Canadian Natural Resources(CNQ) - 2021 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Canadian Natural reported net earnings of CAD 1.55 billion and significant adjusted funds flow of CAD 3.05 billion for Q2 2021, with free cash flow of approximately CAD 1.5 billion after capital and dividends [29] - The net debt balance at Q2 2021 was CAD 18.2 billion, down CAD 3.1 billion from the end of 2020, and a reduction of CAD 1.7 billion from Q1 2021 [30] - The company has returned over CAD 1.5 billion to shareholders in 2021 through dividends and share repurchases [30] Business Line Data and Key Metrics Changes - Quarterly production reached approximately 1.142 million BOEs per day, with a breakdown of 43% light crude oil, 34% heavy oil, and 23% natural gas [34] - North American natural gas production was 1.614 Bcf per day, an increase from Q1's 1.598 Bcf per day [14] - Q2 North American light oil and NGL production was 98,559 barrels per day, up 6% from Q1 2021 [18] Market Data and Key Metrics Changes - AECO strip prices for natural gas are strong at over CAD 3.50 per GJ, improving the economics of natural gas projects [17] - The company revised its natural gas guidance up to 1.68 Bcf per day to 1.72 Bcf, targeting an exit rate in excess of 1.8 Bcf per day by the end of 2021 [17] Company Strategy and Development Direction - The company focuses on generating real returns for shareholders and has a corporate strategy that emphasizes capital discipline and operational excellence [3][4] - Canadian Natural aims to achieve net zero emissions in oil sands operations by 2050, with interim targets set for 2030 [10][36] - The company plans to allocate 50% of free cash flow to share repurchases once net debt is below CAD 15 billion, with the remaining 50% aimed at strengthening the balance sheet [33] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to deliver meaningful economic growth and increasing returns to shareholders [4] - The positive outlook for commodity prices in 2021 has led to an increase in the annual capital budget by CAD 275 million [11] - The company is committed to maintaining a sustainable, growing, and predictable dividend, having increased it for 21 consecutive years [31] Other Important Information - The company has a strong liquidity position with approximately CAD 5.6 billion available at Q2 2021 [31] - Canadian Natural's environmental initiatives have led to a 38% reduction in GHG intensity in oil sands operations from 2016 to 2020 [9] Q&A Session Summary Question: What is the sustainability of the 495,000 barrels per day production at Horizon? - Management indicated that the production level is becoming more achievable on a sustained basis due to continuous improvements [39] Question: How does the increased production impact operating costs? - Incremental barrels produced are low in cost, helping to absorb higher gas and power prices [40] Question: What is the outlook for capital spending in 2022? - Management stated it is too early to provide guidance, as the capital budget is typically set in the fall [42] Question: Will there be another dividend raise later this year? - The board will consider the dividend at the regular time, with significant free cash flow expected [45] Question: What is the current status of emissions reduction initiatives? - Management noted that teams are using advanced technologies to reduce methane emissions and improve operational efficiency [55]