in place over the next several years.
Speaker Change: In offshore West Africa, Yes, a 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.
Speaker Change: Benefited from the.
Significant cash flow, that's coming from those areas over the past two decades.
Thank you so much for taking my questions.
And your next question comes from the line of Menno <unk> with Tony David Securities.
Please go ahead.
Yeah, Thanks, and good morning, everyone I'll start with a question on the Chevron <unk> transaction, where you talked about with Duvernay competing for capital with our Montney, which didn't surprise everybody, but it did surprise. Some people. So the question is were there specific parts of the Montney that you had in mind is competing.
Head to head with the Duvernay from capital and on a related note how does the Clearwater currently stack up with those two plays.
Yeah, so could the duvernay.
Minto in terms of the acquisition.
Speaker Change: The average liquids rates is in the range of 46%.
So from that perspective, its sell very comparable with the montney because of the high liquids production solar, resulting in and and strong capital efficiency numbers.
Speaker Change: Hum.
And if you are looking at in terms of comparison to Clearwater, the mango very comparable in terms of overall economics.
From a.
Our moundsville and our Clearwater as well so the great thing about Canadian Naturals, we have these great.
Speaker Change: Sets that can deliver significant free cash flow.
And so certainly where our focus is going to be going forward here.
Okay. Thanks for that Scott and then second question is on.
Basically for US you've made a pretty big push on all fronts, you have new commitments on Tmr's, Flanagan, South, which was announced a while back and you're going to get more on Keystone. How much of that is a function of your own internal growth aspirations versus opportunistically, taking it on simply because it's available like we probably saw with Petro China.
And more generally how are you thinking about the west coast and Gulf Coast competing markets.
For your barrels given current market dynamics.
Well it gets a little bit of both mental but certainly when you take a look at the opportunities off the west coast to further expand and diversify our two additional refining destinations that provides a significant forward look.
The opportunity for us so.
Speaker Change: It helps.
The basin, we maintain a very competitive heavy oil in that box stabilizes the market.
More so than it ever was before.
Then just in terms if you looked at our portfolio of development. It certainly helps.
Speaker Change: Secure those barrels.
Which would otherwise be potentially egress constraints situation under.
Speaker Change: Under those circumstances, so it's a really good opportunity for us a strategic from that perspective, and we look to further enhance our net backs as we go forward.
Speaker Change: Thank you I'll turn it back.
Your next question comes from the line of Patrick O'rourke with <unk> capital markets.
Speaker Change: Please go ahead.
Hey, good morning, guys and thank you for taking my question I guess that you know maybe a little bit further to meadows question, there and maintenance specific to 75000 on <unk>.
Speaker Change: If I were to look at that pipe today, and it's just based on the physical report broker reports we see.
Speaker Change: Transport is is slightly off market relative to the regulated tall and I'm just wondering.
Speaker Change: 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.
Speaker Change: Yeah.
Yeah, Patrick So I can tell you that it is very similar to our existing contract that we have for 94000 barrels a day. So turns essentially same same from that perspective. So.
That's why it was a good fit for us.
Speaker Change: But probably more importantly, securing.
Speaker Change: Securing those barrels the opportunity to have achieved.
Speaker Change: Achieve stronger pricing either.
Through deliveries to.
Speaker Change: West Coast.
On California, or further Asian markets. So it's a good opportunity for us so from those perspectives.
Speaker Change: Total.
Speaker Change: Great and then sort of shifting gears and thinking about capital allocation here, obviously, you've taken on a little bit more leverage to get the ASP P. Chevron and duvernay assets in there just wondering.
With where the balance sheet sits today with your view on in terms of the opportunity set out there what what would the appetite for further M&A.
Speaker Change: From here for <unk>.
Yeah, Patrick it's a good question, but I think if you look at our overall position of our company.
We do have great assets.
Speaker Change:
Speaker Change: And.
Speaker Change: We will continue to look at opportunities as we have.
Speaker Change: In the past in areas, where our assets may come up for sale that are good fit into our core areas. We will look at them off like we always have in the past and history history States that so we'll remain.
Speaker Change:
Speaker Change: With that.
Forward looking view and just.
Speaker Change: <unk>.
Ensuring that any acquisition, we do do Patrick we do a really good job of maximizing the value for the company and our shareholders.
Speaker Change: Okay. Thank you.
Speaker Change: Okay.
Speaker Change: I'll now turn the call back over to Lance Katzen.
For closing remarks. 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.
Speaker Change: Ladies and gentlemen. This concludes today's conference. Thank you all for joining you may now disconnect.
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