King Global Ventures Inc. press release

Canadian Natural Resources Limited Announces 2023 Third Quarter Results

2023-11-02

CSE - Canadian National Stock Exchange · Copper · Gold · Silver · Zinc · Lead · United States · Corporate Finance

Calgary, Alberta--(Newsfile Corp. - November 2, 2023) - Commenting on the Company's (TSX: CNQ) (NYSE: CNQ) third quarter 2023 results, Tim McKay, President, stated, "Our quarterly results demonstrate how our effective and efficient operations, combined with our diverse product mix generates significant free cash flow, resulting in strong shareholder returns through our sustainable and growing dividend and significant share repurchases.

Our world class assets delivered top tier operational and financial results in Q3/23 with average quarterly production volumes of approximately 1,394,000 BOE/d, which is the highest quarterly volumes in the history of the Company, including record quarterly production volumes for both liquids and natural gas of approximately 1,035,000 bbl/d and 2,151 MMcf/d respectively. Following the completion of planned turnarounds at our Oil Sands Mining and Upgrading assets, synthetic crude oil ("SCO") production was strong, averaging approximately 491,000 bbl/d during Q3/23, capturing robust SCO pricing at a premium to WTI. Additionally, as a result of strong execution in our thermal assets, production growth was ahead of plan, as Q3/23 average thermal production volumes increased by approximately 44,000 bbl/d to 287,000 bbl/d from Q3/22 levels. As a result of our focus on effective and efficient operations, the Company had strong liquid netbacks in Q3/23, similar to Q3/22 netback levels when commodity prices were much higher. This resulted in significant free cash flow for the Company.

Environmental, Social and Governance ("ESG") remains a priority for the Company. Canadian Natural is an investment leader in research and development ("R&D") and our strong track record of R&D investment will continue in 2024 and beyond and is targeted to grow with our participation in the Pathways Alliance. It is critical to work together with the Government of Canada and the Alberta government to make the Pathways Alliance a transformative industry collaboration. Through the foundational Carbon Capture and Storage ("CCS") project, we have a significant opportunity to achieve meaningful GHG emissions reductions in support of industry's, Alberta's and Canada's climate goals and to provide affordable, reliable, responsibly produced energy to the world."

Canadian Natural's Chief Financial Officer, Mark Stainthorpe, added, "During the third quarter of 2023, our robust business model delivered strong net earnings of over $2.3 billion, adjusted net earnings of approximately $2.9 billion and strong quarterly adjusted funds flow of approximately $4.7 billion. After our base capital expenditures and dividend, the Company generated significant quarterly free cash flow of approximately $2.7 billion in Q3/23. Our diversified portfolio, including our long life low decline assets, combined with our effective and efficient operations allowed us to continue to deliver robust returns to shareholders by 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.

With current strong production volumes and expected free cash flow in Q4/23 and beyond, based on current strip pricing, we are quickly approaching a net debt level of $10 billion, which we forecast to achieve in Q1/24, at which time we target to increase returns to shareholders to 100% of free cash flow.

Subsequent to quarter end, the Board of Directors has approved an 11% increase to our base quarterly dividend to $1.00 per common share, from $0.90 per common share, demonstrating the confidence that 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. With this increase announced today, the Company has increased its dividend by 18% in 2023 to $4.00 per share annually. As a result, the Company's leading track record of dividend increases continues, as this increase will mark 2024 as the 24thconsecutive year of dividend increases, with a CAGR of 21% over that time."

CORPORATE UPDATE

One of Canadian Natural's many strengths is our strong and deep leadership team. The Company takes a very proactive and disciplined approach to succession, with well-planned and successful transitions, ensuring we maintain our strong corporate culture and top tier performance.

As part of ongoing management succession, at Canadian Natural's 2023 year end Board meeting on February 28, 2024, Tim McKay will assume the role of Vice Chairman and Scott Stauth, currently Chief Operating Officer, Oil Sands, will be promoted to President of Canadian Natural.

Mr. Stauth has been with Canadian Natural for 26 years in increasingly responsible management roles across all our operations in Canada. Scott Stauth, as Chief Operating Officer, Oil Sands, has played an integral role in delivering top tier performance across all of the Company's Oil Sands operations.

As Vice Chairman, Mr. McKay will support the management transition until his retirement in summer 2024.

In addition, as part of the succession plan, Jay Froc, currently Senior Vice President Oil Sands Mining and Upgrading will be promoted to Chief Operating Officer, Oil Sands on January 1, 2024. Mr. Froc has been with Canadian Natural for 10 years.

Trevor Cassidy, Chief Operating Officer, E&P, after over 23 years of contributing to the Company's success will be retiring in Q4/23, at which time Robin Zabek, currently Senior Vice President Exploitation E&P, will be promoted to Chief Operating Officer, E&P. Mr. Zabek has been with Canadian Natural for 20 years.

Murray Edwards, Executive Chairman of the Company, commenting on the succession, stated, "Canadian Natural has a strong track record of successful succession at our senior leadership level, ensuring Canadian Natural continues to deliver top tier performance. Mr. Stauth has been a significant contributor to Canadian Natural's top tier performance over the last 26 years and we are very confident Scott will make even greater contributions as President. In addition, Tim as Vice Chairman will continue to provide oversight and guidance on our operations to ensure a smooth transition."

Tim McKay, commenting on the succession, stated, "Scott and I have worked closely together over the years and he has outstanding leadership, technical and operational skills and is an excellent role model for Canadian Natural's culture, one of our key competitive advantages. We are very confident in Scott's abilities."

QUARTERLY HIGHLIGHTS

| | | Three Months Ended | | | Nine Months Ended | | | | | | | | | | | | | ($ millions, except per common share amounts) | | Sep 30 2023 | | | Jun 30 2023 | | | Sep 30 2022 | | | Sep 30 2023 | | | Sep 30 2022 | | | | Net earnings | $ | 2,344 | | $ | 1,463 | | $ | 2,814 | | $ | 5,606 | | $ | 9,417 | | | | Per common share | - basic | $ | 2.15 | | $ | 1.34 | | $ | 2.52 | | $ | 5.12 | | $ | 8.23 | | | | - diluted | $ | 2.13 | | $ | 1.32 | | $ | 2.49 | | $ | 5.07 | | $ | 8.12 | | | Adjusted net earnings from operations(1) | $ | 2,850 | | $ | 1,256 | | $ | 3,493 | | $ | 5,987 | | $ | 10,669 | | | | Per common share | - basic(2) | $ | 2.61 | | $ | 1.15 | | $ | 3.12 | | $ | 5.47 | | $ | 9.32 | | | | - diluted(2) | $ | 2.59 | | $ | 1.14 | | $ | 3.09 | | $ | 5.41 | | $ | 9.20 | | | Cash flows from operating activities | $ | 3,498 | | $ | 2,745 | | $ | 6,098 | | $ | 7,538 | | $ | 14,847 | | | | Adjusted funds flow(1) | $ | 4,684 | | $ | 2,742 | | $ | 5,208 | | $ | 10,855 | | $ | 15,615 | | | | Per common share | - basic(2) | $ | 4.30 | | $ | 2.50 | | $ | 4.66 | | $ | 9.91 | | $ | 13.64 | | | | - diluted(2) | $ | 4.26 | | $ | 2.48 | | $ | 4.60 | | $ | 9.81 | | $ | 13.47 | | | Cash flows used in investing activities | $ | 1,199 | | $ | 1,560 | | $ | 1,129 | | $ | 3,912 | | $ | 3,725 | | | | Net capital expenditures, excluding net acquisition costs and strategic growth capital(3) | $ | 1,019 | | $ | 1,385 | | $ | 996 | | $ | 3,522 | | $ | 3,106 | | | | Net capital expenditures(1) | $ | 1,231 | | $ | 1,669 | | $ | 1,249 | | $ | 4,294 | | $ | 4,154 | | | | Daily production, before royalties | | | | | | | | | | | | | | | | | | Natural gas (MMcf/d) | | 2,151 | | | 2,085 | | | 2,132 | | | 2,125 | | | 2,081 | | | | Crude oil and NGLs (bbl/d) | | 1,035,153 | | | 846,909 | | | 983,678 | | | 948,587 | | | 930,079 | | | | Equivalent production (BOE/d)(4) | | 1,393,614 | | | 1,194,326 | | | 1,338,940 | | | 1,302,715 | | | 1,276,970 | | |

_(1)Non-GAAP Financial Measure. Refer to the "Non-GAAP and Other Financial Measures" section of this press release and the "Non-GAAP and Other Financial Measures" section of the Company's MD&A for the three and nine months ended September 30, 2023 dated November 1, 2023. (2)Non-GAAP Ratio. Refer to the "Non-GAAP and Other Financial Measures" section of this press release and the "Non-GAAP and Other Financial Measures" section of the Company's MD&A for the three and nine months ended September 30, 2023 dated November 1, 2023. (3)Net capital expenditures, excluding net acquisition costs and strategic growth capital, is defined as base capital expenditures. (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.

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The strength of Canadian Natural's long life low decline asset base, supported by our safe, effective and efficient operations, makes our business unique, robust and sustainable. In Q3/23, the Company generated strong financial results, including:

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Net earnings of approximately $2.3 billion and adjusted net earnings from operations of approximately $2.9 billion.

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Cash flows from operating activities of approximately $3.5 billion.

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Adjusted funds flow of approximately $4.7 billion.

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Free cash flow(1)of approximately $2.7 billion(2)after total dividend payments of approximately $1.0 billion and base capital expenditures(3)of approximately $1.0 billion.

DIVIDEND INCREASE

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Subsequent to quarter end, the Board of Directors has approved an 11% increase to our quarterly dividend to $1.00 per common share, from $0.90 per common share, payable on January 5, 2024 to shareholders of record on December 8, 2023. This demonstrates the confidence that 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. The Company's leading track record of dividend increases continues, as this increase will mark the 24thconsecutive year of dividend increases.

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Canadian Natural increased its sustainable and growing dividend twice in 2023 for a total combined increase of 18% to $4.00 per share annually.

QUARTERLY HIGHLIGHTS

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Returns to shareholders in Q3/23 were strong, totaling approximately $1.6 billion, comprised of approximately $1.0 billion of dividends and approximately $0.6 billion of share repurchases.

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In Q3/23, the Company repurchased approximately 7.2 million common shares for cancellation at a weighted average price of $82.57 per share for a total of approximately $0.6 billion.

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Year-to-date, up to and including November 1, 2023, the Company has returned approximately $6.1 billion to shareholders through approximately $3.9 billion in dividends and $2.2 billion through the repurchase and cancellation of approximately 27.9 million common shares.

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Canadian Natural continues to maintain a strong balance sheet and financial flexibility, with net debt(1)of approximately $11.5 billion and significant liquidity(1)of approximately $6.1 billion at the end of Q3/23.

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In September 2023, the Company extended its $0.5 billion revolving credit facility by one year, now maturing February 2025.

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With current strong production volumes and expected free cash flow in Q4/23 and beyond, based on current strip pricing we are quickly approaching a net debt level of $10 billion, which we forecast to achieve in Q1/24, at which time we target to increase returns to shareholders to 100% of free cash flow. At that time, the free cash flow definition will be adjusted funds flow less dividends and total capital expenditures for the year.

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The Company's current free cash flow allocation policy provides that when net debt is between $10 billion and $15 billion, 50% of free cash flow will be allocated to share repurchases and 50% of free cash flow will be allocated to the balance sheet, less strategic growth / acquisition opportunities. Free cash flow for the purpose of the policy is defined as adjusted funds flow less dividends, less base capital.

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In Q3/23, Canadian Natural continued to focus on safe, effective and efficient operations, achieving record quarterly average production volumes of 1,393,614 BOE/d, an increase of 4% or approximately 55,000 BOE/d compared to Q3/22 levels.

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The Company achieved record quarterly average liquids production volumes in Q3/23 of 1,035,153 bbl/d, an increase of 5% over Q3/22 levels of 983,678 bbl/d.

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Our focus on execution and effective and efficient operations drove strong liquids netbacks in Q3/23, similar to Q3/22 netback levels when commodity prices were much higher, generating significant free cash flow for the Company.

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Canadian Natural continues to focus on safe, effective and efficient operations of its world class Oil Sands Mining and Upgrading assets to deliver high value SCO, with strong quarterly production averaging 490,853 bbl/d in Q3/23, comparable to Q3/22 levels of 487,553 bbl/d.

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Oil Sands Mining and Upgrading operating costs were top tier, averaging $22.12/bbl (US$16.49/bbl) of SCO in Q3/23, comparable to Q3/22 costs of $22.35/bbl (US$17.12/bbl).

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Based on the current forward strip as of October 30, 2023, these high margin SCO barrels will capture strong pricing with a strip average premium to WTI pricing of approximately US$2.24/bbl in Q4/23, generating significant free cash flow for the Company.

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As a result of strong execution on the Company's thermal growth plan, total thermal production averaged 287,085 bbl/d in Q3/23, an increase of 43,692 bbl/d or 18% compared to Q3/22 levels of 243,393 bbl/d. The increase in production was primarily driven by strong execution and bringing production on earlier than originally planned on the new Primrose CSS and Kirby SAGD pads.

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Thermal in situ operating costs averaged $11.47/bbl (US$8.55/bbl) in Q3/23, a decrease of 27% from Q3/22 levels, primarily reflecting the impact of higher production volumes and lower natural gas fuel costs.

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The Company achieved record quarterly natural gas production volumes in Q3/23, averaging 2,151 MMcf/d, comparable to Q3/22 levels of 2,132 MMcf/‍d.

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The Company's strategic growth plan includes increasing production from our long life no decline Oil Sands Mining and Upgrading assets. At Horizon, after the planned turnaround in 2024, the reliability enhancement project is targeted to be completed which will increase SCO production capacity by approximately 14,000 bbl/d in 2025 as the Company targets to shift maintenance to once every two years, reducing downtime and increasing overall reliability.

(1) Non-GAAP Financial Measure. Refer to the "Non-GAAP and Other Financial Measures" section of this press release and the "Non-GAAP and Other Financial Measures" section of the Company's MD&A for the three and nine months ended September 30, 2023, dated November 1, 2023. (2) Based on sum of rounded numbers. (3) Item is component of net capital expenditures. Refer to the "Non-GAAP and Other Financial Measures" section of the Company's MD&A for the three and nine months ended September 30, 2023 for more details on net capital expenditures.

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 73% of budgeted total liquids production in 2023, 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 our top tier thermal in situ oil sands operations and our 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, by owning and operating most of the related infrastructure, Canadian Natural is able to control major components of the Company's operating costs and minimize production commitments. Low capital exposure projects can be quickly stopped or started 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 | | Nine Months Ended September 30 | | | | | | | | | | | | | | 2023 | | | 2022 | | | | | | | | | (number of wells) | | Gross | | | Net | | | Gross | | | Net | | | Crude oil(1) | | 186 | | | 179 | | | 242 | | | 237 | | | Natural gas | | 61 | | | 52 | | | 85 | | | 57 | | | Dry | | 2 | | | 2 | | | 1 | | | 1 | | | Subtotal | | 249 | | | 233 | | | 328 | | | 295 | | | Stratigraphic test / service wells | | 476 | | | 414 | | | 477 | | | 409 | | | Total | | 725 | | | 647 | | | 805 | | | 704 | | | Success rate (excluding stratigraphic test / service wells) | | | | | 99% | | | | | | 99 % | |

_(1)Includes bitumen wells.

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The Company drilled a total of 233 net crude oil and natural gas producer wells in the nine months ended September 30, 2023 compared to 295 during the nine months ended September 30, 2022, a decrease of 62 net wells over this time period.

North America Exploration and Production

| Crude oil and NGLs - excluding Thermal In Situ Oil Sands | | | | | | | | | | | | | | | | | | | Three Months Ended | | | Nine Months Ended | | | | | | | | | | | | | | Sep 30 2023 | | | Jun 30 2023 | | | Sep 30 2022 | | | Sep 30 2023 | | | Sep 30 2022 | | | Crude oil and NGLs production (bbl/d) | | 232,496 | | | 226,202 | | | 228,239 | | | 231,047 | | | 226,125 | | | Net wells targeting crude oil | | 42 | | | 29 | | | 60 | | | 131 | | | 143 | | | Net successful wells drilled | | 42 | | | 29 | | | 60 | | | 129 | | | 142 | | | Success rate | | 100% | | | 100 % | | | 100 % | | | 98% | | | 99 % | |

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North America E&P liquids production, excluding thermal in situ, averaged 232,496 bbl/d in Q3/23, a 2% increase compared to Q3/22 levels, primarily reflecting drilling activity on the Company's primary heavy crude oil assets, offset by natural field declines.

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Primary heavy crude oil production averaged 76,377 bbl/d in Q3/23, an 11% increase from Q3/22 levels, reflecting drilling results. The Company continues to successfully drill Mannville multilateral wells in the Bonnyville/Lloydminster and Clearwater fairways, having drilled 34 and 78 net multilateral primary heavy crude oil wells in Q3/23 and the first nine months of 2023 respectively.