Q2 2026 Canadian Natural Resources Ltd Earnings Call

Speaker #1: Good morning. We would like to welcome everyone to CANADIAN NATURALS 2026 Q2 earnings conference call and webcast. After the presentation, we will conduct a Q&A session instructions will be given at that time.

Speaker #1: Please note that this call is being recorded today, August 6, 2026, at 9:00 AM Mountain Time. I would now like to turn the meeting over to your host for today's call, Lance Casson, Manager of Investor Relations.

Lance Casson: Good morning, everyone. Thank you for joining Canadian Natural's 2026 second quarter results conference call. Before we begin, I'd like to remind you of our forward-looking statements. It should be noted that in our reporting disclosures, everything is in Canadian dollars unless otherwise stated, and we report reserves and production before royalties. Also, I would suggest you review the advisory section in our financial statements that include comments on non-GAAP disclosures. Speaking on today's call will be Scott Stauth, President, and Victor Darel, Chief Financial Officer. As usual, also in the room with us this morning is Robin Zabek, CEO, E&P, Jay Froc, CEO, Oil Sands, and Ron Leng, Chief Commercial Officer. Scott will begin by going through our numerous operational records and leading operating costs as our teams continue to execute in the quarter.

Speaker #2: Good morning, everyone. And thank you for joining CANADIAN NATURALS 2026 Q2 results conference call. Before we begin, I'd like to remind you of our forward-looking statements.

Speaker #2: 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 royalties.

Speaker #2: Also, I would suggest you review the advisory section in our financial statements that include comments on non-GAAP disclosures. Speaking on today's call, will be Scott Stauth, our President, and Victor Darel, our Chief Financial Officer.

Speaker #2: As usual, also in the room with us this morning is Robin Zabek, COO of of E&P, Jay Frock, COO of Oil Sands, and Ron Lang, Chief Commercial Officer.

Speaker #2: Scott will begin by going through our numerous operational records and leading operating costs as our teams continue to execute in the quarter. Victor will then go through our strong financial results, significant returns to shareholders, and material net debt reduction.

Lance Casson: Victor will go through our strong financial results, significant return to shareholders, and material net debt reduction. To close, Scott will summarize prior to opening up the line for questions. With that, over to you, Scott.

Speaker #2: To close, Scott will summarize prior to opening the line for questions. With that, over to you, Scott.

Scott Stauth: Thank you, Lance. Good morning, everyone. Q2 2026 was a very strong quarter, reflecting our continued focus on operational excellence, capital efficiency, and continuous improvement, which drove eight new operational and financial records across our asset base. An example of this performance was achieved in our world-class oil sands mining and upgrading operations, where we experienced challenging weather elements like other oil sands operations. However, our teams successfully managed those challenges, allowing the company to not only exceed our budget, but we also achieved the highest quarterly production in the company's history, averaging approximately 625,000 barrels per day Q2 with high upgrader utilization of 106%.

Speaker #3: Thank you, Lance, and good morning, everyone. Q2 2026 was a very strong quarter. Reflecting our continued focus on operational excellence, capital efficiency, and continuous improvement, which drove eight new operational and financial records across our asset base.

Speaker #3: An example of this performance was achieved in our world-class Oil Sands mining and upgrading operations where we experienced challenging weather elements like other oil sands operations, however, our teams successfully managed those challenges allowing the company to not only exceed our budget but we also achieved the highest quarterly production in the company's history averaging approximately 625,000 barrels per day Q2 with high upgrader utilization of 106%.

Scott Stauth: Oil sands mining and upgrading production in the quarter represents an increase of approximately 161,000 barrels per day, or 35% compared to Q2 2025 levels, reflecting strong operational performance, the additional working interest in the AOSP mines acquired in Q4 2025, and the turnaround at AOSP completed last year. These world-class assets provide high-value synthetic crude oil, which captured robust pricing in Q2 with the SCO premium to WTI averaging $8.37 US per barrel in the quarter. When combined with industry-leading low operating costs of CAD 22.19 per barrel, resulted in the highest oil sands mining and upgrading per-barrel netback ever achieved by the company during the quarter at approximately CAD 78 per barrel. Cash flow generation from our oil sands mining and upgrading assets was significant, and operations delivered strong results.

Speaker #3: Oil sands mining and upgrading production in the quarter represents an increase of approximately 161,000 barrels per day, or 35%, compared to Q2 2025 levels, reflecting strong operational performance with the additional working interest in the AOSP mines acquired in Q4 2025 and the turnaround at AOSP completed last year.

Speaker #3: These world-class assets provide high value synthetic crude oil which captured robust pricing in Q2 with the SCO premium to WTI averaging $8.37 US per barrel in the quarter.

Speaker #3: And when combined with industry leading low operating cost of $22.19 per barrel resulted in the highest oil sands mining and upgrading per barrel net back ever achieved by the company during the quarter at approximately $78 per barrel.

Speaker #3: Cash flow from our cash flow generation from our oil sands mining and upgrading assets was significant and operations delivered strong results. In addition to record oil sands mining and upgrading production, we also achieved record quarterly total corporate production of approximately 1,677,000 UEs per day in Q2 resulting in year-over-year growth of approximately 256,000 VUEs per day or 18% from Q2 2025 levels.

Scott Stauth: In addition to record oil sands mining and upgrading production, we also achieved record quarterly total corporate production of approximately 1,677,000 BOEs per day in Q2, resulting in year-over-year growth of approximately 256,000 BOEs per day or 18% from Q2 2025 levels. Other Q2 2026 production records include record total liquids production of approximately 1,249,000 barrels per day, an increase of 230,000 barrels per day or 23% from Q2 2025 levels. Importantly, two-thirds of our total liquids production in Q2 is high-value SCO, light crude oil, and NGLs, generating significant cash flow. We also achieved record North American conventional E&P liquids production of approximately 338,000 barrels per day, representing an increase of 67,000 barrels per day or 25% from Q2 2025 levels. Included in this record, North American light crude oil and NGLs production of approximately 205,000 barrels per day.

Speaker #3: Other Q2 2026 production records include record total liquids production of approximately 1,249,000 barrels per day and increase of 230,000 barrels per day or 23% from Q2 2025 levels.

Speaker #3: Importantly, two-thirds of our total liquids production in Q2 is high value SCO light crude oil and NGLs generating significant cash flow. We also achieved record North American conventional E&P liquids production of approximately 338,000 barrels per day representing an increase of 67,000 barrels per day or 25% from Q2 2025 levels.

Speaker #3: Included in this record, North American light crude oil and NGLs production of approximately 205,000 barrels per day. This production is up approximately 64,000 barrels per day or 45% from Q2 2025 primarily reflecting accretive acquisitions and strong drilling results.

Scott Stauth: This production is up approximately 64,000 barrels per day or 45% from Q2 2025, primarily reflecting accretive acquisitions and strong drilling results. Thermal in situ production was strong as well, with record production at Jackfish of approximately 136,000 barrels per day, exceeding our facility nameplate capacity of 120,000 barrels per day. Strong production at Jackfish was supported by the two new SAGD pads at Pike 1, which are currently averaging approximately 46,000 barrels per day with an SOR of 1.8. The resource at Pike is top-tier, with results continuing to exceed our expectations. In addition to production records achieved this quarter, we also set some record financial results, including adjusted net earnings and adjusted funds flow, with which Victor will provide more details on later in the call.

Speaker #3: Thermal in situ production was strong as well with record production at Jackfish of approximately 136,000 barrels per day exceeding our facility nameplate capacity of 120,000 barrels per day.

Speaker #3: Strong production at Jackfish was supported by the two new SAG D pads at Pike 1 which are currently averaging approximately 46,000 barrels per day with an SOR of 1.8.

Speaker #3: The resource at Pike is top tier with results continuing to exceed our expectations. In addition to production records achieved this quarter, we also set some record financial results including adjusted net earnings and adjusted funds flow with which Victor will provide more details on later in the call.

Scott Stauth: Our financial results include the benefit from our material sulfur production as we produce approximately 30% of Canada's sulfur supply, which generated significant net revenue of approximately CAD 450 million in H1 this year. With record production and strong performance across our asset base, along with an accretive acquisition completed in Q2, we are increasing our annual production guidance range for the second time this year. Annual production is now targeted to be between 1.637 million BOEs per day and 1.682 million BOEs per day, a 20,000 BOE per day increase at the midpoint from the previous guidance range. We remain focused on executing our prudent and efficient 2026 capital program as our operating capital remains unchanged at approximately CAD 6 billion before net acquisition cost.

Speaker #3: Our financial results include the benefit from our materials sulfur production as we produce approximately 30% of Canada's sulfur supply which generated significant net revenue of approximately $450 million in the first two quarters of this year.

Speaker #3: With record production and strong performance across our asset base, along with an accretive acquisition completed in Q2, we are increasing our annual production guidance range for the second time this year.

Speaker #3: Annual production is now targeted to be between $1.637 million VUEs per day and $1.682 million VUEs per day at 20,000 VUE per day increase at the midpoint from the previous guidance range.

Speaker #3: We remain focused on executing our prudent and efficient 2026 capital program as our operational capital operating capital remains unchanged at approximately $6 billion before net acquisition cost.

Scott Stauth: Our ability to effectively allocate capital across our large and diverse asset base provides us with a unique competitive advantage, and when combined with accretive acquisitions, continues to create significant long-term value for our shareholders. With that, I will pass it over to Victor for our Q2 financial review.

Speaker #3: Our ability to effectively allocate capital across our large and diverse asset base provides us with a unique competitive advantage and when combined with accretive acquisitions continues to create significant long-term value for our shareholders.

Speaker #3: With that, I will pass it over to Victor for our Q2 financial review.

Victor Darel: Thank you, and good morning, everyone. As Scott already noted, Q2 was marked by impressive performance with the company setting a number of quarterly records. Adjusted net earnings of CAD 4.6 billion or CAD 2.20 per share and adjusted funds flow of CAD 6.9 billion or approximately CAD 3.30 per share were the strongest in the history of the company and reflected excellent operational performance and the strong pricing we received for our products in Q2. The Peace River area acquisitions were completed in Q1 and Q2 and are already well integrated into our operations and are contributing meaningfully to our already strong returns.

Speaker #2: Thank you and good morning everyone. As Scott already noted, the second quarter was marked by impressive performance with the company setting a number of quarterly records.

Speaker #2: Adjusted net earnings of $4.6 billion or $2.20 per share and adjusted funds flow of $6.9 billion or approximately $3.30 per share were the strongest in the history of the company and reflected excellent operational performance and the strong pricing we received for our products in the quarter.

Speaker #2: The Peace River area acquisitions were completed in the first and second quarters and are already well integrated into our operations and are contributing meaningfully to our already strong returns.

Victor Darel: Robust cash flow generation continues to provide significant returns to shareholders, totaling approximately CAD 4 billion in Q2, including direct returns of CAD 2.4 billion, comprised of CAD 1.3 billion in dividends and CAD 1.1 billion in share repurchases, and indirect returns of CAD 1.6 billion through net debt reduction in Q2, further enhancing long-term shareholder value. Total direct returns to shareholders for the year to date now exceed CAD 5.7 billion. The significant level of returns and net debt reduction, even when completing an accretive acquisition in Q2, is a clear demonstration of the cash-generating capability of our diverse, long life, low decline asset base, supported by industry-leading cost performance across our operations. Our leading dividend continues with the board approving a quarterly dividend of CAD 0.625 per common share.

Speaker #2: Robust cash flow generation continues to provide significant returns to shareholders. Totaling approximately $4 billion in the second quarter including direct returns of $2.4 billion comprised of $1.3 billion in dividends and $1.1 billion in share repurchases.

Speaker #2: And indirect returns of $1.6 billion through net debt reduction in the quarter. Further enhancing long-term shareholder value. Total direct returns to shareholders for the year to date now exceed $5.7 billion.

Speaker #2: The significant level of returns and net debt reduction even when completing an accretive acquisition in the quarter is a clear demonstration of the cash generating capability of our diverse long life low decline asset base supported by industry leading cost performance across our operations.

Speaker #2: Our leading dividend continues with the board approving a quarterly dividend of $62.50 per common share. Following the dividend increase earlier this year, 2026 is the 26th consecutive year of dividend increases and reflects the sustainability of our business model.

Victor Darel: Following the dividend increase earlier this year, 2026 is the 26th consecutive year of dividend increases and reflects the sustainability of our business model, the strength of our balance sheet, and the durability of our asset base. The dividend is payable on 02 October 2026 to shareholders of record at the close of business on 11 September 2026. Our share buyback program, which currently targets to return 75% of free cash flow and is calculated as funds flow after dividends, capital, and abandonment expenditures, continues to be very strong. The program is forward-looking and with the strong pricing environment, continues to be robust. Our capital expenditure program is disciplined, balanced, and effective, and the balance sheet is ever stronger.

Speaker #2: The strength of our balance sheet. And the durability of our asset base. The dividend is payable on October 2nd, 2026 to shareholders of record at the close of business on September 11th, 2026.

Speaker #2: Our share buyback program which currently targets to return $75% of free cash flow and is calculated as funds flow after dividends capital and abandonment expenditures continues to be very strong.

Speaker #2: The program is forward looking and with a strong pricing environment continues to be robust. Our capital expenditure program is disciplined, balanced, and effective and the balance sheet is ever stronger.

Victor Darel: Liquidity is equally strong, with approximately CAD 8 billion of availability supported by internally generated cash flow and undrawn credit facilities, and providing us with ongoing financial flexibility to drive resource value growth and deliver on strategic growth opportunities, as demonstrated by the accretive acquisitions this year. Overall, the record results achieved in Q2 further demonstrate the quality of our assets and the strength of our execution. Combined with a strong balance sheet and a disciplined approach to capital allocation, we remain well-positioned to continue delivering meaningful value to our shareholders. With that, Scott, I will turn it back to you.

Speaker #2: Liquidity is equally strong with approximately $8 billion of availability supported by internally generated cash flow and undrawn credit facilities and providing us with ongoing financial flexibility to drive resource value growth and deliver on strategic growth opportunities as demonstrated by the accretive acquisitions this year.

Speaker #2: Overall, the record result achieved in the second quarter further demonstrate the quality of our assets and the strength of our execution combined with a strong balance sheet and a disciplined approach to capital allocation we remain well positioned to continue delivering meaningful value to our shareholders.

Speaker #2: With that, Scott, I'll turn it back to you.

Scott Stauth: Thanks, Victor. In summary, our relentless focus on continuous improvement, combined with effective and efficient operations from our world-class assets, has driven strong performance, low operating cost, high netbacks, and significant free cash flow generation so far in 2026. Our ability to effectively allocate capital across our strong asset base provides us with a competitive advantage. This ability, combined with shareholder alignment and accretive acquisitions, creates significant long-term value for our shareholders. Before I turn it over for questions, I wanted to comment on the recent trilateral MoU between the Oil Sands Alliance, Government of Alberta, and the Federal Government. The trilateral MoU outlines a potential regulatory and fiscal framework intended to support long-term competitiveness of Canada's energy industry and establishes a positive first step for future economic production growth in Canada when associated with additional egress opportunities and a clear pathway to reduce greenhouse gas emissions.

Speaker #3: Thanks, Victor. In summary, our relentless focus on continuous improvement combined with effective and efficient operations from our world-class assets has driven strong performance low operating cost high net backs and significant free cash flow generation so far in 2026.

Speaker #3: Our ability to effectively allocate capital across our strong asset base provides us with a competitive advantage this ability combined with shareholder alignment and accretive acquisitions creates significant long-term value for our shareholders.

Speaker #3: Before I turn it over for questions, I wanted to comment on the recent trilateral MOU between the oil sands alliance government of Alberta and the federal government.

Speaker #3: The trilateral MOU outlines a potential regulatory and fiscal framework intended to support long-term competitiveness of Canada's energy industry and establishes a positive first step for future economic production growth in Canada when associated with additional egress opportunities and a clear pathway to reduce greenhouse gas emissions.

Scott Stauth: In turn, this will benefit all of Canada by providing more jobs, combined with social and economic benefits to our country. We look forward to working with both levels of government on the definitive agreements targeted for the completion this fall, which will provide clarity on assessing potential growth projects. Until we have completed these definitive agreements, development of our medium and long-term projects remain on hold, which will include our 30,000 barrel a day Jackfish project and our 70,000 barrel per day Pike 2 project, as well as our longer-term oil sands mining and growth projects at both Albian and Horizon. I also want to remind everyone that in addition to our future growth and capital allocation being dependent upon the finalization of the definitive agreements, our shareholder returns will not be sacrificed, and if growth projects proceed, they will generate strong returns at mid-cycle pricing.

Speaker #3: In turn, this will benefit all of Canada by providing more jobs combined with social and economic benefits to our country. We look forward to working with both levels of government on the definitive agreements targeted for the completion this fall which will provide clarity on assessing potential growth projects.

Speaker #3: Until we have completed these definitive agreements, development of our long medium and long-term projects remain on hold. Which will include our 30,000 barrel a day jackfish project and our 70,000 barrel per day pike tube project as well as our longer term oil sands mining and growth projects at both Albion and Horizon.

Speaker #3: I also want to remind everyone that, in addition to our future growth and capital allocation being dependent upon the finalization of the definitive agreements, our shareholder returns will not be sacrificed. If growth projects proceed, they will generate strong returns at mid-cycle pricing.

Scott Stauth: With that, I will turn it over for questions.

Speaker #3: And 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 on your touch tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the two, and if you're using a speakerphone, please remember to lift the handset first before pressing any keys. We have our first question from Dennis Fong with CIBC.

Speaker #1: 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 on your touchstone phone.

Speaker #1: You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the two and if you're using a speakerphone, please remember to lift the handset first before pressing any keys.

Speaker #1: And we have our first question from Dennis Fong with CIBC.

Dennis Fong: Hi. Good morning. Thanks for taking my questions, and congratulations on a very strong operational quarter. My first question, I really appreciate, frankly, the color and commentary you provided in the initial remarks. When you talk towards, obviously, your stronger performance in the oil sands mining operations region, clearly you were able to manage through very tough environmental conditions out in the field. Can you talk towards some of the learnings you might have had, maybe some examples of what you were able to do to manage through, obviously a tough working quarter, a high amount of snow melt and rain? Why some of the operating models were able to weather some of these conditions, as well as you guys were able to.

Speaker #4: Hi, good morning. Thanks for taking my questions and congratulations on a very strong operational quarter. My first question and I really appreciate frankly the color and commentary you provided in the initial remarks.

Speaker #4: When you talk about, obviously, your strong performance in the oil sands mining operations region, clearly you were managed through very tough environmental conditions out in the field.

Speaker #4: Can you talk towards some of the learnings you might have had, some of the maybe some examples of what you were able to do to manage through obviously a tough working quarter, a high amount of snowmelt, and rain, and why kind of some of the operating models were able to weather some of these conditions as well as you guys were able to.

Scott Stauth: Yeah. Thanks, Dennis. I think if you look at, there are several factors that come into play with the spring runoff and combined with heavy rain conditions that we see typically during the Q2. Our teams have been focused on this for years, and part of that focus is just generated around how we manage our haul roads, how we have our materials ready for managing those roads in adverse weather conditions, how we have our availability ready to go, and I think importantly, how our team on the ground is able to navigate through the challenging conditions with manpower, operating the equipment, able to assess situations on a second-by-second, minute-by-minute basis, make judgment calls, and work their way through these challenges on a very prepared basis, anticipating what's going to happen with the future forecast and those general kind of things.

Speaker #3: Yeah, thanks Dennis. So I think if you look at there are several factors that come into play with the spring runoff and combined with heavy rain conditions that we see typically during the second quarter.

Speaker #3: Our teams have been focused on this for years and part of that focus is just generated around how we manage our whole roads how we have our materials ready for managing those roads in adverse weather conditions how we have our availability ready to go and I think.

Speaker #3: Importantly how our team on the ground is able to navigate through the challenging conditions with manpower operating the equipment able to assess situations on a second by second minute by minute basis make judgment calls and a very prepared basis anticipating what's going to happen with the future forecast.

Speaker #3: And those general kind of things. But and I think that probably summarizes maybe in a very simplistic form Dennis but at the same time being on top of all that is very important to our team and it's something that they take great pride in.

Scott Stauth: I think that probably summarizes maybe in a very simplistic form, Dennis, but at the same time, being on top of all that is very important to our team, and it's something that they take great pride in.

Dennis Fong: Great. Appreciate that color there. My second question shifts the focus towards Kirby. It looks like you are shifting now towards a solvent rollout using diluent for Q1 2027. Can you talk towards the scale of that rollout and potentially the upside that could exist as you move forward with the use of solvent technology, obviously at a much more grander commercial scale?

Speaker #4: Great. I appreciate that color there. My second question shifts the focus towards Kirby. It looks like you are shifting now towards a solvent rollout using Dillywind for the first quarter of 2027.

Speaker #4: Can you talk towards kind of the scale of that rollout and potentially the upside that could exist as you move forward with the use of solvent technology obviously at a much more grander commercial scale?

Scott Stauth: Yeah. With the solvent deployment at Kirby South, Dennis, it's part of this ongoing strategy that we have to evaluate the returns that we would achieve by deployment of solvents, and helping reduce our greenhouse gas emissions. One of the key factors that we look at and that we've experienced is the cost side of solvents are significant, and in order to improve the returns, we need to ensure that we're using the most effective and efficient solvents. In this case, we're going to deploy the diluent, as it is a lower cost product to be able to use for solvents. In order of magnitude, Dennis, this is another small pilot at Kirby South. These are wells that we drilled off of existing pads at Kirby South. Performance from those wells is strong.

Speaker #3: Yeah. So with the solvent deployment at Kirby South, Dennis, it's part of this ongoing strategy that we have to evaluate the returns that we would achieve by deployment of solvents and helping reduce our greenhouse gas emissions.

Speaker #3: So one of the key factors that we look at and that we've experienced is the cost side of solvents are significant and in order to improve the returns we need to ensure that we're using the most effective and efficient solvents in this case we're going to deploy the Dillywind as it is a lower cost product to be able to use for solvents and in order of magnitude Dennis this is another small pilot at Kirby South.

Speaker #3: So you know these are wells that we drilled up of existing pads at Kirby South. Performance from those wells is strong. We anticipate that by the time Q1 comes around we'll be introducing the Dillywind through that pilot into those wells and then monitoring the results of that.

Scott Stauth: We anticipate that by the time Q1 comes around, we'll be introducing the diluent through that pilot into those wells and then monitoring the results of that. Really what we're trying to do is take our time, understand whole cycle economics on solvents and applicability in the areas that we can achieve the best results by deploying the solvents.

Speaker #3: So really what we're trying to do is take our time understand old cycle economics on solvents and their applicability in the areas that we can achieve the best results by deploying that solvent.

Dennis Fong: Great. Thanks for that color there, Scott. I'll turn it back.

Speaker #4: Great. Thanks for that color there, Scott. I'll turn it back.

Scott Stauth: Thanks, Dennis.

Speaker #3: Thanks Dennis.

Operator: We have our next question from Patrick O'Rourke with ATB Cormark.

Speaker #1: We have our next question from Patrick O'Rourke with ATB Cormark.

Patrick O'Rourke: Hey, good morning, guys. Thanks for taking my question and congratulations again on a very strong quarter, particularly in a challenging mining environment. Just wondering, and thinking about upgrader output here. For several quarters in a row, been very consistently above 100%. Where do you feel from a comfort level that, and I know you've got the NAPA addition coming up, but the ability to maybe rerate these assets up a little bit, in terms of capacity and sort of what incremental you could squeeze out there?

Speaker #5: Hey, good morning guys. Thanks for taking my question and congratulations again on a very strong quarter particularly in challenging mining environment. Just wondering and thinking about upgrader output here I mean you know for several quarters in a row been very consistently above 100%.

Speaker #5: Where do you feel from a comfort level that and I know you've got the NAPTHA edition coming up but the ability to maybe re-rate these assets up a little bit in terms of capacity and sort of what incrementally you could squeeze out there?

Scott Stauth: Yeah, Patrick, the way we look at it is we continue to take a view that we're working towards continuous improvement, optimizing the capacity of all the facilities, including the upgraders at our oilsands mining sites. I think it's premature to reassess or rerate the capacity. The teams are still focused on optimization and trying to get incremental creep barrels through the facility, one of which is what you mentioned, the NRUTT project. We continue to work on optimization outside of that as well. I think the important part is, yes, it's a big number. What's really important, though, is the total capacity, the volume that we're putting through there of SCO production. That's really the driving factor.

Speaker #3: Yeah, Patrick. The way we look at it is we continue to take a view that we're working towards continues improvement optimizing the capacity of those all the facilities including the upgraders at our oil sands mining sites and so I think it's premature to reassess or re-rate the capacity the teams are still focused on optimization and trying to get incremental creek barrels through the facility one of which is what you mentioned the NRUTT project but we continue to work on optimization outside of that as well.

Speaker #3: So you know I think the important part is yes it's a big number what's really important though is the total capacity the volume that we're putting through there of SCO production that's really the driving factor whether we're at 100% or 105% I think that's just an outcome of where we're at in terms of our pushing the facilities to ensure that we're maximizing the assets and I think it's just important that we continue to focus on incremental barrels where we can achieve that through tweaking and optimizing and getting creek capacity.

Scott Stauth: Whether we're at 100% or 105%, I think that's just an outcome of where we're at in terms of our pushing the facilities to ensure that we're maximizing the assets. I think it's just important that we continue to focus on incremental barrels, where we can achieve that through tweaking, optimizing, and getting creep capacity. At some point, Patrick, we'll take a look at that, but I think right now it's just important to maintain our focus on optimizing the production.

Speaker #3: So at some point Patrick we'll take a look at that but I think right now it's just important to maintain our focus on optimizing the production.

Patrick O'Rourke: Okay, great. This is probably a bit of a bigger strategic question, but you referenced the trilateral MoU here. Thinking in the context, and I know it's a big if, but if it does meet your expectations for an economic and a fiscal framework, and I know there's also commodity market conditions and economic conditions out there to keep in perspective. Given the state of readiness that you've showed with the growth projects that you have in the queue here, particularly the medium and longer term ones. If that formal agreement meets your expectations, what's the sort of path forward in terms of timeframes around FID and progressing with growth?

Speaker #5: Okay, great. And this is probably a bit of a bigger strategic question but you referenced the trilateral MOU here. Thinking in the context and I know it's a big if but if it does meet your expectations for an economic and a fiscal framework and I know there's also you know commodity market conditions and economic conditions out there to keep in perspective but given the state of readiness that you showed with the growth projects that you have in the queue here particularly the medium and longer term ones if that formal agreement meets your expectations what's the sort of path forward in terms of time frames around FID and progressing with growth?

Scott Stauth: Yeah, Patrick. I think the focus right now on getting through the definitive agreements is really important and very strategic for us. We want to ensure that all the details in the definitive agreements are aligned with the concepts of the MoU, as those concepts that we had in the MoU are critical in terms of importance for us for looking at future growth. When you look at our projects that we have talked about at our open house and in subsequent calls, we would look to deploy that capital under the right conditions, according to our holistic view on capital allocation to ensure that we're looking at growth, we're not sacrificing shareholder returns, and we're not laying long-term projects over top of medium-term projects in such a way that it presses hard on the capital. We're very cognizant of that and very focused on that, Patrick.

Speaker #3: Yeah, Patrick. You know I think the focus right now on getting through the definitive agreements is really important and very strategic for us. We want to ensure that those all the details in the definitive agreements are reliant are aligned with the concepts of the MOU as those concepts that we had in the MOU are critical in terms of you know importance for us for looking at future growth.

Speaker #3: So when you look at our projects that we have talked about at our open house and in subsequent calls you know we would look to deploy that capital under the right conditions according to our holistic view of capital allocation to ensure that we're looking at growth we're not sacrificing shareholder returns and we're not laying long-term projects over top of medium-term projects in such a way that it presses hard on the capital.

Speaker #3: So we're very cognizant of that, very focused on that, Patrick.

Patrick O'Rourke: Okay. Thank you very much.

Speaker #5: Okay, thank you very much.

Operator: Thank you. Our next question is from Menno Hulshof with TD Cowen.

Speaker #1: Thank you. Our next question is from Menno Hillseth with TD Cowan.

Menno Hulshof: Thanks. Good morning, everyone. I'll start with a question on SCO pricing. It ties a bit into what you were chatting about with Patrick. Clearly, the premium to WTI was really big in Q2, There does seem to be a lot of day-to-day volatility, and I always struggle with the fundamentals in terms of what I'm seeing versus how synthetic actually trades. My high-level question is, what are you currently seeing in terms of supply-demand fundamentals for SCO, and what is a reasonable expectation for that premium through the end of the year?

Speaker #6: Thanks and good morning everyone. I'll start with a question on SCO pricing. It ties a bit into what you were chatting about with Patrick.

Speaker #6: Clearly the premium to WTI was really big in the second quarter but there does seem to be a lot of day-to-day volatility and I always struggle with the fundamentals on certain in terms of what I'm seeing versus how synthetic actually trades.

Speaker #6: So my high-level question is like what are you currently seeing in terms of supply demand fundamentals for SCO and what is a reasonable expectation for that premium through the end of the year?

Scott Stauth: Yeah. Menno, your view on that is probably as accurate or maybe more accurate than ours would be on that, and it's really dependent upon the draw for diesel production. We're seeing strong diesel production across North America and elsewhere. I think we're going to see at par or slightly uptick pricing as we go forward through the rest of the year here. Really, if you look at the forward curves for WTI, if you apply and you think about how diesel production, the economy's still strong, lots of requirements for fuel supply, I would suggest that we'll probably be at par or slightly better than WTI by a few CAD per barrel. I see that go forward basis. Right now, it's difficult to take the end of that.

Speaker #3: Yeah, you know Menno, your view on that is probably as accurate or maybe more accurate than ours would be on that. And it's really dependent upon the draw for diesel production and we're seeing you know strong diesel production across North America and elsewhere so I think we're going to see you know at par or slightly upticked pricing as we go forward through the rest of the year here.

Speaker #3: And really if you look at the if you look at the forward curve for WTI and if you apply and you think about how diesel production economy still strong lots of requirements for fuel supply I would suggest that we'll probably be at par or yeah slightly better than WTI but if you dollars per barrel and I see that go forward basis right now it's difficult to pick the end of that but even at that Menno, I think it's it bodes to the resilience of SCO pricing because if you look historically SCO pricing has been averaged pretty much on par with WTI and the fact that we have 600,000 barrels of that production is very significant to the company whether it's at par to WTI or you know even in that it benefit if it's at a premium to that.

Scott Stauth: Even at that, Menno, I think it bodes to the resilience of SCO pricing because if you look historically, SCO pricing has averaged pretty much on par with WTI. The fact that we have 600,000 barrels of that production is very significant to the company, whether it's at par to WTI or even an added benefit if it's at a premium to that. We'll see how things go as we go forward here.

Speaker #3: So we'll see how things go as we go forward here.

Menno Hulshof: Okay. Thanks, Scott. That's helpful. My second question is on M&A and recent acquisitions in the Peace River, more specifically. It's a multi-part question. What is drawing you to that area? Are there unique attributes that CNQ brings to the table in terms of integration synergies on the acquired assets? Are you seeing meaningful opportunities to further consolidate in that region?

Speaker #6: Okay, thanks Scott. That's helpful. And then my second question is on M&A and recent acquisitions in the Peace River. More specifically so it's a multi-part question.

Speaker #6: What is drawing you to that area? Are there unique attributes that C&Q brings to the table in terms of integration synergies on the acquired assets?

Speaker #6: And are you seeing meaningful opportunities to further consolidate in that region?

Scott Stauth: I think if you look at what we've done there thus far, increasing our position in the Charter Lake, we are capturing the synergies of size and infrastructure in areas with a focus on reducing the operating cost. You wouldn't have otherwise gotten that with the three producers in the area. Through the consolidation of that, we can see a focus on achieving targeted operating cost in the range of 10% or more. We're really focused on maximizing the liquids production from those assets. There's been a real significant focus on that. Of course, because we're able to utilize our teams and our knowledge in the area from what we've learned in the past, we think it'll help us reduce the drilling and completions costs as we go forward.

Speaker #3: I think if you look at what we've done there thus far increasing our position in the charter lake we are capturing the synergies of size and infrastructure and there's areas with focus on reducing the operating cost and you wouldn't have otherwise gotten that with the three producers in the area.

Speaker #3: So through the consolidation of that you know we can see a focus on achieving targeted operating cost in the range of 10% or more we're really focused on maximizing the liquids production from those assets.

Speaker #3: So there's been a real significant focus on that and of course because we're able to utilize our teams and our knowledge in the area from you know from what we learned in the past we think we're going to help us it'll help us reduce the drilling and completions costs as we go forward and there will also be some opportunities for some multi-lat drilling which has been a bit sparse thus far in the charter lake.

Scott Stauth: There will also be some opportunities for some multi-lateraling, which has been a bit sparse thus far in the Charter Lake. There's upside in those acquisitions. I would argue, Menno, that those acquisitions, similar to other acquisitions that we continued to do in the past, we really look at the synergies of having the size and scale and being able to optimize the performance of the area and reduce the operating cost. Adds value to our shareholders and cash flow.

Speaker #3: So there's upside in those acquisitions and. But I would argue Menno that the those acquisitions similar to other acquisitions that we continue to do on the past we really look at the synergies of having size and scale and being able to optimize the performance of the area and reduce the operating cost as value to our shareholders and cash flow.

Menno Hulshof: Okay. Thanks, Scott. I'll turn it back.

Speaker #6: Okay, thanks Scott. I'll turn it back.

Operator: Thank you. Our next question is from Neil Mehta with Goldman Sachs.

Speaker #1: Thank you. Our next question is from Neil Matha with Goldman Sachs.

Neil Mehta: Yeah. Thanks, team. Congrats on a really good quarter here. One macro, one micro question. I guess the macro question is the trilateral MoU. Just your perspective about what are the gating factors to ultimately improving egress and getting pipe built in the region and just how big of a deal is this for the industry, and what is the biggest risk for this to ultimately translate into improved outcomes?

Speaker #4: Yeah, thanks Tim. Congrats on a really good quarter here. One macro, one micro question. I guess the macro question is the trilateral MOU. And just your perspective of what are the sort of the gating factors to ultimately improving egress and getting pipe built in the region and you know just how big of a deal is this for the industry and what is the biggest risk for this to ultimately translate into improved outcomes?

Scott Stauth: Yeah. Well, Neil, I think it's transformative for Canada and certainly for the oil sands industry. When you look at the opportunity for egress to the West Coast and when you think about the opportunity to broaden that customer base and help stronger overall differential pricing, I think that is very significant in and of itself. The fact that the Pathways Alliance would be able to capture significant greenhouse gas emissions and achieve production growth opportunities, I think is really significant for all of Canada, all Canadians. Well-paying jobs will be created, increased royalties, increased taxes. From a Canadian perspective and prosperity, it's a very important overall project. In terms of the details within the MoU, I'm sure you've read through the MoU.

Speaker #3: Yeah, well Neil I think it's transformative for Canada and certainly for the oil sense industry when you look at the opportunity for egress to the West Coast and when you think about the opportunity to broaden that customer base and help stronger overall differential pricing I think that is very very significant in of itself the fact that the pathways project would be able to capture significant greenhouse gas emissions and achieve production growth opportunities I think is really really significant for all of Canada all Canadians well-paying jobs will be created increased royalties increased taxes so from a Canadian perspective prosperity it's a very very important overall project in terms of the details within the MOU I'm sure you've read through the MOU we're really just looking to nail down through the definitive agreements so we have assurances that all the things that we had in the MOU will work themselves through for signatures to be completed on the definitive agreements and you know with that I think it presents a great opportunity for all oil sense players including Canadian natural and certainly a very significant opportunity for Alberta and all of Canada so there's fiscal components there's regulatory components all of which are extremely important to ensure that we get this right and it fits the bill and really.

Scott Stauth: We're really just looking to nail down through the definitive agreement so we have assurances that all the things that we had in the MoU will work themselves through for signatures to be completed on the definitive agreements. With that, I think it presents a great opportunity for all oil sands players, including Canadian Natural, and certainly a very significant opportunity for Alberta and all of Canada. There's fiscal components, there's regulatory components, all of which are extremely important to ensure that we get this right and it fits the bill and really transitions Canada from a country where we've been somewhat, I'll say, stagnant in growth position to a country that has a real significant opportunity here to be an energy superpower.

Speaker #3: Transitions Canada from a country where we've been somewhat I'll say at stagnant in growth position to a country that has a real significant opportunity here to be an energy superpower.

Neil Mehta: Well, thanks. I appreciate it. I know the industry was instrumental in helping to craft this. My follow-up is just on leverage. You made a lot of progress on long-term debt from CAD 16.2 billion down to CAD 14.5 billion. You are inching closer to the CAD 13 billion goal. As you look at the forward curves, when do you think you get there? When you get there, what does that unlock for you guys?

Speaker #4: Well thanks. I appreciate it. I know the industry was instrumental in helping to craft this. My follow-up is just on leverage. You've got you made a lot of progress on long-term debt from 16.2 down to 14.5.

Speaker #4: You're inching closer to 13 billion dollar goal. I mean as you look at the forward curves when do you think you get there and when you get there what is that unlock for you guys?

Victor Darel: This is Victor. I will jump in on this one. To your point, pricing has been very strong and of course, net debt levels have come down as you highlight there about CAD 1.6 billion in the quarter alone. Pricing has moved around a lot as you know, from day to day, the number moves around in terms of when we would get there. Right now, I would say we target getting there in early 2026 based on pricing today.

Speaker #3: Oh this is Victor I'll jump in on this one to your point pricing has been very strong and of course net debt levels have come down as you highlight there about 1.6 billion in the quarter alone pricing has moved around a lot as you know from day to day the number moves around in terms of when we'd get there right now I'd say we target getting there in early 26 based on pricing today for 27 I should say and you know when we get there as you know we target to get to 100% of free cash flow under the share buyback program that's very important to us so that's what we're looking at right now.

Neil Mehta: '27.

Victor Darel: Or 2027, I should say. When we get there, as you know, we target to get to 100% of free cash flow under the share buyback program. That is very important to us. That is what we are looking at right now.

Neil Mehta: Okay. Thanks guys.

Scott Stauth: I'd tell Neil that we have our turnaround in Q3 and into early Q4 of this year as well. Keep that in mind.

Speaker #4: Perfect.

Speaker #3: Thanks Neil that we have our turnaround in Q3 and into early Q4 of this year as well so keep that in mind.

Neil Mehta: Okay. That's helpful. Thanks, guys.

Speaker #4: Okay that's helpful. Thanks guys.

Operator: Thank you. As a reminder, if you have a question, please press star then one. We have no further questions. I will now turn the call over to Lance Casson for closing remarks.

Speaker #1: Thank you. As a reminder if you have a question please press star then one. We have no further to Lance Casson for closing remarks.

Lance Casson: Thank you, operator, and thanks for everyone for joining the call this morning. If you have any questions, please don't hesitate to call. Have a great day.

Speaker #3: Thank you operator and thanks for everyone for joining the call this morning. If you have any questions please don't hesitate to call. Have a great day.

Operator: Ladies and gentlemen, this concludes today's conference call. We thank you for your participation. You may now disconnect.