Canadian Natural's President, Scott Stauth, commented on the Company's second quarter results, "The strength of our well-balanced and diverse portfolio, combined with Canadian Natural's ability to execute safe, effective and efficient operations, delivered an excellent second quarter. Canadian Natural strategically managed turnaround activities and optimized production resulting in strong Q2/24 volumes of approximately 934,000 bbl/d of liquids and 2.1 Bcf/d of natural gas, totaling 1,286,000 BOE/d, an increase of 8% from Q2/23 levels of 1,194,000 BOE/d. In Q2/24, we delivered strong thermal production of approximately 268,000 bbl/d primarily due to better than expected performance from new pads as well as the early completion of planned turnarounds. At Horizon, we successfully completed the final tie-?ins related to the reliability enhancement project as well as planned turnaround activities. Through optimization efforts, we completed the turnaround at Horizon in 28 days, two days earlier than budgeted.
Subsequent to quarter end we achieved a significant milestone at Horizon in July 2024 with production of the one billionth barrel of bitumen since operations began in 2009. Supporting this milestone is the Company's significant total proved SCO reserves at approximately 6.9 billion barrels with a Reserve Life Index ("RLI") of approximately 44 years as at year end 2023. Also during the month of July 2024, Synthetic Crude Oil ("SCO") production of approximately 500,000 bbl/d was achieved, partially due to strong production at Horizon which is benefiting from the final tie-ins and commissioning of the reliability enhancement project.
The efficient commissioning of the Trans Mountain Expansion ("TMX") pipeline during Q2/24 and the positive impact this incremental egress has on the Canadian economy represents a significant achievement for all Canadians. The impact on the energy industry has been positive with narrowing of heavy oil differentials, improved realized pricing along with the development of a more diverse market for western Canadian crude oil. TMX is a significant accomplishment for Canada, adding much-needed egress capacity and increasing exposure to global market pricing for crude oil products.
Our strong execution, effective and efficient operations, combined with stronger realized prices, drove significant free cash flow during the quarter despite planned turnarounds.
In June 2024, the Canadian Government amended the Competition Act and due to uncertainty on how this new legislation will be interpreted and applied we are unable to provide an environment and climate update at this time. This legislation does not change our commitment to the environment and to ensuring safe, reliable operations, only the way in which we are publicly communicating these important aspects of our business."
Canadian Natural's Chief Financial Officer, Mark Stainthorpe, also added, "In Q2/24, we delivered strong financial results, including adjusted net earnings of approximately $1.9 billion and adjusted funds flow of $3.6 billion, which drove significant returns to shareholders totaling $1.9 billion in the quarter. Our capital program for 2024 remains on target and as per our free cash flow allocation policy, we are returning 100% of free cash flow to shareholders in 2024 and we will continue to manage this allocation on a forward looking annual basis.
Year-to-date up to and including July 31, 2024, we have distributed significant value to shareholders, totaling approximately $4.9 billion, inclusive of our sustainable and growing dividend and share repurchases.
At Canadian Natural, our culture of continuous improvement and employee ownership alignment with shareholders drives our teams to create significant value across all areas of the Company. Our safe, effective and efficient operations combined with flexible capital allocation maximizes value for our shareholders."
The strength of Canadian Natural's long life low decline asset base, supported by safe, effective and efficient operations, makes our business unique, robust and sustainable. In Q2/24, the Company generated strong financial results, including:
Net earnings of approximately $1.7 billion and adjusted net earnings from operations of approximately $1.9 billion.
Cash flows from operating activities of approximately $4.1 billion.
Adjusted funds flow of approximately $3.6 billion.
Canadian Natural continues to maintain a strong balance sheet and financial flexibility, with approximately $6.4 billion in liquidity(1) as at June 30, 2024.
In Q2/24, the Company repaid:
US$0.5 billion of 3.8% debt securities that were due April 15, 2024.
$0.3 billion of 3.55% medium term notes that were due June 3, 2024.
Following shareholder approval in May 2024, Canadian Natural's common shares were subdivided on a two for one basis at market close on June 3, 2024. The Company's common shares commenced trading on a split-adjusted basis on June 11, 2024.
During the second quarter of 2024, the Company sold its 22.6 million common share investment in PrairieSky Royalty Ltd. for $25.65 per common share with net proceeds, after fees and expenses, of $575 million. The proceeds reduce net debt and further strengthen our financial position while maximizing value for shareholders.
Despite the second quarter of each calendar year being a period of high turnaround activity compared to other quarters, Canadian Natural delivered strong quarterly average production in Q2/24 of 1,285,798 BOE/d, an increase of 8% from Q2/23 levels of 1,194,326 BOE/d. Q2/24 consists of total liquids production of 934,066 bbl/d and natural gas production of 2,110 MMcf/d.
The Company's world class Oil Sands Mining and Upgrading assets delivered average production of 410,518 bbl/d of high value SCO in Q2/24, an increase of 16% from Q2/23 levels. The increase in production reflected planned turnaround activities successfully completed ahead of schedule at Horizon, compared to Q2/23 which included planned turnarounds at both Horizon and the non-operated Scotford Upgrader.
During the planned turnaround at Horizon in Q2/24, the Company successfully completed all tie-ins and commissioning of the reliability enhancement project components.
The reliability enhancement project targets to increase the two year average SCO capacity by approximately 14,000 bbl/d by extending the turnaround schedule to once every two years, with 2025 being the first year of operations without a planned turnaround.
Subsequent to quarter end, the Company achieved strong monthly SCO production of approximately 500,000 bbl/?d in July 2024. This was primarily a result of high utilization and effective execution of tie-ins and commissioning associated with the Horizon reliability enhancement project completed in June 2024.
In July 2024, the Company achieved a milestone at Horizon with the production of the one billionth bitumen barrel since operations began in 2009.
Supporting this milestone is the Company's significant total proved SCO reserves at approximately 6.9 billion barrels with an RLI of approximately 44 years as at year end 2023.
Thermal in situ long life low decline production averaged 268,044 bbl/d in Q2/24, an increase of 12% from Q2/23 levels, primarily driven by strong results from Primrose, Kirby and Jackfish pad developments.
At Jackfish, the first of two Steam Assisted Gravity Drainage ("SAGD") pads drilled in 2023 reached full production capacity in Q2/24, slightly ahead of schedule. The second pad is currently producing at full production capacity also ahead of schedule, originally budgeted for Q4/24.
Planned turnarounds at Jackfish and Kirby North facilities were successfully completed ahead of schedule in Q2/24.
Canadian Natural has significant growth opportunities across its asset base, including sustainable production enhancements at its Oil Sands Mining and Upgrading operations.
Near-term projects include the reliability enhancement project at Horizon, completed in Q2/24. Additionally, at the Scotford Upgrader, a debottlenecking project is targeted to be completed during the planned turnaround and targets to add incremental capacity at the Athabasca Oil Sands Project ("AOSP") of approximately 5,600 bbl/?d net to Canadian Natural.
Medium-term projects include the Naphtha Recovery Unit Tailings Treatment ("NRUTT") project at Horizon, which targets to add incremental production of approximately 6,300 bbl/d of SCO.
Long-term projects at our Oil Sands operations include combining In-Pit Extraction Process ("IPEP") and Paraffinic Froth Treatment ("PFT") that have the potential to add approximately 195,000 bbl/d of additional annual bitumen production.
The Company's 2024 development plan has conventional activity strategically weighted to the second half of 2024 to align with increased market egress and improved crude oil pricing, maximizing value for our shareholders. The completion of construction and start-up of the TMX pipeline provides market optionality for all western Canadian crude oil products.
RETURNS TO SHAREHOLDERS
Canadian Natural achieved its $10 billion net debt level at year end 2023 and is returning 100% of free cash flow(1) in 2024 to shareholders, per the Company's free cash flow allocation policy. The Company will manage the allocation of free cash flow on a forward looking annual basis, while managing working capital and cash management as required.
Returns to shareholders in Q2/24 were strong, totaling approximately $1.9 billion, comprised of $1.1 billion of dividends and $0.8 billion through the repurchase and cancellation of approximately 14.8 million common shares at a weighted average price of $51.66 per share, on a split-adjusted basis.
In 2024, up to and including July 31, 2024, the Company has returned a total of approximately $4.9 billion directly to shareholders through $3.3 billion in dividends and $1.6 billion through the repurchase and cancellation of approximately 33.9 million common shares.
Subsequent to quarter end, the Company declared a quarterly cash dividend on its common shares of $0.525 per common share. The quarterly dividend will be payable on October 4, 2024 to shareholders of record at the close of business on September 13, 2024.
The Company has a leading track record of dividend increases, with 2024 being the 24th consecutive year of dividend increases with a compound annual growth rate ("CAGR") of 21% over that time. This demonstrates the confidence that the Board of Directors 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.
OPERATIONS REVIEW AND CAPITAL ALLOCATION
Canadian Natural has a balanced and diverse portfolio of assets, primarily Canadian-based, with international exposure in the UK section of the North Sea and Offshore Africa. Canadian Natural's production is well balanced between light crude oil, medium crude oil, primary heavy crude oil, Pelican Lake heavy crude oil, bitumen (thermal oil) and SCO (herein collectively referred to as "crude oil") and natural gas and NGLs. This balance provides optionality for capital investments, maximizing value for the Company's shareholders.
Underpinning this asset base is the Company's long life low decline production, representing approximately 79% of total budgeted liquids production in 2024, the majority of which is zero decline high value SCO production from the Company's world class Oil Sands Mining and Upgrading assets. The remaining balance of the Company's long life low decline production comes from its top tier thermal in situ oil sands operations and Pelican Lake heavy crude oil assets. The combination of these long life low decline assets, low reserves replacement costs, and effective and efficient operations results in substantial and sustainable adjusted funds flow throughout the commodity price cycle.
In addition, Canadian Natural maintains a substantial inventory of low capital exposure projects within the Company's conventional asset base. These projects can be executed quickly and, in the right economic conditions, provide excellent returns and maximize value for our shareholders. Supporting these projects is the Company's undeveloped land base which enables large, repeatable drilling programs that can be optimized over time. Additionally, Canadian Natural maximizes long-term value by maintaining high ownership and operatorship of its assets and has an extensive infrastructure network, allowing the Company to control the nature, timing and extent of development. Low capital exposure projects can be stopped or started relatively quickly depending upon success, market conditions or corporate needs.
Canadian Natural's balanced portfolio, built with both long life low decline assets and low capital exposure assets, enables effective capital allocation, production growth and value creation.
Canadian Natural drilled a total of 165 net crude oil and natural gas producer wells in the first six months of 2024, consistent with the Company's strategic decision to focus on longer cycle development opportunities in the first half of 2024 and shorter cycle development opportunities in the second half of 2024.
North America Exploration and Production
North America E&P liquids production, excluding thermal in situ, averaged 231,592 bbl/d in Q2/24, an increase of 2% compared to Q2/23 levels, primarily reflecting strong heavy crude oil production offset by natural field declines. As previously outlined in the 2024 budget, the Company has strategically allocated capital for its conventional assets to the latter part of 2024 to better align with incremental market egress, driving strong targeted 2024 exit rates.
Primary heavy crude oil production averaged 79,141 bbl/d in Q2/24, an increase of 3% from Q2/23 levels, reflecting strong results from multilateral wells on the Company's extensive heavy oil landbase in the Mannville and Clearwater fairways, partially offset by natural field declines.
Operating costs(1) in the Company's primary heavy crude oil operations averaged $17.59/bbl (US$12.85/?bbl) in Q2/24, a decrease of 12% from Q2/23 levels, primarily reflecting lower energy costs.
The Company holds the largest heavy oil landbase in Canada. We continue to maximize the value of this premium asset through our multilateral drilling program.
Through continuous improvement, Canadian Natural has increased the average length by 16% of its multilateral heavy oil wells to approximately 9,900 meters in 2024 compared to an average budgeted well length of approximately 8,500 meters, lowering cost per meter and increasing reservoir capture.
As a result of optimized longer well designs and the technical expertise of our teams, average initial peak rates of multilaterals onstream in the first half of 2024 have increased 30% to approximately 230 bbl/d per well compared to budget average initial peak rates of 175 bbl/d per well.
Pelican Lake production averaged 44,839 bbl/d in Q2/24, a decrease of 5% from Q2/23 levels, reflecting low natural field declines from this long life low decline asset.
Operating costs at Pelican Lake averaged $8.92/bbl (US$6.52/bbl) in Q2/24, an increase of 4% compared to Q2/23 levels primarily due to lower production volumes partially offset by lower energy costs.
North America light crude oil and NGLs production averaged 107,612 bbl/d in Q2/24, an increase of 5% from Q2/23 levels. The increase in Q2/24 was a result of strong drilling results and lower Q2/23 production due to wildfires and a third-party pipeline outage.
Operating costs in the Company's North America light crude oil and NGLs operations averaged $13.75/?bbl (US$10.05/bbl) in Q2/24, a decrease of 24% from Q2/23 levels, reflecting increased production volumes and lower energy costs.
North America Natural Gas
Canadian Natural's North America natural gas production averaged 2,099 MMcf/d in Q2/24, comparable to Q2/23 production, primarily reflecting strong results from our Montney and Deep Basin wells offset by natural field declines.
(1) Calculated as production expense divided by respective sales volumes. Natural gas and NGLs production volumes approximate sales volumes.
As previously disclosed, certain natural gas development activity in 2024 was shifted to higher-return multilateral heavy oil wells due to low natural gas prices during the first half of 2024. Concurrently approximately 20 wells of the Company's remaining planned 2024 natural gas wells will be drilled and curtailed.
The Company will maintain optionality to bring on production from these wells in late 2024 or early 2025, to align with improved natural gas prices, maximizing value for shareholders.
Canadian Natural's 2024 corporate annual natural gas production guidance of 2,120 MMcf/d to 2,230 MMcf/d remains unchanged.
Thermal In Situ Oil Sands
Thermal in situ long life low decline production averaged 268,044 bbl/d in Q2/24, an increase of 12% from Q2/23 levels, primarily driven by strong results from Primrose, Kirby and Jackfish pad developments.
Thermal in situ operating costs averaged $10.95/bbl (US$8.00/bbl) in Q2/24, a decrease of 25% from Q2/23 levels, reflecting higher production volumes and lower energy costs.
Planned turnarounds at Jackfish and Kirby North facilities were successfully completed ahead of schedule in Q2/24.
Canadian Natural has decades of strong capital efficient growth opportunities on its long life low decline thermal in situ assets. As per our 2024 budget, we continue to develop these assets in a disciplined manner to deliver safe and reliable thermal in situ production with the following opportunities:
At Jackfish, the first of two SAGD pads drilled in 2023 reached full production capacity in Q2/24, ahead of schedule. The second pad is currently producing at full production capacity also ahead of schedule, originally budgeted for Q4/24. Additionally, the Company is targeting to drill one SAGD pad at Jackfish in the second half of 2024, with production from this pad targeted to come on in Q3/25.
At Primrose, the Company finished drilling one Cyclic Steam Stimulation ("CSS") pad which is targeted to come on production ahead of schedule in late Q4/24, originally targeted for Q2/25. The second pad is currently being drilled and is targeted to come on production in Q2/25. At Wolf Lake, the Company recently drilled one SAGD pad which is targeted to come on production in Q1/25.
Canadian Natural has been piloting solvent enhanced oil recovery technology on certain thermal in situ assets with an objective to increase bitumen production while reducing the Steam to Oil Ratio ("SOR") and optimizing solvent recovery. This technology has the potential for application throughout the Company's extensive thermal in situ asset base.
At Kirby North, the Company began solvent injection in late June 2024. Currently all 8 wells at its commercial scale solvent SAGD pad are targeted to increase solvent injection with subsequent reduction in steam injection over the coming months as the project advances and we continue to monitor solvent recoveries and production trends.
At Primrose, the Company is continuing to use its solvent enhanced oil recovery pilot in the steam flood area to optimize solvent efficiency and to further evaluate this commercial development opportunity.
North America Oil Sands Mining and Upgrading
The Company's world class Oil Sands Mining and Upgrading assets delivered average production of 410,518 bbl/d of high value SCO in Q2/24, an increase of 16% from Q2/23 levels. The increase in production reflected planned turnaround activities successfully completed ahead of schedule at Horizon, compared to Q2/23 which included planned turnarounds at both Horizon and the non-operated Scotford Upgrader.
Oil Sands Mining and Upgrading operating costs are top tier, averaging $25.95/bbl (US$18.96/bbl) in Q2/24, a decrease of 17% from Q2/23 levels, primarily reflecting higher production volumes from reduced planned turnaround activity and lower energy costs.
During the planned turnaround at Horizon in June 2024, the Company successfully completed all tie-ins and commissioning of the reliability enhancement project components.
The reliability enhancement project at Horizon targets to increase the two year average SCO capacity by approximately 14,000 bbl/d by extending the turnaround schedule to once every two years, with 2025 being the first year of operations without a planned turnaround.
Subsequent to quarter end, the Company achieved strong monthly SCO production of approximately 500,000 bbl/d in July 2024. This was primarily a result of high utilization and effective execution of tie-ins and commissioning associated with the Horizon reliability enhancement project completed in June 2024.
In July 2024, the Company achieved a milestone at Horizon with the production of the one billionth barrel of bitumen since operations began in 2009.
Supporting this milestone is the Company's significant total proved SCO reserves at approximately 6.9 billion barrels with an RLI of approximately 44 years as at year end 2023.
At AOSP, due to schedule optimization at the Scotford Upgrader in Q2/24, the planned September 2024 turnaround is now targeted to last 39 days compared to the previous 49 day schedule. During the turnaround, the Scotford Upgrader is expected to run at reduced rates with the impact to annual production targeted to be approximately 9,000 bbl/d, a 2,000 bbl/d improvement compared to budget.
At the Scotford Upgrader, a debottlenecking project is targeted to be completed during the planned turnaround and targets to add incremental capacity at AOSP of approximately 5,600 bbl/?d net to Canadian Natural.
At Horizon, the Company is progressing the NRUTT project which targets to add incremental production of approximately 6,300 bbl/d of SCO following mechanical completion in Q3/27.
International Exploration and Production
Canadian Natural has a balanced and diverse product mix of natural gas, NGLs, heavy crude oil, light crude oil, bitumen and SCO.
WTI prices averaged US$80.55/bbl in Q2/24, an increase of US$6.80/bbl compared to Q2/23, due to continued supply quota management by OPEC+ and geopolitical concerns in the Middle East.
SCO pricing averaged US$83.33/bbl in Q2/24, representing a US$2.78/bbl price premium to WTI, compared to a US$2.92/bbl price premium to WTI in Q2/23.
The WCS differential to WTI averaged US$13.54/bbl, narrowing by US$1.53/bbl in Q2/24, compared to US$15.07/bbl in Q2/23, primarily reflecting the start-up of TMX in Q2/24 and stronger US Gulf Coast heavy oil pricing.
The North West Redwater ("NWR") refinery primarily utilizes bitumen as feedstock, with production of ultra-low sulphur diesel and other refined products averaging 78,272 bbl/d in Q2/24.
AECO natural gas prices in Q2/24 were approximately 39% lower compared to Q2/23 reflecting lower NYMEX benchmark pricing, increased production in the WCSB and higher storage inventories resulting from mild winter weather.
In 2024, the Company is targeting to use the equivalent of approximately 38% of its budgeted natural gas production in its operations, with approximately 25% targeted to be sold at AECO/Station 2 pricing, and approximately 37% targeted to be exported to other North American and international markets capturing higher natural gas prices, maximizing value from its diversified natural gas marketing portfolio.
SUSTAINABILITY HIGHLIGHTS
Canadian Natural's diverse portfolio is supported by a large amount of long life low decline assets which have low risk, high value reserves that require low maintenance capital. This allows us to remain flexible with our capital allocation and creates an ideal opportunity to pilot and apply technologies. Canadian Natural continues to invest in a range of technologies like solvents for enhanced recovery and Carbon Capture, Utilization and Storage ("CCUS") projects. Our culture of continuous improvement provides a significant advantage to delivering on our strategy of investing in technologies across our assets, which will enhance the Company's long-term sustainability.
In June 2024, the Canadian Government amended the Competition Act, resulting in changes to the law around environmental communications. As we look to communicate the important work we are doing to protect the environment or helping to address climate change, there is uncertainty on how this new legislation will be interpreted and applied on a go forward basis. We regret that we are unable to provide an environment and climate update at this time. This legislation does not change our commitment to the environment and to ensuring safe, reliable operations, only the way in which we are publicly communicating these aspects of our business. As we receive additional guidance, we intend to resume environmental and climate-related disclosure.
While we wait for clarity on this legislation, we are proud to share Canadian Natural's performance in governance, workplace and process safety, and our contributions to people, community and partnerships. Today, Canadian Natural released its 2023 Stewardship Report to Stakeholders in conjunction with Q2/24 results, which is now available on the Company's website at www.cnrl.com. This report displays how Canadian Natural continues to focus on safe, reliable, effective and efficient operations while enhancing our world-class assets by innovating and leveraging technology, and driving continuous improvement across our teams. These efforts include building shared value with communities and Indigenous groups in our operating areas.
Highlights from the Company's 2023 report include:
50% reduction in total recordable injury frequency ("TRIF") and an 75% reduction in corporate lost time incident frequency ("LTI") from 2019 to 2023.
$502 million invested in research, technology development and deployment in 2023.
2.7 million tonnes of CO2e per year total carbon capture capacity.
$830 million in contracts secured with Indigenous businesses, a 21% increase from 2022.
Approximately $9 billion in payments to governments and local communities in 2023 through royalties, corporate taxes, property taxes and surface and mineral land leases.
