Canadian Natural Resources Limited

to some of those glyphosate elements?

Yeah, Doug, I think it's continued with the messaging that we have been talking about for some time now. In order to expand the growth and have growth in oil sands operations, we need to be able to have the egress capacity long-term to do so, As you know, Doug, there's significant upside for volume development in oil sands, and we need a regulatory framework and a fiscal framework that will allow us to enact on that capacity to grow those volumes. And over a very long period of time, of a decade or so in Canada, we have not had the environment regulatory-wise to be able to do so. So we're hopeful that through the MOU and working together with the rest of the oil sands members and both levels of government, that we can come to terms on an agreement that will work and bring those investment dollars towards those long-term projects. And we're hopeful that we'll be able to do that in short order here, Doug.

very clear, and I hope that people are listening. My follow-up, very quickly, is on the dividend and the cash return strategy generally. There is always a risk of perception in this business of post-cyclical buybacks, especially when you are about to breach your debt thresholds to give 100 per cent back to shareholders. However, you also have the lowest dividend breakeven not just in Canada but in the industry. What would it take for you to pivot more towards more meaningful and more frequent dividend bumps as opposed to focusing on what might be perceived as pro-cyclical buybacks? I'll leave it there.

Thank you. Thanks, Doug. You know, I think it's important to ensure that we have the capacity to be able to do both buybacks and also continue on with our dividends. 26-year growth of our annual dividends. Both of those are meaningful to our investors, and so we're trying to find a balance that works for all of our shareholders and one that aligns with our capacity to be able to grow our company, grow our production, and increase our cash flow, which in turn increases more returns to shareholders. It's a little bit about doing all of it, Doug, as to proceed to try to choosing one or the other.

We will continue to press on the point. Thanks so much, guys.

Thank you. And your next question comes from the line of Manav Gupta from UBS. Please go ahead.

Good morning. I want to congratulate you on the very strong performance on spike one. And I'm just trying to understand, can you help us understand a little bit better, how can you take the learnings of Pike 1 as you move ahead with your front end design engineering on Pike 2 project?

Yeah, I think it's more about from a reservoir perspective. Pike 1 would be very similar to the Pike 2 reservoir. And so in terms of learnings for building a facility at Pike 2, I think we'd look at the assets that we've collected at Jackfish and then at our Kirby assets as well and take the best of both those worlds and apply our learnings and into the development of facilities for Pike 2. And then as I mentioned, from a reservoir perspective, Both reservoirs are very similar. We would take our learnings from how we drill the wells at Pike 1 and apply that with some continuous improvement methodologies to drilling the wells in Pike 2.

Thank you very much. And I wanted to ask you about the differentials. I think Syncrude is trading almost $5 over TI, so if you could help us understand what's driving this premium, and if this premium sustains itself for the next 9 or 12 months, how does CNQ benefit from it? Thank you.

Yeah. You know, obviously, the continuance of premium over WTI for SEO is very beneficial to Canadian National with our significant SEO volumes. And so what we're seeing right now in the market is that the SEO barrels come at a high demand. From a cracking perspective, significant distillate cuts. And so with everything that's going on worldwide, there's simply just a greater demand out there for that light crude to create that diesel production. So that would be where the demand is coming from on that perspective.

Thank you so much.

Thank you.

Thank you. And your next question comes from the line of Dennis Fong from CIBC World Market. Please go ahead.

Hi, good morning, and thanks for taking my question. My first one focuses on oil sands mining, and I was actually hoping to understand, like, you showcased incredibly strong recent production there at the oil sands mining and operations situation. When you think about now owning 100% of the mine Can you talk towards any of the incremental learnings that you found, any of the optimization techniques that you're kind of applying across both of the assets? Also understand that you've been operating it for a period of time as well prior to, as well as how does that maybe change the interrelationship between Albion and Horizon and your go-forward plans with both assets?

Yeah. Dennis, you know, I think it's important to remember from an overall perspective for Canadian natural assets, With our oil sands mining and upgrading assets, we are best in class operating cost. And so anything that we've done, say post the swap, is just on the edges in terms of incremental continuous improvement opportunities. We've laid that out in terms of what they look like for savings, for warehousing costs, reductions in savings and that. in the range of about $30 million. Utilization of equipment is probably in the range of about $40 million a year. Those are significant in themselves. If you look at the overall development of both of those, Horizon and the Albion sites, they both present significant upside given the vast reserves that we have. There's projects that we've also outlined back in the fall with our investor open house of 150,000 barrels a day at Growth Opportunity at Jackfish Expansion and 90,000 barrels a day at Horizon. And so really, that sort of lays out the upside. It shows you the robustness of the reserve capacity in both of those areas. And so I think, you know, owning and operating those assets with the same mindset which we have worked on doing since 2017. We created significant value since 2017. We reduced our operating costs from $42 a barrel at Albion down to $25 or less. We have increased the production by 50,000 barrels a day for extremely low capital costs in the range of about $300 million. So we have been able over time, Dennis, to extract a lot of value out of the AOSP asset. We'll continue to work on the fringes to find continuous opportunities, but it's all on the backs of having the lowest operating cost in the industry.

Great, Scott. I really appreciate that context. Switching maybe to a follow-on to Manav's question on Pike, obviously really strong initial productivity from the first two pads there. Can you talk towards if the strength in well pad or the well productivity is making any, we'll call it adjustments to the way that you guys think about the Jackfish expansion scope, as well as that for Pike 2, is that changing the way that you're thinking about say oil treatment or any of the scope of those two expansion projects? Thank you.

Dennis, it really isn't changing our perspective of how we construct the facilities. The strong performance from the reservoir is very encouraging. Again, we expect Pike 2 to present similar results in itself. But again, if we look at the expansion that we're doing at Jackfish and the relative volumes that we have in the pike area there, What I'm most excited about is, yes, we're going to add additional steam capacity to continue to increase the barrels of production that go through the facilities there. But I'm also impressed and looking forward to what the teams are going to be able to execute in terms of exceeding the facility capacities. And so, you know, we're starting to see an example of that right now. where those facilities of jackfish were designed for $120,000. In the quarter, we saw $134,000. So it's very significant. I do believe there is more to come from that perspective, and we're going to realize that value and continue to bolster that strong acquisition that we did back in 2019 and the strategic position that it was. and execute on filling up those assets.

Great. Thanks for that color, Scott. I'll turn it back.

Thank you. Once again, should you have a question, please press star followed by the one on your telephone keypad. And your next question comes from the line of Greg Pardee from RBC Capital Markets. Please go ahead.

Yeah, thanks. Good morning. Maybe just to start with a question for Victor. So you had a pretty big working capital deficiency or a meaningful one in the first quarter. Do you expect any of that to reverse into 2Q? And then with respect to the $13 billion net debt target, I mean, I know everything's kind of moving around, but just given the commodity price strength juxtaposed against increased buybacks, is $13 billion conceivable like that you would hit that this year? Do you think?

Yeah. Good morning, Greg. For sure, when I said it's in view, definitely when we look at forward strip pricing, we see a path to get there this year. I mean, as you point out, it depends on what the premiums look like for SEO, et cetera, over the course of the year. But definitely, we're optimistic that with good operating performance, it's possible. But I'm not going to commit to you yet. We'll see how the next couple quarters here play out. On the working capital front, to your point, pretty regular course tax items in the quarter. Otherwise, I think for the rest of the year, fairly regular working capital impacts in Q2 and Q3, so nothing out of the ordinary.

Okay, understood. Thanks for that. And then, Scott, maybe it's kind of related to the regulatory framework and so on, but I'm more interested in how you're thinking about egress and market diversification, right? There's a lot of proposals now that are cost-efficient to move barrels into the U.S. There's an open season with respect to Trans Mountain, and then there's this looming, you know, big million-barrel-a-day pipeline kind of off in the future. But how do you see the egress landscape shaping up? Is it better than maybe what it was a year ago? And then what about market diversification, you know, for a CNQ, just given your size?

Yeah, Greg, I think if you look at the short and medium term and you compare where we're at now compared to a couple of years ago, it looks very good with the expansions through the main line, through the Prairie Connector opportunity and through TMX. All of them are positive for this medium term growth that will help the industry here grow. So it's very positive. I think if you looked at the expansion to the West Coast for a million barrel a day pipeline, I think that's very important to ensure that when you look beyond the short and sort of mid-term growth platforms, we need that pipeline to be able to grow oil sands in a significant way and I would say it's all good, Greg. All of those point towards a very robust Western Canadian sedimentary basin development opportunity. In terms of our positioning at Canadian Natural, we'll continue to take and look at those diversification opportunities to ensure that we achieve the best net packs possible for all of our oil production. And that, it comes through a combination of going both south and to the west coast.

Very clear. Thanks very much to both of you. Thank you, Greg.

Thank you. And your next question comes from the line of Patrick O'Rourke from ATB Cornmark. Please go ahead.

Hey, good morning, guys, and thanks for taking my question. I was just... Thinking about the DuVernay asset, and now that you've had it for a period of time here, we've seen very strong IPs. Maybe perhaps an update on how the wells are performing and where you sort of sit in terms of capital costs and improvements there and what's left.

Yeah, Patrick, the DuVernay's turned out very well for us. We are meeting the expectations from production growth perspective there. The capital cost, we have brought down significantly over time here since the acquisition. We've also had a significant reduction in the operating cost, you know, in the range of plus a couple bucks a barrel drop in operating cost. And so that's very significant from a net back perspective. We've applied our learnings from the Montigny, brought them into the Duvernay, with some adjustments and things have been looking very well to the east side there's a window of more significant liquids production as well as you move east so we're just at the front end stage of looking to understand the results from from that part of it so it's it's all very good Patrick and We like to play a lot. There's significant, obviously, netbacks in there and high liquids production. So it's a very good part of our portfolio.

Okay, great. And maybe this ties back a little bit to Duvernay and some of the short cycle targets that you have. But I think at the investor day, you did a very good job of sort of laying out short cycle, mid cycle, long cycle capital projects or targets that you have in the portfolio. And you're obviously a very regimented company, but we're in a very volatile commodity environment. So I'm wondering if you could maybe walk us through a little bit of the process and how you're thinking about capital allocation, particularly in the shorter cycle end of the portfolio to ensure that you're maximizing value here. And I think maybe shifting to oilier, more liquids-rich targets. And, you know, with the ebbs and flows of the oil price, how do you manage that on a daily basis looking forward here in 2026?

Yeah, Patrick, I think patience is a really important factor. You know, when we look at how we've laid out our plans for the capital program, which we met some adjustments back in March and we talked about that. You know, the short-term development opportunities in our multi-lats, liquid-rich plays, we are putting significant efforts towards capitalizing on that, and we're getting good results, good productivity from the wells, low operating costs, lower capital costs. Our drilling times continue to improve. So not only are we maximizing our ability to be able to develop these resources, we're doing it in such a manner in the short-term projects that, you know, we're doing it in such a manner that we're able to improve our netbacks, not just because prices are higher today, but because if prices had remained flat, we would have had stronger netbacks with our cost reductions and stronger returns just with our activities through continuous improvement. We'll continue on with that and we're monitoring that. We've got, as I mentioned, significant drilling rigs out there working in about 20, 21 rigs working. Then if you look at our medium term plans, I think we've laid that out, as you mentioned, fairly detailed for our thermal in situ projects. I've talked about it again today. We're continuing with the engineering for Pike and for Jackfish expansion. We're looking to proceed with long lead items there to advance those projects. Lots of confidence there. And again, you know, the longer term projects in oil sands mining, we need to see this. We're looking for positive outcomes on the MOU for development of those areas. Okay, thank you very much. Thank you.

Thank you. And your next question comes from the line of Neil Mehta from Goldman Sachs. Please go ahead.

Yeah, thanks so much. First question is just on natural gas. You talked about your marketing strategy around oil, but there's obviously been a lot of volatility around natural gas. Maybe your perspective on how that changes your activity plans in gas Western Canada how you're thinking about marketing it and then can you talk a little bit about the global gas picture you've got this interesting agreement in 2030 with Chenier are there is there an opportunity to layer more of that in yeah Neil if you if you if you looked at the opportunity to expand on that to capture you know strong global pricing and

we continue to talk to folks we'll look at those opportunities as they present themselves and you know more to come on that but we we are certainly thinking about diversification it is part of our strategy in terms of the development on the gas side for some time now we've been messaging that our focus has been on the liquids rich production and We're really not drilling any dry gas in the basin, and we're looking at where the strongest returns are. That's how we manage our capital portfolio. We're focused on that. And, yes, we do have significant Montigny dry gas opportunities as well, but we'll keep those in the bank for the future, and we'll capitalize in those areas that have the the significant liquids production for now. So it's really a focus on liquids production, high returns, and not any significant focus on drilling any dry gas wells.

Yeah, that makes sense in this macro. And in the release, I thought this was interesting, the comments about piloting solvent-enhanced oil recovery in some of your in-situ assets. And it's certainly something that we've been talking a lot about solvent recovery and the potential upside from production that could generate. But you're such an interesting engineering organization. I'd be curious, how big do you think this could be as it relates to your E&P assets?

Yeah, you know, if you look at the SAGD's assets, we've and our cyclic steam at Primrose. In both cases, we have deployed We've deployed a bit of butane to reduce the steam and reduce the overall emissions through a couple of pilot projects. We had the commercial pad at KNO8 in Kirby North. And again, what we saw in all of these aspects of what we tested so far is that we're able to see, particularly on the Kirby pad, strong recoveries of the butane. Butane is a significant cost driver, or any solvent that you're injecting would be the significant cost driver, and really where you need to focus on in terms of ensuring that you're going to get strong returns for that type of investment. That's where the key is. on that cost side of it. And we're telling the teams, let's ensure that we can go out and find the lowest cost alternative to capture that upside of reduced steam requirements and still have strong solvent recoveries. So we're taking the path of ensuring that we really focus on getting the cost right before we deploy it in any kind of significant scale. If you look at the future and what it does capture for what it can capture is helping bring reserves forward for development in our thermal in situ assets with lower overall capital deployment. So the upside is certainly there. It's just really important to ensure that you got the lowest cost alternative from a solvent perspective and designing your recovery facilities. You want to ensure we get that right because we can get the best of both worlds with that, Neil. We can look at that long-term opportunity, and in the interim, we can continue to develop and add pad ads at low capital efficiency costs.

That's great. Thanks, guys.

Thank you. Once again, that is star and one to ask a question. And your next question comes from the line of Mano Hulshoff from TD Cowen. Please go ahead.

Thanks, and good morning, everyone. I'll start by circling back on return of capital and the 75% return of free cash track that you're currently on. You talked about being very active on the buyback in April and even through the beginning of May. But would you consider leaning into the balance sheet more aggressively over the near term to take advantage of higher spot prices?

You know, it's not something that, like, the way the free cash allocation policy is laid out, I think we intend to adhere to that as it's currently laid out. As you know, there's going to be lots of free cash flow generation here in the second quarter at current start pricing, and I don't think leaning into the balance sheet will be required. I think we'll have lots of cash flow to have a very robust program, and I think the target as laid out by the board here is to maintain that 75% level. So that's the plan for now.

Okay. Thanks, Scott. And then the second question is on sulfur, which is this commodity that It comes up once every 10 years or so, but clearly prices are a lot higher. Can you just refresh us on your exposure to that market, how much you're currently selling into the market today, and what that could amount to in terms of quarterly revenue, if you're prepared to share that?

Yeah, thanks. We won't get into the exact details of the revenue from it, but I can tell you we're a significant producer of sulfur at our oil sands mining operations at the upgraders, both Horizon and Scotford, also in our conventional operations in the western part of the province in NBC. And so certainly, As you mentioned and indicated, sulfur has been cyclic in nature. And we're certainly seeing a turn towards the upside at this point in time. And it's a good position to be in where we're able to realize strong value from the sale of those sulfur values. So we're going to continue to monitor that and take advantage of it as the cycle rides higher.

Okay, thanks, Scott. I'll turn it back.

Thank you. There are no further questions at this time. I will now hand the call back to Lance Cassin for any closing remarks.

Thank you, operator, and thanks to everyone for joining our call this morning. If you have any questions, please give us a call. Have a great day.

And this concludes today's call. Thank you for participating. You may all disconnect.