Canadian Natural Resources Limited Announces 2022 Fourth Quarter and Year End Results

2023-03-02

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

Calgary, Alberta--(Newsfile Corp. - March 2, 2023) - Canadian Natural's (TSX: CNQ) (NYSE: CNQ) President, Tim McKay, commented on the Company's 2022 results, "In 2022, we demonstrated the strength of our balanced, diverse asset base that when combined with our flexible capital allocation strategy, resulted in substantial free cash flow generation, significant returns to our shareholders and strong reserve growth. We achieved record annual production of 1,281,434 BOE‍/‍d in 2022, an increase of 4% from 2021 levels, and 8% growth on a production per share basis. This growth was largely driven by our strategic investment in our robust natural gas assets, which grew 23% from 2021 levels, achieving record annual natural gas production of approximately 2.1 Bcf/d. Our culture of continuous improvement, focus on cost control and disciplined capital allocation continue to drive strong operational and financial results, maximizing value for shareholders.

"As a result of our diversified portfolio, we achieved annual realized natural gas pricing of $6.55/‍Mcf in 2022, which was approximately 17% above the AECO benchmark price. In addition, our high value synthetic crude oil ("SCO") captured a strong price premium to WTI of US$4.43/bbl, driving strong realized SCO pricing of $117.69‍/‍bbl, which on an annual basis represents approximately 46% of our total liquids volumes and generates significant free cash flow for the Company.

"Canadian Natural's diverse portfolio is supported by 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 maximize value. Total proved reserves increased by 6% to 13.587 billion BOE, replacing 2022 production by 265%. This provides the Company with a 32 year reserve life index ("RLI") and reflects the strength and depth of our assets. We continued to deliver strong total proved finding, development and acquisition ("FD&A") costs, including changes in future development costs, of $8.39/BOE in 2022.

"Canadian Natural is committed to supplying safe, reliable and responsible energy, along with reducing its environmental footprint. In 2022, we announced a new environmental target to reduce corporate scope 1 and 2 absolute GHG emissions by 40% by 2035, in addition to our other robust environmental targets. We have a defined journey to net zero emissions in oil sands operations and are working collaboratively with our industry peers through the Pathways Alliance to achieve this goal. It is important we work together with both federal and provincial governments to achieve climate goals, in an economically feasible manner. We are also an industry leader in abandonment and reclamation activity and through our active program, we have abandoned more than 3,000 wells per year in each of the last two years. At this pace, we would be able to achieve 100% abandonment of our current inventory of inactive wells in approximately 10 years."

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 $19.8 billion in adjusted funds flow in 2022, resulting in free cash flow of approximately $10.9 billion, after total dividend payments and base capital expenditures excluding net acquisitions and strategic growth capital. We were able to deliver significant returns to shareholders in 2022, totaling approximately $10.5 billion through $5.6 billion in share repurchases and $4.9 billion in dividends, including the special dividend of $1.50 per common share paid in August 2022. This equates to approximately $9.25 per share in direct returns to shareholders in 2022.

"In 2022, the Board of Directors approved two separate raises to our quarterly dividend, for a combined increase of 45%, to $0.85 per common share. Subsequent to year end, the Board of Directors approved a 6% increase to the quarterly dividend to $0.90 per common share from $0.85 per common share, demonstrating 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 asset base. The Company has a leading track record of 23 consecutive years of dividend increases.

"We maintain a strong balance sheet and reduced our net debt by approximately $3.4 billion in 2022, closing the year with approximately $10.5 billion in net debt. In just two years, we have reduced our net debt by $10.7 billion or approximately 50% from the beginning of 2021.

"Subsequent to year end 2022, up to and including March 1, 2023, the Company has returned approximately $0.5 billion to shareholders through the repurchase and cancellation of approximately 6.2 million common shares. Additionally, the Board of Directors has approved the renewal of the Company's Normal Course Issuer Bid ("NCIB"), which states that during the 12 month period commencing March 13, 2023 and ending March 12, 2024, the Company can repurchase for cancellation up to 10% of the public float, subject to TSX approval.

"After reviewing our strong financial position and sustainable cash flow profile, particularly when you compare our debt levels to the size, diversity, and long life low decline nature of our high value reserves, the Board of Directors has enhanced our free cash flow allocation policy to accelerate incremental shareholder returns to 100% of free cash flow when the Company's net debt reaches $10 billion, changed from the previous $8 billion net debt level. These changes reflect the substantial debt reductionover the last two years of approximately $10.7 billion, the increase in our production and reserve base and that our fixed outstanding bonds of approximately $11.4 billion are similar to the $10 billion net debt level in the free cash flow allocation policy. Additionally, with fully committed undrawn bank credit facilities of approximately $5.5 billion, we ensure strong liquidity. Once the Company's net debt reaches $10 billion, the enhanced free cash allocation policy will be adjusted to define free cash flow as adjusted funds flow less dividends, less total capital expenditures in the year.

"Canadian Natural's operations create long-term value in the areas we operate, through payments to governments, employment, investment in the oil and natural gas sector and returns to shareholders. In 2022, Canadian Natural paid a total of approximately $10.3 billion to Canadian governments in the form of income taxes, property taxes and royalties, an increase of approximately $5.3 billion, or 107%, from 2021 levels. Additionally, our 2022 capital investment of approximately $5.0 billion, excluding acquisitions, was an increase of approximately $1.5 billion, or 44%, from 2021 levels, delivering responsibly produced energy to help meet global energy demand, while creating jobs for Canadians."

HIGHLIGHTS

| | | Three Months Ended | | | Year Ended | | | | | | | | | | | | | ($ millions, except per common share amounts) | | Dec 31 2022 | | | Sep 30 2022 | | | Dec 31 2021 | | | Dec 31 2022 | | | Dec 31 2021 | | | | Net earnings | $ | 1,520 | | $ | 2,814 | | $ | 2,534 | | $ | 10,937 | | $ | 7,664 | | | | Per common share | - basic | $ | 1.37 | | $ | 2.52 | | $ | 2.16 | | $ | 9.64 | | $ | 6.49 | | | | - diluted | $ | 1.36 | | $ | 2.49 | | $ | 2.14 | | $ | 9.52 | | $ | 6.46 | | | Adjusted net earnings from operations(1) | $ | 2,194 | | $ | 3,493 | | $ | 2,626 | | $ | 12,863 | | $ | 7,420 | | | | Per common share | - basic(2) | $ | 1.98 | | $ | 3.12 | | $ | 2.24 | | $ | 11.33 | | $ | 6.28 | | | | - diluted(2) | $ | 1.96 | | $ | 3.09 | | $ | 2.21 | | $ | 11.19 | | $ | 6.25 | | | Cash flows from operating activities | $ | 4,544 | | $ | 6,098 | | $ | 4,712 | | $ | 19,391 | | $ | 14,478 | | | | Adjusted funds flow(1) | $ | 4,176 | | $ | 5,208 | | $ | 4,338 | | $ | 19,791 | | $ | 13,733 | | | | Per common share | - basic(2) | $ | 3.78 | | $ | 4.66 | | $ | 3.69 | | $ | 17.44 | | $ | 11.63 | | | | - diluted(2) | $ | 3.73 | | $ | 4.60 | | $ | 3.66 | | $ | 17.22 | | $ | 11.57 | | | Cash flows used in investing activities | $ | 1,262 | | $ | 1,129 | | $ | 1,615 | | $ | 4,987 | | $ | 3,703 | | | | Net capital expenditures(1), excluding net acquisition costs and strategic growth capital(3) | $ | 850 | | $ | 996 | | $ | 837 | | $ | 3,956 | | $ | 3,483 | | | | Net capital expenditures(1) | $ | 1,317 | | $ | 1,249 | | $ | 1,804 | | $ | 5,471 | | $ | 4,908 | | | | Daily production, before royalties | | | | | | | | | | | | | | | | | | Natural gas (MMcf/d) | | 2,115 | | | 2,132 | | | 1,857 | | | 2,090 | | | 1,695 | | | | Crude oil and NGLs (bbl/d) | | 942,258 | | | 983,678 | | | 1,004,425 | | | 933,149 | | | 952,404 | | | | Equivalent production (BOE/d)(4) | | 1,294,679 | | | 1,338,940 | | | 1,313,900 | | | 1,281,434 | | | 1,234,906 | | |

_(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, 2022 dated March 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 months and year ended December 31, 2022 dated March 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._

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 2022, the Company generated strong financial results, including:

Net earnings of approximately $10.9 billion and adjusted net earnings from operations of approximately $12.9 billion in 2022.

Cash flows from operating activities of approximately $19.4 billion in 2022.

Adjusted funds flow of approximately $19.8 billion in 2022.

Free cash flow(1)of approximately $10.9 billion(2)in 2022 after total dividend payments of approximately $4.9 billion and base capital expenditures(3)of approximately $4.0 billion.

Significant returns to shareholders and debt reduction in 2022 are a result of substantial free cash flow generation and the Company's free cash flow allocation policy that states when net debt is below $15 billion, 50% of free cash flow will be allocated to share repurchases and 50% of free cash flow 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.

Returns to shareholders in 2022 were significant, having returned approximately $10.5 billion, comprised of approximately $4.9 billion in dividends and approximately $5.6 billion in share repurchases.

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. The last increase in 2022 was in November, when the Board of Directors approved a 13% increase to our quarterly dividend to $0.85 per common share, which 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 asset base. The Company's leading track record of dividend increases continues, as this increase marked the 23rdconsecutive year of dividend increases.

In addition, the Company paid a special dividend of $1.50 per common share in August 2022.

In 2022, the Company repurchased a total of approximately 77.3 million common shares for cancellation at a weighted average price of $72.03 per share for a total of approximately $5.6 billion.

Canadian Natural continues to maintain a strong balance sheet and financial flexibility. The Company reduced net debt(1)by approximately $3.4 billion in 2022, ending the year with approximately $10.5 billion in net debtand significant liquidity(1)of approximately $6.9 billion. The Company executed on a number of initiatives in 2022 to strengthen the Company's financial flexibility, including:

Repaid $1.0 billion of 3.31% medium term notes.

Repaid and cancelled a total of $1.15 billion of non-revolving term credit facilities.

Early repayment of US$1.0 billion of 2.95% debt securities, originally due January 15, 2023.

Repaid through market purchases approximately $0.5 billion of medium-term notes with interest rates ranging from 1.45% to 3.55%, originally due between 2023 and 2028.

Concurrently with the release of Canadian Natural's year end results, the Company enhanced its free cash flow allocation policy due to being in a strong financial position and having a sustainable cash flow profile, particularly when you compare our debt levels to the size, diversity, and long life low decline nature of our high value reserves. As a result, the Board of Directors has confidence in the sustainability and resilience of the Company to support accelerating incremental shareholder returns to 100% of free cash flow when the Company's net debt reaches $10 billion, changed from the previous $8 billion net debt level. Once the Company's net debt reaches $10 billion, the free cash allocation policy will be adjusted to define free cash flow as adjusted funds flow less dividends, less total capital expenditures in the year.

In 2022, the Company continued to focus on safe, effective and efficient operations, delivering record annual average production of 1,281,434 BOE/d, consisting of total liquids production of 933,149 bbl/d and record natural gas production of 2,090 MMcf/d.

Total BOE production increased by 4% from 2021 levels, or 8% on a production per share basis, driven by a 23% increase in annual natural gas production volumes.

As a result of the Company's diversified sale points, we achieved strong annual natural gas realized pricing of $6.55/‍Mcf in 2022, which was approximately 17% above the AECO benchmark price, maximizing value for shareholders. Approximately 28% of the Company's natural gas production was sold at AECO/Station 2 pricing, and approximately 34% was exported to other North Americanand international markets, capturing higher natural gas prices. Additionally, the Company used the equivalent of approximately 38% of its natural gas production in its operations in 2022.

The Company's high value SCO captured a strong price premium to WTI of US$4.43/bbl in 2022, driving strong annual realized SCO pricing of $117.69‍/‍bbl, which on an annual basis represented approximately 46% of total liquids volumes and generated significant free cash flow for the Company.

Subsequent to year end:

The Board of Directors did an annual review of dividend levels and approved a 6% increase to the quarterly dividend to $0.90 per common share, from $0.85 per common share, payable on April 5, 2023 to shareholders of record on March 17, 2023.

The Company returned a total of approximately $1.4 billion to shareholders through approximately $0.9 billion in dividends and $0.5 billion from the repurchase and cancellation of approximately 6.2 million common shares, up to and including March 1, 2023.

The Board of Directors approved the renewal of the Company's NCIB, which states that during the 12 month period commencing March 13, 2023 and ending March 12, 2024, 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.

QUARTERLY HIGHLIGHTS

In Q4/22, the Company generated strong financial results, including:

Net earnings of approximately $1.5 billion and adjusted net earnings from operations of approximately $2.2 billion in Q4/22.

Cash flows from operating activities of approximately $4.5 billion in Q4/22.

Adjusted funds flow of approximately $4.2 billion in Q4/22.

Free cash flow of approximately $2.5 billion in Q4/22 after total dividend payments of approximately $0.8 billion and base capital expenditures of approximately $0.9 billion.

Returns to shareholders in Q4/22 of approximately $1.6 billion, comprised of approximately $834 million in dividends and approximately $746 million in share repurchases.

In Q4/22, the Company repurchased a total of approximately 9.6 million common shares for cancellation at a weighted average price of $77.69 per share for a total of approximately $0.7 billion.

In November 2022, the Board of Directors approved a 13% increase to our quarterly dividend to $0.85 per common share, from $0.75 per common share.

Reduced net debt by approximately $1.9 billion in Q4/22.

Delivered quarterly average production of 1,294,679 BOE/d, consisting of 942,258 bbl/d of liquids and 2,115 MMcf/‍d of natural gas.

North America E&P liquids production, excluding thermal in situ, averaged 233,371 bbl/d in Q4/22, a 2% increase from Q3/22 levels, reflecting increased drilling activity and acquisitions, partially offset by natural declines and the impact of extreme cold weather in December 2022.

Thermal in situ production averaged 253,188 bbl/d, a 4% increase from Q3/22 levels, reflecting strong production at Jackfish following planned maintenance activities completed in Q3/22, partially offset by natural field declines.

(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, 2022 dated March 1, 2023. (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 and year ended December 31, 2022 dated March 1, 2023 for more details on net capital expenditures.

RESERVES UPDATE

A key differentiator for Canadian Natural is the strength, diversity and balance of our world class, top tier reserves. Strategically assembled and developed over several decades, these assets have a low decline rate as well as low maintenance capital relative to the size and quality of the reserves. The low maintenance capital requirements of our reserves affords the Company significant flexibility when balancing our 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, 2022 (all reserves values are Company Gross unless stated otherwise).

Total proved reserves increased 6% to 13.587 billion BOE, with reserves additions and revisions of 1.242 billion BOE. Total proved plus probable reserves increased 6% to 18.046 billion BOE, with reserves additions and revisions of 1.563 billion BOE.

The strength and depth of the Company's assets are evident as approximately 77% of total proved reserves are long life low decline reserves. This results in a total proved BOE reserves life index(1)of approximately 32 years and a total proved plus probable BOE reserves life index of approximately 42 years.

Additionally, high value, zero decline SCO is approximately 51% of total proved reserves with a reserve life index of approximately 44 years.

Canadian Natural Resources Limited Announces 2022 Fourth Quarter and Year End Results

HIGHLIGHTS

ANNUAL HIGHLIGHTS

QUARTERLY HIGHLIGHTS

RESERVES UPDATE

Earlier from King Global Ventures Inc.