Q2 2024 Earnings Summary
- Canadian Natural Resources Ltd has reduced net debt to $9.2 billion, below its $10 billion target, and continues to allocate 100% of free cash flow to shareholders, demonstrating strong financial discipline and commitment to shareholder returns.
- The company expects strong SCO production volumes for the remainder of 2024 and into 2025, with no planned turnaround at Horizon next year, leading to an increase of approximately 28,000 barrels per day in production rates at Horizon in 2025.
- Operational optimizations and continuous improvement initiatives have led to better-than-expected production results, particularly in heavy oil and at the Horizon asset. Early positive results from the solvent injection pilot at Kirby North show a 20% reduction in steam usage, potentially enhancing future production efficiency.
- Weak natural gas prices are leading CNQ to delay bringing approximately 20 out of 40 planned natural gas wells into production until prices improve, potentially impacting near-term gas production growth.
- Widening crude oil price differentials, increasing from $11 in June to $15.5 currently, and weaker refining margins in the U.S. are negatively affecting CNQ's realized prices, potentially reducing revenues.
- Uncertainty and delays in the Pathways project, due to the need for agreement among the federal government, provincial government, and CNQ, along with potential political uncertainty, may impact CNQ's ability to meet ESG goals and could result in increased costs or regulatory risks.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Corporate Natural Gas Production | FY 2024 | no prior guidance | 2.12 – 2.23 Bcf/d | no prior guidance |
Capital Allocation | FY 2024 | 100% of free cash flow to shareholders | 100% of free cash flow to shareholders | no change |
Primrose CSS pad #1 | Q4 2024 | no prior guidance | Targeted for production in late Q4 2024 | no prior guidance |
Primrose CSS pad #2 | Q2 2025 | Targeted for production in Q2 2025 | Targeted for production in Q2 2025 | no change |
Wolf Lake SAGD pad | Q1 2025 | Targeted for production in Q1 2025 | Targeted for production in Q1 2025 | no change |
Jackfish SAGD pad | Q3 2025 | Targeted for production in Q3 2025 | Targeted for production in Q3 2025 | no change |
Scotford Upgrader Turnaround | Q3 2024 | Turnaround in fall 2024 | 39 days in September 2024 | no change |
Scotford Debottleneck Project | Q3 2024 | +5,600 bbl/d net in fall 2024 turnaround | +5,600 bbl/d incremental capacity during 39-day turnaround | no change |
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Capital Allocation & Shareholder Returns
Q: Can we expect returns over 100% of free cash flow?
A: Net debt is below $10 billion due to working capital release and the sale of PrairieSky shares. The company will continue allocating 100% of free cash flow to shareholders through 2024. -
Production Increase at Horizon
Q: What is the production outlook for SCO into 2025?
A: With no turnaround at Horizon next year and reduced turnaround at Scotford, production rates at Horizon will be approximately 28,000 barrels per day higher in 2025. -
Optimization Impact at Jackfish & Primrose
Q: What is driving production outperformance at Jackfish and Primrose?
A: Strong drilling results and facility execution at Jackfish led to production ramp-up exceeding previous type curves. At Primrose, decoupling of execution plans allowed volumes to come online sooner than expected. -
Pathways Project Progress
Q: How is the Pathways project developing?
A: Collaboration between federal and provincial governments and the Pathways organization continues to establish a financial regime to advance the project. There is confidence that an agreement will be reached to move forward. -
Crude Oil Differential Outlook
Q: What is the near-term outlook on oil differentials?
A: Differentials have widened from $11 in June to $15-$15.5 currently due to wider crack spreads, drawdown of Alberta inventories by ~150,000 barrels per day, and increased Mexican crude imports into the U.S. Gulf Coast. -
Solvent Enhanced Oil Recovery Pilots
Q: Any updates on the solvent EOR pilots at Kirby North and Primrose?
A: The KN06 pad began solvent injection at the end of July, showing early reduction results around 20%, which is very positive. Further updates are expected by mid-next year. -
M&A Activity Outlook
Q: Are there plans for acquisitions or divestitures?
A: M&A activity is expected to be quiet. The company is confident with its current asset base and focuses on strong internal growth rather than acquisitions. -
Natural Gas Strategy
Q: How is the company approaching natural gas amid low prices?
A: Due to softer pricing, the company will delay bringing 20 of the 40 planned wells into production until prices improve, expecting improvement with LNG Canada commissioning in late Q4 or early Q1. -
Further Optimization at Horizon
Q: Can optimization drive capacity increases at Horizon?
A: Initial indications from the debottlenecking project are positive, but it's too early to estimate total capacity increases. More information will be available in the next quarter. -
Capital Allocation to Gas Assets
Q: What gas prices are needed to allocate more capital to gas assets?
A: Better gas prices than currently are needed. In the Montney, significant liquids drive economics, so modest gas price increases can justify activity. Forward pricing looks workable. -
Mannville Heavy Oil Development
Q: What are the plans for the Mannville heavy oil asset?
A: Capital allocation is directed to projects with the best returns. Current activity levels in heavy oil are expected to continue into 2025, optimizing technology such as multilaterals. -
Free Cash Flow Policy Clarification
Q: How does the PrairieSky sale affect free cash flow distribution?
A: Proceeds from the PrairieSky share sale are outside of free cash flow. The company maintains its 100% free cash flow return policy to shareholders.