Canadian Natural Resources Limited

Thanks for watching! Thank you. Thank you for watching. Thank you for watching. and many more. Thank you. Thank you for watching. Thank you. Thank you. Thank you. Thank you. Thank you for watching! Good morning. We would like to welcome everyone to Canadian Naturals 2026 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 6th, 2026, 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.

Good morning, everyone, and thank you for joining Canadian Natural's 2026 Second Quarter 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 reserves and production before royalties. Also, I would suggest you review the advisory section in our financial statements that include comments on non-GAAP disclosures. Speaking on today's call will be Scott Stauth, our President, and Victor Darel, our Chief Financial Officer. As usual, also in the room with us this morning is Robin Zabek, CEO of E&P, Jay Froc, CEO of Oil Sands, and Ron Lang, Chief Commercial Officer. Scott will begin by going through our numerous operational records and leading operating costs as our teams continue to execute in the quarter. Victor will then go through our strong financial results, significant returns to shareholders, and material net debt reduction. 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. Q2 2026 was a very strong quarter, reflecting our continued focus on operational excellence, capital efficiency, and continuous improvement, which drove eight new operational and financial records across our asset base. An example of this performance was achieved in our world-class oil sands mining and upgrading operations. where we experienced challenging weather elements like other oil sands operations. However, our teams successfully managed those challenges, allowing the company to not only exceed our budget, but we also achieved the highest quarterly production in the company's history, averaging approximately 625,000 barrels per day Q2 with high upgrader utilization of 106%. Oil sands mining and upgrading production in the corridor represents an increase of approximately 161,000 barrels per day, or 35% compared to Q2 2025 levels, reflecting strong operational performance, the additional working interest in the AOSP mines acquired in Q4 2025, and the turnaround at AOSP completed last year. These world-class assets provide high-value synthetic crude oil, which captured robust pricing in Q2, with the SCO premium to WTI averaging $8.37 US per barrel in the quarter. And when combined with industry-leading low operating costs of $22.19 per barrel, resulted in the highest oil-sense mining and upgrading per barrel net back ever achieved by the company during the quarter. at approximately $78 per barrel. Cash flow generation from our oil sands mining and upgrading assets was significant and operations delivered strong results. In addition to record oil sands mining and upgrading production, we also achieved record quarterly total corporate production of approximately 1,677,000 UEs per day in Q2 resulting in year-over-year growth of approximately 256,000 BOEs per day or 18% from Q2 2025 levels. Other Q2 2026 production records include record total liquids production of approximately 1,249,000 barrels per day, an increase of 230,000 barrels per day or 23% from Q2 2025 levels. Importantly, two-thirds of our total liquids production in Q2 is high-value SCO, light crude oil, and NGLs, generating significant cash flow. We also achieved record North American conventional EMP liquids production of approximately 338,000 barrels per day, representing an increase of 67,000 barrels per day, or 25% from Q2 2025 levels. included in this record North American light crude oil and MGL production of approximately 205,000 barrels per day. This production is up approximately 64,000 barrels per day, or 45% from CO2 2025, primarily reflecting accretive acquisitions and strong drilling results. Thermal in situ production was strong as well, with record production at Jackfish approximately 136,000 barrels per day, exceeding our facility nameplate capacity of 120,000 barrels per day. Strong production of jackfish was supported by the two new SAG D-PADS at Pike 1, which are currently averaging approximately 46,000 barrels per day with an SOR of 1.8. The resource at Pike is top tier, with results continuing to exceed our expectations. In addition to production records achieved this quarter, we also set some record financial results, including adjusted net earnings and adjusted fund flow, with which Victor will provide more details on later in the call. Our financial results include the benefit from our material sulfur production as we produce approximately 30% of Canada's sulfur supply, which generated significant net revenue of approximately $450 million for the first two quarters of this year. With record production and strong performance across our asset base, along with an accretive acquisition completed in Q2, we are increasing our annual production guidance range for the second time this year. Annual production is now targeted to be between 1.637 million BOEs per day and 1.682 million BOEs per day and 20,000 BOE per day increase at the midpoint from the previous guidance range. We remain focused on executing our prudent and efficient 2026 capital program as our operational capital, operating capital remains unchanged at approximately 6 billion before net acquisition cost. Our ability to effectively allocate capital across our large and diverse asset base provides us with a unique competitive advantage when combined with accretive acquisitions continues to create significant long-term value for our shareholders. With that, I will pass it over to Victor for our Q2 financial review.

Thank you and good morning, everyone. As Scott already noted, the second quarter was marked by impressive performance with the company setting a number of quarterly records. Adjusted net earnings of $4.6 billion or $2.20 per share and adjusted funds flow of $6.9 billion or approximately $3.30 per share were the strongest in the history of the company and reflected excellent operational performance and the strong pricing we received for our products in the quarter. The Peace River area acquisitions were completed in the first and second quarters and are already well integrated into our operations and are contributing meaningfully to our already strong returns. Robust cash flow generation continues to provide significant returns to shareholders, totaling approximately $4 billion in the second quarter, including direct returns of $2.4 billion, comprised of $1.3 billion in dividends and $1.1 billion in share repurchases, and indirect returns of $1.6 billion through net debt reduction in the quarter, further enhancing long-term shareholder value. Total direct returns to shareholders for the year to date now exceed $5.7 billion. A significant level of returns and net debt reduction, even when completing an accretive acquisition in the quarter, is a clear demonstration of the cash-generating capability of our diverse, long-life, low-decline asset base, supported by industry-leading cost performance across our operations. Our leading dividend continues, with the Board approving a quarterly dividend of $0.625 per common share, Following the dividend increase earlier this year, 2026 is the 26th consecutive year of dividend increases and reflects the sustainability of our business model, the strength of our balance sheet, and the durability of our asset base. The dividend is payable on October 2nd, 2026 to shareholders of record at the close of business on September 11th, 2026. Our share buyback program, which currently targets to return 75% of free cash flow and it's calculated as fund flow after dividends, capital and abandonment expenditures continues to be very strong. The program is forward looking and with a strong pricing environment continues to be robust. Our capital expenditure program is disciplined, balanced and effective and the balance sheet is ever stronger. Liquidity is equally strong with approximately 8 billion of availability supported by internally generated cash flow and undrawn credit facilities and providing us with ongoing financial flexibility to drive resource value growth and deliver on strategic growth opportunities as demonstrated by the accretive acquisitions this year. Overall, the record results achieved in the second quarter further demonstrate the quality of our assets and the strength of our execution. Combined with a strong balance sheet and a disciplined approach to capital allocation, we remain well positioned to continue delivering meaningful value to our shareholders. With that, Scott, I'll turn it back to you.

Thanks, Victor. In summary, our relentless focus on continuous improvement combined with effective and efficient operations from our world-class assets has driven strong performance, low operating costs, high netbacks, and significant free cash flow generation so far in 2026. Our ability to effectively allocate capital across our strong asset base provides us with a competitive advantage. This ability, combined with shareholder alignment and accretive acquisitions, creates significant long-term value for our shareholders. Before I turn it over for questions, I wanted to comment on the recent trilateral MOU between the Oil Sands Alliance, Government of Alberta, and the federal government. The trilateral MOU outlines a potential regulatory and fiscal framework intended to support long-term competitiveness Canada's energy industry and establishes a positive first step for future economic production growth in Canada when associated with additional egress opportunities and a clear pathway to reduce greenhouse gas emissions. In turn, this will benefit all of Canada by providing more jobs combined with social and economic benefits to our country. We look forward to working with both levels of government on the definitive agreements targeted for the completion this fall, which will provide clarity on assessing potential growth projects. Until we have completed these definitive agreements, development of our medium and long-term projects remain on hold, which will include our 30,000-barrel-a-day jackfish project and our 70,000-barrel-per-day pike tube project, as well as our longer-term oil sands mining and growth projects at both Albion and Horizon. I also want to remind everyone that in addition to our future growth and capital allocation being dependent upon the finalization of the definitive agreements, our shareholder returns will not be sacrificed. And if growth projects proceed, they will generate strong returns at mid-cycle pricing. And with that, I will turn it over for questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the two. And if you're using a speakerphone, please remember to lift the handset first before pressing any keys. And we have our first question from Dennis Fong with CIBC.

Hi, good morning. Thanks for taking my questions and congratulations on a very strong operational quarter. My first question, and I really appreciate, frankly, the color and commentary you provided in the initial remarks. When you talk towards obviously your strong performance in the oil sands mining operations region, clearly you were able to manage through very tough environmental conditions out in the field. Can you talk towards some of the learnings you might have had, maybe some examples of what you were able to do to manage through obviously a tough working quarter, a high amount of snow melt and rain, and why kind of and some of the operating models were able to weather some of these conditions as well as you guys were able to.

Yeah, thanks, Dennis. So I think if you look at, there are several factors that come into play with the spring runoff and combined with heavy rain conditions that we see typically during the second quarter. Our teams have been focused on this years, and part of that focus is just generated around how we manage our whole roads, how we have our materials ready for managing those roads in adverse weather conditions, how we have our ore availability ready to go, and I think importantly how our team on the ground is able to navigate through the challenging conditions with Manpower, operating the equipment, able to assess situations on a second-by-second, minute-by-minute basis, make judgment calls, and work their way through these challenges on a very prepared basis, anticipating what's going to happen with the future forecast and those general kind of things. And I think that probably summarizes maybe in a very simplistic form, Dennis, but at the same time, being on top of all that is very important to our team and it's something that they take great pride in.

Great. I appreciate that color there. My second question shifts the focus towards Kirby. It looks like you are shifting now towards a solvent rollout using Diluent for the first quarter of 2027. Can you talk towards kind of the scale of that rollout and potentially the upside that could exist as you move forward with the use of solvent technology, obviously at a much more grander commercial scale?

Yeah. So with the Solvent deployment at Kirby Show, Dennis, it's part of this ongoing strategy that we have to evaluate the returns that we would achieve by deployment of solvents and helping reduce our greenhouse gas emissions. So one of the key factors that we look at and that we've experienced is the cost side of solvents are significant. And in order to improve The returns, we need to ensure that we're using the most effective and efficient solvents. In this case, we're going to deploy the diluent as it is a lower cost product to be able to use for solvents. In order of magnitude, Dennis, this is another small pilot at Kirby Self. You know, these are wells that we drilled off of existing pads at Kirby Cell. Performance from those wells is strong. We anticipate that by the time Q1 comes around, we'll be introducing the diluent through that pilot into those wells and then monitoring the results of that. So really what we're trying to do is take our time, understand full cycle economics on solids and their applicability in the areas that we can achieve the best results by deploying that solvency.

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

We have our next question from Patrick O'Rourke with ATB Coremark.

Hey, good morning, guys. Thanks for taking my question and congratulations again on a very strong quarter, particularly in a challenging mining environment. Just wondering and thinking about upgrader output here, I mean, you know, for several quarters in a row, been very consistently above 100%. Where do you feel from a comfort level that, and I know you've got the NAPSA addition coming up, but the ability to maybe re-rate these assets up a little bit in terms of capacity and sort of what incremental you could squeeze out there.

Yeah, Patrick, the way we look at it is we continue to take a view that we're working towards continues improvement, optimizing the capacity of all the facilities, including the upgraders at our mining sites. And so I think it's premature to reassess or re-rate the capacity. The teams are still focused on optimization and trying to get incremental creep barrels through the facility, one of which is what you mentioned. The NRUTT project, but we continue to work on optimization outside of that as well. So, you know, I think the important part is, yes, it's a big number. What's really important, though, is the total capacity, the volume that we're putting through there of SEO production. That's really the driving factor. Whether we're at 100% or 105%, I think that's just an outcome of where we're at in terms of our pushing the facilities to ensure that we're maximizing the assets and I think it's just important that we continue to focus on incremental barrels where we can achieve that through tweaking and optimizing and getting creek capacity so at some point Patrick will take a look at that but I think right now it's just important to maintain our focus on optimizing the production

Okay, great. And this is probably a bit of a bigger strategic question, but you referenced the trilateral MOU here. Thinking in the context, and I know it's a big if, but if it does meet your expectations for an economic and a fiscal framework, and I know there's also, you know, commodity market conditions and economic conditions out there to keep in perspective, but given the state of readiness that you showed with the growth projects, that you have in the queue here, particularly the medium and longer term ones. If that formal agreement meets your expectations, what's the sort of path forward in terms of timeframes around FID and progressing with growth?

Yeah, Patrick, you know, I think the focus right now on getting through the definitive agreements is really important and very strategic for us. We want to ensure all the details in the definitive agreements are aligned with the concepts of the MOU as those concepts that we had in the MOU are critical in terms of importance for us for looking at future growth. So when you look at our projects that we have talked about at our open house and in subsequent calls, We would look to deploy that capital under the right conditions according to our holistic view of capital allocation to ensure that we're looking at growth, we're not sacrificing shareholder returns, and we're not laying long-term projects over top of medium-term projects in such a way that it it presses hard on the capital. So we're very cognizant of that, very focused on that Patrick.

Okay, thanks very much.

Thank you. Our next question is from Menno Hulsoth with TD Cowan.

Thanks and good morning everyone. I'll start with a question on SEO pricing. It ties a bit into what you were chatting about with Patrick. Clearly, the premium to WTI was really big in the second quarter, but there does seem to be a lot of day-to-day volatility, and I always struggle with the fundamentals in terms of what I'm seeing versus how synthetic actually trades. So my high-level question is, what are you currently seeing in terms of supply-demand fundamentals for SEO, and what is a reasonable expectation for that premium through the end of the year?

Yeah, you know, Minnow, your view on that is probably as accurate or maybe more accurate than ours would be on that. And it's really dependent upon the draw for diesel production. And we're seeing, you know, strong diesel production across North America and elsewhere. So I think we're going to see, you know, at par or slightly upticked pricing as we go forward through the rest of the year here. And really, if you look at the forward curve for WTI and if you apply and you think about how diesel production economy is still strong, lots of requirements for fuel supply, I would suggest that will probably be at par or slightly better than WTI by a few dollars per barrel. And I see that go forward basis. Right now, it's difficult to take the end of that. But even at that, I think it bodes to the resilience of SEO pricing because if you look historically, SEO pricing has averaged pretty much on par with WTI. And the fact that we have 600,000 barrels of that production is very significant to the company, whether it's at part of WTI or even an added benefit if it's at a premium to that. So we'll see how things go as we go forward here.

Okay, thanks, Scott. That's helpful. And then my second question is on M&A and recent acquisitions in the Peace River more specifically. So it's a multi-part question. What is drawing you to that area? Are there unique attributes that CNQ brings to the table in terms of integration synergies on the acquired assets? And are you seeing meaningful opportunities to further consolidate in that region?

I think if you look at what we've done there thus far, increasing our position in the Charter Lake, we are capturing the synergies of size and infrastructure in areas with focus on reducing the operating cost. And you wouldn't have otherwise gotten that with the three producers in the area. So through the consolidation of that, we can see a focus on achieving and many more. We're really focused on maximizing the liquids production from those assets. So there's been a real significant focus on that. And of course, because we're able to utilize our teams and our knowledge in the area from what we've learned in the past, we think we're going to help us. It'll help us reduce the and all of those. So there's upside in those acquisitions, but I would argue that those acquisitions similar to other acquisitions that we continue to do in the past, we really look at the synergies of of having size and scale and being able to optimize the performance of the area and reduce the operating cost as value to our shareholders and cash flow.

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

Thank you. Our next question is from Neil Mathot with Goldman Sachs.

Yeah. Thanks, team. Congrats on a really good quarter here. One macro, one micro question. I guess the macro question is the trilateral MOU and just your perspective about what are the sort of the gating factors to ultimately improving egress and getting pipe built in the region and, you know, just how big of a deal is this for the industry and what is the biggest risk for this to ultimately translate into improved outcomes?

Yep. Neil, I think it's transformative for Canada and certainly for the oil sands industry. When you look at the opportunity for egress to the West Coast and when you think about the opportunity to broaden that customer base and help stronger overall differential pricing, I think that is very, very significant in and of itself. The fact that the Pathways Project would be able to capture significant greenhouse gas emissions and achieve production growth opportunities I think is really, really significant for all of Canada, all Canadians. Well-paying jobs will be created, increased royalties, increased taxes. So from a Canadian perspective, prosperity, it's a very, very important overall project. In terms of the details within the MOU, I'm sure you've read through the MOU, we're really just looking to nail down through the definitive agreements so that we have assurances that all the things that we had in the MOU will work themselves through for signatures to be completed on the definitive agreements. And with that, I think it presents a great opportunity for all Oil Sense players, including Canadian Natural, and certainly a very significant opportunity for Alberta and all of Canada. So there's fiscal components, there's regulatory components, all of which are extremely important to ensure that we get this right and it fits the bill and really transitions Canada from a country where we've been somewhat, I'll say, stagnant in growth position to a country that has a real significant opportunity here to be an energy superpower.

Thanks. I appreciate it. I know the industry was instrumental in helping to craft this. My follow-up is just on leverage. You've made a lot of progress on long-term debt from 16.2 down to 14.5. You're inching closer to the $13 billion goal. As you look at the forward curves, when do you think you get there? And when you get there, what does that unlock for you guys?

Oh, this is Victor. I'll jump in on this one. To your point, pricing's been very strong, and of course, net debt levels have come down, as you highlight there, about $1.6 billion in the quarter alone. Pricing has moved around a lot, as you know, from day to day, the number moves around in terms of when we'd get there. Right now, I'd say we'd target getting there in early 26, based on pricing today, or 27, I should say. and, you know, when we get there, as you know, we target to get to 100% of free cash flow under the shared buyback program. That's very important to us. So that's what we're looking at right now. Okay.

We call on Neil that we have our turnaround in Q3 and into early Q4 this year as well. So keep that in mind. Okay. That's helpful. Thanks, guys.

Thank you. As a reminder, if you have a question, please press star then 1. We have no further questions. I will now turn the call over to Lance Casson for closing remarks.

Thank you, operator, and thanks for everyone for joining the call this morning. If you have any questions, please don't hesitate to call. Have a great day.

Ladies and gentlemen, this concludes today's conference call. We thank you for your participation. You may now disconnect.