Canadian Natural Resources Limited Announces 2023 Fourth Quarter and Year End Results

2024-02-29

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

Calgary, Alberta--(Newsfile Corp. - February 29, 2024) - Highlighting a successful 2023, Canadian Natural's (TSX: CNQ) (NYSE: CNQ) Chief Financial Officer, Mark Stainthorpe, stated "Through the Company's effective and efficient operations and disciplined capital allocation, we achieved our net debt level of $10 billion in Q4/23, earlier than previously forecasted. As per our free cash flow allocation policy, we will now target to return 100% of free cash flow to shareholders through dividends and share buybacks."

Canadian Natural's Vice Chairman, Tim McKay, also commented "In 2023, we delivered on our capital allocation strategy by strengthening our balance sheet, providing significant returns to shareholders and strategically developing our assets. We achieved record annual production while growing our reserves organically on both a total proved and total proved plus probable basis, with reserve replacement ratios of 166% and 194% respectively.

Our strong execution in 2023 sets us up to continue delivering on our four pillars of capital allocation through our disciplined 2024 capital budget of approximately $5.4 billion. This budget is strategically weighted to longer cycle thermal development in the first half of 2024 and shorter cycle growth in the second half of the year, targeting strong exit production levels. As well it provides us with the flexibility to adjust to changing market egress and evolving market conditions, ensuring we are allocating capital effectively and maximizing value for our shareholders.

We are committed to supporting Canada's and Alberta's climate goals and continue to reduce our environmental footprint with our robust environmental targets, including net zero greenhouse gas ("GHG") emissions in the oil sands by 2050. We are uniquely positioned with diverse, long life low decline assets which are ideal to apply technologies, to reduce GHG emissions and provide industry leading environmental performance. It is important to continue working together with the Canadian and the 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 President, Scott Stauth, also commented "The Company delivered strong operational results in 2023 and achieved multiple production records, including record annual average total production of approximately 1,332 MBOE/d, representing 7% production per share growth as a result of safe, effective and efficient operations and significant share repurchases. We also achieved record quarterly average total production of approximately 1,419 MBOE/d in Q4/23. With our focus on continuous improvement and process optimization, we had high reliability and utilization at our oil sands mining operations, achieving record synthetic crude oil ("SCO") production of approximately 500 Mbbl/d in Q4/23.

One of Canadian Natural's advantages is our significant reserves base, with total proved reserves of 13.9 billion BOE and total proved plus probable reserves of 18.5 billion BOE as of year end 2023, which increased 2% and 3% respectively from year end 2022. The increase in our reserves reflects the success of our capital efficient development opportunities across our asset base. With approximately 75% of the Company's total proved reserves being long life low decline, the strength and depth of our assets is evident and provides us with a total proved reserves life index of 32 years and a total proved plus probable reserves life index of 43 years."

Mark Stainthorpe also added "In 2023, we successfully executed on our capital program and remained focused on cost control in an inflationary environment. We delivered strong financial results in 2023, including net earnings of approximately $8.2 billion and adjusted funds flow of $15.3 billion, which drove significant returns to shareholders totaling $7.2 billion.

In the past three years, we have reduced our net debt by over $11 billion and delivered approximately $21.5 billion directly to shareholders through $11.0 billion in dividends and $10.5 billion in share repurchases. These impressive results delivered returns to shareholders of approximately $30 per share through debt reductions and shareholder distributions over the three year time period.

Subsequent to quarter end, the Board of Directors approved a 5% increase to our quarterly dividend to $1.05 per common share, up from the previous dividend level of $1.00 per common share, payable on April 5, 2024 to shareholders of record on March 15, 2024. 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. With this increase announced today, we have increased our quarterly dividend 24% through three separate increases over the past year. This year marks the 24thconsecutive year of dividend increases, with a compound annual growth rate ("CAGR") of 21% over that time.

In addition, our Board of Directors approved a resolution to subdivide the Company's common shares on a two for one basis, subject to shareholder approval and having obtained all regulatory approvals, including TSX approval. The proposal will be voted on at the Company's Annual and Special Meeting of Shareholders to be held on May 2, 2024.

With our disciplined 2024 capital budget, low maintenance capital requirements and a long life low decline asset base, we target to deliver strong returns on capital with robust free cash flow while continuing to provide significant returns to shareholders in 2024."

HIGHLIGHTS

| | | Three Months Ended | | | Year Ended | | | | | | | | | | | | | ($ millions, except per common share amounts) | | Dec 31 2023 | | | Sep 30 2023 | | | Dec 31 2022 | | | Dec 31 2023 | | | Dec 31 2022 | | | | Net earnings | $ | 2,627 | | $ | 2,344 | | $ | 1,520 | | $ | 8,233 | | $ | 10,937 | | | | Per common share | - basic | $ | 2.43 | | $ | 2.15 | | $ | 1.37 | | $ | 7.54 | | $ | 9.64 | | | | - diluted | $ | 2.41 | | $ | 2.13 | | $ | 1.36 | | $ | 7.47 | | $ | 9.52 | | | Adjusted net earnings from operations(1) | $ | 2,546 | | $ | 2,850 | | $ | 2,194 | | $ | 8,533 | | $ | 12,863 | | | | Per common share | - basic(2) | $ | 2.36 | | $ | 2.61 | | $ | 1.98 | | $ | 7.82 | | $ | 11.33 | | | | - diluted(2) | $ | 2.34 | | $ | 2.59 | | $ | 1.96 | | $ | 7.74 | | $ | 11.19 | | | Cash flows from operating activities | $ | 4,815 | | $ | 3,498 | | $ | 4,544 | | $ | 12,353 | | $ | 19,391 | | | | Adjusted funds flow(1) | $ | 4,419 | | $ | 4,684 | | $ | 4,176 | | $ | 15,274 | | $ | 19,791 | | | | Per common share | - basic(2) | $ | 4.09 | | $ | 4.30 | | $ | 3.78 | | $ | 14.00 | | $ | 17.44 | | | | - diluted(2) | $ | 4.05 | | $ | 4.26 | | $ | 3.73 | | $ | 13.86 | | $ | 17.22 | | | Cash flows used in investing activities | $ | 946 | | $ | 1,199 | | $ | 1,262 | | $ | 4,858 | | $ | 4,987 | | | | Net capital expenditures(3) | $ | 975 | | $ | 1,108 | | $ | 1,233 | | $ | 4,909 | | $ | 5,136 | | | | Abandonment expenditures, net (1) | $ | 149 | | $ | 123 | | $ | 84 | | $ | 509 | | $ | 335 | | | | Daily production, before royalties | | | | | | | | | | | | | | | | | | Natural gas (MMcf/d) | | 2,231 | | | 2,151 | | | 2,115 | | | 2,151 | | | 2,090 | | | | Crude oil and NGLs (bbl/d) | | 1,047,541 | | | 1,035,153 | | | 942,258 | | | 973,530 | | | 933,149 | | | | Equivalent production (BOE/d)(4) | | 1,419,313 | | | 1,393,614 | | | 1,294,679 | | | 1,332,105 | | | 1,281,434 | | | | (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 and year ended December 31, 2023 dated February 28, 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 and year ended December 31, 2023 dated February 28, 2024. (3)Non-GAAP Financial Measure. The composition of this measure 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 and year ended December 31, 2023 dated February 28, 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. | | | | | | | | | | | | | | | | |

ANNUAL 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 2023, the Company generated strong annual financial results, including:

Net earnings of approximately $8.2 billion and adjusted net earnings from operations of approximately $8.5 billion.

Cash flows from operating activities of approximately $12.4 billion.

Adjusted funds flow of approximately $15.3 billion.

Free cash flow(1)of approximately $6.9 billion after total dividend payments of $3.9 billion, base capital expenditures(2)of $4.0 billion and $0.5 billion in abandonment expenditures.

Canadian Natural achieved its $10 billion net debt level and as a result, is targeting to return 100% of free cash flow to shareholders, per the free cash flow allocation policy.

The Company remained disciplined in 2023, meeting its annual targeted net capital expenditures of approximately $4.9 billion and $0.5 billion in abandonment expenditures.

(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 and year ended December 31, 2023, dated February 28, 2024. (2) Item is a component of net capital expenditures. Refer to the "Non-GAAP and Other Financial Measures" section of the Company's MD&A for the three months and year ended December 31, 2023 for more details on net capital expenditures.

In 2023, Canadian Natural continued to focus on safe, effective and efficient operations, delivering record annual average production of 1,332,105 BOE/d, an increase of 4% from 2022 levels, or 7% on a production per share basis.

The Company delivered record annual total liquids production of 973,530 bbl/d in 2023, an increase of 4% or approximately 40,400 bbl/‌d from 2022 levels. Strong annual liquids production in 2023 was driven by:

Record annual Oil Sands Mining and Upgrading production of 451,339 bbl/d, an increase of 6% or approximately 25,400 bbl/‌d from 2022 levels as a result of the Company's focus on continuous improvement and increased reliability.

The Company also achieved record annual thermal production of 262,000 bbl/d, an increase of 4% or approximately 10,000 bbl/d from 2022 levels as a result of the Company's capital efficient thermal pad add development program.

The Company achieved record annual natural gas production of 2,151 MMcf/d, an increase of 3% or approximately 61 MMcf/d from 2022 levels, reflecting strong results from our capital efficient drill to fill development plan.

Canadian Natural continues to maintain a strong balance sheet and financial flexibility, ending the year with approximately $9.9 billion in net debt, with significant liquidity(1) of approximately $6.9 billion. The Company executed on a number of initiatives in 2023 to strengthen its financial flexibility, including:

In Q2/23, the Company extended its $2.425 billion revolving syndicated credit facility originally maturing June 2024 to June 2027.

In Q3/23, the Company extended its $0.5 billion revolving credit facility originally maturing February 2024 to February 2025.

In Q4/23, the Company repaid $0.405 billion of 1.45% medium-term notes.

RETURNS TO SHAREHOLDERS

Returns to shareholders in 2023 were significant, having directly returned to shareholders approximately $7.2 billion, comprised of $3.9 billion in dividends and $3.3 billion in share repurchases as a result of the Company's ability to generate substantial free cash flow.

In 2023, the Company repurchased a total of approximately 40.1 million common shares for cancellation at a weighted average price of $82.86 per share for a total of $3.3 billion.

With the Company's net debt below $10 billion at year end 2023, the Company is now targeting in 2024 to return 100% of free cash flow to shareholders through dividends and share repurchases, per our free cash flow allocation policy. Going forward, the Company will manage this allocation of free cash flow on a forward looking annual basis, while managing working capital and cash management as required.

Subsequent to quarter end, the Board of Directors approved a 5% increase to the quarterly dividend to $1.05 per common share, up from the previous dividend level of $1.00 per common share, payable on April 5, 2024 to shareholders of record on March 15, 2024. 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.

Since March 2, 2023, the Company has increased its quarterly dividend 24% through three separate increases for a combined increase of $0.20 per share.

The Company's leading track record of dividend increases continues, with 2024 marking the 24thconsecutive year of dividend increases with a compound annual growth rate ("CAGR") of 21% over that time.

To date in 2024, up to and including February 28, 2024, the Company has returned a total of approximately $1.4 billion directly to shareholders through $1.1 billion in dividends and $0.35 billion from the repurchase and cancellation of approximately 4.1 million common shares.

On February 28, 2024, the Board of Directors approved the renewal of the Company's NCIB, which states that during the 12 month period commencing March 13, 2024 and ending March 12, 2025, the Company can repurchase for cancellation up to 10% of the public float (determined in accordance with the rules of the TSX), subject to TSX approval.

(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 and year ended December 31, 2023, dated February 28, 2024.

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 and the Company having obtained all regulatory approvals, including TSX approval. The proposal will be voted on at the Company's Annual and Special Meeting of Shareholders to be held on May 2, 2024.

QUARTERLY HIGHLIGHTS

In Q4/23, the Company generated strong quarterly financial results, including:

Net earnings of approximately $2.6 billion and adjusted net earnings from operations of approximately $2.5 billion.

Cash flows from operating activities of approximately $4.8 billion.

Adjusted funds flow of approximately $4.4 billion.

Free cash flow of approximately $2.5 billion after total dividend payments of $1.0 billion and base capital expenditures of $0.8 billion and $0.1 billion in abandonment expenditures.

Direct returns to shareholders in Q4/23 were strong, totaling approximately $2.5 billion, comprised of $1.0 billion of dividends and $1.5 billion through the repurchase and cancellation of approximately 17.6 million common shares at a weighted average price of $88.26 per share.

In Q4/23, Canadian Natural achieved record quarterly average production volumes of 1,419,313 BOE/d, an increase of 10% or approximately 125,000 BOE/d compared to Q4/22 levels.

The Company achieved record quarterly average liquids production volumes in Q4/23 of 1,047,541 bbl/d, an increase of 11% or approximately 105,000 bbl/d over Q4/22 levels.

Oil Sands Mining and Upgrading achieved record quarterly average production of 500,133 bbl/d in Q4/23, an increase of 17% from Q4/22 levels as a result of the Company's focus on continuous improvements and increased reliability.

The Company delivered record quarterly natural gas production volumes of 2,231 MMcf/d in Q4/23, an increase of 5% compared to Q4/22 levels, reflecting strong results from our capital efficient drill to fill development plan.

RESERVES HIGHLIGHTS

A key differentiator for Canadian Natural is the strength, diversity and balance of its world class, top tier assets. The Company's total proven reserve life index ("RLI")(1)of 32 years is supported by long life low decline assets that have been strategically assembled and developed over several decades. The low maintenance capital requirements relative to the size and quality of the reserves affords the Company significant flexibility when balancing its four pillars of capital allocation to maximize shareholder value.

The Company's reserves were evaluated and reviewed by Independent Qualified Reserves Evaluators ("IQREs"). The following highlights are based on the Company's reserves using forecast prices and costs at December 31, 2023 (all reserves values are Company Gross unless stated otherwise).

Total proved reserves increased 2% to 13.910 billion BOE, with reserves additions and revisions of 0.809 billion BOE. Total proved plus probable reserves increased 3% to 18.504 billion BOE, with reserves additions and revisions of 0.944 billion BOE.

The strength and depth of the Company's assets are evident as approximately 75% of total proved reserves are long life low decline reserves. This results in a total proved BOE RLI of 32 years and a total proved plus probable BOE RLI of 43 years.

Additionally, high value, zero decline SCO represents approximately 50% of total proved reserves with a RLI of 44 years.

Proved developed producing reserves additions and revisions are 540 million BOE, replacing 2023 production by 111%. The proved developed producing BOE RLI is 21 years.

Total proved reserves additions and revisions replaced 2023 production by 166%. Total proved plus probable reserves additions and revisions replaced 2023 production by 194%.

In 2023, Canadian Natural continued to achieve strong finding and development costs:

Finding, development and acquisition ("FD&A")(1)costs, excluding changes in Future Development Cost ("FDC"), are $5.86/BOE for total proved reserves and $5.02/BOE for total proved plus probable reserves.

FD&A costs, including changes in FDC, are $9.25/BOE for total proved reserves and $8.28/BOE for total proved plus probable reserves.

The net present value of future net revenues, before income tax, discounted at 10%, is $105.9 billion for proved developed producing reserves, $153.7 billion for total proved reserves, and $186.5 billion for total proved plus probable reserves.

The Company's total proved net asset value ("NAV") per share increased to $139.07 per share in 2023 from $131.79 per share in 2022 after adjusting for asset retirement obligations and net debt. Total proved plus probable NAV per share increased to $169.65 per share in 2023 from $161.53 per share in 2022.

CORPORATE UPDATE

Canadian Natural is pleased to announce the appointment of Ms. Christine Healy to the Board of Directors of the Company, effective February 28, 2024. Ms. Healy is currently the President, AMEA (Asia, Middle East and Australia) of AtkinsRealis, a globally-leading design, engineering and project-management company headquartered in Montreal, Canada. Prior to that, she served as Senior Vice President, Carbon Neutrality and Continental Europe for TotalEnergies from 2021 to 2023. From 2018 to 2020, Ms. Healy served as Country Chair, President and Chief Executive Officer for Total E&P Canada. Prior to her tenure with TotalEnergies, Ms. Healy was Chief Strategy Officer and General Counsel of Maersk Oil and Gas where she was responsible for M&A, strategy, commercial, communications, government relations, compliance and legal. She has also held senior executive positions with Equinor and the Government of Newfoundland and Labrador. Ms. Healy holds a B.A. (Hon.), Economics from Memorial University and a Juris Doctor from Osgoode Hall Law School.

Earlier from King Global Ventures Inc.

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