Canadian Natural Resources Limited

Ladies and gentlemen, thank you for standing by, and welcome to the Canadian Natural Resources Fourth Quarter and 2020 Earnings Results Conference Call and Webcast. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to turn the conference call over to Mr. Corey Beegers, Executive Advisor, please go ahead.

Thank you, Operator. Good morning, everyone, and thank you for joining our fourth quarter and year-end 2020 conference call. With me this morning are Tim McKay, our President, Darren Fichter, Chief Operating Officer, Exploration and Production, and Mark Steenthorpe, our Chief Financial Officer. 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 statements contained in our press release and would also note that all amounts are in Canadian dollars and production and reserves are expressed as before royalties unless otherwise stated. With that, I'll now pass the call over to Tim McKay.

Thank you, Corey. Good morning, everyone. The COVID-19 pandemic has impacted our lives and the way we operated our businesses in 2020, including the many precautions that we had to put in place to protect our stakeholders. Canada Natural would like to thank our employees, contractors, suppliers and shareholders for their support through this challenging year. Despite the challenges in 2020, Canada Natural delivered top-tier operational and financial results, which is a result of the strength of our low-life, low-declined assets and operational excellence of our people, which maximized free cash flow in a challenging year. In 2020, we were nimble Quickly lowering our capital with our long life, low decline, and high quality asset base, we still achieved record annual corporate BUE production of 1.16 million BUEs per day, or approximately 65,000 BUE increase over 2019 levels. With our culture of continuous improvement, we continue to drive effective and efficient operations. And as a result, we had record low annual operating costs of 2046,000 per barrel of SCO in our oil sands mining upgrading group, a decrease of 210 per barrel. As well, in our North American E&P liquids, we achieved significant operating cost reduction of $1.20 per barrel, or 10% lower than 2019 levels. We continue to apply the same drive to ESG, environmental, social, and governance, to deliver industry-leading performance across the board, a significant factor in our long-term sustainability. Canadian Natural and the entire Canadian oil and gas sector leads the world and has delivered game-changing environmental performance. In 2020, we reduced our corporate GHG intensity by 18%, methane emissions by 28% for 2016 levels. Our safety record is top tier as our corporate total recordable injury frequency improved 0.21 in 2020. a reduction of 58% from 2016 levels. We reached significant environmental milestones, including the 5 million ton of CO2 captured at Quest, and now have planted 2.5 million trees at our oil sands mining operations. In our oil sands operations, we can develop technologies using Canadian ingenuity to continue to move us closer to Canadian Natural's aspirational goal of reaching net zero emissions. Canadian Natural has multiple pathways, to achieve net zero, with actions identified in the near, mid, and long term. And the strength of the Canadian oil sands mining asset is that with its long life, no decline, and with its manufacturing-like operation, it can have one of the clearest routes, if not the clearest route, to net zero of any global assets. I will now do a brief overview of our assets, starting with natural gas. Overall, 2020 annual North American Natural Gas natural gas production was 1.48 BCF per day, which is comparable to our 2019 production of 1.49. With North American annual natural gas production of 1.45 versus 1.44 for 2019, which is up slightly as a result of the company's strategic decision to invest in low-cost natural gas opportunities and the acquisition of Painted Pony in Q4. Our annual North American natural gas operating costs was $1.14, which is down 2% when compared to 2019 of $1.16. For the fourth quarter, North American natural gas production was approximately 1.6 BCF per day versus 1.45 for Q4 2019, with strong operating costs of $1.07 per MCF versus Q4 2019 of $1.11. Impressive year-over-year operating cost performance as we continue to focus on operational excellence. At Septimus, The company's high-value, liquids-rich mountain area and the second half of 2020, eight wells were drilled. All came on production in Q4 of 2020. This project was completed with strong capital efficiencies of approximately $4,800 per B.U.E.D., with total current production rates from the new wells at approximately 46 million cubic feet per day and 2,200 barrels a day of NGLs, delivering as expected. Looking forward on annual strip races, acre prices for 21 look very strong at $2.78 per GJ, an increase of approximately 31% over 2020 levels, improving the economics of natural gas projects. In 2021, within our high-quality mountainy lands at Townsend, six of seven wells were brought on production at strong rates, totaling approximately 74 million cubic feet per day, compared to our target of 50. resulting in a strong capital efficiency of approximately $2,200 per flowing VUE. For North American light oil and NGLs, annual production was 84,658 barrels per day, down 13% from 2019, primarily a result of natural field declines. Annual operating costs were strong at $14.61 per barrel, which is 4% lower than the 2019 annual operating costs of $15.21 per barrel. Q4 production was 88,161 barrels per day, down 6% when comparing to Q4 2019, with fourth quarter operating costs that were down 10% to $13.88 per barrel, as compared to Q4 2019 operating costs of $15.41 per barrel. In 2021, the company continues to advance high-value Montanite light crude oil development plan at Wembley, targeting 18 net wells, and a construction of a new crude oil battery with a targeted on-stream date of October 2021. With the crude oil battery in place, new wells are targeted to be brought on stream at strong capital efficiencies of approximately $9,400 per flowing barrel. This project is targeting to exit 2021 at total production rates of approximately 8,500 barrels a day of liquids and 28 million cubic feet of natural gas. For international assets in 2020, had annual oil production of approximately 40,200 barrels per day, a decrease of 19% versus 2019 levels, primarily due to natural declines. Our international assets continue to generate strong free cash flow and value for the company. Offshore Africa annual production was approximately 17,000 versus 2019 of 21,400 barrels a day, which is down due to natural fuel clients. CDI operating costs were different in 2020, were 13.29 per barrel versus 2019 of 11.21 per barrel. In the North Sea, annual production averaged 23,142 barrels a day in 2020 versus 2019 of approximately 28,000 barrels a day, primarily down, primarily due to natural field declines in the succession of production in the bound field in 2020. Annual operating costs were strong at 36.51 per barrel and were comparable to 2019 levels, The team did a great job managing costs. Moving to heavy oil, annual production was 70,279 barrels today in 2020 versus 82,189 barrels in 2019, reflecting natural decline, limited investment due to commodity prices, and the Alberta mandatory curtailment program. Annual operating costs were $17.59 per barrel versus 2019 operating costs of $16.66 per barrel. Fourth quarter 2020 production, with 65,513 barrels versus Q4 2019 production of 94,262 barrels per day. While operating costs were $17.61 per barrel versus Q4 2019 of $15.03. We continue to focus on effective and efficient operations. 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 values. 2020 annual production was 56,535 barrels per day versus 2019 average of 58,855 barrels a day, only a 4% decline, reflecting the very low decline of the property. The team continues to do a great job, and we had very strong annual operating costs of $6.03 per barrel, a 3% reduction versus 2019 operating costs of $6.22 per barrel. Fourth quarter up. 2020 production was approximately $56,000, down from the fourth quarter of 2019 of $59,000. Operating costs in Q4 2020 were very strong at $5.85 per barrel. At Pelican, our team continues to drive for operational excellence and has been able to mitigate the impact of decline in production over the last five years, reducing the annual operating costs on a BUE basis, an excellent accomplishment by them. With our low decline and very low operating costs, Pelican Lake continues to have excellent netbacks. We had a strong year in thermal operations in 2020 as we continued to leverage our continuous improvement culture and our expertise to deliver effective and efficient operations. In 2020, our thermal production reached a record of approximately 249,000 barrels a day as we optimized production throughout the year under our curtailment optimization strategy. The strong annual performance in thermal reflects increase in volumes from pad adds at Primrose, production ramp-up of Kirby North, and additional pad tie-in at Jackfish. Thermal annual operating costs were very strong at $9.44 per barrel, a decrease of 13% for 2019 levels of $10.83. as a result of cost synergies achieved as we integrated in jackfish and curvy field operations, as well as continued to focus on effective and efficient operations. Q4 production was approximately 266-200 barrels a day, down from Q3 as part of our curtailment optimization strategy with operating costs of $9.17 per barrel. In October, our thermal team optimized the ramp-up of additional pad-added jackfish as we recorded a record monthly production of approximately 128,600 barrels a day, a great result by our team. In the company's world-class oil sands mining and upgrading assets, annual production averaged 417,351 barrels a day of FCO, an increase of 6% from 2019 levels, primarily with as a result of high utilization rates and operational enhancements. Record low annual operating costs were achieved in 2020 and remain industry-leading, averaging $20.46 per barrel of SEO, a decrease of $2.10 from 2019 levels, driven by the company's continued focus on high reliability, cost control, as well as operational enhancements. In summary, the company increased annual SEO production by approximately 22,000 barrels a day over 2019 levels. As well, we reduced the total annual operating costs by $183 million, excluding energy costs. Our teams continue to do an excellent job here, and they are focused on continuous improvement and effective and efficient operations. At oil sands mining operation, production in Q4 was approximately 417,100 barrels a day, As planned maintenance was concluded at Horizon and ASOP ran well at expanded capacity. In the quarter, operating costs were strong at $20.20 per barrel of SEO as our teams drive for operational excellence. As well in December, in our oil sands mining assets, we recorded a record monthly of approximately 490,800 barrels a day as we had high utilization rates combined with enhanced capacity and operational excellence. As part of our 2021 budget, a planned 30-day turnaround is scheduled for the month of April. During the shutdown, new incremental operational packages at the Upgrader is coordinated to be tied in. I will now turn it over to Darren for a 2020 reserves review. Thank you, Tim, and good morning. To start, as in previous years, 100% of Canadian natural reserves are externally evaluated and reviewed by independent qualified reserve evaluators. Our 2020 reserves disclosure is presented in accordance with Canadian reporting requirements using forecast prices and escalated costs. The Canadian standards also require the disclosure of reserves on a company gross working interest share before royalties. In 2020, Canadian Natural had an excellent year, replacing 361% of the company's 2020 production on a total approved basis, 282% for crude oil, NGLs, bitumen, and synthetic crude oil, and 656% for natural gas. On a total approved plus probable basis, the company replaced 493% of the 2020 production, Total approved reserves increased 10 percent to 12.1 billion BUE, and total approved plus probable reserves increased 12 percent to 15.9 billion BUE. Of the 12.9 billion BUE of total approved reserves, approximately 7 billion barrels are high value, no decline, SCO reserves. It's also important to note that 71% of Canadian Natural's total approved reserves are approved developed producing reserves at $8.6 billion BOE. Finding and development costs are key indicators of the strength of our assets and the company's ability to execute. Canadian Natural delivered top-tier results in 2020, and our strong performance is reflected in our finding and development costs. The corporate finding, development and acquisition costs excluding changes to future development costs are $1.91 per BUE for total approved and $1.40 per BUE for total approved plus probable reserves. Canadian Naturals finding, development and acquisition costs including changes to future development costs are $4.46 per BUE for total approved and $3.46 per BUE for total approved plus probable reserves. The strength and depth of the company's asset base is evident as approximately 80% of the total approved reserves are long life, low decline, resulting in our top tier approved reserve life index of 29.8 years and total approved plus probable reserve life index of 39.2 years. The net present value of future net revenue before income taxes using a 10% discount rate and including the full company ARO, is $80.7 billion for total approved reserves and $98 billion for total approved plus probable reserves. In summary, these excellent results reflect the strength and depth of Canadian Naturals' asset base, the value of the company's long-life low-decline reserves, and our ability to execute. Now I will hand over to Mark for the financial highlights.

Thanks, Darren. The fourth quarter was strong operationally and financially, as the base business delivered significant adjusted funds flow of $1.85 billion and free cash flow of approximately $700 million after capital and dividends in the quarter, excluding both the painted pony acquisition and the transportation provision taken in the quarter related to the Keystone XL pipeline project. This was a very strong result and contributed to us exiting 2020 in a robust financial position. Our net debt balance at the end of 2020 would have been down approximately $80 million from ending 2019 levels, excluding costs related to the acquisition completed in Q4. This includes over $2.2 billion returned to shareholders in 2020 through an increased dividend and share repurchases in the year. Focusing on the second half of 2020, We reduced absolute net debt by over $1.5 billion as free cash flow was allocated to debt reduction. To date in 2021, we continue to generate significant and growing free cash flow, which has already been allocated to debt repayment, including retiring $362.5 million of non-revolving term loans. The robust free cash flow generation from our assets will continue to facilitate further balance allocation to our four pillars over the long term. This clearly demonstrates the sustainability of our business model, the ability of our unique, long-life, low-decline asset base with low maintenance capital requirements and effective and efficient operations to generate significant free cash flow. We continue to maintain significant liquidity, including revolving bank facilities, cash, and short-term investments. Liquidity at year-end 2020 was approximately $5.4 billion. We had approximately half a billion in commercial paper for which we reserved capacity under these revolving facilities. Given the confidence in our long life low decline assets and sustainability of our free cash flow, the Board of Directors have increased the dividend by 11% to $1.88 per share annually, with the first quarterly payment of $0.47 per share payable on April 5, 2021. This represents the 21st consecutive year of dividend increases. represents a 20% CAGR since inception and further demonstrates the commitment to returning value to shareholders. In addition, subsequent to year end, the Board of Directors authorized management, subject to acceptance by the TSX, to repurchase shares under a normal course issuer bid targeted to equal options exercised throughout the coming year in order to eliminate dilution to shareholders. Given the increase in commodity prices since our budget release in December, The forecast for free cash flow generation in 2021 is significantly higher. At an average price of approximately US 57 WTI, we now target to generate between 10.3 and 10.8 billion of adjusted funds flow, which equates to 4.9 to 5.4 billion of free cash flow after capital and the increased dividend. This provides significant opportunity to optimize allocation to our four pillars, including further debt reductions and continued returns to shareholders. With that, I'll turn it back to you, Tim.

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 requires less capital to maintain volumes. We balanced our commodities in 2020, with approximately 47% of our VUEs like crude oil and SEO, 32% heavy, and 21% natural gas, which lessens our exposure to the volatility in any one commodity as we move through 2021. We will continue to allocate cash flow to our four pillars in a disciplined manner to maximize value for our shareholders, which is all driven by effective capital allocation, effective and efficient operations, and by our teams who deliver cash top-tier results. We have robust, sustainable, free cash flow. And even in a challenging year as 2020, returns to shareholders were significant at approximately $2 billion in dividends, $0.3 billion in share purchases for a total of $2.3 billion. And today, our dividend was increased by 11% for the 21st consecutive year. In summary, we continue to focus on safe, reliable operations, and enhancing our top-tier operations, and we will continue to drive our environmental performance. We are in a very strong position. Being nimble enhances our capacity to create value for our shareholders. Canadian Natural is delivering top-tier free cash flow generation, which is unique, sustainable, and robust, and clearly demonstrates our ability to both grow economically the business and deliver returns to shareholders by balancing our four pillars. With that, we will now open the call to questions. Thank you.

If you would like to ask a question at this time, please press star, then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. First question comes from Mano Holsoff with TD Security.

Good morning, everyone, and thanks for taking my questions. I'll just start with one on your... ongoing two-year solvent EOR pilot at Kirby South. And I believe you have a second pilot plan for Primrose. So maybe you could just give us an update on how that's going and what is your best guess on when you'll have the confidence to roll out that process commercially?

Sure. Tim here. At Kirby South, we've got one more year in which we need to see how much of our solvent we recover. to get that piece comparable with where our recoveries would be. And then at Primrose, we're just initiating that pilot. And, again, it's kind of a two- to three-year period. And, you know, based on Kirby's self, we feel very confident, obviously, to try it down at Primrose. So, you know, in general, it's about a two- to three-year period to get kind of a full cycle of results.

So do you think you would have to complete the Primrose pilot first before you would consider a commercial rollout?

For the Primrose area, absolutely. For Kirby South, to do that piece, we just need one more year.

Okay.

And then my – sorry, go ahead. Yeah, they're a different process. Obviously, Kirby South is SAGD. And then Primrose, where we're leveraging that technology, is on the steam flood area.

Okay. Thanks for that, Tim. And then I'll follow up with a question on CSS, given all of the news flow that we've had on that front, including Exxon yesterday. Obviously, you're a dominant CCS player already, but is there any low-hanging fruit in terms of brownfield expansions on either the capture or storage side of things that could – boost existing capacity over the mid-term?

I'm not quite sure on your question, but at Primrose, obviously, we have extra steam capacity. Really, all we'd have to do is just get the okay to do more pad adds, and we can add approximately 80,000 barrels a day right at Primrose itself. Obviously, that's not in our plan today. You know, we're taking a conservative approach here this year, waiting on some Enbridge to get Line 3 approved and on stream. So, you know, we have that in our back pocket for future development.

Hey, Matt, it was Mark. Was your question on CSS or CCS?

Oh, sorry, CCS. I might have misspoken. Yeah, I was referring to CCS.

So more on the carbon capture front. Yeah.

Yeah, that's right. My specific question was, is there any low-hanging fruit in terms of expansions on the capture or storage side of things that could take your existing capacity up within the next call of three to five years?

Well, we're just working through those details right now. Obviously, our advantage is having the infrastructure in place. So obviously... To do that, it's quite easily done. The biggest issue is just trying to walk through the technical changes. So if you look at something like in the thermal side, if we go towards solvents, we're going to cut our GHG emissions in half. And then in certain areas, there is areas where you can do CO2 disposal quite cheaply without tying into the infrastructure. So there's lots of options. Our teams are very focused on going through those details and coming up with the best solution to reduce our greenhouse gases.

Excellent. Thanks for that, Jim and Mark.

Next question comes from Phil Gresh with JP Morgan.

Hey, good morning. First question, very helpful color on the free cash flow generation potential here. Mark, I guess is the goal here for 2021 just to ratchet the debt down towards that $15 billion net debt target that you've talked about in the past, just get there as quickly as you can? Or I guess what other considerations do you have in terms of areas of potential uses of cash, whether it's capital or buybacks? What are scenarios where you might consider other options? Thank you.

Yeah, thanks, Bill. And as you mentioned, we put some clarity around the free cash flow profile for 2021. As we mentioned, the dividend has been increased by the board. So that's been set here at $1.88 a share. And then we've instituted or we've been given the direction by the board that we can buy back shares equal to the amount that is exercised from our option program. So basically just to eliminate the dilution to shareholders. So those are kind of the two free cash flow profiles right now for shareholder return, and then it goes to debt repayment. So you'll see, in my view, significant reductions in debt as we go forward, given that significant free cash flow profile. Right, okay.

And as you haven't gone through the COVID environment, is $15 billion still roughly the right target you're thinking about, or has anything changed in that regard in your view?

Yeah, right now we generate significant free cash flow. That $15 billion was part of a free cash flow allocation profile. I think if you look at where we exited 2020, able to keep debt basically flat from 2019 levels shows that we're going to decrease that debt level likely quite quickly here given the strip pricing. So I think you will see that level get achieved very quickly.

Okay, and that would still be generally where your target, your long-term target would be, that's where you're comfortable in, say, a mid-cycle or however you want to look at it in a volatile oil price environment?

Yeah, Phil, I think, you know, when the free cash flow allocation policy was out there, that was a target, but that, you know, that was when we would revisit looking at different allocation profiles. So we'll just continue here to manage the four pillars as we have in the past.

Last one for me, just on the CapEx side of things. I mean, it seems like pretty clear that you would prefer not to raise capital in this environment. I'm guessing inflation is probably pretty tame as well. So is there just essentially no real scenario here in 2021 where you think about allocating more to growth capital? Is it more of a 2022 and beyond type of event? Or just any last thoughts there? Thanks a lot.

I think, Tim, here again, I think, you know, if you look at, let's say, 2020, that year started off very robust and changed very quickly. You know, if we look into 2021, you know, the volatility can still be, you know, quite extreme. Obviously, there's still spare capacity at OPEX. So, you know, I think we're very happy where we are today. with our capex and we'll just look to manage our balance sheet here to the end of the year. Okay, very clear.

Thank you.

Next question comes from Greg Party with RBC Capital Markets.

Yeah, thanks. Good morning. I'm going to come back to Phil's question, but maybe just ask it in a slightly different way. When you go back to the minor downgrade from S&P, right, which was sort of placing you know, a greater industry risk or what have you around the oil sands business generally or energy generally, I guess. Mark, does that cause you to think differently about what the appropriate level of, you know, debt to cash flow or debt to cap is maybe, you know, in the context of how the rating agencies are going to work with you guys versus in the past?

Hey, thanks, Greg. You know, we always monitor and look at these things over the long term. So 2020, obviously, an aberration in pricing given a global pandemic. You know, we have our four pillars of capital allocation that we've always been focused on being relatively balanced. So, you know, you have to also look, Greg, at the source of the cash flow. It's certainly different compared to different E&P companies because of the sustainability of that cash flow, because of the assets and reserves, as Darren went over, that underlie that free cash flow. So it's much more sustainable in different pricing environments and I think we saw that through 2020.

Okay, terrific. Yeah, that's it for me. Thank you.

Next question comes from Manav Gupta with Credit Suisse.

So first of all, I want to congratulate you. I think it was only two quarters ago that many were questioning the sustainability of your dividend. You have proven that you were always right and you knew your assets better than everybody else by raising the dividends. So I wanted to congratulate you on that. My quick question here is, I think I heard that in December you hit 490 at oil sands. I wanted to confirm if that was the right number. It wasn't 419, it was 490. And I just want to understand, have you ever hit that level before? I think you did very well in 2Q of 20 when you hit for the quarter about 465. But I don't think you hit 490 even back then. So if you could just help us understand how you got to 490 in the month of December.

Sure. So that was me with my words getting lost there. But it was 490,800 barrels a day for the month of December. And obviously, December 1st, the curtailment came off. We had the extra capacity at ASOP, a gross capacity of 320,000 barrels a day. And then as well at Horizon, they had an excellent month at around 260,000. So in both areas, you really have to look at how well our teams have done there in terms of enhancing our production. It's been small increments, but every year they've been able to find a little more capacity and lower our costs. And they've really done an excellent job. They really look at what are sustainable changes that we can enhance our operating costs, increase our reliability, and enhance our production volumes. So yeah, it was 490,800 barrels a day. It's a tremendous job by our team there.

Congratulations. Great result. I have a quick follow-up. You always have a very informed view on apportionments, pipelines, We have had a little bit of a setback here with Keystone, but do you think Enbridge 9-3 and TMX can still make sure that this don't blow out and any comments you have on the apportionment at current times?

Sure. Right now, apportionment obviously on the light side is zero. So that's, you know, very positive for the light oil side. And then on the heavy side, we're still seeing, I would say, elevated apportionment, 47% for March. And You know, this will change. It will go down again as we start into our turnaround season. And, you know, ourselves and many others will be doing maintenance activities. I guess, you know, on the heavy side, the interesting part, even though it's, you know, a 47% apportionment, the differentials are quite low at, you know, about $11. So, you know, it's kind of an interesting phenomenon now. Obviously, we feel very comfortable... that Line 3 will progress onward. And we're going to sit here this year, work through that, and you'll see that Enbridge will get that on stream here in Q3.

Thank you for taking my questions, and congrats on the dividend hike. Thank you. Thanks for that.

Once again, to ask a question, please press star 1 on your telephone keypad. We have a question from Neil Mehta with Goldman Sachs.

Good morning, team, and congrats again on this free cash flow guidance. I guess the first question is just really around the cash flow number, the $10.3 to $10.8 billion is predicated on $57 WTI. Obviously, post-OPEC today, we are significantly above that. So the question is sort of the assumptions that go into that 10.3 to 10.8. What are you assuming for crude differentials? And then can you remind us, what you're using for FX, and what the sensitivity is to every dollar change in WTI.

Hey, Neil, it's Mark. Thanks for that. Just so everybody knows, in the advisory at the back of the press release, you will find these numbers as far as the forecast that went into those numbers. So the WCS discount was $11.77 U.S. per barrel. ACO was at $2.88 at G.J., and FX about $127. So those were all just strip prices at the time that we ran the forecast.

And the sensitivity to every dollar change?

So the sensitivity to every dollar change obviously changes as the cash flow goes up because you generate more U.S. dollar revenue. So at budget time it was probably in the neighborhood of $82 million. It's probably above $100 to $125 million now at a penny change. I'm sorry, and that's cash flow after tax for a yearly average.

I'm sorry, that's for FX, right? But for every dollar change in WTI?

Every dollar change in WTI is about $330 million cash flow after tax Canadian.

Okay, that's perfect. And then just to follow up is your thoughts around M&A. Do you still, you know, you've been opportunistic or able to tuck in Painted Pony last year. What do you think the market environment is? is for bolt-on acquisitions in Canada, or do you view this as a time that you really want to just organically delever and return capital to shareholders with the strong recovery in valuations and the commodity price?

I think a real key focus is delever, work on our operations here. But, you know, you never can say never. We've always been optimistic in our acquisitions. And, you know, we look at a lot of opportunities, you know, that we have synergies that we feel we can add a lot of value for our shareholders. So, you know, to me, you know, today we're looking to deliver very quickly. But, you know, we always look for, you know, in terms of optimistic, you know, opportunities. Thanks, guys. Thanks, Dale.

Our last question comes from William Lacey with ATV Capital Markets.

Gentlemen, just a real quick question, and I apologize if you've got this outlined somewhere. Just your thoughts on taxes, other than the fact that you hate them, and on royalties, especially in terms of sort of post-payout timing for projects. Do you have any insights on that?

Sure, William. It's Mark. I'll leave some of the detail maybe to IR to go through with you after. But if you look at cash taxes, you know, when we ran the budget for 2021 in December, when we had our budget press release, we were running at $45 WTI. Just to give you some perspective at that time, cash taxes were in the $250 to $300 million range. I would suggest that strip here in the 57 WTI range, we'd be north of a billion dollars. But again, I'll let you take that off with IR and kind of go through the detailed modeling on it. Same goes for royalties. You're right, we have all sounds royalty projects that, of course, have a royalty regime that has a pre- and post-payout. So as we generate more cash flow from those properties, we can get into payout. So another thing that I'll let IR take off with you. All right, thanks.

And at this time, I will turn the call over to Mr. Beaver.

Thank you, Operator, and thank you, everyone, for attending this conference call this morning. Canadian Natural's large, well-diverse asset base continues to drive significant shareholder value, even through years as turbulent as 2020. The ability of our teams to deliver effective and efficient operations with top-tier performance is contributing to proven resilience, as well as substantial and sustainable free cash flow. 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 us a shout. Thank you and goodbye.

This concludes today's conference call. You may now disconnect.