Canadian Natural Resources Limited Announces 2022 First Quarter Results

2022-05-05

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

Calgary, Alberta--(Newsfile Corp. - May 5, 2022) - Commenting on the Company's first quarter 2022 results, Tim McKay, President of Canadian Natural (TSX: CNQ) (NYSE: CNQ), stated, "Our world class asset base is one of our key strengths, which is strategically balanced across commodity types so we can capture opportunities throughout the commodity price cycle. This drove total corporate quarterly production of approximately 1,280 MBOE‍/‍d in Q1/22, including record natural gas production of over 2.0 Bcf/d, an increase of approximately 0.4 Bcf‍/‍d from Q1/21 levels. Financially we delivered strong quarterly free cash flow of approximately $3.4 billion, after dividends of approximately $0.7 billion and net capital expenditures of approximately $0.8 billion, excluding acquisitions and strategic growth capital.

"Our unique, diverse, long life low decline asset base with large, low risk, high value reserves is a differentiating factor that makes Canadian Natural a truly unique energy company. We have an industry leading WTI break-even in the mid-US$30s per barrel, which covers base maintenance capital requirements and dividend commitments and when combined with our top tier cost structure and effective and efficient operations we are resilient through the commodity price cycle while generating substantial returns in today's environment.

"Canadian Natural is a leader on Environmental, Social and Governance ("ESG") and has made it a priority to work together in collaboration with industry peers, including the Pathways initiative. By working together, we have developed an actionable plan that can help us collectively be more effective and efficient from a time and cost perspective for Carbon Capture, Utilization and Storage ("CCUS") projects. We are taking positive steps forward in our efforts to help Canada achieve its climate and economic growth objectives."

Canadian Natural's Chief Financial Officer, Mark Stainthorpe, added, "At Canadian Natural our culture of continuous improvement has created a sense of ownership and enables our teams to create significant value for our shareholders. Our effective and nimble capital allocation to our four pillars; returns to shareholders, balance sheet strength, resource value growth and opportunistic acquisitions continues to deliver robust financial results. In Q1/22 net earnings and adjusted funds flow were strong at approximately $3.1 billion and approximately $5.0 billion respectively, and our balance sheet continued to strengthen. So far in 2022 up to and including May 4, 2022, returns to shareholders have been significant as we have returned a total of approximately $3.1 billion through dividends and share repurchases. This includes the increase to our sustainable and growing quarterly dividend in March 2022 by 28% to $0.75 per share, up from $0.5875 per share, marking 2022 as the 22nd consecutive year of dividend increases. The increasing dividend demonstrates the confidence that the Board of Directors has in the Company's world class assets and its ability to generate significant and sustainable free cash flow through the commodity price cycle.

"In addition, the Company's Board of Directors has decided to further enhance the Company's free cash flow allocation policy by stating that when the Company's net debt reaches $8 billion, which the Board sees as a base level of corporate debt, the Company will allocate additional free cash flow as incremental returns to shareholders.

"When you combine our leading financial results with our top tier asset base, this provides unique competitive advantages in terms of capital efficiencies, flexibility and sustainability, all of which drive material free cash flow generation and return of capital."

QUARTERLY HIGHLIGHTS

| | | Three Months Ended | | | | | | | | | | ($ millions, except per common share amounts) | | Mar 31 2022 | | | Dec 31 2021 | | | Mar 31 2021 | | | | Net earnings | $ | 3,101 | | $ | 2,534 | | $ | 1,377 | | | | Per common share | - basic | $ | 2.66 | | $ | 2.16 | | $ | 1.16 | | | | - diluted | $ | 2.63 | | $ | 2.14 | | $ | 1.16 | | | Adjusted net earnings from operations(1) | $ | 3,376 | | $ | 2,626 | | $ | 1,219 | | | | Per common share | - basic(2) | $ | 2.90 | | $ | 2.24 | | $ | 1.03 | | | | - diluted(2) | $ | 2.86 | | $ | 2.21 | | $ | 1.03 | | | Cash flows from operating activities | $ | 2,853 | | $ | 4,712 | | $ | 2,536 | | | | Adjusted funds flow(1) | $ | 4,975 | | $ | 4,338 | | $ | 2,712 | | | | Per common share | - basic(2) | $ | 4.27 | | $ | 3.69 | | $ | 2.29 | | | | - diluted(2) | $ | 4.21 | | $ | 3.66 | | $ | 2.28 | | | Cash flows used in investing activities | $ | 1,251 | | $ | 1,615 | | $ | 648 | | | | Net capital expenditures(1), excluding net acquisition costs and strategic growth capital(3) | $ | 844 | | $ | 837 | | $ | 808 | | | | Net capital expenditures(1) | $ | 1,455 | | $ | 1,804 | | $ | 808 | | | | Daily production, before royalties | | | | | | | | | | | | Natural gas (MMcf/d) | | 2,006 | | | 1,857 | | | 1,598 | | | | Crude oil and NGLs (bbl/d) | | 945,809 | | | 1,004,425 | | | 979,352 | | | | Equivalent production (BOE/d)(4) | | 1,280,180 | | | 1,313,900 | | | 1,245,703 | | |

(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 March 31, 2022, dated May 4, 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 March 31, 2022, dated May 4, 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.

QUARTERLY HIGHLIGHTS

Canadian Natural delivered net earnings of approximately $3.1 billion and adjusted net earnings from operations of approximately $3.4 billion in Q1/22.

Cash flows from operating activities were approximately $2.9 billion in Q1/22.

Canadian Natural generated strong quarterly adjusted funds flow of approximately $5.0 billion in Q1/22, an increase of approximately $2.3 billion from Q1/21 levels.

The strength of the Company's asset base, supported by safe, effective and efficient operations generates significant free cash flow(1)over the long-term, making Canadian Natural's business unique, robust and sustainable.

Effective and efficient operations combined with our high quality, long life low decline asset base generated substantial quarterly free cash flowof approximately $3.4 billion after dividend payments of approximately $0.7 billion and net capital expenditures of approximately $0.8 billion (excluding net acquisitions and strategic growth capital as per the Company's free cash flow allocation policy).

Direct returns to shareholders in Q1/22 were strong, totaling approximately $1.8 billion, comprised of approximately $0.7 billion of dividends and approximately $1.1 billion of share repurchases.

Canadian Natural increased its sustainable and growing quarterly dividend in March 2022 by 28% to $0.75 per share, up from $0.5875 per share, marking 2022 as the 22nd consecutive year of dividend increases.

The Company repurchased a total of approximately 15.8 million common shares for cancellation at a weighted average price of $68.78 per share in Q1/22 for a total of approximately $1.1 billion.

In March 2022, the Board of Directors approved the renewal and increase of our Normal Course Issuer Bid ("NCIB") so that Canadian Natural can repurchase for cancellation up to 10% of the public float during the 12 month period commencing March 11, 2022 and ending March 10, 2023.

Year-to-date up to and including May 4, 2022, the Company has returned approximately $3.1 billion to shareholders through approximately $1.6 billion in dividends and $1.5 billion from the repurchase and cancellation of 21.5 million common shares.

Subsequent to quarter end, the Company declared a quarterly dividend of $0.75 per share, payable on July 5, 2022.

During Q1/22, the Company continued to strengthen our financial position and flexibility.

Repaid $1.0 billion of 3.31% medium-term notes.

Repaid $0.5 billion of the $1.15 billion non-revolving term credit facility, reducing the outstanding balance to $0.65 billion.

Amended the $1.0 billion non-revolving term credit facility to a $0.5 billion non-revolving facility and a $0.5 billion revolving facility; both maturing February 2023.

Strengthened the balance sheet by reducing Q1/22 ending net debt to $13.8 billion.

Undrawn revolving bank credit facilities totaling approximately $5.6 billion were available at March 31, 2022. Including cash and cash equivalents and short-term investments, the Company had significant liquidity(1) of approximately $6.1 billion.

Subsequent to quarter end on April 21, 2022, Moody's Investors Service ("Moody's") upgraded Canadian Natural's senior unsecured investment grade credit ratings to Baa1 from Baa2, with a stable rating outlook.

In Q1/22, the Company continued its focus on safe, effective and efficient operations, driving average quarterly production volumes of 1,280,180 BOE/d, an increase of 3% over Q1/21 levels.

The Company delivered record average natural gas production of 2,006 MMcf/d in Q1/22, a significant increase of more than 400 MMcf/d or 26% over Q1/21 levels. The increase over Q1/21 primarily reflects strong drilling results and production volumes from acquisitions, partially offset by natural field declines.

Corporate natural gas operating costs(2)averaged $1.31/Mcf in Q1/22, an increase of 3% over Q1/21 levels, primarily reflecting higher energy related costs.

Quarterly liquids production averaged 945,809 bbl/d in Q1/22, a decrease of 3% from Q1/21 levels, primarily due to facility restrictions at the non-operated Scotford Upgrader ("Scotford") and the commencement of the planned turnaround, partially offset by strong light crude oil and NGL volumes.

Canadian Natural's North America E&P liquids production, including thermal in situ, averaged 484,280 bbl/‌d during Q1/22, comparable to Q1/21 levels.

North America E&P liquids production, excluding thermal in situ, averaged 222,537 bbl/d in Q1/22, an increase of 5% over Q1/21 levels. The increase over Q1/21 levels primarily reflects strong drilling results and production volumes from acquisitions, partially offset by natural field declines.

In Q1/22 the Company completed a number of strategic acquisitions in our core areas which will add long term value to our shareholders, two of which are highlighted below. These strategic premium assets enhance the Company's long term growth opportunities, while not impacting share repurchases as per the Company's free cash flow policy.

In the Jackfish and Kirby areas the Company acquired the remaining 50% working interest in the Pike lands. As a result the Company will be able to cost effectively develop these lands through both the Jackfish and Kirby facilities, that will lower costs to develop and improve timelines to first oil.

In the Wembley Area, premium liquids rich Montney lands were acquired, which are essentially surrounded by the Company's development plans. The value in these lands will be further enhanced by leveraging the Company's plans in the area. The Company is targeting 8 wells this year on these lands, which is incorporated in the Company's 2022 capital budget.

The Company's 2022 capital budget remains on track with targeted base capital(3)of approximately $3.6 billion that delivers targeted production of approximately 1,270,000 BOE/d to 1,320,000 BOE/d, resulting in disciplined year over year near-term growth of approximately 60,000 BOE/d derived primarily from conventional E&P operations.

Budgeted strategic growth capital(3)in 2022 of approximately $0.7 billion is allocated to our long life low decline assets, which targets to add incremental annual production growth starting in 2023 and beyond of approximately 63,000 bbl/d by 2025.

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 Synthetic Crude Oil ("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 liquids production in Q1/22, 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 long life low decline production comes from Canadian Natural's top tier thermal in situ oil sands operations and the Company's 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 (1) | | Three Months Ended Mar 31 | | | | | | | | | | | | | | 2022 | | | 2021 | | | | | | | | | (number of wells) | | Gross | | | Net | | | Gross | | | Net | | | Crude oil | | 57 | | | 56 | | | 46 | | | 44 | | | Natural gas | | 39 | | | 23 | | | 27 | | | 22 | | | Total | | 96 | | | 79 | | | 73 | | | 66 | | | Success rate (excluding stratigraphic test / service wells) | | | | | 100% | | | | | | 100 % | |

(1)In addition, in Q1/22, on a net basis, the Company drilled 351 stratigraphic wells and 3 service wells in Oil Sands Mining and Upgrading, as well as 18 stratigraphic and 21 service wells in the Company's thermal oil projects.

The Company's total crude oil and natural gas drilling program of 79 net wells for the three months ended March 31, 2022, represents an increase of 13 net wells from the three months ended March 31, 2021.

North America Exploration and Production

| Crude oil and NGLs - excluding Thermal In Situ Oil Sands | | | | | | | | | | | | | Three Months Ended | | | | | | | | | | | Mar 31 2022 | | | Dec 31 2021 | | | Mar 31 2021 | | | Crude oil and NGLs production (bbl/d) | | 222,537 | | | 215,628 | | | 211,206 | | | Net wells targeting crude oil | | 44 | | | 20 | | | 39 | | | Net successful wells drilled | | 44 | | | 20 | | | 39 | | | Success rate | | 100% | | | 100 % | | | 100 % | |

North America E&P liquids, excluding thermal in situ, production averaged 222,537 bbl/d in Q1/22, an increase of 5% over Q1/21 levels. The increase over Q1/21 levels primarily reflects strong drilling results and production volumes from acquisitions, partially offset by natural field declines.

Primary heavy crude oil production averaged 63,068 bbl/d in Q1/22, comparable with Q1/21 levels as a result of strong drilling results that completely offset natural field declines.

Operating costs in the Company's primary heavy crude oil operations averaged $22.00/bbl (US$17.38/bbl) in Q1/22, an increase of 16% compared to Q1/21 levels, primarily due to higher energy related costs.

At the Company's Clearwater play at Smith, 7 net horizontal multilateral wells were completed on time in the quarter with early production rates totaling approximately 2,100 bbl/d, resulting in a strong capital efficiency(1)of approximately $7,600/bbl/d as budgeted.

The 2022 capital budget remains on track with targeted drilling of approximately 11 wells per quarter through a level loaded schedule that drives cost efficiencies.

Pelican Lake production averaged 51,991 bbl/d in Q1/22, a decrease of 6% from Q1/21 levels. The modest production decrease reflects the low decline nature of this long life asset and the continued success of the Company's world class polymer flood.

Effective and efficient operations and the Company's continued focus on cost control drove strong operating costs at Pelican Lake that averaged $7.48/bbl (US$5.91/bbl) in Q1/22, comparable with Q1/21 levels of $7.38‍/‍bbl.

North America light crude oil and NGL production averaged 107,478 bbl/d in Q1/22, an increase of 16% over Q1/21 levels. The increase over Q1/21 primarily reflects strong drilling results and production volumes from acquisitions, partially offset by natural field declines.

Operating costs in the Company's North America light crude oil and NGL areas averaged $15.24/bbl (US$12.04/bbl) in Q1/22, a decrease of 5% from Q1/21 levels, primarily as a result of increased production volumes and the Company's continued focus on cost control.

At Gold Creek, a 2 net well light crude oil pad is on stream in Q1/22 with strong production totaling approximately 1,750 bbl/d of liquids and 5 MMcf/d of natural gas. Production is exceeding budgeted liquids by approximately 750 bbl/d and is on budget for natural gas.

(1) Supplementary financial measure. Refer to the "Non-GAAP and Other Financial Measures" section of this press release.

| Thermal In Situ Oil Sands | | | | | | | | | | | | | Three Months Ended | | | | | | | | | | | Mar 31 2022 | | | Dec 31 2021 | | | Mar 31 2021 | | | Bitumen production (bbl/d) | | 261,743 | | | 263,110 | | | 267,530 | | | Net wells targeting bitumen | | 12 | | | 1 | | | 3 | | | Net successful wells drilled | | 12 | | | 1 | | | 3 | | | Success rate | | 100% | | | 100 % | | | 100 % | |

The Company's thermal in situ assets achieved average production of 261,743 bbl/d in Q1/22, a decrease of 2% from Q1/21 levels. Our long life low decline Thermal in situ operations continue to be strong as Q1/22 production was above our 2021 average annual production of approximately 259,300 bbl/d.

Thermal in situ operating costs averaged $14.35/bbl (US$11.34/bbl) in Q1/22, an increase of 26% over Q1/21 levels. The increase in operating costs was primarily due to higher energy costs.

Canadian Natural Resources Limited Announces 2022 First Quarter Results

QUARTERLY HIGHLIGHTS

QUARTERLY HIGHLIGHTS

OPERATIONS REVIEW AND CAPITAL ALLOCATION

North America Exploration and Production

Earlier from King Global Ventures Inc.