Canadian Natural Resources Limited (NYSE:CNQ) Q3 2023 Earnings Call Transcript
Canadian Natural Resources Limited (NYSE:CNQ) Q3 2023 Earnings Call Transcript November 2, 2023
Canadian Natural Resources Limited beats earnings expectations. Reported EPS is $2.59, expectations were $1.62.
Operator: Good morning. We would like to welcome everyone to the Canadian Natural Resources 2023 Third Quarter Earnings Conference Call and Webcast. After the presentation, we will conduct the question-and-answer session. Instructions will be given at that time. Please note that this call is being recorded today, November 2nd, 2023 at 9:00 a.m. Mountain Time. I would now like to turn the meeting over to your host for today's call, Lance Casson, Manager of Investor Relations. Please go ahead.
Lance Casson: Good morning everyone, and thank you for joining Canadian Natural's third quarter 2023 earnings conference call. As always, before we begin, I'd like to remind you of our forward-looking statements and it should be noted that in our reporting disclosures, everything is in Canadian dollars, unless otherwise stated, and we report our reserves and production before royalties. Additionally, I would suggest you review our comments on non-GAAP disclosures in our financial statements. Speaking on today's call will be Tim McKay, our President; and Mark Stainthorpe, our Chief Financial Officer. Tim will first speak to how strong execution has resulted in record quarterly production, and he will provide additional specifics on our safe, reliable, and world-class operations.
Mark will then summarize our strong financial results, including significant free cash flow generation and increasing shareholder returns. To close, Tim will summarize our call prior to opening up the line for questions. With that, I'll turn it over to you, Tim.
Tim McKay: Thank you, Lance. Good morning everyone. In the third quarter, we achieved record quarterly production of approximately 1.39 million BOEs per day, which included both record liquid production at approximately 1,035,000 barrels a day, and natural gas production at approximately 2.15 Bcf a day as a result of effective and efficient operations across all our assets. This combined with our diverse product mix, we generated significant free cash flow, resulting in more shareholder returns through our sustainable, growing dividends, and significant share repurchases. As well, Canadian Natural continues to be a leader in environmental, social, and governance, and has made it a priority to work collaboratively with industry peers and governments to achieve meaningful GHG emission reduction in support of both Alberta and Canada's climate goals through our participation in the Pathways Alliance.
As we move forward to lower our carbon emissions, with our target to reduce the absolute Scope 1, Scope 2 emissions by 40% by 2035 from our 2020 baseline on our journey to achieve our goal of net-zero GHG emissions in the oil sands by 2050. I'll now do a brief overview of the assets, starting with natural gas. Overall, Q3 natural gas production was a record at 2.15 Bcf a day, which was higher than Q3 2022 production. From North American operations, Q3 2023 natural gas production was also a record at approximately 2.14 Bcf a day versus Q3 2022. As well, we added volumes through our drill-to-fill strategy, adding low-cost, high-value liquids-rich production across the asset. During the quarter, the company drilled 10 net wells, all meeting expectations.
Our North American Q3 natural gas operating cost was $1.22 per Mcf, a decrease of 8% compared to Q3 2022, an increase of 8% compared to Q3 2022 of $1.13, primarily due to higher service costs. Our teams will continue to focus on effective and efficient operations and cost control across all areas. For North American light oil and NGL Q3 production was approximately 109,000 barrels a day, comparable to Q3 2022 of 109,252 barrels a day. Q3 operating costs were $15.49 per barrel, a decrease of 7% from Q3 2022 operating costs of $16.68 per barrel, primarily due to lower power costs in the quarter. Our international assets in Q3 had oil production of 24,719 barrels a day, which is comparable to Q3 2022 levels of 24,493 barrels a day. Our international assets continue to generate good cash flow as we progress towards decommissioning of the Ninian assets.
Moving to heavy oil, heavy oil production was 76,377 barrels a day in Q3 2023, up 11% from Q3 2022 operation of 68,933 barrels a day, primarily due to increased drilling activity, strong drilling results offsetting natural field declines. Operating costs in Q3 2023 were at $19.68 per barrel, down 8% compared to our Q3 2022 operating costs of $21.30 per barrel, primarily reflecting higher volumes in the quarter. During the quarter, the company drilled 34 net heavy oil wells, which were multilateral across our land base from Bonnyville, Lloydminster to Clearwater area with all meeting targeted results. A key component of our long-life, low-decline assets is our world-class Pelican Lake pool, where a leading-edge polymer flood continues to deliver significant value.
Q3 production was 46,897 barrels a day down 6% versus Q3 2022 average of 50,051 barrels per day, reflecting the low decline nature of the property. The polymer injection grades, which were reinstated in February of 2023, have been successful in returning the field back to a more historical decline rate, which was approximately 5%. The team continues to focus on operational excellence and in – with Q3 operating costs of $8.02 per barrel, decreasing 10% from our Q3 2022 operating costs of $8.89, primarily reflecting effective and efficient operations, lower power costs offsetting the lower production volumes. With Pelican Lake low decline and very low operating costs, it continues to generate excellent netback. In our thermal in situ areas in Q3 2023, as a result of strong execution combined with effective and efficient operations, Q3 2023 thermal production was 287,085 barrels a day, up approximately 44,000 barrels a day from Q3 2022 production of 243,393 barrels a day.
Q3 operating costs were $11.47 per barrel, down 27% when compared to Q3 2022 operating costs of $15.63, largely as a result of higher production and lower natural gas fuel costs. At Kirby, current production is approximately 65,000 barrels a day, as the company has grown by approximately 15,000 barrels a day from Q4 2022 level. This significant production growth is due to the development of four SAGD pads, the first which reached full capacity in Q3 2023. The remaining three targets are targeted to ramp up to full production over the next nine months of 2024, at a pace of one pad per quarter, maintaining this production level. At Jackfish, two SAGD pads were drilled in the first half of 2023 with production from these pads targeted to ramp up to full production capacity in Q3 2024 and Q4 2024, supporting continued high utilization.
Oil sands mining, at the company's world-class oil sands mining and upgrading assets, we had Q3 production of averaging 490,853 barrels a day of SCO versus production of 487,553 in Q3 2022 with Q2 – with Q3 operating costs that were $22.12 per barrel versus Q2 – versus Q3 2022 of $22.35 per barrel. The reliability enhancement project continues to move forward, targeting to add approximately 14,000 barrels a day of additional SCO capacity in 2025, as a result of shifting the maintenance schedule from once per year to once every two years, reducing downtime for maintenance activities and increasing overall reliability at Horizon. Also here with me today, as part of our succession plan, I have Scott Stauth, Trevor Cassidy, Jay Froc and Robin Zabek.
As part of my succession, Scott Stauth will be taking over the role of President effective February 28, 2024. Scott and I met a little over 26 years ago, and over the years, Scott has excelled in every role he has had with the company, and I know he will do a great job. Should anyone have any questions for Scott, feel free to ask when we move to the Q&A session. Jay Froc, currently our Senior Vice President of Oil Sands Mining, will replace Scott's previous role as COO of oil sands. As well, in Q4, Trevor Cassidy, after 24 years with Canadian Natural, will be retiring. We wish to thank Trevor for all his contribution over the many years, and Robin Zabek, who has been with the company 20 years and who is currently our Senior VP of Exploitation, will assume the role of COO, Exploration and Production.
I will now turn it over to Mark for a financial review.
Mark Stainthorpe: Thanks, Tim, and good morning everyone. The third quarter of 2023 was a strong financial quarter as we generated adjusted funds flow of $4.7 billion and adjusted debt earnings from operations of $2.9 billion. This was due to strong pricing and good cost control, which contributed to robust netbacks on record quarterly production. Our diversified portfolio, including our long-life, low-decline assets, combined with effective and efficient operations, allowed us to continue to deliver robust returns to shareholders through dividends, repurchasing shares and reducing debt. Year-to-date, up to and including November 1, 2023, we have returned approximately $6.1 billion to shareholders through dividends and share repurchases.
Subsequent to quarter-end, the Board of Directors has approved an 11% increase to our base quarterly dividend to $1 per common share from $0.90 per common share, demonstrating the confidence the Board has in the sustainability of our business model, our strong balance sheet and the strength of our diverse long-life, low-decline reserves and asset base. This dividend increase, combined with the increase in March 2023, results in an 18% increase to $4 per share annually meaning 2024 will be the 24th consecutive year of dividend increases with a compound annual growth rate of 21% over that time. Our financial position is very strong today with debt to EBITDA at 0.7 times at the end of Q3, and we continue to maintain strong liquidity, including revolving bank facilities, cash and short-term investments.
Liquidity at the end of the quarter was approximately $6.1 billion. We target to continue strong operational performance in Q4 2023 and beyond, and based on current strip pricing, we are quickly approaching our net debt level of $10 billion, which we forecast to achieve in Q1 2024, at which time we target to increase returns to shareholders to 100% of free cash flow. When you combine our leading execution with our large, balanced, low-risk, high-value reserves and production, effective and efficient operations, and flexible capital allocation, we are able to generate material free cash flow and deliver strong returns on capital. With that, I'll return it back to you, Tim, for some final comments.
Tim McKay: Thanks Mark. Canadian Natural's advantage is our ability to effectively allocate cash flow to our four pillars. We have a well-balanced, diverse and large asset base, which a significant portion is long-life, low-decline assets, which require less capital to maintain volumes. We are delivering top-tier free cash flow generation, which is unique, sustainable, robust and clearly demonstrates our ability to both economically grow the business and deliver returns to shareholders by balancing our four pillars. With our robust, sustainable free cash flow through our free cash flow allocation policy, returns to shareholders continue to be significant, which includes our growing dividend that will be increased for 24 consecutive years in 2024. In summary, we continue to focus on safe, reliable operations, enhancing our top-tier operations, and we will continue to drive top-tier environmental performance. With that, I will now open it up for questions.
See also Top 20 Most Popular Sandwiches in America and 17 Highest Paying States for Nurses.
To continue reading the Q&A session, please click here.
