Canadian Natural Resources Limited Announces 2024 First Quarter Results

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Insights

Canadian Natural Resources Limited's commitment to return 100% of its free cash flow to shareholders is a signal to the market of strong financial health and confidence in their operations. From an investment perspective, the adjusted net earnings of approximately $1.5 billion and adjusted funds flow of $3.1 billion for the first quarter of 2024 are robust indicators of the company's profitability. The strategic allocation of capital towards longer and shorter cycle projects, aligning with market conditions, suggests a well-thought-out plan for sustainable growth. Reducing the turnaround time at the Horizon site not only improves production rates but also demonstrates operational efficiency. The forward-looking statements on oil price forecasts, coupled with a focus on environmental sustainability, create an attractive narrative for investors who value both growth and corporate responsibility.

Canadian Natural Resources Limited's emphasis on reducing its environmental footprint aligns with a growing investor demand for sustainable and responsible energy production. The commitment to achieving net zero greenhouse gas emissions for the oil sands by 2050 and the collaboration with the Pathways Alliance, are significant in positioning the company ahead in the industry's transition to cleaner energy. Investors interested in long-term environmental sustainability might consider these initiatives as enhancing the company's reputation and potentially reducing regulatory and environmental risks. Such proactive measures in environmental management can become a differentiating factor and contribute to the long-term valuation of the company.

05/02/2024 - 05:00 AM

Calgary, Alberta--(Newsfile Corp. - May 2, 2024) - Canadian Natural's (TSX: CNQ) (NYSE: CNQ) President, Scott Stauth, commented on the Company's first quarter results, "Canadian Natural is a world class company and during our 35 years of operations, we've delivered significant value, including recently reaching a position where, commencing in 2024, we are returning 100% of our free cash flow to our shareholders. Crude oil price forecasts have strengthened for the remainder of 2024, including improvements in West Texas Intermediate ("WTI"), Western Canadian Select ("WCS") and Synthetic Crude Oil ("SCO") pricing over those prices experienced in the first quarter of 2024, driving significant targeted free cash flow generation going forward.

Canadian Natural's large, unique and diversified asset base provides a key competitive advantage enabling us to effectively allocate capital across our asset base and manage the pace and timing of development activities, maximizing value for our shareholders. We are executing on our 2024 plan which is strategically weighted to longer cycle thermal development projects in the first half of the year and shorter cycle growth projects in the second half of the year, which aligns with increased market egress and improved forward strip crude oil pricing. As a result, we target to finish the year with strong exit rates as conventional activity ramps up in the second half of the year.

In Oil Sands Mining and Upgrading, at the Horizon site, we are well prepared for 2024 turnaround activity and final tie ins of the reliability enhancement project in the second quarter of the year which will be followed by targeted strong production in the second half of the year with high upgrader utilization. Through optimization efforts and early turnaround work done in early 2024, we have reduced the Horizon turnaround to 28 days from 30 days and improved the commissioning schedule for the reliability enhancement project. These optimizations will advance and shorten commissioning timing after the turnaround to support high targeted utilization and production rates in the second half of the year.

We have a defined path to reduce our environmental footprint and continue delivering sustainable, responsibly produced energy that the world needs. We are committed to supporting Canada's and Alberta's climate goals and have robust environmental targets, including net zero greenhouse gas ("GHG") emissions for the oil sands by 2050. We are uniquely positioned with diverse, long life low decline assets, which are ideal for applying GHG reduction technologies and providing industry leading environmental performance. It is important to continue working together with the Canadian and Alberta governments to make the Pathways Alliance a transformative industry collaboration and achieve meaningful GHG reductions in Canada. We believe Canadian energy is one of the most responsibly produced sources of energy in the world and should be the preferred energy choice."

Canadian Natural's Chief Financial Officer, Mark Stainthorpe, also added, "In Q1/24, we delivered strong financial results, including adjusted net earnings of approximately $1.5 billion and adjusted funds flow of $3.1 billion, which drove significant returns to shareholders totaling $1.7 billion in the quarter. Commencing in 2024, we are returning 100% of free cash flow to shareholders, as per our free cash flow allocation policy, and continue to manage the allocation on a forward looking annual basis.

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 effective and efficient operations combined with our flexible capital allocation maximizes value for our shareholders."

HIGHLIGHTS

			Three Months Ended
($ millions, except per common share amounts)			Mar 31 2024		Dec 31 2023		Mar 31 2023
Net earnings		$	987	$	2,627	$	1,799
Per common share	- basic	$	0.92	$	2.43	$	1.63
	- diluted	$	0.91	$	2.41	$	1.62
Adjusted net earnings from operations⁽¹⁾		$	1,474	$	2,546	$	1,881
Per common share	- basic⁽²⁾	$	1.38	$	2.36	$	1.71
	- diluted⁽²⁾	$	1.37	$	2.34	$	1.69
Cash flows from operating activities		$	2,868	$	4,815	$	1,295
Adjusted funds flow⁽¹⁾		$	3,138	$	4,419	$	3,429
Per common share	- basic⁽²⁾	$	2.93	$	4.09	$	3.12
	- diluted⁽²⁾	$	2.91	$	4.05	$	3.08
Cash flows used in investing activities		$	1,392	$	946	$	1,153
Net capital expenditures⁽³⁾		$	1,113	$	975	$	1,257
Abandonment expenditures		$	162	$	149	$	137
Daily production, before royalties
Natural gas (MMcf/d)			2,147		2,231		2,139
Crude oil and NGLs (bbl/d)			975,668		1,047,541		962,908
Equivalent production (BOE/d)⁽⁴⁾			1,333,502		1,419,313		1,319,391
(1) Non-GAAP Financial Measure. Refer to the "Non-GAAP and Other Financial Measures" section of the Company's MD&A for the three months ended March 31, 2024 dated May 1, 2024. (2) Non-GAAP Ratio. Refer to the "Non-GAAP and Other Financial Measures" section of the Company's MD&A for the three months ended March 31, 2024 dated May 1, 2024. (3) Non-GAAP Financial Measure. The composition of this measure was updated in the fourth quarter of 2023 and has been updated for all periods presented. Refer to the "Non-GAAP and Other Financial Measures" section of the Company's MD&A for the three months ended March 31, 2024 dated May 1, 2024. (4) A barrel of oil equivalent ("BOE") is derived by converting six thousand cubic feet ("Mcf") of natural gas to one barrel ("bbl") of crude oil (6 Mcf:1 bbl). This conversion may be misleading, particularly if used in isolation, or to compare the value ratio using current crude oil and natural gas prices since the 6 Mcf:1 bbl ratio is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

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 Q1/24, the Company generated strong financial results, including:
- Net earnings of approximately $1.0 billion and adjusted net earnings from operations of approximately $1.5 billion.
- Cash flows from operating activities of approximately $2.9 billion.
- Adjusted funds flow of approximately $3.1 billion.
Canadian Natural continues to maintain a strong balance sheet and financial flexibility, with approximately $6.8 billion in liquidity⁽¹⁾ as at March 31, 2024.
- Subsequent to quarter end, the Company repaid US$0.5 billion of 3.8% debt securities due April 15, 2024.
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.

(1) Non-GAAP Financial Measure. Refer to the "Non-GAAP and Other Financial Measures" section of this press release and the Company's MD&A for the three months ended March 31, 2024 dated May 1, 2024.

Canadian Natural continues to focus on safe, effective and efficient operations, and delivered quarterly average production in Q1/24 of 1,333,502 BOE/d, consisting of total liquids production of 975,668 bbl/d and natural gas production of 2,147 MMcf/d.
The Company is targeting strong production from its Oil Sands Mining and Upgrading assets in the second half of the year, as we optimize turnaround activity, complete final tie ins and advance commissioning of the reliability enhancement project 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, which 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. Additionally, the debottlenecking project at the Scotford Upgrader 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, reduce GHG emissions and lower reclamation costs.
- 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, reduce GHG emissions and lower reclamation costs.
The Company's 2024 development plan has conventional activity strategically weighted to the second half of 2024 to better align with increased market egress and improved crude oil pricing, maximizing value for our shareholders. Following completion of the Trans Mountain Expansion ("TMX") pipeline, there will be ample egress and optionality for our crude oil products.
- Strong free cash flow generation is targeted in the last nine months of the 2024, given improved crude oil forward strip pricing as of April 30, 2024:
  - WTI of US$79.95/bbl, an improvement of approximately US$3/bbl from US$76.97/‌bbl experienced in Q1/24.
  - SCO at a US$2.47/bbl price premium to WTI, an improvement of approximately US$10/‌bbl from a US$7.54/‌bbl discount experienced in Q1/24.
  - WCS differential strengthening to a discount to WTI of US$13.17/‌bbl, an improvement of approximately US$6‌/‌bbl from the US$19.34/‌bbl discount experienced in Q1/24.
The Company continues to evaluate and implement opportunities to maximize netbacks through the diversification of sales and optimized blending and transportation options through diverse market access. Canadian Natural has optionality for crude oil exports, including the following pipeline commitments:
- In Q1/24, the Company increased its commitment on Flanagan South by 55,000 bbl/d to 77,500 bbl/d, further expanding the Company's heavy oil diversification and market access to the United States Gulf Coast ("USGC").
- 94,000 bbl/d on Trans Mountain Expansion ("TMX") pipeline that creates additional crude oil market diversification opportunities on the west coast, both by land and by water.
- 10,000 bbl/d on the Base Keystone Pipeline, with direct access to the USGC.

RETURNS TO SHAREHOLDERS

Canadian Natural has a strong history of growing its sustainable dividend for 24 consecutive years and commencing in 2024, we are now returning 100% of free cash flow to shareholders.
- Returns to shareholders in Q1/24 were strong, totaling approximately $1.7 billion, comprised of $1.1 billion of dividends and $0.6 billion through the repurchase and cancellation of approximately 6.7 million common shares at a weighted average price of $90.78 per share.
- Year to date in 2024, up to and including May 1, 2024, the Company has returned a total of approximately $3.1 billion directly to shareholders through $2.2 billion in dividends and $0.9 billion through the repurchase and cancellation of approximately 9.6 million common shares.
- Subsequent to quarter end, the Company declared a quarterly cash dividend on its common shares of $1.05 (one dollar and five cents) per common share on a pre-stock split basis or $0.525 (fifty-two and one half cents) per common share after the two for one share split of the common shares, subject to shareholder approval at the Company's Annual and Special Meeting of Shareholders on May 2, 2024. The quarterly dividend will be payable on July 5, 2024 to shareholders of record at the close of business on June 17, 2024.
  - As previously announced on February 29, 2024, the Board of Directors increased the quarterly dividend by 5% to $1.05 per common share. 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. The Company's leading track record of dividend increases continues, with 2024 being the 24^th consecutive year of dividend increases with a compound annual growth rate ("CAGR") of 21% over that time.
On February 28, 2024, Canadian Natural's Board of Directors approved a resolution to subdivide the Company's common shares on a two for one basis, subject to shareholder approval at the Company's Annual and Special Meeting of Shareholders on May 2, 2024. The Company will also be required to obtain all regulatory approvals, including TSX approval.

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.

Drilling Activity	Three Months Ended
	Mar 31, 2024		Mar 31, 2023
(number of wells)	Gross	Net	Gross	Net
Crude oil⁽¹⁾	62	61	88	83
Natural gas	23	16	26	21
Dry	-	-	2	2
Subtotal	85	77	116	106
Stratigraphic test / service wells	452	386	455	394
Total	537	463	571	500
Success rate (excluding stratigraphic test / service wells)		100 %		98 %
(1) Includes bitumen wells.

Canadian Natural drilled a total of 77 net crude oil and natural gas producer wells in Q1/24 compared to 106 net wells in Q1/23, a decrease of 29 net wells over this time period. This decrease in drilling activity reflects 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, as previously outlined in the Company's 2024 budget press release.

North America Exploration and Production

Crude oil and NGLs - excluding Thermal In Situ Oil Sands
	Three Months Ended
	Mar 31 2024	Dec 31 2023	Mar 31 2023
Crude oil and NGLs production (bbl/d)	237,481	243,157	234,465
Net wells targeting crude oil	38	42	60
Net successful wells drilled	38	42	58
Success rate	100 %	100 %	97 %

North America E&P liquids production, excluding thermal in situ, averaged 237,481 bbl/d in Q1/24, comparable to Q1/23 levels. 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 78,431 bbl/d in Q1/24, comparable to Q1/23 levels, reflecting strong results from the Company's multilateral wells in the Mannville and Clearwater fairways which offset natural field declines.
  - The Company is targeting to drill 148 net multilateral wells in 2024, 12 more than budgeted, as we are shifting certain dry natural gas activity to these higher returning multilateral heavy oil wells. The majority of this activity is strategically planned for the second half of 2024.
  - Operating costs⁽¹⁾ in the Company's primary heavy crude oil operations averaged $19.16/bbl (US$14.21/‍bbl) in Q1/24, a decrease of 11% from Q1/23 levels, primarily reflecting lower energy costs.
- Pelican Lake production averaged 45,145 bbl/d in Q1/24, a decrease of 6% from Q1/23 levels, reflecting low natural field declines from this long life low decline asset.
  - Operating costs at Pelican Lake averaged $9.75/bbl (US$7.23/bbl) in Q1/24, comparable to Q1/23 levels.
- North America light crude oil and NGLs production averaged 113,905 bbl/d in Q1/24, an increase of 5% from Q1/23 production which was impacted by a third party pipeline outage. Production in Q1/24 reflects strong drilling results from the Company's liquids-rich Montney and Deep Basin assets partially offset by natural field declines.
  - Operating costs in the Company's North America light crude oil and NGLs operations averaged $15.25/‍bbl (US$11.31/bbl) in Q1/24, a decrease of 18% from Q1/23 levels, reflecting increased production and lower energy costs.

North America Natural Gas
	Three Months Ended
	Mar 31 2024	Dec 31 2023	Mar 31 2023
Natural gas production (MMcf/d)	2,135	2,218	2,127
Net wells targeting natural gas	16	9	21
Net successful wells drilled	16	9	21
Success rate	100 %	100 %	100 %

Canadian Natural's North America natural gas production averaged 2,135 MMcf/d in Q1/24, comparable to Q1/23 production which was impacted by a third party pipeline outage. Production in Q1/24 reflects strong results from the Company's capital efficient drill to fill development plan, offset by natural field declines.
- North America natural gas operating costs averaged $1.27/Mcf in Q1/24, a decrease of 11% from Q1/23 levels, primarily reflecting lower energy costs.

(1) Calculated as production expense divided by respective sales volumes. Natural gas and NGLs production volumes approximate sales volumes.

Thermal In Situ Oil Sands
	Three Months Ended
	Mar 31 2024	Dec 31 2023	Mar 31 2023
Bitumen production (bbl/d)	268,155	278,422	242,884
Net wells targeting bitumen	23	-	25
Net successful wells drilled	23	-	25
Success rate	100 %	- %	100 %

Thermal in situ long life low decline production averaged 268,155 bbl/d in Q1/24, an increase of 10% from Q1/23 levels, driven by strong execution on Cyclic Steam Stimulation ("CSS") and Steam Assisted Gravity Drainage ("SAGD") pad developments in 2023.
- Thermal in situ operating costs averaged $14.05/bbl (US$10.42/bbl) in Q1/24, a decrease of 12% from Q1/23 levels, primarily reflecting higher production volumes and lower energy costs.
The Company successfully completed the planned turnaround at Jackfish ahead of schedule in April 2024, and has an upcoming turnaround at Kirby North in May 2024. As a result of completing the turnaround at Jackfish ahead of schedule, the total impact to Q2/24 average production is now targeted to be approximately 15,300 bbl/d, an improvement from the previous target of 17,100 bbl/d.
Canadian Natural has decades of strong capital efficient growth opportunities on its long life low decline thermal in situ assets. As outlined in 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 Primrose, the Company is currently drilling two CSS pads which are 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.
- At Jackfish, the first of two SAGD pads that were drilled in 2023 has ramped up to its targeted full production capacity in April 2024, ahead of budget. The second pad is targeted to ramp up to its full production capacity in Q4/24, supporting continued high utilization rates at the Jackfish facilities. 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.
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 GHG intensities by 40% to 50% 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 commercial scale solvent SAGD pad development is approximately 90% complete and the Company is targeting to begin solvent injection in July 2024.
- 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 the commercial development opportunity.

North America Oil Sands Mining and Upgrading

Three Months Ended

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FAQ

What were Canadian Natural's adjusted net earnings in Q1/24?

Canadian Natural reported adjusted net earnings of approximately $1.5 billion in the first quarter of 2024.

What is the company's free cash flow allocation policy starting in 2024?

Starting in 2024, Canadian Natural is returning 100% of its free cash flow to shareholders.

What environmental targets does Canadian Natural have for GHG emissions?

Canadian Natural aims for net zero greenhouse gas emissions for the oil sands by 2050.

How is Canadian Natural strategically executing its 2024 plan?

The company is focusing on longer cycle thermal development projects in the first half of the year and shorter cycle growth projects in the second half.