Patterson-UTI Energy, Inc. press release

Canadian Natural Resources Limited Announces 2024 Third Quarter Results

2024-10-31

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

Calgary, Alberta--(Newsfile Corp. - October 31, 2024) - Canadian Natural's (TSX: CNQ) (NYSE: CNQ) President, Scott Stauth, commented on the Company's third quarter results, "Our unique and diverse asset base provides us with a competitive advantage, as we can allocate capital to the highest return projects without being reliant on any one commodity. Our consistent and top tier results are driven by safe and reliable operations. Our commitment to continuous improvement is supported by a strong team culture in all areas of our company that focus on improving our costs, driving execution of growth opportunities and increasing value to shareholders.

We achieved strong average production of approximately 1,363,000 BOE/d in Q3/24, consisting of 1,022,000 bbl/d of liquids and over 2.0 Bcf/d of natural gas. Our world class Oil Sand Mining and Upgrading assets delivered Q3/24 production of approximately 498,000 bbl/d of long life no decline Synthetic Crude Oil ("SCO"), including record monthly production of approximately 529,000 bbl/d of SCO in August 2024. These assets continue to drive strong operational performance and high utilization rates resulting in top tier quarterly operating costs of $20.67/bbl (US$15.16/bbl) driving significant free cash flow in Q3/24.

Subsequent to quarter end and subject to regulatory approvals, we announced that we have entered into an agreement to acquire Chevron Canada Limited's ("Chevron") 20% interest in the Athabasca Oil Sands Project ("AOSP"), which includes the Muskeg River and Jackpine mines, the Scotford Upgrader and the Quest Carbon Capture and Storage facility. This acquisition will bring Canadian Natural's total working interest in AOSP to 90% and adds approximately 62,500 bbl/d of SCO production, contributing to Canadian Natural's significant sustainable free cash flow generation. The Company also announced that we have entered into an agreement to acquire Chevron's 70% operated working interest of light crude oil and liquids rich assets in the Duvernay play in Alberta. Production from these assets is targeted to average approximately 60,000 BOE/d in 2025, consisting of 179 MMcf/d of natural gas and 30,000 bbl/d of liquids. These Duvernay assets provide the opportunity for robust growth while contributing meaningful free cash flow. Both of these assets are a great fit for Canadian Natural and when combined with our strong operating culture will drive significant value for shareholders."

Canadian Natural's Chief Financial Officer, Mark Stainthorpe, added "In Q3/24, we delivered strong financial results, including adjusted net earnings of approximately $2.1 billion and adjusted funds flow of $3.9 billion, which drove significant returns to shareholders totaling $1.9 billion in the quarter. Year-to-date, up to and including October 30, 2024, we have distributed significant value to shareholders, totaling approximately $6.7 billion, inclusive of our sustainable and growing dividend and share repurchases.

Given our strong financial position and significant and sustainable free cash flow generation, as previously announced, the Board of Directors has agreed to increase the quarterly dividend by 7% to $0.5625 per share payable at the next regular quarterly dividend payment in January 2025. This will mark 2025 as the 25th consecutive year of dividend increases by Canadian Natural, with a compound annual growth rate ("CAGR") of 21% over that time.

This increase in the quarterly 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. Our asset base is underpinned by top tier, long life low decline assets, a strong balance sheet and safe, effective and efficient operations all of which combine to provide us with unique competitive advantages in terms of capital efficiency, flexibility and sustainability, driving strong returns on capital."

HIGHLIGHTS

| | | Three Months Ended | | | Nine Months Ended | | | | | | | | | | | | | ($ millions, except per common share amounts) | | Sep 30 2024 | | | Jun 30 2024 | | | Sep 30 2023 | | | Sep 30 2024 | | | Sep 30 2023 | | | | Net earnings | $ | 2,266 | | $ | 1,715 | | $ | 2,344 | | $ | 4,968 | | $ | 5,606 | | | | Per common share (1) | - basic | $ | 1.07 | | $ | 0.80 | | $ | 1.08 | | $ | 2.33 | | $ | 2.56 | | | | - diluted | $ | 1.06 | | $ | 0.80 | | $ | 1.06 | | $ | 2.31 | | $ | 2.53 | | | Adjusted net earnings from operations (2) | $ | 2,071 | | $ | 1,892 | | $ | 2,850 | | $ | 5,437 | | $ | 5,987 | | | | Per common share (1) | - basic (3) | $ | 0.98 | | $ | 0.89 | | $ | 1.31 | | $ | 2.55 | | $ | 2.73 | | | | - diluted(3) | $ | 0.97 | | $ | 0.88 | | $ | 1.30 | | $ | 2.53 | | $ | 2.71 | | | Cash flows from operating activities | $ | 3,002 | | $ | 4,084 | | $ | 3,498 | | $ | 9,954 | | $ | 7,538 | | | | Adjusted funds flow (2) | $ | 3,921 | | $ | 3,614 | | $ | 4,684 | | $ | 10,673 | | $ | 10,855 | | | | Per common share (1) | - basic (3) | $ | 1.85 | | $ | 1.69 | | $ | 2.15 | | $ | 5.01 | | $ | 4.96 | | | | - diluted (3) | $ | 1.84 | | $ | 1.68 | | $ | 2.13 | | $ | 4.97 | | $ | 4.91 | | | Cash flows used in investing activities | $ | 1,274 | | $ | 1,015 | | $ | 1,199 | | $ | 3,681 | | $ | 3,912 | | | | Net capital expenditures (4) | $ | 1,349 | | $ | 1,621 | | $ | 1,108 | | $ | 4,083 | | $ | 3,934 | | | | Abandonment expenditures | $ | 204 | | $ | 129 | | $ | 123 | | $ | 495 | | $ | 360 | | | | Daily production, before royalties | | | | | | | | | | | | | | | | | | Natural gas (MMcf/d) | | 2,049 | | | 2,110 | | | 2,151 | | | 2,102 | | | 2,125 | | | | Crude oil and NGLs (bbl/d) | | 1,021,572 | | | 934,066 | | | 1,035,153 | | | 977,265 | | | 948,587 | | | | Equivalent production (BOE/d) (5) | | 1,363,086 | | | 1,285,798 | | | 1,393,614 | | | 1,327,593 | | | 1,302,715 | | | | (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 nine months ended September 30, 2024 dated October 30, 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 nine months ended September 30, 2024 dated October 30, 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 nine months ended September 30, 2024 dated October 30, 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 nine months ended September 30, 2024 dated October 30, 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 Q3/24, the Company generated strong financial results, including:

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Net earnings of approximately $2.3 billion and adjusted net earnings from operations of approximately $2.1 billion.

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Cash flows from operating activities of approximately $3.0 billion.

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Adjusted funds flow of approximately $3.9 billion.

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Canadian Natural continues to maintain a strong balance sheet and financial flexibility, with approximately $6.2 billion in liquidity(1)as at September 30, 2024.

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Canadian Natural delivered quarterly average production in Q3/24 of 1,363,086 BOE/d, a decrease of 2% from Q3/23 levels of 1,393,614 BOE/d. Production in Q3/24 consisted of total liquids production of 1,021,572 bbl/d and natural gas production of 2,049 MMcf/d.

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The Company's world class Oil Sands Mining and Upgrading assets delivered strong production averaging 497,656 bbl/d of high value SCO in Q3/24, approximately 7,000 bbl/d higher than Q3/23 levels. These quarterly production volumes in Q3/24 included the impacts of planned turnaround activities at the non-operated Scotford Upgrader.

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Oil Sands Mining and Upgrading achieved a new monthly production record of approximately 529,000 bbl/d of SCO in August 2024. This was primarily due to high utilization at both Horizon and AOSP as well as the completion of the reliability enhancement project at Horizon during the planned turnaround in Q2/24.

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Oil Sands Mining and Upgrading operating costs continue to be top tier, averaging $20.67/bbl (US$15.16/bbl) in Q3/24, a decrease of 7% from Q3/23 levels, primarily reflecting higher production volumes and lower energy costs.

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Due to stronger than budgeted production volumes at the Scotford Upgrader concurrent with reduced duration of the planned turnaround, the annual net production impact to AOSP from these planned turnaround activities was reduced to approximately 5,400 bbl/d, a significant improvement compared to the budgeted annual net production impact of 11,000 bbl/d. The planned turnaround commenced on September 9, 2024 and was successfully completed subsequent to quarter end on October 18, 2024.

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Additionally, a debottlenecking project was completed during the planned turnaround at the Scotford Upgrader which increases gross AOSP capacity by approximately 8,000 bbl/d. Upon closing the acquisition of Chevron's 20% interest in AOSP, the capacity net to Canadian Natural increases by approximately 7,200 bbl/d.

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Thermal in situ long life low decline production averaged 271,551 bbl/d in Q3/24, a decrease of 5% from Q3/23 levels, primarily due to the cyclical nature of production from Cyclic Steam Stimulation ("CSS") pads at Primrose and natural field declines, partially offset by Steam Assisted Gravity Drainage ("SAGD") pad additions at Kirby and Jackfish.

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At Jackfish, the Company achieved record quarterly production of approximately 128,000 bbl/d in Q3/24, primarily due to strong results from pad additions and effective and efficient operations.

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At Wolf Lake, the Company recently drilled a SAGD pad which is targeted to come on production in Q4/24 and as a result of strong execution targets to reach full production capacity in Q1/25, one quarter ahead of schedule.

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During 2024, the Company has increased its contracted crude oil transportation capacity to 256,500 bbl/d, expanding its committed volumes to Canada's West Coast and to the United States Gulf Coast ("USGC") to approximately 25% of liquids production compared to the mid-point of 2024 corporate annual guidance. The additional egress supports Canadian Natural's long-term sales strategy by targeting expanded refining markets, driving stronger netbacks while also reducing exposure to egress constraints.

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Commencing December 1, 2024, the Company will increase its capacity on the Trans Mountain Expansion ("TMX") pipeline by 75,000 bbl/d to a total of 169,000 bbl/‌d.

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As previously disclosed, the Company increased its capacity on the Flanagan South pipeline in Q1/24 by 55,000 bbl/d to a total of 77,500 bbl/d, further expanding the Company's heavy oil diversification and market access to the USGC.

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The Company also has committed volumes of 10,000 bbl/d on the Keystone Base pipeline, with direct access to the USGC.

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Subsequent to quarter end, Canadian Natural announced that it entered into an agreement to acquire Chevron's 20% interest in AOSP, which includes the Muskeg River and Jackpine mines, the Scotford Upgrader and the Quest Carbon Capture and Storage facility. Concurrently, the Company also entered into an agreement to acquire Chevron's 70% operated working interest in light crude oil and liquids rich assets in the Duvernay play in Alberta. Both of these acquisitions are targeted to contribute significant additional free cash flow to the Company.

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The AOSP acquisition brings Canadian Natural's total working interest in AOSP to 90%, adding approximately 62,500 bbl/d of long life no decline SCO production to our portfolio.

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Production net to Canadian Natural from the Duvernay assets is targeted to average approximately 60,000 BOE/d in 2025.

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The effective date for these acquisitions is September 1, 2024 and is targeted to close in Q4/24.

RETURNS TO SHAREHOLDERS

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Returns to shareholders in Q3/24 were strong, totaling approximately $1.9 billion, comprised of $1.12 billion of dividends and $0.74 billion through the repurchase and cancellation of approximately 15.6 million common shares at a weighted average price of $47.70 per share.

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Year to date in 2024, up to and including October 30, 2024, the Company has returned a total of approximately $6.7 billion directly to shareholders through $4.4 billion in dividends and $2.3 billion through the repurchase and cancellation of approximately 47.6 million common shares.

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Free cash flow is defined as adjusted funds flow, less capital and dividends. 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. As previously disclosed on October 7, 2024 and subsequent to quarter end, the Board of Directors has adjusted the free cash flow allocation policy which will now be allocated as follows:

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60% of free cash flow to shareholder returns and 40% to the balance sheet until net debt reaches $15 billion.

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When net debt is between $12 billion and $15 billion, free cash flow allocation will be 75% to shareholder returns and 25% to the balance sheet.

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When net debt is at or below $12 billion, up from the current target of $10 billion, free cash flow allocation will be 100% to shareholder returns.

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Post closing of the acquisitions previously disclosed on October 7, 2024, the Company will target to allocate 60% of free cash flow to shareholders. In a US$70/‍bbl WTI environment this change in free cash flow distribution to 60% allocation to shareholders targets to be approximately the equivalent absolute return to shareholders, including dividends, of what was targeted under the 100% of free cash flow allocation to shareholders existing prior to the acquisitions. Due to the additional free cash flow generation from the acquired assets, the Company's balance sheet strengthens quickly. Over time, the acquisitions and the new free cash flow allocation policy will provide additional free cash flow returns to shareholders exceeding what would have been returned under the current 100% distribution of free cash flow to shareholders.

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As previously disclosed on October 7, 2024 and subsequent to quarter end, the Board of Directors has agreed to increase the quarterly cash dividend by 7% to $0.5625 per common share, an increase from $0.525 per common share. The dividend will be payable on January 3, 2025 to shareholders of record at the close of business on December 13, 2024. This will mark 2025 as the 25thconsecutive year of dividend increases by Canadian Natural, with a CAGR of 21% over that time.

(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 nine months ended September 30, 2024 dated October 30, 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 landbase 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, 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 | | Nine Months Ended | | | | | | | | | | | | | | Sep 30, 2024 | | | Sep 30, 2023 | | | | | | | | | (number of wells) | | Gross | | | Net | | | Gross | | | Net | | | Crude oil (1) | | 212 | | | 207 | | | 186 | | | 179 | | | Natural gas | | 77 | | | 64 | | | 61 | | | 52 | | | Dry | | 2 | | | 2 | | | 2 | | | 2 | | | Subtotal | | 291 | | | 273 | | | 249 | | | 233 | | | Stratigraphic test / service wells | | 460 | | | 394 | | | 476 | | | 414 | | | Total | | 751 | | | 667 | | | 725 | | | 647 | | | Success rate (excluding stratigraphic test / service wells) | | | | | 99% | | | | | | 99 % | | | (1) Includes bitumen wells. | | | | | | | | | | | | |

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Canadian Natural drilled a total of 273 net crude oil and natural gas producer wells in the first nine months of 2024, consistent with the Company's strategic decision to focus on longer cycle development opportunities in the first half of 2024. Canadian Natural has strategically allocated capital to its conventional heavy crude oil assets in the second half of 2024.

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In Q1/24, the Company disclosed the reallocation of capital from certain dry natural gas development activity to multilateral heavy crude oil wells.

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Due to low natural gas prices in 2024, the Company has further reduced dry natural gas drilling activity. Canadian Natural now targets to drill a total of 74 net natural gas wells in 2024, 17 fewer wells than targeted in the original 2024 budget.

North America Exploration and Production

| Crude oil and NGLs - excluding Thermal In Situ Oil Sands | | | | | | | | | | | | | | | | | | | Three Months Ended | | | Nine Months Ended | | | | | | | | | | | | | | Sep 30 2024 | | | Jun 30 2024 | | | Sep 30 2023 | | | Sep 30 2024 | | | Sep 30 2023 | | | Crude oil and NGLs production (bbl/d) | | 228,221 | | | 231,592 | | | 232,496 | | | 232,416 | | | 231,047 | | | Net wells targeting crude oil | | 59 | | | 33 | | | 42 | | | 130 | | | 131 | | | Net successful wells drilled | | 58 | | | 33 | | | 42 | | | 129 | | | 129 | | | Success rate | | 98% | | | 100 % | | | 100 % | | | 99% | | | 98 % | |

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North America E&P liquids production, excluding thermal in situ, averaged 228,221 bbl/d in Q3/24, comparable to Q3/23 levels, reflecting primary heavy crude oil development activity offset by natural field declines. The Company has strategically allocated capital to its conventional heavy crude oil assets in the second half of 2024.