Canadian Natural Resources Limited

Good morning, ladies and gentlemen, and welcome to the Canadian Natural Resources Earnings Results Conference Call slash Webcast. After the presentation, we'll conduct a question and answer session. Instructions will be given at that time. Please note that this call is being recorded today, May 7, 2020, at 8 a.m. Mountain Time. I would now like to turn the meeting over to your host for today's call, Corey Beaver, Executive Advisor. Please go ahead, Mr. Beaver. Thanks, and enjoy the day.

Thank you, Operator. Good morning, everyone, and thank you for joining our first quarter 2020 conference call. With me this morning are Tim McKay, our President, Scott Stouth, Chief Operating Officer for WellSams, Taryn Fichter, Chief Operating Officer for Exploration and Production, and Mark Steenthorpe, Chief Financial Officer. In order to facilitate today's call, we will be referring to a number of slides which are currently available on our website. I would encourage you to download this package to facilitate following along with the presentation. Further, I would ask that any detailed modeling questions be directed to investor relations rather than be handled on this call. Before we begin, I would refer you to the special note regarding non-GAAP measures contained in our press release. These measures used to evaluate the company's performance should not be considered to be more meaningful than those determined in accordance with IFRS. I would also like to refer you to the comments regarding forward-looking information contained in our press release and also note that all amounts are in Canadian dollars and production and reserves are expressed as before royalties unless otherwise noted. With that, I'll now pass the call over to Tim.

Thank you, Corey. Good morning, everyone. In Q1 2020, Canadian Natural delivered top-tier operational results. We are a unique energy company as we have robust economic long life, low to coin assets, a history of capital discipline and operational excellence, and relative to most of our peers, the ability to enhance margins. Few, if any of our peers, can deliver sustainable cash flow. Canadian Natural has a proven effective strategy, and as a result, Canadian Natural is in a strong position, and we are delivering in today's environment, ensuring a sustainable dividend to our shareholders. which is robust in a volatile commodity price environment. Moving to slide six, Canadian Natural continues to be proactive and effective, take proactive and effective steps to ensure the health and safety of our people working for us. We continue to enhance our COVID-19 program across the company and now have added the requirement of field personnel in our camps to wear a face mask in shared spaces. Our teams continue to do a great job in minimizing the impacts of COVID-19 to our operations. Moving to slide seven, Neonatural had a very strong operational result as we achieved record quarterly production of 1.179 million BUEs per day and record liquids production of approximately 939,000 barrels per day. We effectively executed our curtailment optimization strategy, achieving the maximum allowable production under the Government of Alberta curtailment guidelines. while prioritizing high-value SEO production. Oil sands mining and upgrading also had a strong quarter, with March being a record production of approximately 478,000 barrels a day of SEO. Operating costs in the quarter were also very strong and will continue to improve. Our E&P liquids Q1 operating costs were $13.71 a barrel, or $10.19 per barrel. And our industry leading oil sands mining and upgrading costs were impressive 2076 per barrel or 1543 US per barrel. More importantly, we're targeting an impressive $745 million of operating cost improvements in 2020. Finally, as a result of our operational excellence, we had no asset impairments, despite the low prices at the end of the quarter. Slide 8, as a reminder, Canadian Natural has a balanced and diverse product mix with approximately 48% that is light crude oil, SEO, NGL on a BUE basis, limiting our exposure to one product. For our liquid production, 77% is long-life low-decline assets, which is sustainable through volatile prices as they require less maintenance capital. We have 1.4 BCF of natural gas production with 20% of our BUEs. which is well positioned to capture additional value with strengthening natural gas prices. Slide 9, Canadian Natural's ability to deliver cash flow in today's environment starts with our large, long-life, low-decline asset base of approximately 750,000 barrels a day, which has low maintenance capital requirements and is sustainable, allowing us to withstand commodity price changes. Our diversified products and assets are driven by our effective and efficient operations, our area knowledge, ownership, and operatorship of infrastructure. We have 1.4 BCF of natural gas and with our assets, ability to add low-cost production. Our culture of continuous improvement is unique among our peers as our teams are focused on delivering margin growth across the asset base over and above what we see today. Canadian natural strategy includes a flexible and effective capital allocation. and our ability to be nimble to capture those opportunities. Our strategy is simply to optimize capital allocation to maximize value for our shareholders. Our teams are focused and are continuing to drive efficiencies across the company. With improved pricing, our operating cash flow from our natural gas assets can contribute approximately $700 million over the next 12 months. As a result of our effective and efficient operations, quality of our assets, we have a low free cash flow break even, including capital expenditures, plus current dividend of approximately $30 to $31 U.S. per barrel. I will now talk to the robustness of our assets. Slide 12, Canadian natural 1P reserves are the highest among peers, showing the strength and depth of our assets with approximately 27-year reserve life index, of which 84% represents long-life, low-decline reserves. Our oil sands mining reserve index is an oppressive 40 plus years. Not only, slide 13, not only do we have the largest proven developed producing reserve base when compared to theirs, our low cost structure, effective and efficient operations make our PDP reserves robust, giving us the highest value among peers. Slide 14, similarly, compared to our peers with our PDP and proven undeveloped reserves, we're massive when compared when comparing to our peers. Once again, reflecting the strength of our low cost structure and effective and efficient operations. Slide 15. As a result of our unique asset base, Canadian natural corporate decline is low at approximately 10%, with approximately 62% of our production being long life, low decline, or zero decline production, requiring much less maintenance capital to maintain production, making our cash flow more predictable and sustainable. Canadian Natural's corporate maintenance capital is top tier in 2019 at approximately $6 US per BUE, which was approximately 75% lower than the peer average. We have, for 2020, reduced it to approximately $4.50 US per barrel, which gives Canadian Natural a huge advantage over our peers and supports our industry-leading free cash flow and reflects the robustness of our asset base. Slide 17. Further, when comparing our breakeven price with dividends, we are top tier when compared to our global peers. An impressive result. Again, an indicator of the robustness of our assets and our top tier operations. In the oil sands, our oil sands mining and upgrade operations continue to be top tier and is approximately 40% lower than other operations, which reinforces why Canadian Natural is unique and is in a strong position in a low price environment. I will now talk to our capital and operational discipline. Slide 20, Canadian Natural has a relatively balanced capital spending throughout 2020, and at the end of Q1, we had only spent 31% of our capital. Since the beginning of the year, we have been able to continue to modify our capital program and reduce our spending forecast, which is now targeting $2.68 billion, down almost approximately $1.4 billion. As well, Canada Natural is focused on continuous improvement, effective and efficient operations. We continue to find opportunities to drive our costs down and are continually working with our service providers to find other savings. We are targeting significant savings of approximately $745 million for 2020. Slide 22. As you can see, our teams have been focused on all of our costs. We have many opportunities and the drive to reduce the total cost in our company, which is now targeted at $1.4 billion of capital reductions and $0.8 billion of margin enhancements. We are focused on delivering excellence, a total free cash flow enhancement of $2.2 billion. Neonatural is in a strong position in these challenging times. Our assets are robust. Our culture of working together ensures we are effective, efficient, innovative, and nimble with our capital to add value for our shareholders. With that, I will turn it over to Mark for a financial review. Thanks, Tim.

I'd now like to just take a few minutes and discuss the strength of our financial position. On slide 24, Canadian Natural has a long history of capital discipline. We accomplish this by strategically allocating cash flow through our four pillars to maximize stakeholder value. Returns to shareholders through dividends, share repurchases, balance sheet strength, disciplined resource development, and opportunistic acquisitions. These allocations change based on the economic environment and is a strength of Canadian natural. The ability to be nimble and flexible and manage our business real time supports our unique and advantage asset base and strong business model. Slide 25, the Board of Directors has shown confidence in the company's assets and ability to deliver strong and sustainable cash flow by maintaining the current quarterly dividend at 42.5 cents per common share. With low break-even pricing, the dividend remains sustainable. Supporting this low break-even is strong operating cash flow from our large natural gas production that is benefiting from increased prices. In Q120, strong, safe, reliable production provided significant adjusted funds flow in excess of Q1 capital program and dividend. Slide 26. Canadian Natural has demonstrated flexibility through adjusting our capital budget to the current environment with an annual reduction of $1.4 billion from the original budget to the current $2.7 billion, or a 34% reduction. Our balance sheet remains strong with significant liquidity at the end of Q1 of about $5 billion, including cash of approximately $1.1 billion. In the quarter, we have maintained strong investment-grade credit ratings supported by our unique asset base, but it was resilient through commodity price cycles. We have a strong track record of returns to shareholders through dividends and share repurchases, and as mentioned, have maintained the current dividend level. Share repurchases have been suspended since March 11th, and the Board of Directors did not renew our NCI program, which expires in May 2020 at this time. Switching to slide 27, our financing strategy includes maintaining balance sheet strength while maximizing financial flexibility. The design considers cash flows, debt maturities, and liquidity, coupled with flexibility and disciplined capital programs that target to maximize returns on capital employed. We target strong investment-grade credit ratings, which facilitate access to capital markets. Balance sheet strength is core to Canadian Natural. We believe the balance sheet is strong today, and we will continue to focus on our financial position as we progress through the commodity price cycle. Our financial focus includes continuous dialogue with all three of our rating agencies to make sure they understand the uniqueness of our asset base and our business plan. And just as importantly, our flexibility to execute or revise the plan. We also maintain a flexible capital structure that's not overly reliant on any one source of funding with a focus on managing maturities. And as part of our robust financial position, we maintain ample liquidity to support delivering on our financial plan. On slide 28, we have a strong and very supportive banking group comprised of world-class Canadian, U.S., Asian, and European financial institutions. We extended to 2022 and upsized by $250 million a term loan in 2020, providing additional liquidity. And as mentioned, total liquidity at the end of Q1 was strong at $5 billion, including cash of approximately $1.1 billion. Slide 29, in the context of our massive reserve base, we have one of the lowest overall debt-approved net reserves. And as mentioned before, these reserves are high quality, long life, and low decline, providing additional support to debt levels. Slide 30, beyond our strong adjusted funds for capital and operating flexibility, we also have other levers that provide additional liquidity and support. We have in-the-money cross-currency swaps, as well as liquid investments in third parties. We have seen very strong support from our banking group, demonstrated through the extension and upsize of the term loan in 2020. As well, we have been approached by banks in our banking group to provide additional liquidity, if requested. This allows us to be opportunistic in accessing additional liquidity and debt capital market opportunities, if so desired. Finally, we evaluate our business real time with current forecasts, including cash flow, production, and capital to ensure continued effective and efficient financial management. On slide 31, we target sustainable dividend growth through the cycle and have done so for the last 20 years. We are advantaged by our long life low decline production base, effective and efficient operations, and low cost structure that provide low break even costs and sustainability through the cycle. That'll pass it back to you, Tim, for summary.

Thanks, Mark. In summary, Canadian Natural continues to take proactive and effective steps to ensure the health and safety of our people working for us. We continue to enhance our COVID-19 program across the company, and our safety performance tripped down 20% since 2018, and 30% reduction for our contractors. Slide 34... As many of you are aware, Canadian Natural has the aspirational goal of net zero in the oil sands, and we remain committed to our environmental goals and are confident we can achieve them. Last December, we stated our interim goal of 25% reduction in greenhouse gas emissions by 2025. We are targeting reducing methane emissions in the E&P business by 20% by 2025, as well reducing our in-situ freshwater intensity 50%, and our freshwater river intensity in the mining by 30%, both by 2022. Slide 35, Canadian Natural is robust, and with our long life, low decline assets, we are built for the long term. Our teams are focused on reducing costs and deliver safe, reliable production. We are focused on all of our production streams to maximize value and cash flow for the company, while ensuring we maintain credit rating and liquidity. 36, Naya Natural's ability to deliver cash flow is driven by effective, efficient operations. A high quality, long life, low decline assets that have low maintenance costs and significant reserves that are resilient in a volatile price environment. As WTI prices improve, there's even more upside for our shareholders. Our diversified products and assets are driven by effective and efficient operations. Our area knowledge ownership, and operatorship of infrastructure. We have 1.4 PCF in natural gas and have the ability to add low-cost production with strengthening natural gas prices. Our culture of continuous improvement is unique among our peers as the teams are focused on delivering margin growth across the asset base. And as we move forward into 2020 and beyond, we see these opportunities to further enhance our effective and efficient operations. Canadian Natural continues to be effective and efficient in our capital allocation and nimble to capture opportunities to maximize value for our shareholders. We have a history of capital discipline, operational excellence. We have robust economic, long-life, low-decline assets, and relative to most of our peers, ability to enhance our margins with a free cash flow break-even at approximately 30 to 31 U.S. per barrel. We are delivering cash flow that is sustainable and, most importantly, allocating capital to drive increasing returns in a volatile price environment. That concludes our Q1 presentation. I will now open the line for questions.

Thank you. To ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. And your first question from the line of Greg DeParty.

Thanks. Thanks. Good morning. A couple quick ones for you. Tim, maybe the first is you mentioned the $745 million you're targeting. Could you talk about some of the steps you're taking or things that you're changing or will change in terms of achieving that number?

Okay, great. Thanks. So with the $745, what that is is every area, every team, has goals and objectives to get to. So we've talked about it many times in the past. We're very focused on 4DX. We use what we call FITs, which is a field improvement technique. We have rails, which are kind of rolling action lists. So what it is, it's a combination of looking at what we do, whether it's capital or operating, and see what we can do differently to improve our efficiencies and to drive our costs. On top of that, we've been very, I would say, proactive in terms of our cost structures. So early March there, we indicated that we're reducing our salaries here as a company. And I can say that all our companies that we work with, in fact, all Alberta companies feel the pinch that we have here in Alberta and are working extremely well with, I think, all companies, not only ourselves. in terms of looking for opportunities of how they can be more effective and efficient in their operations, as well as what they can do to lower our costs. They recognize we are in it together, and we've had excellent response from many of our vendors and service providers.

Okay, thanks for that. The $250 million of CapEx reduction, where's that coming from?

It's a blend between our oil sands and E&P operations. So what it is, is as we go through the year, we're looking at all items and just saying what is potentially preferable, or what is not even really needed in this type of environment.

Okay, last one for me is, has your sustaining capital permanently gone down with the re-engineering of your cost structure going through now?

You know, that's an interesting question. It really will depend on the price. forecast, Greg, because really what we're seeing is many of our vendors and service providers, as I said earlier, are working with us and many other companies, and they understand how important it is to get our cost structure down. So, yes, some of it will be permanent, and yes, some will be not permanent in the sense of wages and such. If prices recover, you'll lose some of that wage part. But For the most part, many service providers are looking for opportunities to become more efficient and effective in their way they do work as well as ourselves. So it's a combination.

Thanks very much.

Thank you, Craig.

And your next line of questioning comes from the line of Benny Wong.

Good morning, Benny. Hey, good morning. Good morning, everyone. Thanks for taking my question, and I hope everybody underlined as well and healthy. The first question is on the dividend. Obviously, there's been a lot of focus on it, not just for CNQ, but also for many other companies. Can you maybe walk us through the rationale for maintaining your dividend, just kind of through this downturn, and what gives you confidence you're going to be able to maintain it while a lot of your peers, both in Canada and internationally, are reducing? And just so we can kind of think about it going forward, how bad... would it need to get before that's something that warms a hard look? Is it a certain oil price level or a certain leverage level? Just curious in terms of how you guys are thinking about that.

Yeah, Benny. So before we start, I'll pass it on to Mark. You have to look at the underlining assets this company has and the uniqueness. We are a top-tier, effective, efficient operations. as well as we have very good assets. So I think for the start of it, you have to start there in understanding how good we are in terms of operational excellence. So, you know, with that, I'll pass it on to Mark for further comment.

Yeah, hi, Benny. You know, I think what Tim says is bang on. So I think it speaks to the resilience and sustainability of the assets, and the board understands the underlying assets, their ability to generate free cash flow sustainably even in low commodity price environments. So, you know, that coupled with low cost structures, you know, makes the dividend sustainable in low commodity price environments. So the board has shown confidence in that today.

Right. Appreciate the thoughts. Second is really a lot of focus in the market around, you know, inventory levels and reaching congestion levels both in the U.S. and Canada. And, you know, we're starting to see some creative ideas but industry in terms of how to address it. You know, I appreciate some of the details in terms of your guys' storage and logistics ability. Just curious if you can maybe expand on that in terms of how you guys think you guys have managed through this period and broader. Do you think the industry needs to cut more production or there needs to be more action taken to kind of get through this? Thanks.

Okay. Benny? Okay. Tim McKay here. So with that, the best that we can tell is probably about a million barrels that is offline here in Alberta, Western Canada. And if you look not only at ourselves but many companies, we're all looking to look for creative ways to take barrels off the system. So everything from in the thermal side, slowing down, production curtailing, Again, not servicing wells if they're in heavy oil. And then, you know, probably the one part that's kind of, I would say, not understood well is all the maintenance levels in the oil sands. So, if you look at ourselves, you know, we're going to be going into some maintenance at Horizon in the month of May. At ASOP, there's a couple of months in July and August, and then we do our major turnaround in in Horizon in the fall. And we're just one operator. And I know many companies have been moving their turnarounds and activities to coincide with this lower price period. So I would suspect that you will see a larger amount of oil come off the system as every company looks for an opportunity to do maintenance during a low pricing period and take oil off the system.

Great. Thank you very much. Please stay safe. You're welcome.

Thanks, Dave.

All right. And your next question comes from Phil Gresh.

Good morning, Phil. Hi. Good morning. Hi. Just one follow-up. I guess it's for Mark on the dividend commentary. Obviously, you continue to demonstrate a very low break-even from a cash flow perspective to cover it. From the balance sheet side, I think at one point there was a goal to get leverage down to somewhere around $15 billion longer term. So as you think about that, has anything changed with that view? And is there a level of perhaps absolute leverage that you really don't want to go above if this downturn were to last longer?

Hey, thanks, Phil. Yeah, it's Mark here. You know, the $15 billion and one and a half times, you know, targets we have related to the free cash flow allocation policy, you know, and again, you're bang on, that's a long-term goal. So as we go through the commodity price cycle here, you know, given our low break-even costs, we will, you know, look longer term to drive towards those lower levels. Now, in the timeframe here, that won't be in the near term. Now, when we look at different metrics on the balance sheet, of course, we have a financial covenant of 65% debt to book cap, which we don't forecast to get anywhere near. And we talk about the 25% to 45% debt to book cap as a comfort range. And as I look at the strip and look through 2020, I see us within that comfort range at this point.

Okay. Okay, got it. And then in a prior press release, you had talked about an ability to essentially maintain flat production in 2021 and 2022. And while you've removed your production guidance for this year, you did still note that prices match the script that you actually do think you could be within the range despite lower capex. So Does that view still hold as we look out, and what kind of capital do you think would be required? Do you need the $3 billion kind of annual capital to be able to achieve that?

Yeah, Phil, it's Tim McKay here. Yeah, our view is still the same, and Jeff's around $3 billion. Again, part of it has been the volatility of our pricing, and so here in May, we're obviously reducing capital or curtailing however you would like about 120,000 barrels. And, you know, we may do, you know, some numbers in some type of number in June. So as we go through each month and look at the pricing going forward, those decisions would be made at that time.

Okay. Last question just for Mark. I know you don't have a guidance sheet out there at the moment, but Is there any color you can provide on the tax situation for this year, how you think about current versus deferred taxes in a loss scenario for the year?

Yeah, it's a really tough question to answer, Phil, just because it really depends on your cash flow forecast and pricing forecast. So we should take that offline and look at some of your assumptions to kind of manage where you think it would land. You know, when we look at the quarterly tax recovery, it incorporates the estimation for Q1 in the context of the whole year. So that's probably something we should take offline. There's a lot of variables there. Okay. Thanks.

All right. And your next question comes from the line of Phil Skolnick.

Yeah, thanks. Hey, good morning. Good morning. The second Phil here. Just back on the whole dividend, you know, just don't mean to beat on that, but, you know, you do have the two maturities that are coming up, one in June and one in August. You know, like how did the board think about that and, you know, how should we look at that and how you take care of it?

Yeah, hey, Phil, it's Mark. I mean, I talked about it in kind of the slide deck here. You know, when we look at liquidity, it's very strong today. And then I look at a couple of opportunities. One is the banking group's been very supportive. So we know that the ability there for additional liquidity from our banking group has been basically offered. So it's there. And when you look at what's been going on in the investment-grade debt capital markets, they're open. We've been able to maintain our strong investment-grade credit ratings, so that is open for us as well. So, you know, we'll continue to just monitor that with, again, the idea that today we have very, very strong liquidity.

Okay, cool. The second one is just on M&A. You know, how do you think about M&A? I know you always say no gaps in the portfolio, but, you know, it seems like this would be a time that's too tempting to ignore. Or is it just the bid aspirations are just going to be too wide?

Well, I think you hit it bang on at the beginning there. No gaps in our portfolio. But I also believe you're absolutely right. I think the bid-ask would be far apart at this time. But, yeah, I think we're quite happy with the assets we have. And if you look at the way we operate as a company on those assets, I feel we do a great job. So, yeah. You know, we don't have any gaps, and we're able to just manage very well through this volatility.

All right, great. Thanks.

Thank you, Phil. Thanks, Phil.

All right, your next question comes from line on Mike Doon.

Yeah, thanks. Good morning, everyone. Apologies if I missed this earlier in the Q&A session, but the cuts to OpEx – this year certainly a bigger drop than we or probably anybody else was modeling, but is any of that or how much of that is going to impact well productivity, I guess, in a non-curtailed situation? I guess maybe combine that with some of your heavy oil well curtailments. I know Husky – I think they had mentioned a few thousand barrels a day permanently impaired due to some of their curtailments they were implementing here. Just wondering if you guys have a rough guess on that.

The way we look at it is everything we curtail, we look to minimize any impact to our productivity. Will there be some impact? Maybe, but very little. I would say it's even under the Husky number easily. You know, we've been very strategic in how we reduce our production, so turning our wells down, not necessarily off, and keep that oil going, you know, into a tank. So I think, you know, from our perspective, it'll have no impact. Okay, that's all from me.

Thanks. Thank you. Thanks, Mike.

All right, the next question comes from the line of Amin Al-Hoshoff.

Thank you. Good morning, everyone. Good morning. So I just have a – yeah, I've got a question on the uptick in natural gas spending. It's a small number in absolute dollar terms, but it does seem to suggest that you're a little more constructive on pricing than you've been for many years. So is that a fair read in it? So what exactly are you seeing that is – giving you that confidence on ACO in particular?

Yeah, I think if you look back the last few years, ACO has been relatively depressed, and as such, we've let our natural gas production decline. In that, we've always had opportunities to add gas volumes cheaply, but they would just never compete against the other value-adding opportunities we have in our portfolio. What we're seeing today is that with the lower oil prices and natural gas has been quite resilient. You know, I think in the U.S. we may see a pretty significant decline on the natural gas side, and we're seeing strengthening eco price this summer and going into the winter. So, you know, being nimble and being creative, we look at that as an opportunity to add value some natural gas volumes that add value to our bottom line.

And what sort of a payout are you expecting on those wells?

On the ones that are in the press release, they're under six months.

Okay. And then my follow-up question is on the Scotford operator. I believe for your last call that the original plan there was to increase capacity to 320,000 barrels per day in Q3 just to match up with Albion mine capacity. And I understand you're not the operator there, but is that still the plan, or has that been pushed out given market conditions?

Yeah, my understanding, it has been pushed out, but it really had nothing to do with the market conditions. The original plan was to start the work earlier this year, and with the COVID-19 issue, they deferred it. So really what's happening is, and as you're probably aware, is that it's going to be very congested in terms of maintenance activities here coming up very shortly. And so they felt that doing that one piece this year and deferring the rest until next year is probably the prudent thing as not to overlap with other maintenance activities from other operators.

Perfect. Thanks a lot, Tim. Yep, you're welcome.

All right, the next question comes from the line of Manav Gupta.

Hey, guys, I'm trying to understand something here, so help me out a little. Generally, when we look at your net backs, the gap between the oil sands mining and bitumen is somewhere between 10 and 15. Now, in this particular quarter, it was more like 27. I'm trying to understand what is just basically the lag in the condensate pricing which depressed the bitumen, And a broader question I'm trying to understand is, given your low-cost operations in bitumen, as you go ahead in the year and some of this condensate reverses, do you expect the bitumen in thermal to be relatively more competitive versus the oil sands in terms of the gap narrowing versus the $27 we saw in 1Q?

You know, obviously, it's always difficult to say with the market. If I look today with, let's say, the spot... heavy oil differential, that is under 20% today. Obviously, there's many factors here in terms of the market. We've seen differentials on synthetic. We've seen a wider differential swings on the bitumen, everywhere from 40%, 50% down to under 20% today. So it's a very difficult question to answer. And as you know, those differentials are illiquid when you look out going into the third and fourth quarters. So it's very difficult to do that. I would suggest you would have to just model it with what your best estimate of that would be.

Okay, and a quick follow-up. You guys always have very insightful commentary on the apportionment side. We have seen Enbridge come in and basically say no apportionments, and considering the declines we are seeing in Canada, Can we be in this situation where we are in no apportionment period for probably two or three quarters, which helps you out a lot?

Yeah, what I look at over and above what people have announced that they shut in and curtailed is that really from now until probably October, many of the oil sands operators are doing their maintenance, And so I look at it as that because of that, there shouldn't be any apportionment here in the near term.

Thank you so much for taking my questions.

Thank you.

Your next question comes from the line of Neil Mata.

Hey, good morning, team. Thanks for taking the question. The first one is just would love your thoughts on the Canadian oil macro, particularly for Western Canadian crude. We've seen differentials come in. Where are inventories now? How do you see them evolving? And what do you think the price-siding mechanism is going to be for Western Canadian crude versus WTI and Brent?

Okay. Boy, I could get into the stock market if I really knew all those answers. Our gut feel is that every company is curtailing production and that every company has taken this opportunity, this lower price, high index differential to do maintenance. So I believe we'll see the inventory levels stable To me, the big wild card will be, you know, really the draw on the U.S. and the refineries increasing their runs. Obviously, today, if you look at some of the export lines, they're not that capacity. So, really, for us, it will be the indicator of the refinery runs increasing, so demand side increasing in the U.S., and, you know, the pipeline export lines getting closer to capacity.

Thanks. And you guys have done a terrific job reducing your capital intensity in 2020. I know there are a lot of moving pieces about going into 2021. So I get a couple of questions here. One is what – What production impact, if any, do you see of the lower capital spend in 2020 halving in 2021? And the follow-up is just any pluses and minuses as you think about the 2021 spend, recognizing there are a ton of variables, particularly around price, would be appreciated.

Yeah. You know, today I see very little impact. The items we've deferred or modified have really – marginal impact. We still have more capital that we could remove out of, or defer, I guess, okay, out of 2020, and that would have an impact on 2021. But that capital is still in our program today, and so today I would say no impact.

And thoughts on 2021 spend levels?

I would say, you know, if you're in that $3 billion range-ish, that's probably a reasonable piece. Obviously, a large part of it will depend on pricing.

Thanks so much, guys. Thank you.

All right. Your next question comes from the line of Harry Mateer.

Hi. Good morning. Mark, as you think through options and you ran through some of the levers you have to deal with upcoming maturities, I'm curious how you think about balancing longer-term financing versus incremental borrowing from the banks that give you a little bit more prepayment flexibility as opposed to adding more longer-term permanent debt to the balance sheet.

Yeah, Harry, I think right now we're looking at all the optionality. I think that, to your point, they're both available to us. You know, the debt capital markets, as you're very astute with, I think is open for the investment-grade market. We've seen some, you know, a lot of guys get in there. So we'll see how it goes here. And as I mentioned, the banks have been very supportive to us in providing that opportunity if we so desire. So I think we're in a very good spot there with that optionality.

And then as a follow-up, how do you think about – currency mix. I know the upcoming maturities are CAD. How do you think about the mix between USD or Canadian on any incremental debt instruments?

Yeah, I think we would obviously look at both markets and we can obviously manage the currency exposure if we need to afterwards. Obviously, as you know, we've got a natural hedge on currency a little bit with US debt and then, of course, revenue being kind of priced off US. So, There's a few factors to think there, but there's no preference. We would look at all that optionality.

Okay. Thank you.

Jerry.

All right. If you'd like to ask a question, simply press star 1 on your telephone keypad. Again, you will need to press star 1 on your telephone keypad to ask a question. All right, and there are no further questions at this time.

Well, thank you, Operator, and thank you, everyone, for attending our conference call this morning. As you can see, Canadian Natural's large, well-diverse asset base continues to drive significant shareholder value. The ability of our teams to deliver effective and efficient operations with top-tier performance is contributing to substantial and a sustainable business model. This, together with effective capital allocation, contributes to achieving our goal of maximizing shareholder value. If you do have any further questions, please don't hesitate to give Investor Relations a call. Thank you, and goodbye.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.