Canadian Natural's President, Scott Stauth, commented on the Company's third quarter results, "Our unique and diverse asset base provides us with a competitive advantage, as we can allocate capital to the highest return projects without being reliant on any one commodity. Our consistent and top tier results are driven by safe and reliable operations. Our commitment to continuous improvement is supported by a strong team culture in all areas of our company that focus on improving our costs, driving execution of growth opportunities and increasing value to shareholders.
We achieved strong average production of approximately 1,363,000 BOE/d in Q3/24, consisting of 1,022,000 bbl/d of liquids and over 2.0 Bcf/d of natural gas. Our world class Oil Sand Mining and Upgrading assets delivered Q3/24 production of approximately 498,000 bbl/d of long life no decline Synthetic Crude Oil ("SCO"), including record monthly production of approximately 529,000 bbl/d of SCO in August 2024. These assets continue to drive strong operational performance and high utilization rates resulting in top tier quarterly operating costs of $20.67/bbl (US$15.16/bbl) driving significant free cash flow in Q3/24.
Subsequent to quarter end and subject to regulatory approvals, we announced that we have entered into an agreement to acquire Chevron Canada Limited's ("Chevron") 20% interest in the Athabasca Oil Sands Project ("AOSP"), which includes the Muskeg River and Jackpine mines, the Scotford Upgrader and the Quest Carbon Capture and Storage facility. This acquisition will bring Canadian Natural's total working interest in AOSP to 90% and adds approximately 62,500 bbl/d of SCO production, contributing to Canadian Natural's significant sustainable free cash flow generation. The Company also announced that we have entered into an agreement to acquire Chevron's 70% operated working interest of light crude oil and liquids rich assets in the Duvernay play in Alberta. Production from these assets is targeted to average approximately 60,000 BOE/d in 2025, consisting of 179 MMcf/d of natural gas and 30,000 bbl/d of liquids. These Duvernay assets provide the opportunity for robust growth while contributing meaningful free cash flow. Both of these assets are a great fit for Canadian Natural and when combined with our strong operating culture will drive significant value for shareholders."
Canadian Natural's Chief Financial Officer, Mark Stainthorpe, added "In Q3/24, we delivered strong financial results, including adjusted net earnings of approximately $2.1 billion and adjusted funds flow of $3.9 billion, which drove significant returns to shareholders totaling $1.9 billion in the quarter. Year-to-date, up to and including October 30, 2024, we have distributed significant value to shareholders, totaling approximately $6.7 billion, inclusive of our sustainable and growing dividend and share repurchases.
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 $0.5625 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 ("CAGR") of 21% over that time.
This increase in the quarterly dividend demonstrates the confidence that the Board of Directors has in the Company's world class assets and its ability to generate significant and sustainable free cash flow. Our asset base is underpinned 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, flexibility and sustainability, driving strong returns on capital."
HIGHLIGHTS
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 Q3/24, the Company generated strong financial results, including:
Net earnings of approximately $2.3 billion and adjusted net earnings from operations of approximately $2.1 billion.
Cash flows from operating activities of approximately $3.0 billion.
Adjusted funds flow of approximately $3.9 billion.
Canadian Natural continues to maintain a strong balance sheet and financial flexibility, with approximately $6.2 billion in liquidity(1) as at September 30, 2024.
Canadian Natural delivered quarterly average production in Q3/24 of 1,363,086 BOE/d, a decrease of 2% from Q3/23 levels of 1,393,614 BOE/d. Production in Q3/24 consisted of total liquids production of 1,021,572 bbl/d and natural gas production of 2,049 MMcf/d.
The Company's world class Oil Sands Mining and Upgrading assets delivered strong production averaging 497,656 bbl/d of high value SCO in Q3/24, approximately 7,000 bbl/d higher than Q3/23 levels. These quarterly production volumes in Q3/24 included the impacts of planned turnaround activities at the non-operated Scotford Upgrader.
Oil Sands Mining and Upgrading achieved a new monthly production record of approximately 529,000 bbl/d of SCO in August 2024. 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 the planned turnaround in Q2/24.
Oil Sands Mining and Upgrading operating costs continue to be top tier, averaging $20.67/bbl (US$15.16/bbl) in Q3/24, a decrease of 7% from Q3/23 levels, primarily reflecting higher production volumes and lower energy costs.
Due to stronger than budgeted production volumes at the Scotford Upgrader concurrent with reduced duration of the planned turnaround, the annual net production impact to AOSP from these planned turnaround activities was reduced to approximately 5,400 bbl/d, a significant improvement compared to the budgeted annual net production impact of 11,000 bbl/d. The planned turnaround commenced on September 9, 2024 and was successfully completed subsequent to quarter end on October 18, 2024.
Additionally, a debottlenecking project was completed during the planned turnaround at the Scotford Upgrader which increases gross AOSP capacity by approximately 8,000 bbl/d. Upon closing the acquisition of Chevron's 20% interest in AOSP, the capacity net to Canadian Natural increases by approximately 7,200 bbl/d.
Thermal in situ long life low decline production averaged 271,551 bbl/d in Q3/24, a decrease of 5% from Q3/23 levels, primarily due to the cyclical nature of production from Cyclic Steam Stimulation ("CSS") pads at Primrose and natural field declines, partially offset by Steam Assisted Gravity Drainage ("SAGD") pad additions at Kirby and Jackfish.
At Jackfish, the Company achieved record quarterly production of approximately 128,000 bbl/d in Q3/24, primarily due to strong results from pad additions and effective and efficient operations.
At Wolf Lake, the Company recently drilled a SAGD pad which is targeted to come on production in Q4/24 and as a result of strong execution targets to reach full production capacity in Q1/25, one quarter ahead of schedule.
During 2024, the Company has increased its contracted crude oil transportation capacity to 256,500 bbl/d, expanding its committed volumes to Canada's West Coast and to the United States Gulf Coast ("USGC") to approximately 25% of liquids production compared to the mid-point of 2024 corporate annual guidance. The additional egress supports Canadian Natural's long-term sales strategy by targeting expanded refining markets, driving stronger netbacks while also reducing exposure to egress constraints.
Commencing December 1, 2024, the Company will increase its capacity on the Trans Mountain Expansion ("TMX") pipeline by 75,000 bbl/d to a total of 169,000 bbl/?d.
As previously disclosed, the Company increased its capacity on the Flanagan South pipeline in Q1/24 by 55,000 bbl/d to a total of 77,500 bbl/d, further expanding the Company's heavy oil diversification and market access to the USGC.
The Company also has committed volumes of 10,000 bbl/d on the Keystone Base pipeline, with direct access to the USGC.
Subsequent to quarter end, Canadian Natural announced that it entered into an agreement to acquire Chevron's 20% interest in AOSP, which includes the Muskeg River and Jackpine mines, the Scotford Upgrader and the Quest Carbon Capture and Storage facility. Concurrently, the Company also entered into an agreement to acquire Chevron's 70% operated working interest in light crude oil and liquids rich assets in the Duvernay play in Alberta. Both of these acquisitions are targeted to contribute significant additional free cash flow to the Company.
The AOSP acquisition brings Canadian Natural's total working interest in AOSP to 90%, adding approximately 62,500 bbl/d of long life no decline SCO production to our portfolio.
Production net to Canadian Natural from the Duvernay assets is targeted to average approximately 60,000 BOE/d in 2025.
The effective date for these acquisitions is September 1, 2024 and is targeted to close in Q4/24.
RETURNS TO SHAREHOLDERS
Returns to shareholders in Q3/24 were strong, totaling approximately $1.9 billion, comprised of $1.12 billion of dividends and $0.74 billion through the repurchase and cancellation of approximately 15.6 million common shares at a weighted average price of $47.70 per share.
Year to date in 2024, up to and including October 30, 2024, the Company has returned a total of approximately $6.7 billion directly to shareholders through $4.4 billion in dividends and $2.3 billion through the repurchase and cancellation of approximately 47.6 million common shares.
Free cash flow is defined as adjusted funds flow, less capital and dividends. 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. As previously disclosed on October 7, 2024 and subsequent to quarter end, the Board of Directors has adjusted the free cash flow allocation policy which will now be allocated as follows:
60% of free cash flow to shareholder returns and 40% to the balance sheet until net debt reaches $15 billion.
When net debt is between $12 billion and $15 billion, free cash flow allocation will be 75% to shareholder returns and 25% to the balance sheet.
When net debt is at or below $12 billion, up from the current target of $10 billion, free cash flow allocation will be 100% to shareholder returns.
Post closing of the acquisitions previously disclosed on October 7, 2024, the Company will target to allocate 60% of free cash flow to shareholders. In a US$70/?bbl WTI environment this change in free cash flow distribution to 60% allocation to shareholders targets to be approximately the equivalent absolute return to shareholders, including dividends, of what was targeted under the 100% of free cash flow allocation to shareholders existing prior to the acquisitions. Due to the additional free cash flow generation from the acquired assets, the Company's balance sheet strengthens quickly. Over time, the acquisitions and the new free cash flow allocation policy will provide additional free cash flow returns to shareholders exceeding what would have been returned under the current 100% distribution of free cash flow to shareholders.
As previously disclosed on October 7, 2024 and subsequent to quarter end, the Board of Directors has agreed to increase the quarterly cash dividend by 7% to $0.5625 per common share, an increase from $0.525 per common share. The dividend will be payable on January 3, 2025 to shareholders of record at the close of business on December 13, 2024. This will mark 2025 as the 25th consecutive year of dividend increases by Canadian Natural, with a CAGR of 21% over that time.
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 landbase 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, 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.
Drilling Activity
Canadian Natural drilled a total of 273 net crude oil and natural gas producer wells in the first nine months of 2024, consistent with the Company's strategic decision to focus on longer cycle development opportunities in the first half of 2024. Canadian Natural has strategically allocated capital to its conventional heavy crude oil assets in the second half of 2024.
In Q1/24, the Company disclosed the reallocation of capital from certain dry natural gas development activity to multilateral heavy crude oil wells.>
Due to low natural gas prices in 2024, the Company has further reduced dry natural gas drilling activity. Canadian Natural now targets to drill a total of 74 net natural gas wells in 2024, 17 fewer wells than targeted in the original 2024 budget.
North America Exploration and Production
Crude oil and NGLs - excluding Thermal In Situ Oil Sands
North America E&P liquids production, excluding thermal in situ, averaged 228,221 bbl/d in Q3/24, comparable to Q3/23 levels, reflecting primary heavy crude oil development activity offset by natural field declines. The Company has strategically allocated capital to its conventional heavy crude oil assets in the second half of 2024.
Primary heavy crude oil production averaged 76,808 bbl/d in Q3/24, a 1% increase from Q3/23 levels due to strong drilling results from the Company's multilateral well program offset by natural field declines.
Operating costs(1) in the Company's primary heavy crude oil operations averaged $18.69/bbl (US$13.70/?bbl) in Q3/24, a decrease of 5% from Q3/23 levels, primarily reflecting lower energy costs.
The Company operates the largest heavy crude oil landbase in Canada. We continue to maximize the value of this premium asset through our multilateral drilling program. As a result of optimized longer well designs and the technical expertise of our teams, the Company continued to deliver strong results in Q3/24.
In the first nine months of 2024, the company drilled 76 net multilateral wells, maintaining top tier average initial peak rates of approximately 230 bbl/d per well, an increase of approximately 30% compared to budget average initial peak rates of 175 bbl/d per well.
Pelican Lake production averaged 45,101 bbl/d in Q3/24, a decrease of 4% from Q3/23 levels, reflecting low natural field declines from this long life low decline asset.
Operating costs at Pelican Lake averaged $8.74/bbl (US$6.41/bbl) in Q3/24, an increase of 9% compared to Q3/23 levels, primarily due to higher maintenance activities in the quarter partially offset by lower energy costs.
North America light crude oil and NGLs production averaged 106,312 bbl/d in Q3/24, a decrease of 3% from Q3/23 levels. The decrease was primarily the result of temporary processing facility outages and rail transportation restrictions offset by strong drilling results.
Operating costs in the Company's North America light crude oil and NGLs operations averaged $13.73/?bbl (US$10.07/bbl) in Q3/24, a decrease of 11% from Q3/23 levels, primarily reflecting lower energy costs.
North America Natural Gas
Canadian Natural's North America natural gas production averaged 2,039 MMcf/d in Q3/24, a decrease of 5% compared to Q3/23, primarily reflecting previously announced deferrals of natural gas well onstream timing in response to natural gas pricing, the impacts of heat and wildfires conditions in Q3/24 and natural field declines. This decrease in production was partially offset by strong results from our Montney and Deep Basin wells.
North America natural gas operating costs averaged $1.23/Mcf in Q3/24, comparable to Q3/23 levels.
(1) Calculated as production expense divided by respective sales volumes. Natural gas and NGLs production volumes approximate sales volumes.
In Q1/24, the Company disclosed the reallocation of capital from certain dry natural gas development activity to multilateral heavy oil wells.
Due to continued low natural gas prices in 2024, the Company is further reducing dry natural gas drilling capital. Canadian Natural now targets drilling a total of 74 net natural gas wells in 2024, 17 fewer wells than targeted in the original 2024 budget.
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 271,551 bbl/d in Q3/24, a decrease of 5% from Q3/23 levels, primarily due to the cyclical nature of production from CSS pads at Primrose and natural field declines, partially offset by thermal SAGD pad additions at Kirby and Jackfish.
Thermal in situ operating costs were strong, averaging $10.52/bbl (US$7.71/bbl) in Q3/24, a decrease of 8% from Q3/23 levels, primarily reflecting lower energy costs.
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 including the following updates:
At Jackfish, the Company achieved record quarterly production of approximately 128,000 bbl/d in Q3/24, primarily due to strong results from pad additions and effective and efficient operations. Additionally, the Company is currently drilling a SAGD pad at Jackfish with production from this pad targeted to come on in Q3/25.
At Wolf Lake, the Company recently drilled a SAGD pad which is targeted to come on production in Q4/24 and as a result of strong execution will reach full production capacity in Q1/25, one quarter ahead of schedule.
At Primrose, the Company targets to bring a CSS pad on production ahead of schedule in Q4/24, originally targeted for Q2/25. A second CSS pad has been drilled and is targeted to come on production ahead of schedule in Q1/25, originally budgeted for Q2/25.
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 the Company's commercial scale solvent SAGD pad at Kirby North, we began solvent injection in June 2024 and all 8 wells are now injecting solvent. Early results have been positive with SOR reductions of approximately 30%, trending towards a targeted reduction of 40% to 50%. Solvent recoveries are in excess of 85% and are meeting expectations. As the project advances, the Company will continue to monitor SORs, solvent recovery and production trends.
At Primrose, the Company is continuing to operate 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 strong production averaging 497,656 bbl/d of high value SCO in Q3/24, approximately 7,000 bbl/d higher than Q3/23 levels. These quarterly production volumes in Q3/24 included the impacts of planned turnaround activities at the non-operated Scotford Upgrader.
Oil Sands Mining and Upgrading achieved a new monthly production record of approximately 529,000 bbl/d of SCO in August 2024. 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 the planned turnaround in Q2/24.
Oil Sands Mining and Upgrading operating costs continue to be top tier, averaging $20.67/bbl (US$15.16/bbl) in Q3/24, a decrease of 7% from Q3/23 levels, primarily reflecting higher production volumes and lower energy costs.
Due to stronger than budgeted production volumes at the Scotford Upgrader concurrent with reduced duration of the planned turnaround, the annual net production impact to AOSP from these planned turnaround activities was reduced to approximately 5,400 bbl/d, a significant improvement compared to the budgeted annual net production impact of 11,000 bbl/d. The planned turnaround commenced on September 9, 2024 and was successfully completed subsequent to quarter end on October 18, 2024.
Additionally, a debottlenecking project was completed during the planned turnaround at the Scotford Upgrader which increases gross AOSP capacity by approximately 8,000 bbl/d. Upon closing the acquisition of Chevron's 20% interest in AOSP, the capacity net to Canadian Natural increases to approximately 7,200 bbl/d.
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
International E&P crude oil production volumes averaged 24,144 bbl/d in Q3/24, comparable to Q3/23 levels.
MARKETING
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$75.16/bbl in Q3/24, a decrease of US$7.02/bbl compared to Q3/23, primarily reflecting weaker global demand concerns.
SCO pricing averaged US$76.51/bbl in Q3/24, representing a US$1.35/bbl price premium to WTI, compared to a US$2.81/bbl price premium to WTI in Q3/23.
The WCS differential to WTI averaged US$13.51/bbl, widening by US$0.65/bbl in Q3/24, compared to US$12.86/bbl in Q3/23, primarily reflecting lower heavy crude oil demand as a result of planned and unplanned outages at two US mid-west refineries.
The North West Redwater ("NWR") refinery primarily utilizes bitumen as feedstock, with production of ultra-low sulphur diesel and other refined products averaging 72,109 bbl/d in Q3/24.
During 2024, the Company has increased its contracted crude oil transportation capacity to 256,500 bbl/d, expanding its committed volumes to Canada's West Coast and to the USGC to approximately 25% of liquids production compared to the mid-point of 2024 corporate annual guidance. The additional egress supports Canadian Natural's long-term sales strategy by targeting expanded refining markets, driving stronger netbacks while also reducing exposure to egress constraints.
Commencing December 1, 2024, the Company will increase its capacity on the TMX pipeline by 75,000 bbl/d to a total of 169,000 bbl/?d.
As previously disclosed, the Company increased its capacity on the Flanagan South pipeline in Q1/24 by 55,000 bbl/d to a total of 77,500 bbl/d, further expanding the Company's heavy oil diversification and market access to the USGC.
The Company also has committed volumes of 10,000 bbl/d on the Keystone Base pipeline, with direct access to the USGC.
AECO natural gas prices averaged $0.77/GJ in Q3/24, significantly lower compared to Q3/23 primarily reflecting lower NYMEX benchmark pricing, combined with high storage inventories resulting from weaker demand and increased production levels in the Western Canadian Sedimentary Basin ("WCSB").
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. Our 2023 Stewardship Report to Stakeholders, which can be found at www.cnrl.com, 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 a 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.
