Canadian Natural Resources Limited Announces 2022 Third Quarter Results

2022-11-03

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

Calgary, Alberta--(Newsfile Corp. - November 3, 2022) - Canadian Natural's (TSX: CNQ) (NYSE: CNQ) President, Tim McKay, commented on the Company's third quarter 2022 results, "We remain focused on safe, reliable, effective and efficient operations and our 2022 capital program remains unchanged at approximately $4.9 billion, excluding acquisitions. Our culture of continuous improvement and focus on cost control combined with our disciplined and balanced approach to capital allocation continues to drive strong operational and financial results. We achieved record total quarterly production of approximately 1,339,000 BOE‍/‍d, including 487,553 bbl/‍d of Synthetic Crude Oil ("SCO"), reflecting strong operational performance on our long life zero decline Oil Sands Mining and Upgrading assets which comprises approximately 50% of our total company liquids production. Our high value SCO captured a strong price premium to WTI of US$8.87/bbl in the quarter, driving strong SCO pricing of $120.91‍/‍bbl and generating significant free cash flow for the Company. Natural gas production also set a new quarterly record, at approximately 2,132 MMcf/d, which also achieved strong realized pricing, averaging $6.57/‍Mcf, which is above the AECO monthly benchmark price as a result of our diversified sales points.

"On October 4th, the Pathways Alliance ("Pathways") reached an important milestone, securing the right to continue exploratory work for CO2injection at Pathways' proposed carbon capture and storage hub located near Cold Lake, Alberta, allowing us to advance to the next stage of evaluation. We are progressing with continued stakeholder engagement and more detailed engineering work on the approximately 400 kilometer long trunkline that will carry captured CO2from oil sands facilities to the storage hub. We would like to thank the Alberta government for their continued support as we work together on this ambitious major emissions reduction project to achieve net zero greenhouse gas ("GHG") emissions in the oil sands, supporting Canada's environmental goals. Additionally, we appreciate the federal government's recent public statements in support of the Canadian oil and gas sector's role in global energy security along with commitment to be competitive on fiscal frameworks for carbon capture. These are important steps to help the Canadian oil sands energy industry meet its commitment of net zero GHG emissions by 2050, which will result in the industry and governments investing approximately $24 billion between now and 2030 on Pathways' foundational carbon capture and storage project and other emissions reduction projects.

"Benefiting from the effective and efficient operations at Canadian Natural, payments to governments, investment in the oil and gas sector and returns to shareholders have been significant in 2022. Total forecasted payments by Canadian Natural to Canadian governments from income taxes, property taxes and royalties is estimated to be approximately $11 billion in 2022, an increase of approximately $6 billion, or 120% from 2021 levels. Additionally, our 2022 capital spend forecast of approximately $4.9 billion, excluding acquisitions, is an increase of approximately $1.4 billion, or 41% from 2021 levels, delivering responsibly produced energy to help meet global energy demand. As well, in 2022, we have returned approximately $4.9 billion to our shareholders through our quarterly dividends and special dividend, an increase of approximately $2.8 billion, or 127% from 2021 levels."

Canadian Natural's Chief Financial Officer, Mark Stainthorpe, added, "The combination of our leading financial results and our top tier asset base provides unique competitive advantages which drive substantial cash flow generation and shareholder returns. Canadian Natural generated approximately $5.2 billion in adjusted funds flow in the third quarter, resulting in free cash flow of approximately $1.7 billion, after total dividends payments of approximately $2.5 billion and base capital expenditures of approximately $1.0 billion, excluding net acquisitions and strategic growth capital.

"Subsequent to quarter end, the Board of Directors has approved a 13% increase to our quarterly dividend to $0.85 per common share, from $0.75 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 asset base. The Company's leading track record of dividend increases continues, as this increase marks the 23rd consecutive year of dividend increases.

"We maintain a strong balance sheet and financial flexibility as we continue to reduce debt levels. Excluding the impact of foreign exchange, net debt would have decreased by approximately $680 million in the third quarter of 2022. Since September 30, 2021, cumulative repayments of long term debt, excluding foreign exchange impacts, total approximately $4.6 billion.

"Our free cash flow allocation policy is unique and balanced, providing significant returns to shareholders through dividends and share repurchases while continuing to strengthen the balance sheet. Given our strong financial position and with our net debt below $15 billion, shareholder returns are not impacted by strategic growth capital or acquisitions. We continue to target to allocate 50% of free cash flow, as defined in our policy, to share repurchases and 50% to the balance sheet, which the Company's Board of Directors will revisit when our net debt level is at or below $8 billion."

QUARTERLY HIGHLIGHTS

| | | Three Months Ended | | | Nine Months Ended | | | | | | | | | | | | | ($ millions, except per common share amounts) | | Sep 30 2022 | | | Jun 30 2022 | | | Sep 30 2021 | | | Sep 30 2022 | | | Sep 30 2021 | | | | Net earnings | $ | 2,814 | | $ | 3,502 | | $ | 2,202 | | $ | 9,417 | | $ | 5,130 | | | | Per common share | - basic | $ | 2.52 | | $ | 3.04 | | $ | 1.87 | | $ | 8.23 | | $ | 4.33 | | | | - diluted | $ | 2.49 | | $ | 3.00 | | $ | 1.86 | | $ | 8.12 | | $ | 4.32 | | | Adjusted net earnings from operations(1) | $ | 3,493 | | $ | 3,800 | | $ | 2,095 | | $ | 10,669 | | $ | 4,794 | | | | Per common share | - basic(2) | $ | 3.12 | | $ | 3.30 | | $ | 1.78 | | $ | 9.32 | | $ | 4.05 | | | | - diluted(2) | $ | 3.09 | | $ | 3.26 | | $ | 1.77 | | $ | 9.20 | | $ | 4.04 | | | Cash flows from operating activities | $ | 6,098 | | $ | 5,896 | | $ | 4,290 | | $ | 14,847 | | $ | 9,766 | | | | Adjusted funds flow(1) | $ | 5,208 | | $ | 5,432 | | $ | 3,634 | | $ | 15,615 | | $ | 9,395 | | | | Per common share | - basic(2) | $ | 4.66 | | $ | 4.72 | | $ | 3.08 | | $ | 13.64 | | $ | 7.94 | | | | - diluted(2) | $ | 4.60 | | $ | 4.66 | | $ | 3.07 | | $ | 13.47 | | $ | 7.91 | | | Cash flows used in investing activities | $ | 1,129 | | $ | 1,345 | | $ | 721 | | $ | 3,725 | | $ | 2,088 | | | | Net capital expenditures(1), excluding net acquisition costs and strategic growth capital(3) | $ | 996 | | $ | 1,266 | | $ | 881 | | $ | 3,106 | | $ | 2,646 | | | | Net capital expenditures(1) | $ | 1,249 | | $ | 1,450 | | $ | 1,011 | | $ | 4,154 | | $ | 3,104 | | | | Daily production, before royalties | | | | | | | | | | | | | | | | | | Natural gas (MMcf/d) | | 2,132 | | | 2,105 | | | 1,708 | | | 2,081 | | | 1,640 | | | | Crude oil and NGLs (bbl/d) | | 983,678 | | | 860,338 | | | 952,839 | | | 930,079 | | | 934,873 | | | | Equivalent production (BOE/d)(4) | | 1,338,940 | | | 1,211,147 | | | 1,237,503 | | | 1,276,970 | | | 1,208,285 | | |

_(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 months ended September 30, 2022 dated November 2, 2022. (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 months ended September 30, 2022 dated November 2, 2022. (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._

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 Q3/22, the Company generated strong financial results, including:

Net earnings of approximately $2.8 billion and adjusted net earnings from operations of approximately $3.5 billion.

Cash flows from operating activities of approximately $6.1 billion.

Adjusted funds flow of approximately $5.2 billion.

Free cash flow(1)of approximately $1.7 billion(2)after total dividend payments of approximately $2.5 billion and base capital expenditures(3)of approximately $1.0 billion.

Returns to shareholders were significant in Q3/22 having returned approximately $4.2 billion, comprised of approximately $2.5 billion in dividends and approximately $1.7 billion in share repurchases.

In Q3/22, the Company paid dividends totaling $2.25 per common share, consisting of a quarterly dividend of $0.75 per common share and a special dividend of $1.50 per common share.

Subsequent to quarter end, the Board of Directors has approved a 13% increase to our quarterly dividend to $0.85 per common share, from $0.75 per common share, payable on January 5, 2023 to shareholders of record on December 16, 2022. 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 asset base. The Company's leading track record of dividend increases continues, as this increase will mark the 23rd consecutive year of dividend increases.

Canadian Natural increased its sustainable and growing quarterly dividend twice in 2022 for a total combined increase of 45% to $3.40 per share annually.

In Q3/22, the Company repurchased a total of approximately 25.6 million common shares for cancellation at a weighted average price of $67.89 per share for a total of approximately $1.7 billion.

Year to date, up to and including November 2, 2022, the Company has returned a total of approximately $10.0 billion to shareholders comprised of approximately $4.9 billion in dividends and approximately $5.1 billion in share repurchases.

Year to date, the Company has repurchased a total of approximately 71.2 million common shares for cancellation at a weighted average price of $71.49 per share for a total of approximately $5.1 billion.

The Company maintains a strong balance sheet and financial flexibility, with net debt(1)of approximately $12.4 billion and significant liquidity(1)of approximately $6.5 billion at the end of Q3/22. Excluding the impact of foreign exchange, net debt would have decreased by approximately $680 million in Q3/22.

In Q3/22, the Company repaid through market purchases $341 million of medium-term notes with interest rates ranging from 1.45% to 3.55%, originally due between 2023 and 2028, bringing the total year to date market purchases and associated debt retirement to approximately $485 million.

In Q3/22, the Company continued its focus on safe, effective and efficient operations, delivering record quarterly average production volumes of 1,338,940 BOE/d, increases of 11% and 8% from Q2/22 and Q3/21 levels respectively.

Canadian Natural achieved record quarterly natural gas production of 2,132 MMcf/d in Q3/22, an increase over Q2/22 and a 25% increase over Q3/21 levels. The increase from Q2/22 primarily reflects the impact of strong drilling results, partially offset by natural field declines and planned turnaround activities in Q3/22. The increase from Q3/21 primarily reflects strong drilling results and acquisitions, partially offset by natural field declines.

As a result of the Company's diversified sales points, approximately 37% of the Company's natural gas is exported to markets outside of AECO, driving strong realized natural gas pricing averaging $6.57/‍Mcf in Q3/22, which is above the AECO monthly benchmark price.

Quarterly liquids production averaged 983,678 bbl/d in Q3/22, increases of 14% and 3% from Q2/22 and Q3/21 levels respectively. The increase from Q2/22 primarily reflects the completion of planned turnaround activities in Q2/22 at the Company's Oil Sands Mining and Upgrading assets, partially offset by planned maintenance activities on the thermal in situ assets in Q3/22.

The Company's world class Oil Sands Mining and Upgrading assets continue to deliver safe and reliable production of SCO, averaging 487,553 bbl/‍d in Q3/22. Production increased by 37% and 4% from Q2/22 and Q3/21 levels respectively, primarily reflecting strong operational performance following the planned turnaround activities completed at Horizon and Scotford in Q2/22.

Approximately 50% of Canadian Natural's total liquids production is comprised of high value SCO from its Oil Sands Mining and Upgrading assets, which captured a strong price premium to WTI of US$8.87/‍bbl in Q3/22, driving strong SCO average realized pricing of $120.91‍‍/‍‍bbl and generating significant free cash flow for the Company.

(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 months ended September 30, 2022 dated November 2, 2022. (2) Based on sum of rounded numbers. (3) Item is a component of net capital expenditures. Refer to the "Non-GAAP and Other Financial Measures" section of Company's MD&A for the three months ended September 30, 2022 dated November 2, 2022 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 78% of total forecasted liquids production in 2022, 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, 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 | | | | | | | | | | | | | | 2022 | | | 2021 | | | | | | | | | (number of wells) | | Gross | | | Net | | | Gross | | | Net | | | Crude oil(1) | | 242 | | | 237 | | | 130 | | | 127 | | | Natural gas | | 85 | | | 57 | | | 50 | | | 40 | | | Dry | | 1 | | | 1 | | | 1 | | | 1 | | | Subtotal | | 328 | | | 295 | | | 181 | | | 168 | | | Stratigraphic test / service wells | | 477 | | | 409 | | | 405 | | | 336 | | | Total | | 805 | | | 704 | | | 586 | | | 504 | | | Success rate (excluding stratigraphic test / service wells) | | | | | 99% | | | | | | 99 % | |

(1)Includes bitumen wells.

The Company drilled a total of 295 net crude oil and natural gas wells in the nine months ended September 30, 2022 compared to 168 in the comparable period in 2021, an increase of 127 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 2022 | | | Jun 30 2022 | | | Sep 30 2021 | | | Sep 30 2022 | | | Sep 30 2021 | | | Crude oil and NGLs production (bbl/d) | | 228,239 | | | 227,540 | | | 206,775 | | | 226,125 | | | 212,565 | | | Net wells targeting crude oil | | 60 | | | 39 | | | 55 | | | 143 | | | 116 | | | Net successful wells drilled | | 60 | | | 38 | | | 54 | | | 142 | | | 115 | | | Success rate | | 100% | | | 97 % | | | 98 % | | | 99% | | | 99 % | |

North America E&P liquids production, excluding thermal in situ, averaged 228,239 bbl/d in Q3/22, comparable to Q2/22 and an increase of 10% over Q3/21. The increase over Q3/21 primarily reflects strong drilling results and acquisitions, partially offset by natural declines.

Primary heavy crude oil production averaged 68,933 bbl/d in Q3/22, increases of 4% and 8% from Q2/22 and Q3/21 levels respectively, reflecting strong drilling results, partially offset by natural field declines.

Operating costs(1)in the Company's primary heavy crude oil operations averaged $21.30/bbl (US$16.32/‍bbl) in Q3/22, a decrease of 7% from Q2/22 levels, primarily due to lower fuel costs, partially offset by higher trucking costs.

Canadian Natural has one of the largest land bases of Clearwater rights at approximately 940,000 net acres, on which the Company drilled 14 net horizontal multilateral Clearwater wells in the Smith area in Q3/22, bringing the total Clearwater wells drilled and on production year to date to 33 net wells. The Company's total Clearwater production in September 2022 averaged approximately 12,300 bbl/d, an increase of approximately 8,400 bbl/d from the beginning of 2022.

Pelican Lake production averaged 50,051 bbl/d in Q3/22, decreases of 2% and 7% from Q2/22 and Q3/21 levels respectively, demonstrating the low decline nature of this long life asset and the continued success of this world class polymer flood.

Operating costs at Pelican Lake averaged $8.89/bbl (US$6.81/bbl) in Q3/22, an 11% increase from Q2/22 levels, primarily as a result of higher power costs.

North America light crude oil and NGL production averaged 109,255 bbl/d in Q3/22, comparable to Q2/22 and up 23% from Q3/21 levels as a result of strong drilling results and acquisitions, partially offset by natural field declines.

Operating costs in the Company's North America light crude oil and NGL areas averaged $16.68/‍bbl (US$12.78/bbl) in Q3/22, an increase of 10% from Q2/22 levels, primarily due to higher power costs.

At Wembley, the Company brought a 3 well pad on production in July 2022 at a capital efficiency(2)of approximately $6,000/BOE/d. October 2022 monthly production from these wells averaged approximately 2,000 bbl/d of liquids and 7 MMcf/d of natural gas.

Earlier from King Global Ventures Inc.

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