Patterson-UTI Energy, Inc. press release

Canadian Natural Resources Limited Announces 2024 Second Quarter Results

2024-08-01

NASDAQ - Nasdaq Stock Market · Oil · Natural Gas · Natural Gas Liquids · United States · Corporate Finance

Calgary, Alberta--(Newsfile Corp. - August 1, 2024) - Canadian Natural's (TSX: CNQ) (NYSE: CNQ) President, Scott Stauth, commented on the Company's second quarter results, "The strength of our well-balanced and diverse portfolio, combined with Canadian Natural's ability to execute safe, effective and efficient operations, delivered an excellent second quarter. Canadian Natural strategically managed turnaround activities and optimized production resulting in strong Q2/24 volumes of approximately 934,000 bbl/d of liquids and 2.1 Bcf/d of natural gas, totaling 1,286,000 BOE/d, an increase of 8% from Q2/23 levels of 1,194,000 BOE/d. In Q2/24, we delivered strong thermal production of approximately 268,000 bbl/d primarily due to better than expected performance from new pads as well as the early completion of planned turnarounds. At Horizon, we successfully completed the final tie-‌ins related to the reliability enhancement project as well as planned turnaround activities. Through optimization efforts, we completed the turnaround at Horizon in 28 days, two days earlier than budgeted.

Subsequent to quarter end we achieved a significant milestone at Horizon in July 2024 with production of the one billionth barrel of bitumen since operations began in 2009. Supporting this milestone is the Company's significant total proved SCO reserves at approximately 6.9 billion barrels with a Reserve Life Index ("RLI") of approximately 44 years as at year end 2023. Also during the month of July 2024, Synthetic Crude Oil ("SCO") production of approximately 500,000 bbl/d was achieved, partially due to strong production at Horizon which is benefiting from the final tie-ins and commissioning of the reliability enhancement project.

The efficient commissioning of the Trans Mountain Expansion ("TMX") pipeline during Q2/24 and the positive impact this incremental egress has on the Canadian economy represents a significant achievement for all Canadians. The impact on the energy industry has been positive with narrowing of heavy oil differentials, improved realized pricing along with the development of a more diverse market for western Canadian crude oil. TMX is a significant accomplishment for Canada, adding much-needed egress capacity and increasing exposure to global market pricing for crude oil products.

Our strong execution, effective and efficient operations, combined with stronger realized prices, drove significant free cash flow during the quarter despite planned turnarounds.

In June 2024, the Canadian Government amended the _Competition Act_and due to uncertainty on how this new legislation will be interpreted and applied we are unable to provide an environment and climate update at this time. This legislation does not change our commitment to the environment and to ensuring safe, reliable operations, only the way in which we are publicly communicating these important aspects of our business."

Canadian Natural's Chief Financial Officer, Mark Stainthorpe, also added, "In Q2/24, we delivered strong financial results, including adjusted net earnings of approximately $1.9 billion and adjusted funds flow of $3.6 billion, which drove significant returns to shareholders totaling $1.9 billion in the quarter. Our capital program for 2024 remains on target and as per our free cash flow allocation policy, we are returning 100% of free cash flow to shareholders in 2024 and we will continue to manage this allocation on a forward looking annual basis.

Year-to-date up to and including July 31, 2024, we have distributed significant value to shareholders, totaling approximately $4.9 billion, inclusive of our sustainable and growing dividend and share repurchases.

At Canadian Natural, our culture of continuous improvement and employee ownership alignment with shareholders drives our teams to create significant value across all areas of the Company. Our safe, effective and efficient operations combined with flexible capital allocation maximizes value for our shareholders."

HIGHLIGHTS

| | | Three Months Ended | | | Six Months Ended | | | | | | | | | | | | | ($ millions, except per common share amounts) | | Jun 30 2024 | | | Mar 31 2024 | | | Jun 30 2023 | | | Jun 30 2024 | | | Jun 30 2023 | | | | Net earnings | $ | 1,715 | | $ | 987 | | $ | 1,463 | | $ | 2,702 | | $ | 3,262 | | | | Per common share (1) | - basic | $ | 0.80 | | $ | 0.46 | | $ | 0.67 | | $ | 1.26 | | $ | 1.49 | | | | - diluted | $ | 0.80 | | $ | 0.46 | | $ | 0.66 | | $ | 1.25 | | $ | 1.47 | | | Adjusted net earnings from operations (2) | $ | 1,892 | | $ | 1,474 | | $ | 1,256 | | $ | 3,366 | | $ | 3,137 | | | | Per common share(1) | - basic (3) | $ | 0.89 | | $ | 0.69 | | $ | 0.57 | | $ | 1.57 | | $ | 1.43 | | | | - diluted(3) | $ | 0.88 | | $ | 0.68 | | $ | 0.57 | | $ | 1.56 | | $ | 1.41 | | | Cash flows from operating activities | $ | 4,084 | | $ | 2,868 | | $ | 2,745 | | $ | 6,952 | | $ | 4,040 | | | | Adjusted funds flow (2) | $ | 3,614 | | $ | 3,138 | | $ | 2,742 | | $ | 6,752 | | $ | 6,171 | | | | Per common share(1) | - basic (3) | $ | 1.69 | | $ | 1.47 | | $ | 1.25 | | $ | 3.16 | | $ | 2.81 | | | | - diluted (3) | $ | 1.68 | | $ | 1.45 | | $ | 1.24 | | $ | 3.13 | | $ | 2.78 | | | Cash flows used in investing activities | $ | 1,015 | | $ | 1,392 | | $ | 1,560 | | $ | 2,407 | | $ | 2,713 | | | | Net capital expenditures (4) | $ | 1,621 | | $ | 1,113 | | $ | 1,569 | | $ | 2,734 | | $ | 2,826 | | | | Abandonment expenditures | $ | 129 | | $ | 162 | | $ | 100 | | $ | 291 | | $ | 237 | | | | Daily production, before royalties | | | | | | | | | | | | | | | | | | Natural gas (MMcf/d) | | 2,110 | | | 2,147 | | | 2,085 | | | 2,129 | | | 2,112 | | | | Crude oil and NGLs (bbl/d) | | 934,066 | | | 975,668 | | | 846,909 | | | 954,866 | | | 904,588 | | | | Equivalent production (BOE/d) (5) | | 1,285,798 | | | 1,333,502 | | | 1,194,326 | | | 1,309,649 | | | 1,256,513 | | | | (1) Per common share and dividend amounts have been updated to reflect the two for one common share split. Further details are disclosed in the Advisory section of the Company's MD&A and in the financial statements for the three and six months ended June 30, 2024 dated July 31, 2024. (2) Non-GAAP Financial Measure. Refer to the "Non-GAAP and Other Financial Measures" section of the Company's MD&A for the three and six months ended June 30, 2024 dated July 31, 2024. (3) Non-GAAP Ratio. Refer to the "Non-GAAP and Other Financial Measures" section of the Company's MD&A for the three and six months ended June 30, 2024 dated July 31, 2024. (4) Non-GAAP Financial Measure. The composition of this measure was updated in the fourth quarter of 2023 and 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 and six months ended June 30, 2024 dated July 31, 2024. (5) 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 safe, effective and efficient operations, makes our business unique, robust and sustainable. In Q2/24, the Company generated strong financial results, including:

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Net earnings of approximately $1.7 billion and adjusted net earnings from operations of approximately $1.9 billion.

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Cash flows from operating activities of approximately $4.1 billion.

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Adjusted funds flow of approximately $3.6 billion.

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Canadian Natural continues to maintain a strong balance sheet and financial flexibility, with approximately $6.4 billion in liquidity(1)as at June 30, 2024.

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In Q2/24, the Company repaid:

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US$0.5 billion of 3.8% debt securities that were due April 15, 2024.

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$0.3 billion of 3.55% medium term notes that were due June 3, 2024.

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Following shareholder approval in May 2024, Canadian Natural's common shares were subdivided on a two for one basis at market close on June 3, 2024. The Company's common shares commenced trading on a split-adjusted basis on June 11, 2024.

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During the second quarter of 2024, the Company sold its 22.6 million common share investment in PrairieSky Royalty Ltd. for $25.65 per common share with net proceeds, after fees and expenses, of $575 million. The proceeds reduce net debt and further strengthen our financial position while maximizing value for shareholders.

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Despite the second quarter of each calendar year being a period of high turnaround activity compared to other quarters, Canadian Natural delivered strong quarterly average production in Q2/24 of 1,285,798 BOE/d, an increase of 8% from Q2/23 levels of 1,194,326 BOE/d. Q2/24 consists of total liquids production of 934,066 bbl/d and natural gas production of 2,110 MMcf/d.

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The Company's world class Oil Sands Mining and Upgrading assets delivered average production of 410,518 bbl/d of high value SCO in Q2/24, an increase of 16% from Q2/23 levels. The increase in production reflected planned turnaround activities successfully completed ahead of schedule at Horizon, compared to Q2/23 which included planned turnarounds at both Horizon and the non-operated Scotford Upgrader.

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During the planned turnaround at Horizon in Q2/24, the Company successfully completed all tie-ins and commissioning of the reliability enhancement project components.

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The reliability enhancement project targets to increase the two year average SCO capacity by approximately 14,000 bbl/d by extending the turnaround schedule to once every two years, with 2025 being the first year of operations without a planned turnaround.

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Subsequent to quarter end, the Company achieved strong monthly SCO production of approximately 500,000 bbl/‌d in July 2024. This was primarily a result of high utilization and effective execution of tie-ins and commissioning associated with the Horizon reliability enhancement project completed in June 2024.

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In July 2024, the Company achieved a milestone at Horizon with the production of the one billionth bitumen barrel since operations began in 2009.

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Supporting this milestone is the Company's significant total proved SCO reserves at approximately 6.9 billion barrels with an RLI of approximately 44 years as at year end 2023.

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Thermal in situ long life low decline production averaged 268,044 bbl/d in Q2/24, an increase of 12% from Q2/23 levels, primarily driven by strong results from Primrose, Kirby and Jackfish pad developments.

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At Jackfish, the first of two Steam Assisted Gravity Drainage ("SAGD") pads drilled in 2023 reached full production capacity in Q2/24, slightly ahead of schedule. The second pad is currently producing at full production capacity also ahead of schedule, originally budgeted for Q4/24.

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Planned turnarounds at Jackfish and Kirby North facilities were successfully completed ahead of schedule in Q2/24.

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Canadian Natural has significant growth opportunities across its asset base, including sustainable production enhancements at its Oil Sands Mining and Upgrading operations.

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Near-term projects include the reliability enhancement project at Horizon, completed in Q2/24. Additionally, at the Scotford Upgrader, a debottlenecking project is targeted to be completed during the planned turnaround and targets to add incremental capacity at the Athabasca Oil Sands Project ("AOSP") of approximately 5,600 bbl/‌d net to Canadian Natural.

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Medium-term projects include the Naphtha Recovery Unit Tailings Treatment ("NRUTT") project at Horizon, which targets to add incremental production of approximately 6,300 bbl/d of SCO.

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Long-term projects at our Oil Sands operations include combining In-Pit Extraction Process ("IPEP") and Paraffinic Froth Treatment ("PFT") that have the potential to add approximately 195,000 bbl/d of additional annual bitumen production.

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The Company's 2024 development plan has conventional activity strategically weighted to the second half of 2024 to align with increased market egress and improved crude oil pricing, maximizing value for our shareholders. The completion of construction and start-up of the TMX pipeline provides market optionality for all western Canadian crude oil products.

RETURNS TO SHAREHOLDERS

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Canadian Natural achieved its $10 billion net debt level at year end 2023 and is returning 100% of free cash flow(1)in 2024 to shareholders, per the Company's free cash flow allocation policy. The Company will manage the allocation of free cash flow on a forward looking annual basis, while managing working capital and cash management as required.

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Returns to shareholders in Q2/24 were strong, totaling approximately $1.9 billion, comprised of $1.1 billion of dividends and $0.8 billion through the repurchase and cancellation of approximately 14.8 million common shares at a weighted average price of $51.66 per share, on a split-adjusted basis.

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In 2024, up to and including July 31, 2024, the Company has returned a total of approximately $4.9 billion directly to shareholders through $3.3 billion in dividends and $1.6 billion through the repurchase and cancellation of approximately 33.9 million common shares.

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Subsequent to quarter end, the Company declared a quarterly cash dividend on its common shares of $0.525 per common share. The quarterly dividend will be payable on October 4, 2024 to shareholders of record at the close of business on September 13, 2024.

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The Company has a leading track record of dividend increases, with 2024 being the 24thconsecutive year of dividend increases with a compound annual growth rate ("CAGR") of 21% over that time. This 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 reserves and asset base.

(1)Non-GAAP Financial Measure. Refer to the "Non-GAAP and Other Financial Measures" section of this press release and the Company's MD&A for the three and six months ended June 30, 2024 dated July 31, 2024.

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 79% of total budgeted liquids production in 2024, 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, Canadian Natural maximizes long-term value by maintaining high ownership and operatorship of its assets and has an extensive infrastructure network, allowing the Company to control the nature, timing and extent of development. Low capital exposure projects can be stopped or started relatively quickly 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 | | Six Months Ended | | | | | | | | | | | | | | Jun 30, 2024 | | | Jun 30, 2023 | | | | | | | | | (number of wells) | | Gross | | | Net | | | Gross | | | Net | | | Crude oil (1) | | 125 | | | 124 | | | 141 | | | 135 | | | Natural gas | | 49 | | | 40 | | | 50 | | | 42 | | | Dry | | 1 | | | 1 | | | 2 | | | 2 | | | Subtotal | | 175 | | | 165 | | | 193 | | | 179 | | | Stratigraphic test / service wells | | 457 | | | 391 | | | 470 | | | 409 | | | Total | | 632 | | | 556 | | | 663 | | | 588 | | | Success rate (excluding stratigraphic test / service wells) | | | | | 99% | | | | | | 99 % | | | (1) Includes bitumen wells. | | | | | | | | | | | | |

Canadian Natural drilled a total of 165 net crude oil and natural gas producer wells in the first six months of 2024, consistent with the Company's strategic decision to focus on longer cycle development opportunities in the first half of 2024 and shorter cycle development opportunities in the second half of 2024.

North America Exploration and Production

| Crude oil and NGLs - excluding Thermal In Situ Oil Sands | | | | | | | | | | | | | | | | | | | Three Months Ended | | | Six Months Ended | | | | | | | | | | | | | | Jun 30 2024 | | | Mar 31 2024 | | | Jun 30 2023 | | | Jun 30 2024 | | | Jun 30 2023 | | | Crude oil and NGLs production (bbl/d) | | 231,592 | | | 237,481 | | | 226,202 | | | 234,537 | | | 230,310 | | | Net wells targeting crude oil | | 33 | | | 38 | | | 29 | | | 71 | | | 89 | | | Net successful wells drilled | | 33 | | | 38 | | | 29 | | | 71 | | | 87 | | | Success rate | | 100% | | | 100 % | | | 100 % | | | 100% | | | 98 % | |

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North America E&P liquids production, excluding thermal in situ, averaged 231,592 bbl/d in Q2/24, an increase of 2% compared to Q2/23 levels, primarily reflecting strong heavy crude oil production offset by natural field declines. As previously outlined in the 2024 budget, the Company has strategically allocated capital for its conventional assets to the latter part of 2024 to better align with incremental market egress, driving strong targeted 2024 exit rates.

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Primary heavy crude oil production averaged 79,141 bbl/d in Q2/24, an increase of 3% from Q2/23 levels, reflecting strong results from multilateral wells on the Company's extensive heavy oil landbase in the Mannville and Clearwater fairways, partially offset by natural field declines.

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Operating costs(1)in the Company's primary heavy crude oil operations averaged $17.59/bbl (US$12.85/‍bbl) in Q2/24, a decrease of 12% from Q2/23 levels, primarily reflecting lower energy costs.

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The Company holds the largest heavy oil landbase in Canada. We continue to maximize the value of this premium asset through our multilateral drilling program.

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Through continuous improvement, Canadian Natural has increased the average length by 16% of its multilateral heavy oil wells to approximately 9,900 meters in 2024 compared to an average budgeted well length of approximately 8,500 meters, lowering cost per meter and increasing reservoir capture.

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As a result of optimized longer well designs and the technical expertise of our teams, average initial peak rates of multilaterals onstream in the first half of 2024 have increased 30% to approximately 230 bbl/d per well compared to budget average initial peak rates of 175 bbl/d per well.

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Pelican Lake production averaged 44,839 bbl/d in Q2/24, a decrease of 5% from Q2/23 levels, reflecting low natural field declines from this long life low decline asset.