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    Canadian Natural Resources Ltd (CNQ)

    Q1 2024 Earnings Summary

    Reported on Feb 8, 2025 (Before Market Open)
    Pre-Earnings Price$37.48Last close (May 1, 2024)
    Post-Earnings Price$37.17Open (May 2, 2024)
    Price Change
    $-0.31(-0.83%)

    What went well

    • Canadian Natural Resources is strategically shifting capital towards higher-return oil projects, increasing drilling of multilateral wells by approximately 12 while reducing natural gas drilling by about half a dozen wells, aiming to enhance netbacks in the second half of the year.
    • The company has secured an additional 55,000 barrels per day of capacity on the Flanagan South pipeline, allowing for expanded market access and potential improvement in netbacks.
    • Significant long-term production growth opportunities at the Horizon oil sands operation include a potential addition of up to 195,000 barrels per day through technological enhancements like IPEP and Paraffinic Froth Treatment, indicating substantial future production growth.

    What went wrong

    • The company's long-term expansion plans are highly dependent on external factors, including the establishment of a favorable carbon policy and alignment on fiscal policy with government bodies, as well as securing enhanced pipeline egress capacity out of the basin, which introduces uncertainty and potential delays to their growth plans.
    • There is uncertainty regarding the capital efficiency and operating costs of the company's solvent projects, as these are still to be determined, and the success hinges on the recovery rates of solvents, posing economic risks to the projects.
    • The company's future cost reductions are expected to come primarily from small incremental savings, implying that significant cost reduction opportunities may be limited going forward, which could impact the company's ability to improve margins in the future.

    Q&A Summary

    1. Horizon Expansion Plans
      Q: Is Horizon expansion increasing from 75,000 to 195,000 bpd?
      A: Yes, CNQ announced for the first time that they are considering expanding Horizon by 195,000 barrels per day, up from the previously discussed 75,000 bpd. This increase is due to scalability improvements and engineering enhancements, particularly in the IPEP project and Froth Treatment sizing, primarily related to Horizon operations.

    2. Market Access via TMX
      Q: How will CNQ market crude with TMX coming online?
      A: CNQ plans a mix of land-based and marine sales for their TMX volumes. They have secured some marine sales and are developing more, targeting markets on the West Coast and Asia. This balanced approach aims to expand their market reach and capitalize on new opportunities.

    3. Natural Gas Outlook
      Q: What's CNQ's view on natural gas prices and LNG Canada impact?
      A: CNQ anticipates improved natural gas prices with LNG Canada coming online, expecting strip prices moving to the $3 range. They plan to capitalize on this through their balanced portfolio, focusing on high-return projects, and note that liquids production in the Montney strengthens their economics.

    4. Solvent Projects and Emissions Reduction
      Q: Update on solvent projects and their impact on costs?
      A: CNQ is progressing with a commercial-scale solvent project at Kirby North, set to start injecting solvent in July. They aim to reduce Steam-Oil Ratios by roughly half, cutting both operating costs and greenhouse gas emissions by about 50%. Successful results may lead to scaling up in future SAGD operations.

    5. Flanagan South Additional Commitments
      Q: Details on the 55,000 bpd added to Flanagan South?
      A: CNQ gained an additional 55,000 barrels per day on Flanagan South through an open season process. This enhances their ability to expand into new markets, and they are considering further expansions on the Mainline and TMX systems to increase egress opportunities over time.

    6. Primrose Solvent Deployment
      Q: When will solvents be broadly deployed at Primrose?
      A: While pilot results are promising, CNQ is currently focusing on the SAGD solvent project at Kirby North. Broader deployment at Primrose will follow after fully understanding the solvent recovery process and ensuring economic viability, leveraging learnings from current projects.

    7. Cost Reduction Initiatives
      Q: What's next for cost reductions?
      A: CNQ continues to pursue cost reductions through continuous improvement across all operations. They emphasize incremental savings and production optimization to reduce costs per barrel, maintaining a strong focus on efficiency and operational excellence.

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