Canadian Natural Resources - Q3 2023

Transcript

Operator (participant)

Good morning. We would like to welcome everyone to the Canadian Natural Resources 2023 third quarter earnings conference call and webcast. After the presentation, we will conduct a question and answer session. Instructions will be given at that time. Please note that this call is being recorded today, November 2, 2023, at 9 A.M. Mountain Time. I would now like to turn the meeting over to your host for today's call, Lance Casson, Manager of Investor Relations. Please go ahead.

Lance J. Casson (Manager of Investor Relations)

Good morning, everyone, and thank you for joining Canadian Natural's third quarter 2023 earnings conference call. As always, before we begin, I'd like to remind you of our forward-looking statements, and it should be noted that in our reporting disclosures, everything is in Canadian dollars unless otherwise stated, and we report our reserves and production before royalties. Additionally, I would suggest you review our comments on non-GAAP disclosures in our financial statements. Speaking on today's call will be Tim McKay, our President, and Mark Stainthorpe, our Chief Financial Officer. Tim will first speak to how strong execution has resulted in record quarterly production, and he'll provide additional specifics on our safe, reliable, and world-class operations. Mark will then summarize our strong financial results, including significant free cash flow generation and increasing shareholder returns. To close, Tim will summarize our call prior to opening up the line for questions.

With that, I'll turn it over to you, Tim.

Tim McKay (President)

Thank you, Lance. Good morning, everyone. In the third quarter, we achieved record quarterly production of approximately 1.39 million BOEs per day, which included both record liquids production at approximately 1,035,000 barrels a day, and natural gas production at approximately 2.15 Bcf/day as a result of effective and efficient operations across all our assets. This, combined with our diverse product mix, we generated significant free cash flow, resulting in more shareholder returns through our sustainable growing dividend and significant share repurchases. As well, Canadian Natural continues to be a leader in environmental, social, and governance, and has made it a priority to work collaboratively with industry peers and government to achieve meaningful GHG emission reductions in support of both Alberta and Canada's climate goals through our participation in the Pathways Alliance.

As we move forward to lower our carbon emissions, with our target to reduce the absolute Scope 1, Scope 2 emissions by 40% by 2035 from our 2020 baseline on our journey to achieve our goal of net zero GHG emissions in the Oil Sands by 2050. I'll now do a brief overview of the assets, starting with natural gas. Overall, Q3 natural gas production was a record at 2.15 Bcf/day, which was higher than Q3 2022 production. From North American operations, Q3 2023 natural gas production was also a record at approximately 2.14 Bcf/day versus Q3 2022. As well, we added volumes through our drill-to-fill strategy, adding low-cost, high-value, liquids-rich production across the asset. During the quarter, the company drilled 10 net wells, all meeting expectations.

Our North American Q3 natural gas operating cost was $1.22 per MCF, a decrease of 8% compared to Q3 2022. An increase of 8% compared to Q3 2022 of $1.13, primarily due to higher service costs. Our teams will continue to focus on effective and efficient operations and cost control across all areas. For North American light oil and NGL, Q3 production was approximately 109,000 barrels a day, comparable to the Q3 2022 of 109,252 barrels a day. Q3 operating costs were $15.49 per barrel, a decrease of 7% from Q3 2022 operating costs of $16.68 per barrel, primarily due to lower power costs in the quarter.

Our international assets in Q3 had oil production of 24,719 barrels a day, which is comparable to Q3 2022 levels of 24,493 barrels a day. Our international assets continued to generate good cash flow as we progress towards decommissioning of an Ninian asset. Moving to heavy oil. Heavy oil production was 76,377 barrels a day in Q3 2023, up 11% from Q3 2022 production of 68,933 barrels a day, primarily due to increased drilling activity, strong drilling results, offsetting natural field declines. Operating costs in Q3 2023 were at CAD 1,968 per barrel, down 8% compared to our Q3 2022 operating cost of CAD 2,130 per barrel, primarily reflecting higher volumes in the quarter.

During the quarter, the company drilled 34 net heavy oil wells, which were multilateral across our land base from Bonnyville, Lloydminster, to Clearwater areas, with all meeting targeted results. A key component of our long-life, low-decline assets is our world-class Pelican Lake pool, where our leading-edge polymer flood continues to deliver significant value. Q3 production was 46,897 barrels a day, down 6% versus Q3 2022 average of 50,051 barrels per day, reflecting the low decline nature of the property. The polymer injection rates, which were reinstated in February 2023, have been successful in returning the field back to more historical decline rate, which was approximately 5%. The team continues to focus on operational excellence with Q3 operating costs of $8.0.

2 per barrel, decreasing 10% from our Q3 2022 operating costs of $8.89, primarily reflecting effective and efficient operations, lower power costs, offsetting the lower production volumes. With Pelican Lake's low decline and very low operating costs, it continues to generate excellent netback. In our thermal in situ areas in Q3 2023, as a result of strong execution, combined with effective and efficient operations, Q3 2023 thermal production was 287,085 barrels a day, up approximately 44,000 barrels a day from Q3 2022 production of 243,393 barrels a day. Q3 operating costs were $11.47 per barrel, down 27% when compared to Q3 2022 operating costs of $15.63, largely as a result of higher production and lower natural gas fuel costs.

At Kirby, current production is approximately 65,000 barrels a day, as the company has grown it by approximately 15,000 barrels a day from Q4 2022 levels. The significant production growth is due to the development of four SAGD pads, the first which reached full capacity in Q3 2023. The remaining three targets are targeted to ramp up to full production over the next nine months of 2024, at a pace of one pad per quarter, maintaining this production level. At Jackfish, two SAGD pads, SAGD pads were drilled in the first half of 2023, with production from these pads targeted to ramp up to full production capacity in Q3 2024 and Q4 2024, supporting continued high utilization.

Oil sands mining at the company's world-class oil sands mining operations and upgrading assets, we had Q3 production averaging 490,853 barrels a day of SCO, versus production of 487,553 in Q3 2022. With Q3 operating costs that were $22.12 per barrel versus Q3 2022 of $22.35 per barrel. The reliability enhancement project continues to move forward, targeting to add approximately 14,000 barrels a day of additional SCO capacity in 2025, as a result of shifting the maintenance schedule from once per year to once every two years, reducing downtime for maintenance activities and increasing overall reliability at Horizon. Also here with me today as part of our succession plan, I have Scott Stauth, Trevor Cassidy, Jay Froc, and Robin Zabek.

As part of my succession, Scott Stauth will be taking over the role of President, effective February 28, 2024. Scott and I met a little over 26 years ago, and over the years, Scott has excelled in every role he has had with the company, and I know he will do a great job. Should anyone have any questions for Scott, feel free to ask when we move to the Q&A session. Jay Froc, currently our Senior Vice President of Oil Sands Mining, will replace Scott's previous role as COO of Oil Sands. As well, in Q4, Trevor Cassidy, after 24 years with Canadian Natural, will be retiring. We wish to thank Trevor for all his contribution over the many years.

Robin Zabek, who has been with the company 20 years and who is currently our Senior VP of Exploitation, will assume the role of COO, Exploration and Production. I'll now turn it over to Mark for a financial review.

Mark Stainthorpe (CFO and SVP of Finance)

Thanks, Tim, and good morning, everyone. The third quarter of 2023 was a strong financial quarter, as we generated adjusted funds flow of CAD 4.7 billion and adjusted net earnings from operations of CAD 2.9 billion. This was due to strong pricing and good cost control, which contributed to a robust netbacks on record quarterly production. Our diversified portfolio, including our long life, low-decline assets, combined with effective and efficient operations, allowed us to continue to deliver robust returns to shareholders through dividends, repurchasing shares, and reducing debt. Year-to-date, up to and including November 1st, 2023, we have returned approximately CAD 6.1 billion to shareholders through dividends and share repurchases.

Subsequent to quarter end, the board of directors has approved an 11% increase to our base quarterly dividend to CAD 1 per common share from CAD 0.90 per common share, demonstrating the confidence 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. This dividend increase, combined with the increase in March 2023, results in an 18% increase to CAD 4 per share annually, meaning 2024 will be the 24th consecutive year of dividend increases, with a compound annual growth rate of 21% over that time. Our financial position is very strong today, with debt to EBITDA at 0.7 times at the end of Q3, and we continue to maintain strong liquidity, including revolving bank facilities, cash, and short-term investments.

Liquidity at the end of the quarter was approximately CAD 6.1 billion. We target to continue strong operational performance in Q4 2023 and beyond, and based on current strip pricing, we are quickly approaching our net debt level of CAD 10 billion, which we forecast to achieve in Q1 2024, at which time we target to increase returns to shareholders to 100% of free cash flow. When you combine our leading execution with our large, balanced, low risk, high value reserves and production, effective and efficient operations, and flexible capital allocation, we are able to generate material free cash flow and deliver strong returns on capital.

Neil Mehta (Managing Director and Head of North American Natural Resources Equity Research)

With that, I'll return it back to you, Tim, for some final comments.

Tim McKay (President)

Thanks, Mark. Canadian Natural's advantage is our ability to effectively allocate cash flow to our four pillars. We have a well-balanced, diverse, and large asset base, which a significant portion is long life, low decline assets, which require less capital to maintain volumes. We are delivering top-tier free cash flow generation, which is unique, sustainable, robust, and clearly demonstrates our ability to both economically grow the business and deliver returns to shareholders by balancing our four pillars. With our robust, sustainable free cash flow through our free cash flow allocation policy, returns to shareholders continue to be significant, which includes our growing dividend that will be increased for 24 consecutive years in 2024. In summary, we continue to focus on safe, reliable operations, enhancing our top-tier operations, and we will continue to drive top-tier environmental performance. With that, I will now open it up for questions.

Operator (participant)

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press the star followed by the one on your touchtone phone. You will hear a three-tone prompt acknowledging your request. If you are using a speakerphone, please lift the handset before pressing any keys. Your first question comes from Dennis Fong from CIBC World Markets. Please go ahead.

Dennis Fong (Director and Equity Research Analyst)

Hi, good morning. I guess first off, congrats, Tim, on your upcoming retirement and to Scott on the promotion. My first question here just is related to, obviously, we're entering the winter here. There's a little bit of cooler weather. I know that there's been a focus on remediating some of the potential impacts of harsher operating environments, given the cooler weather. Can you just remind us about what has been changed or completed in operations as well as equipment to show kind of strong uptime through January and February?

Tim McKay (President)

Yeah, Dennis. Well, in general, every fall, the teams start to make sure that all areas of potential freeze up are insulated, heat traced, is checked. As you can appreciate, in a lot of areas, the heat tracing basically gets turned off during the summer months, so we've got to make sure that all works. So, generally, it's just what I would consider routine business to make sure that we have methanol, heat tracing, and insulation covering all the areas of potential freeze up. So, and generally, we monitor it quite rigorously as we move towards winter.

Dennis Fong (Director and Equity Research Analyst)

Great. Great, thanks. I appreciate that. And then my second question is just related to the optimization that you're driving to at the oil sands mining business unit. As you see higher and higher production levels, how should we be thinking about the ability to kind of lower unit OpEx? And what's maybe your target once you are able to line up the facility at an even higher level?

Tim McKay (President)

Yeah, that's a very good question. So, obviously, with through the reliability project, the key there is that, you're not taking a shutdown. And so typically, in the oil sands, the shutdowns are usually about a month per year. So as you can appreciate, during that one month that we're down, all the fixed costs are still, shall we say, adding to the account. So, that includes your mining trucks and such. So the to me, the way to think of it is, by keeping it running, you basically get that one month of same cost per se, but you're getting all that extra volume.

So, that's the way I would look at it, because the mines, as you're seeing with the operating costs, are pretty steady in terms of, overall costs. And, to me, it's all about, making those extra barrels, each and every day.

Dennis Fong (Director and Equity Research Analyst)

Perfect. Appreciate that color. I'll turn it back. And again, congratulations. Thanks.

Tim McKay (President)

Thank you.

Operator (participant)

Thank you. The next question comes from Neil Mehta at Goldman Sachs. Please go ahead.

Neil Mehta (Managing Director and Head of North American Natural Resources Equity Research)

Yeah, thank you, and congrats, Scott, and congrats, Tim, on your retirement, too. I guess maybe that's where we'll, I'll start, which is over the last five years, stock's done really well. It's a CAD 100 billion Canadian company at this point in terms of market cap. As Scott, as you transition into this new role and as Tim, as you retire, how do you think about the next five years? What's the next leg of value creation? Is it the same playbook, or is there any strategic change that you see as necessary to get to the next level?

Tim McKay (President)

Is that question for, Scott there, Neil? Sorry.

Neil Mehta (Managing Director and Head of North American Natural Resources Equity Research)

It's for both of you.

Tim McKay (President)

Oh, you know what? You know, Canadian Natural, I'll start first. You know, Canadian Natural is very fortunate in that we have a huge reserve base. So I look at it, you know, going forward, you know, we've got to continue to do what we do best. You know, drive top-tier operations, high reliability, controlling our costs, be disciplined. And, you know, we're very fortunate in that we have that huge reserve base, that we can basically grow production methodically should we decide to grow over time? And, you know, if you look at something like Horizon, you know, we've talked about that we could easily double Horizon at some point.

There's also been, you know, the dilbit, paraffinic dilbit that we could do there. There's opportunities in the thermal side, gas and the Montney. So, you know, to me, you know, we just have to keep doing what we do well. And, you know, and on top of that, you know, as always, you know, there always is opportunistic acquisitions that can come our way. And, you know, we're very good at doing those, should that opportunity come that way. So, I don't really see any real change to our business.

I think it's you know, if you look at our succession, everybody's, well ingrained in the company and, understands, all the opportunities that we have, and we constantly work on those opportunities to make sure we're ready to exercise those opportunities, should that time happen. Scott?

Scott Stauth (COO of Oil Sands)

Yep, yep. Neil, I agree with everything Tim said. And, you know, with just the robust nature of our assets, free cash flow generation that the company's been able to develop over the years and continue to work on and improve. And, you know, I don't see our focus changing. Tim outlined everything that we've done in the past, and we're gonna continue to work on in the future. So I think that you should see much the same in the future as what you've seen in the past.

Neil Mehta (Managing Director and Head of North American Natural Resources Equity Research)

Great. Thanks, Tim. Scott, the follow-up is just on consolidation. South of the border, we've seen some really big deals here over the last couple of weeks in the E&P space by the majors. And I'm just curious on your views on whether there's room for further consolidation in Canada and perspectives on CNQ's potential role there.

Tim McKay (President)

Yeah, I mean, consolidation could happen here in Canada as well. But, you know, the key is that, for us anyways, is we have a huge reserve base. And, so, you know, we don't have to do any acquisitions to create or find more reserves. So, we have that part in the bag. To me, we can sit back, do what we do best, and that's just exploit those opportunities, be methodical with our growth plan. And, you know, should something opportunistic happen our way, you know, that may happen. But, to me, you know, we've got, you know, one of the largest reserve opportunities in the world. So, that's the key for us.

Neil Mehta (Managing Director and Head of North American Natural Resources Equity Research)

Okay, thanks.

Operator (participant)

Thank you. The next question comes from Greg Pardy at RBC Capital Markets. Please go ahead.

Greg Pardy (Managing Director and Head of Global Energy Research)

Yeah, thanks. Good morning, and thank, thanks for the rundown. So first off, Tim, you know, congratulations. You've been great to work with, and, and we're glad you're not going until the summer, and, and absolutely welcome, Scott and others as well. So I want to stay a little bit on the successorship. You know, I was going through your info circular recently, and it looks as though there's a very I mean, A, there's a strong culture of promoting within, but there's also almost like a defined game plan for, for folks on the management committee in terms of how successorship works and so forth. Could you talk about that a little bit?

Tim McKay (President)

Well, I don't know really what how I could talk more to it. You know, every year, we do a very thorough job of our succession plan. And so, to me, you know, it's never a surprise. It's well thought of. People are generally moved to different positions to for grooming or learning, however you wanna call it. And as people grow with the company, and they perform, they generally move right along. So it's, to me, you know, the longevity of the people that come here, they love the culture, they love working with people, and they love the opportunities the company has before it.

To me, it's just a great place to work and a great place that we can develop our own people internally and promote within.

Greg Pardy (Managing Director and Head of Global Energy Research)

Okay, got it, Tim. Thanks for that. And then I'll completely switch gears maybe and just fire one at Mark. But in terms I mean, you know, huge cash flow generation, you know, working capital impacts obviously in the quarter. I'm curious how you'd sort of see the balance of the year going or the fourth quarter going in terms of working capital changes. And then just with respect to Trans Mountain, I know you've got just under 100,000 barrels a day on that. When you go into line pack, is that going to materially increase working capital as you go into the first quarter? Something that Cenovus just flagged on their call. I was just curious how much it impacted you guys.

Scott Stauth (COO of Oil Sands)

Yeah, sure, Greg. So, I mean, in Q4, like I kind of mentioned earlier, we're targeting, you know, strong operational performance. So given this pricing environment and our netbacks, we're looking at, you know, strong cash flow generation and free cash flow generation in the quarter. You know, when you look at working capital, I mean, to me, the biggest thing is look, think about receivables. So in September, very strong operational month, pricing month, but we don't get paid for that until October. So that's really, you know, one of the main drivers of the working capital. The other being, of course, when you have turnaround activity in one quarter, you tend to the payables happen in the following quarter. So those are just natural ways the business runs.

So to comment on exactly what working capital will be like in the fourth quarter is somewhat difficult, but you can just kind of take that away, that the receivables are one of the big things. Then as far as TMX, yes, there'll be a working capital build for TMX line fill, but that is not going to be significant to us at all.

Tim McKay (President)

Of course, right now, we don't know if that'll happen here in the fourth quarter or early into next year. Obviously, you know, if it happens earlier this year, between now and the end of the year, that's actually very positive in the sense that that should start to you know tighten in the WCS diffs and such. So, but we haven't yet to be getting information that they would be doing that, but we hope that you know we'll hear from them soon on that.

Greg Pardy (Managing Director and Head of Global Energy Research)

Okay. Got it. Thanks, guys.

Scott Stauth (COO of Oil Sands)

Thanks, Greg.

Operator (participant)

Thank you. The next question comes from Menno Hulshof at TD Securities. Please go ahead.

Menno Hulshof (Managing Director and Senior Research Analyst)

Thanks, and good morning, everyone. I'll start with a question on autonomous haul trucking. One of your peers just achieved full fleet conversion with reasonable cost savings, and you know, just going through the transcripts, I understand that you haven't shown much of an interest in the past, but has your thinking changed at all? And if so, what could the staging for deployment of autonomous hauling look like at Horizon or even the AOSP? I believe you had a pilot going there at Jackpine a number of years ago. Any color there would be helpful.

Tim McKay (President)

Sure. I'll just tap Scott, because that's a perfect lead in for, you know, that's his area of expertise. So, I'll have Scott talk to that.

Scott Stauth (COO of Oil Sands)

Yeah. Thanks, Tim. So we continue to evaluate the opportunities for autonomous haul on our equipment in the mines. We have looked at it in the past number of years. We pay close attention to what our peers are doing and what's going on in the rest of the hard rock mining world. But at this time, you know, we've looked through it and reviewed it, and with a lot of the efficiencies that we've been able to achieve in our mining operation, we have very close to the equivalent of autonomous haul. In fact, we believe we're at the equivalency of autonomous haul efficiencies.

So from our perspective, we'll continue to watch the technology as it improves over the years and stay abreast from the vendors of anything breaking through from news from that perspective. But really, we're quite strong in terms of our efficiencies that our folks in the mining operations have been able to deliver. So we like what we see from that perspective.

Menno Hulshof (Managing Director and Senior Research Analyst)

Thanks, Scott. And just to clarify, is that pilot at Jackpine still running, or did you wind that down?

Scott Stauth (COO of Oil Sands)

There was an original pilot at Jackpine years ago, but it was more from collision avoidance at that Shell had carried on before our time that we took over in 2017.

Menno Hulshof (Managing Director and Senior Research Analyst)

Okay, got it. Then maybe just moving on to the heavy oil program in the Lloydminster Mannville, given the reemergence of that, that play, what is old is new. You look, it looks like you drilled 34 multilaterals in the quarter. Can you just update us on what you're seeing in terms of performance, and how is the Mannville competing for capital with your other liquids growth opportunities?

Tim McKay (President)

Yeah, I mean, the multilaterals is working out very well. Obviously, as you step out, you'll find areas where the viscosity is a little bit too thick, I would say, or too viscous, and the productivities aren't as good. But generally, we're in the generally lower viscosity areas, and the productivities have been excellent. And you know, from a capital perspective, when we look overall, it's they're basically very similar to whether you're drilling in the Clearwater, which is, in my mind, kind of the same thing. To me, it's all about the areas you pick, how your drilling costs and how your access costs can be lower.

So, in the Bonnyville, Lloydminster area, we see lower costs of entrance because of the access, and they compete very well against the Clearwater.

Menno Hulshof (Managing Director and Senior Research Analyst)

Perfect. Thanks a lot, Tim. Congratulations, and I'll turn it back.

Tim McKay (President)

Thank you.

Operator (participant)

Thank you. The next question comes from Patrick O'Rourke at ATB Capital Markets. Please go ahead.

Patrick O'Rourke (Analyst)

Okay, guys, thank you very much for taking my questions. You know, first off, obviously, congratulations to Tim and Scott on everything that's gone on here with the transition. Just, you know, first question with respect to TMX here, on the cusp of line fill, whether it's in Q4 or Q1, and maybe if you can give us some sort of view of how you think about extracting value through marketing barrels on this asset, and maybe a breakdown of, you know, you've got a lot of synthetic barrels there, you've got dilbit, how you anticipate you'll break that down when that pipe comes on.

Tim McKay (President)

Yeah. Well, you know, when TMX does call for oil and it's operational. Well, you know, first of all, it's going to take roughly about 4.5 million barrels out of the market, so that'll be a positive for differentials and, you know, give us- gives Western Canada more egress. So, I look at that as very constructive for Western Canada. You know, as far as the marketing and the barrels, you know, just like you know any area. What will happen is, and you allude to, we have quite a slate of different varieties of oil that we can supply to that market.

So, you know, when it does come up and running, our marketing group is got some ideas in terms of the types of slate that will be opportune in those areas. But, you know, as the market develops, there may be certain markets that want certain types of crudes. Like, let's say, it may be more advantageous for synthetic to move to that market versus where it's going today. So, you know, part of that is gonna be how the market develops and how different customers want or would like certain slates that we have available.

So it's pretty early to say, but you know, I would look at it that as TMX gets up and running, we'll optimize our slates to maximize the netback of those barrels.

Patrick O'Rourke (Analyst)

Okay. And just a second question, kind of shifting gears a little bit, but maybe a bit interrelated here. You talked about the ebbs and flows of sort of working capital builds from quarter to quarter here. I'm just wondering how that is impacting, you know, sort of the projections and philosophies around the return of capital structure, in particular, with share buybacks going, you know, forward over, say, the next 2, 3, 4 quarters.

Mark Stainthorpe (CFO and SVP of Finance)

Hey, Patrick, it's Mark. You know, the impact to the share returns is minimal. I mean, we've got a policy in place that, you know, we have our funds flow less the dividend, and currently, until we get to the CAD 10 billion, 50% is going to buybacks and, and 50% to the balance sheet. And that will turn to 100% here, as we, you know, forecast currently to get to that CAD 10 billion in Q1. The working capital moves, in my view, are just regular business that happen, because you have accounting closes on certain, certain months. So to me, there's very little impact for that going forward as we, you know, as we manage that increasing returns to shareholders.

Patrick O'Rourke (Analyst)

Okay. Thank you very much.

Operator (participant)

Thank you. The next question comes from John Royal at JPMorgan. Please go ahead.

John Royall (Equity Research Analyst)

Hi, good morning. Thanks for taking my question. I have a question on capital allocation. I think you're tracking a little under your 50% allocation year to date. If I did the math right, it's about 40%. Should we expect a catch-up in 4Q? Or conversely, does it make more sense to pull back a little in 4Q and get to that floor more quickly?

Mark Stainthorpe (CFO and SVP of Finance)

Yeah, we'll evaluate as we go through the quarter here. We're gonna get, you know, close. We try and manage as close as we can to the policy. Of course, you've seen, you know, based on the numbers reported here this morning, that in October, the buyback program has, you know, increased from the pace we've gone through for the rest of the year. But yeah, so we'll manage as best we can to, you know, close to that 50% for now until, again, we get to that CAD 10 billion, and then it moves to 100%.

John Royall (Equity Research Analyst)

Great. And then, just another on capital allocation. This one's on the dividend hike. Can you talk about why the 11% is the right level for the hike and also the frequency? I think it's been, three hikes now, I think up 33% over the past 5 quarters. Should we think about this as kind of a, a gradual reset on, on a view of structurally higher earnings? Or, is it simply maybe that your, your policy was a little bit more conservative than it needed to be before, and you're catching that up or, or some combination? Just any color there would be helpful.

Mark Stainthorpe (CFO and SVP of Finance)

Yeah, I mean, every quarter, of course, the board reviews the dividend, and we evaluate the level based, you know, largely on sustainability through cycles. You know, when we look at the significant free cash flow generation, how well, you know, the effect of operations, the sustainable dividend is there at lower commodity prices. And we take that and look at the balance sheet and how we're approaching that, you know, CAD 10 billion of net debt, you know, along with the ongoing buyback program. The dividend increase made sense at this time and at that level. You know, I can't necessarily speak for the board on cadence and when those happen, but, you know, I know the dividend level will be reviewed at every meeting, like I said.

With low breakevens, low decline production, our business can, you know, can support further dividend increases. So it's got to just be taken in context with all the shareholder return profile, you know, given the significant buyback program going on as well.

John Royall (Equity Research Analyst)

Thank you.

Operator (participant)

Thank you. Next question comes from Manav Gupta from UBS. Please go ahead.

Manav Gupta (Executive Director and Equity Research Analyst)

Good morning, guys. My question is on the oil sands mining upgrade volumes. A very strong rebound versus 3Q was kind of expected, but still a pretty strong number. Can you share some data around October? And then how should we think about the fourth quarter versus the third quarter as it relates to oil sands volumes?

Tim McKay (President)

Yeah, sorry. In terms of well, I would say that, after the turnaround, we should be pretty steady. So to me, you know, I feel a good run is between the kind of that 490-500 range, is what I would call top-tier runs. And so that's always our target is to be within that kind of range. Obviously, there's always you know, your turnarounds that you have to make sure you model in. But, you know, that to me is from my perspective, I like to see a number that's 490+.

Manav Gupta (Executive Director and Equity Research Analyst)

Perfect. And also, if you could give us some of your views on the both near- and medium-term differentials. We have seen some widening on the WCS side, and then I think synthetic is now below WTI. It was trading over WTI. So in your view,

When the line actually does start to fill, should we expect these dips to narrow or when the line actually, I mean, I'm trying to understand, will the line fill actually impact the differentials or the line would have to flow to impact the differentials? What's your view over there?

Tim McKay (President)

Yeah, well, I'll give you my opinion on it. To me, when TMX calls, the differentials will shrink again. I think this is a short-term blip. Obviously, many companies, including ourselves, had incremental volumes coming on in the fall here, based on TMX being up and running. So, I look at it as a short-term pressure on the differentials. Also, you know, the refineries were doing some maintenance. Those refinery programs are pretty much wrapped up, so that pressure will come off. And, you know, as far as crack spreads, you know, again, you know, the differential is kind of wide, so I see that putting a little pressure on synthetic in the short term.

But, cracks in general, crack spreads are strong and synthetic will probably stay at a little bit of a premium. So, I just think this is just a short term pressure, you know, because, you know, the nominations were higher. You've seen the apportionment move up about 24%. And, you know, really, once TMX calls for oil and starts moving it, that pressure will come off the apportionment.

Manav Gupta (Executive Director and Equity Research Analyst)

Thank you so much.

Tim McKay (President)

You're welcome.

Operator (participant)

Thank you, ladies and gentlemen. As a reminder, should you have any questions, please press star one now. Next question comes from Doug Leggate from Bank of America. Please go ahead.

Kalei Akamine (VP and Equity Research Analyst)

Hey, guys. Good morning. This is Kalei for Doug. So thanks very much for taking my question. I guess this one is a follow-up to Manav's question. You've addressed the, some of the tension between the volumes and the WCS pricing, but I guess I'm thinking that, about this more in the context of 2024 planning, because it looks like the industry is trying to ramp up into TMX, but startup still looks fairly uncertain. So I'm wondering, as you're going through that budgeting process, what does the scenario planning look like?

Tim McKay (President)

Yeah, you know what? It for me, it doesn't change our 2024 plan. You know, when I look at it, the TMX is coming very quickly. Last reports, they were, you know, 90-something% done. So, to me, it's just a matter of which month, you know, it'll start the line fill and then start to ramp up its operations. So if you look at Western Canada, the storage levels are 30% or whatever it is, and pretty steady. So, you know, as long as, you know, the egress pipelines are run reasonably well, egress is the pipe, the storage piece is not climbing that high. I mean, we've had much higher storage levels in Western Canada in the past.

So I just look at it. It's just more of a timing issue and, you know, that it will not impact 2024, in fact, at all in my mind.

Kalei Akamine (VP and Equity Research Analyst)

Got it. I appreciate that. Maybe for the next one, I'm hoping that I can get you to comment on your long-term outlook for natural gas pricing, and it's really in the context of LNG Canada starting up sometime in the near future. So as that comes up, do you see a new dynamic for Canadian natural gas emerging? Or do you think that the scale of the Canadian gas resource sort of keeps returns for gas at a more modest premium? And how does that play into your views of gas M&A in the basin?

Tim McKay (President)

Yeah, that's a boy, a tough question to say. I mean, you know, I look at Western Canada, you know, it does have egress issues in terms of whether it's oil or natural gas. And so, you know, it's very important that these incremental egress operations run reliably and consistently. So, you know, I really you know do not know the timing of LNG Canada. I've heard it looks like into next year, mid-next year.

But so, you know, I think it'll still you know, because there are so many good opportunities in natural gas, Montney, primarily, in Western Canada, that any egress that does open up, I think, that the companies here in Western Canada are very efficient in terms of filling that space, so provided that the pricing is right. So difficult to say, you know, where it will all level out, but I do know that the Montney in all areas is quite prolific. And you know, we've had very good results in our Montney operations, both on the oil side and natural gas side. So I just see that incremental egress will be filled in short time.

Kalei Akamine (VP and Equity Research Analyst)

Got it. I appreciate that. We look forward to seeing Mark in Houston for our conference in a couple of weeks. Take care, guys.

Tim McKay (President)

Thanks. Thank you.

Operator (participant)

Thank you. There are no further questions. I'll turn the call back over for closing comments.

Lance J. Casson (Manager of Investor Relations)

Thank you, operator, and thanks everyone for joining us this morning. If you have any follow-up questions, please give us a call. Thanks, and have a great day.

Operator (participant)

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines.