Canadian Natural Resources Limited

Good morning. We would like to welcome everyone to Canadian Naturals 2024 Third 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, October 31st, 2024 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.

Thank you, Operator. Good morning, everyone, and thank you for joining Canadian Natural's third quarter 2024 earnings 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. Also, I would suggest you review our advisory section in our finance statements that includes comments on non-GAAP disclosures. Speaking on today's call will be Scott Stealth, our President, and Mark Stainthorpe, our Chief Financial Officer. Scott will provide highlights of our strong operational corridor and include some asset-specific production records and talk to your operating costs. Mark will then summarize our financial results and include robust adjusted funds flow, earnings, and returns to shareholders. To close, Scott will summarize prior to opening up the line for questions.

With that, over to you, Scott. Thank you, Lance, and good morning, everyone. Our unique and diverse asset base provides us with a competitive advantage as we can allocate capital to the highest return projects without being reliant on any one commodity. Our consistent and top tier results are driven by safe and reliable operations. Our commitment to continuous improvement is supported by a strong team culture in all areas of our company that focus on improving our cost, driving execution of growth opportunities, and increasing value to shareholders. We achieved strong average production of approximately 1.363 million VOEs in the third quarter, consisting of 1.022 million barrels of liquids and over 2 BCF of natural gas. Our world-class oil sands mining and upgrading assets delivered strong results in the quarter including a record monthly production of approximately 529,000 barrels per day of SCO in August. Importantly, these assets continue to deliver strong operational performance and high utilization rates, which resulted in top-tier quarterly operating costs of $20.67 per barrel in the third quarter. Subsequent to the quarter end on October 7th, We announced an agreement with Chevron Canada Limited to acquire their 20% interest in AOSP, which includes the Muskeg River and Jack Pine Mines, the Scotford Operator, and the Quest Carbon Capture and Storage Facility. This acquisition will bring Canadian Naturals' total current working interest in AOSP to 90% and is targeted to add approximately 62,500 barrels per day of long-life, no-decline SCO production to the company. In addition, Canadian Natural also agreed to acquire Chevron's 70% operator working interest of light crude oil and liquid rich assets in the Duvernay Plain, Alberta. These assets are targeted to average approximately 60,000 BOEs per day in 2025 and provide the opportunity for meaningful near-term growth while contributing additional free cash flow. The effective date for these acquisitions is September 1st of 24, and are targeted to close in the fourth quarter of 2024. Additionally, commencing December 1st, 2024, in support of our long-term strategy of targeting the expanded refining markets, driving stronger netbacks, and reducing exposure to crude oil egress constraints, we will increase our contracted crude oil transportation capacity on TMX by 75,000 barrels per day to 169,000 barrels per day. I will now run through our Q3 operational results. On the conventional side of the business, primary heavy oil production averaged approximately 76,800 barrels per day in the third quarter, which is a 1% increase compared to the production volumes in the third quarter of 2023, reflecting strong results for multilateral wells on our extensive heavy oil land base, which is the largest in Canada and includes the Manville and Clearwater fairways. As a result of optimized longer well designs and the technical expertise of our teams, we continue to see excellent results from our multilateral wells, driven by our culture of continuous improvement. In the first nine months of 2024, we drilled 76 net multilateral wells, maintaining top-tier average initial peak rates of approximately 230 barrels per day per well. an increase of approximately 30% compared to our budget average initial peak rates of 175 barrels per day for wells. Primary heavy oil operating costs averaged $18.69 in the quarter, which is down 5% from the third quarter of 23, primarily reflecting lower operating costs. Our Pelican Lake production averaged approximately 45,100 barrels per day in the quarter, which is down 4% from the third quarter of 23, reflecting low field declines from this long life asset. Operating costs of Pelican were $8.74 per barrel in the third quarter, a 9% increase compared to the third quarter of 2023, which was primarily due to higher maintenance activities in the quarter, partially offset by lower energy costs. North American Lake crude oil and NGL production averaged approximately 106,300 barrels per day in the third quarter, which is down 3% from the third quarter of 23. The decrease was primarily the result of temporary processing facility outages and rail transportation restrictions offset by strong drilling results. Operating costs in our lake crude oil and NGLs averaged $13.73 in the third quarter, a decrease of 11% compared to the third quarter of 23 due to lower energy costs. North American natural gas production averaged two BCFs during the third quarter, a decrease of 5% compared to the third quarter of 23, primarily reflecting previous announced deferrals of natural gas on-stream timing in response to natural gas pricing, the impacts of heat and wildfire conditions in Q3 of 24, and natural fuel declines. This decrease in production was partially offset by strong results from our montany and deep basin wells. Operating costs on our North American natural gas averaged $1.23 per MCF in the third quarter, comparable to the third quarter a year ago. As we outlined in the first quarter results, we reallocated capital from certain dry natural gas development activity to multilateral heavy oil wells. Due to continued low natural gas prices in 2024, we are further reducing dry natural gas drilling capital. We now target drilling a total of 74 net natural gas wells 17 fewer compared to the 2024 budget. Our 2024 corporate annual natural gas guidance of 2.12 BCF to 2.23 BCF remains unchanged. In our thermal in situ operations, we achieved strong thermal production in the quarter, averaging just over 271,500 barrels per day. This is down 5% from the third quarter of 23, primarily due to the cyclical nature of production from CSS pads at Primrose and natural field declines, partially offset by thermal pad ad development at Kirby and Jackfish. Third quarter thermal in situ operating costs averaged $10.52 a barrel, which is down 8% compared to the third quarter of 23, primarily reflecting lower energy costs. At Jackfish, we achieve record quarterly production of approximately 128,000 barrels a day, in Q3, primarily due to strong results from pad additions and effective and efficient operations. Additionally, we are currently drilling a SAGD padded jackfish with production from this pad targeted to come on in Q3 of next year. At Primrose, we are targeting to bring a CSS pad on production in Q4 of 24, which is ahead of schedule. A second CSS pad has been drilled and is also targeted to come on production ahead of schedule in Q1 of 25. This pad was originally budgeted to come on in Q2 of 2025. At Kirby North, we began solvent injection in June of 2024, and all eight wells are now injecting solvent. Early results have been positive, with SOR reductions of approximately 30%, trending towards a targeted reduction of 40% to 50%. Solvent recoveries are in excess of 85% and are meeting expectations. As the project advances, we will continue to monitor SORs solid recovery, and production trends. In our oil sands mining and upgrading operations, third quarter SEO production averaged approximately 498,000 barrels per day, an increase of approximately 7,000 barrels per day compared to the third quarter of 2020. The increase in production for the third quarter included planned turnaround activities at the non-operated Scotford Upgrader, which began on September 9th and were successfully completed on October 18th. Oil sands mining and upgrading achieved a new monthly production record of approximately 529,000 barrels per day of SCO in August of this year. This was primarily due to high utilization at both Horizon and AOSP, as well as the completion of the reliability enhancement project at Horizon during our planned turnaround in the second quarter. Operating costs in oil sands mining and upgrading assets are top tier. averaging $20.67 per barrel in the third quarter, a 7% decrease compared to the third quarter of 2023. This primarily reflects higher production volumes from reduced planned turnaround activity and lower energy costs. The Scofford Upgrader, the planned turnaround was executed in 40 days relative to the original budget of 49 days, while achieving higher utilization rates during that 40-day window. As a result of the annual net production impact from AOSP from the third quarter turnaround activities is 5,400 barrels per day, a significant improvement compared to the budgeted annual net production impact of 11,000 barrels per day. A de-bottleneck project was completed during the Scotford turnaround, which increases the total gross capacity by 8,000 barrels a day. Upon closing of the acquisition of Chevron's 20% interest at AOSP, the capacity net to Canadian natural increases to 7,200 barrels per day. The bottleneck project was completed during the scoffer turnaround, which increases gross capacity 8,000 barrels per day. Upon closing Chevron's 20% interest, the capacity net to Canadian Natural increases to 7,200 barrels per day. Canadian Natural is delivering top tier free cash flow generation, which is unique and sustainable and robust and clearly demonstrates our ability to both economically grow the business