Canadian Natural Resources Limited

Good morning. We would like to welcome everyone to the Canadian Natural Resources 2022 Second 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, August 4, 2022, 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, sir.

Thank you, operator. Good morning, everyone, and welcome to Canadian Naturals' second quarter 2022 results conference call. 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. With me this morning is Tim McKay, our President, and Mark Stainthorpe, our Chief Financial Officer. Tim will first provide highlights of our ESG achievements, evident in our 2021 stewardship report to stakeholders that was published today, and how strong execution and efficiencies so far this year have put Canadian Natural in a unique position to maximize value for our shareholders by executing on additional strategic growth opportunities. This will be followed by an overview of the quarter, including specifics of our world-class assets and operations. Mark will then provide an update on our strong financial position, substantial free cash flow generation, and increasing returns to shareholders. 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.

Thank you, Lance. Good morning, everyone. Canadian Natural delivered strong operational results in the second quarter of 2022. As we achieved quarterly production of approximately 1.21 million BOEs a day, which included record natural gas production of approximately 2.1 BCF a day. Liquids production was strong at approximately 860,000 barrels a day as planned maintenance was completed on our oil sands mining assets. This, combined with our capital discipline, generated significant free cash flow as we continue to balance free cash flow to our four pillars of capital allocation, maximizing value to our shareholders as we have returned approximately $6.4 billion to our shareholders through dividends and share repurchases. We continue to apply that same drive to ESG, environmental, social, and governance, for a significant factor in our long-term sustainability. As we move forward, we will continue to outline our path to lower carbon emissions across the asset base in our journey to achieve our goal of net zero GHG emissions in the oil sands by 2050. Canadian Natural is an R&D investment leader. We have increased our investments in R&D and technology development by 33% over 2020 levels, with $450 million invested in 2021. And this is targeted to grow with our participation in the Pathways Alliance. As well, Canadian Natural continues to work together with 144 Indigenous-owned businesses, through which $572 million in contracts were awarded in 2021. a 17% increase from 2020 levels. The All Sands Pathway to Net Zero initiative is now called the Pathway Alliance and was launched in June of 2021 with a clearly defined plan to achieve 22 megatons of annual emission reductions by 2030 and net zero emissions by 2050. The federal government's announcement Announced support through the investment tax credit, as well as additional support from the Alberta government, will be fundamental to achieving these reductions, and the tax credit is a positive approach where industry and government can co-invest in CCUS infrastructure to materially reduce Canada's GHG emissions. Environment and Climate Change Canada has recently proposed a GHG emission cap on the oil and gas sector. In our view, this cap is unnecessary and overly ambitious in light of our stated preference for governments and industry to continue to work together through the Pathways Initiative to achieve an already announced emission target reduction. It is important for all parties to continue to work together. Canadian Natural will continue to provide input to the government on the importance of balancing environmental and economic objectives, as well as being able to support Canada's allies with energy security. Canadian Natural has had a strong execution with its drilling program so far in 2022, resulting in the company drilling 22 net operated wells ahead of forecast, consisting of 11 net thermal in situ and 11 conventional E&P wells, with drilling costs on a per-well basis comparable to budget, with improved efficiencies mitigating some of the inflationary cost pressures. As a result, The 2022 capital expenditures will be adjusted, with base capital has increased by approximately 5% or $200 million over the original 2022 levels. It will now be targeted for approximately $3.845 billion, primarily due to the forecasted inflationary pressures in all operating areas for items such as steel, manufactured goods, services, and labor. Just treated growth capital will now target to be approximately 1,075 million, an increase of approximately 375 million over the original 2022 levels. With this increase, Canadian Natural targets to drill an additional 41 net conventional E&P wells and 15 net thermal in situ wells, which essentially backfills the latter half of the drilling program, which includes pipelines, facility, and additional non-op activity. We'll progress liquid-rich Montenay natural gas projects that will add capacity of approximately 140 million cubic feet of natural gas and 25,500 barrels a day of liquids in the future years, as well as long leads for thermal in situ offshore Africa, as well as incremental shovels and tailings pipe for Horizon. As a result, our guidance has been increased to 1295 to 1335,000 BUEs a day as a result of efficiencies gained and the increased capital in both conventional natural gas and E&P crude oil liquids. I will now do a brief overview of the assets, starting with natural gas. Overall, Q2 2022, natural gas production was 2.1 BCF, which was a record for the company, a 5% increase over Q1 2022. For North American operations, Q2 natural gas production was 2.05 BCF versus the 1.99 BCF in Q1. primarily a result of the company's strategic decision to invest in our drill-and-fill strategy, adding low-cost, high-value, liquid-rich natural gas production volumes, as well as opportunistic acquisitions. Our Q2 2022 natural gas operating cost was strong at $1.15 at MCF, which is down 10% compared to Q1 2022 of $1.28. Good operating performance as our teams continue to focus on operational excellence. A couple area highlights are At Townsend, a six-well pad came on production in Q2 2022 with a strong capital efficiency of approximately $4,500 per BUD, with July monthly production of approximately 54 million cubic feet per day. At Edson, three wells came on late in Q1 of 2022 at about $2,800 per BUD, with total July production of approximately 32 million cubic feet per day and 560 barrels a day of liquids. Canadian Naturals diversified sales for a natural gas, realized natural gas pricing of $7.93 per MCF in Q2, a 51% increase above Q1 2022 levels and approximately 30% higher than the ACOB benchmark price in Q2, further improving the economics of our low-cost, drill-to-fill, liquids-rich natural gas projects. For North American light oil, an NGL Q2 production was 109,997 barrels, up 2% from Q1-22, primarily a result of strong drilling results and previous acquisitions. Q2-2022 operating costs were 15-19 barrel, comparable to Q1-22 operating costs of 15-24. At Wembley, nine liquid-rich Montney wells were on production, with July production approximately 8,200 barrels a day of liquids and 27 million cubic feet of natural gas, exceeding budget and maximizing the existing facility capacity with a capital efficiency of approximately $3,400 per BWED. Our international assets in Q2 had oil production of 25,097 barrels, which is down from Q1-22 levels, primarily due to unplanned maintenance in the New York City. Offshore Africa annual production Offshore Africa Q2 production was 15,119 barrels per day versus Q1 of 22, 15,742 barrels a day, with operating costs in Q2 at 15.73 per barrel. In the North Sea, production averaged only 10,788 barrels a day in Q2 versus Q1 of 15,961 barrels a day, and had operating costs of 84.38 per barrel. Our international assets continue to generate free cash flow and value for the company. Moving to heavy oil, production was 66,521 barrels a day in Q2, up 5% from Q1, primarily due to strong drilling results and increased development activity. Operating costs in Q2 were higher at $22.86 per barrel versus our Q1 operating costs of $22 a barrel. primarily a result of higher trucking-related costs. At Smith and the Clearwater Play, Canadian Natural drilled 12 horizontal multilat wells on four pads. Current production from these wells is approximately 4,400 barrels a day with a strong capital efficiency of approximately $6,300 per BUD. Canadian Natural has now drilled a total of 19 wells in 2022, with total company Clearwater production now in excess of 10,000 barrels a day, up from approximately 3,900 barrels a day at the start of 2022. As part of our strategic growth capital, we are delineating additional opportunities on our large, undeveloped Clearwater land base of approximately 940,000 net acres. A key component of our long-life, low-declined assets is our world-class Pelican Lake pool, where a leading-edge polymer flood continues to deliver significant value. Q2 production was 51,112 barrels a day versus Q1-22 average of 51,991 barrels a day, reflecting the low-decline nature of this property. The team continues to do a great job. We had good Q2 operating costs of $7.99 per barrel, an increase from our Q1-2022 operating costs of $7.48 per barrel. With our low-decline and very low operating costs, Pelican Lake continues to have excellent net fast. In our thermal in situ operations in 2022, we continue to leverage continuous improvement culture and our expertise to deliver effective and efficient operations. Q2 2022 production was 249,938 barrels a day down from the Q1 2022 production of 261,743 barrels a day, with Q2 operating costs of $18.93 per barrel. which is up when compared to Q1 of 2022, operating costs of $14.35, primarily as a result of increased energy-related costs. As part of our original thermal in-situ strategy growth plan released in January and as a result of efficiencies realized today, we are now targeting an additional 15 net in-situ wells originally targeted for 2023, totaling approximately $45 million in capital spend. which includes pipelines and facilities. Canadian Natural now targets to drill a total of 117 net in-situ wells in 2022. As well as part of our capital update, we are targeting to progress engineering and long leads for two thermal in-situ pads additions at Pike, targeting to add approximately 28,000 barrels a day of capacity by 2026. In the company's In the company's world-class oil sands mining and upgrading assets, we had Q2 production averaging 356,953 barrels a day of SCO, down from Q1 of 2022 levels primarily as a result of the Scotford and Horizon planned major turnarounds in the quarter. Q2 operating costs were at $33.76 per barrel of SCO, This increase was primarily driven by decreased production volumes due to turnarounds and increased energy-related costs. The planned turnaround at Horizon went very well, completed eight days ahead of our 32-day budgeted, and at the non-Scottford Upgrader, it went 17 days longer than the original target of 65 days. At Horizon, the reliability enhancement project is progressing as planned, And as part of the capital update, we target to add additional shovels, tailings, pipe at Horizon, supporting the reliability project. I'll now turn it over to Mark for a financial review.