Commenting on first quarter 2018 results, Steve Laut, Executive
Vice-Chairman of Canadian Natural stated, "The strength of our well
balanced and diverse portfolio, combined with our long life low
decline asset base, delivered a strong first quarter for Canadian
Natural. Our balanced production mix is a key component of our
strategy to create shareholder value throughout the commodity price
cycle. In 2018, the Company remains focused on delivering on its
capital allocation program through disciplined economic resource
development, strengthening the balance sheet, and increasing
returns to shareholders. The Company continues to maximize value
while operating with a top tier safety record and an ongoing
commitment to reduce its environmental footprint in all aspects of
its operations."
Canadian Natural's President, Tim McKay, added,
"In the first quarter of 2018, Canadian Natural achieved record
quarterly production of 1,123,546 BOE/d, growth of 10% over fourth
quarter 2017 levels, primarily as a result of strong production
performance at our Oil Sands Mining and Upgrading assets. A full
quarter of production from the successful Phase 3 expansion at
Horizon and strong operational performance at the Athabasca Oil
Sands Project ("AOSP") resulted in record production of
approximately 456,000 bbl/d of Synthetic Crude Oil ("SCO"). Our
focus on cost control and efficiencies, high utilization rates and
safe, reliable operations resulted in record low quarterly
operating costs of $21.37/bbl (US$16.89/bbl) of SCO. As a result of
our industry leading operations at both Horizon and the AOSP, the
Company reduced the midpoint of annual Oil Sands Mining and
Upgrading operating cost guidance by $2.00/bbl to $22.50/bbl of
SCO. Canadian Natural continues to focus on effective and efficient
operations, continuous improvement and leveraging technology, while
maintaining its capital discipline, as a result the 2018 capital
expenditure program remains unchanged."
Canadian Natural's Chief Financial Officer,
Corey Bieber, continued, "The Company had a solid first quarter,
achieving funds flow from operations of $2,323 million and net
earnings of $583 million demonstrating the value of our diverse
asset base as we remain on track to deliver strong financial
results in 2018. As a result, free cash flow was significant at
approximately $1,220 million before dividends and approximately
$880 million after dividend commitments.
Our continued focus on balance sheet strength
has resulted in the decrease of long term net debt and the
retirement of the deferred AOSP acquisition liability, a total
reduction of approximately $1.9 billion since Q2/17. Debt to
adjusted EBITDA strengthened to 2.5x at quarter end and debt to
book capitalization improved to 40.5%, within our targeted
range.
As previously announced, the Company increased
its quarterly dividend by 22% to $0.335 per common share and
renewed and increased its Normal Course Issuer Bid ("NCIB")
program. Subsequent to quarter end, Canadian Natural initiated
share purchases as part of its NCIB program, evidence of our
commitment to deliver returns to our shareholders. The Company will
look to continue share purchases throughout the year on an
opportunistic basis, if it makes economic sense to do so.”
QUARTERLY HIGHLIGHTS
|
|
Three Months Ended |
|
|
|
|
|
|
|
($ millions, except per common share amounts) |
|
Mar 31 2018 |
|
Dec 31 2017 |
|
Mar 31 2017 |
Net
earnings |
|
$ |
583 |
|
$ |
396 |
|
$ |
245 |
Per
common share |
– basic |
|
$ |
0.48 |
|
$ |
0.32 |
|
$ |
0.22 |
|
– diluted |
|
$ |
0.47 |
|
$ |
0.32 |
|
$ |
0.22 |
Adjusted
net earnings from operations (1) |
|
$ |
885 |
|
$ |
565 |
|
$ |
277 |
Per
common share |
– basic |
|
$ |
0.72 |
|
$ |
0.46 |
|
$ |
0.25 |
|
– diluted |
|
$ |
0.71 |
|
$ |
0.46 |
|
$ |
0.25 |
Funds flow
from operations (2) |
|
$ |
2,323 |
|
$ |
2,307 |
|
$ |
1,639 |
Per
common share |
– basic |
|
$ |
1.90 |
|
$ |
1.89 |
|
$ |
1.47 |
|
– diluted |
|
$ |
1.89 |
|
$ |
1.88 |
|
$ |
1.46 |
Total net capital expenditures (3) |
|
$ |
1,103 |
|
$ |
1,143 |
|
$ |
846 |
|
|
|
|
|
|
|
Daily production, before royalties |
|
|
|
|
|
|
Natural gas (MMcf/d) |
|
1,614 |
|
1,656 |
|
1,673 |
Crude oil and NGLs (bbl/d) |
|
854,558 |
|
744,100 |
|
598,113 |
Equivalent production (BOE/d) (4) |
|
1,123,546 |
|
1,020,094 |
|
876,907 |
(1) Adjusted net earnings from operations is a non-GAAP measure
that the Company utilizes to evaluate its performance. The
derivation of this measure is discussed in the Management’s
Discussion and Analysis (“MD&A”).
(2) Funds flow from operations is a non-GAAP measure that the
Company considers key as it demonstrates the Company’s ability to
fund capital reinvestment and debt repayment. The derivation of
this measure is discussed in the MD&A.
(3) For additional information and details, refer to the net
capital expenditures table in the Company's MD&A.
(4) A barrel of oil equivalent (“BOE”) is derived by converting
six thousand cubic feet (“Mcf”) of natural gas to one barrel
(“bbl”) of crude oil (6 Mcf:1 bbl). This conversion may be
misleading, particularly if used in isolation, since the 6 Mcf:1
bbl ratio is based on an energy equivalency conversion method
primarily applicable at the burner tip and does not represent a
value equivalency at the wellhead. In comparing the value ratio
using current crude oil prices relative to natural gas prices, the
6 Mcf:1 bbl conversion ratio may be misleading as an indication of
value.
- Net earnings of $583 million were realized in Q1/18, an
increase of 47% over Q4/17 levels, and adjusted net earnings of
$885 million were achieved, a 57% increase from Q4/17 levels.
- Canadian Natural generated significant funds flow from
operations of $2,323 million in Q1/18, comparable to $2,307 million
in Q4/17 and an increase of $684 million over $1,639 million in
Q1/17. The increase over Q1/17 primarily reflects higher Synthetic
Crude Oil ("SCO") sales volumes and realized prices from the
Company's North America Oil Sands Mining and Upgrading
segment.
- The Company achieved record production volumes in Q1/18
averaging 1,123,546 BOE/d, above the midpoint of previously issued
Q1/18 guidance, representing 10% and 28% increases from Q4/17 and
Q1/17 levels, respectively.
- In Q1/18, Canadian Natural delivered free cash flow of
approximately $1,220 million and approximately $880 million
after dividend commitments. The Company maintained a balance
on allocation of its funds flow from operations:
- The Company remained disciplined in economic resource
development with Q1/18 capital expenditures of $1,103 million.
- Balance sheet strength continues to be a focus as the
Company decreased long term net debt and retired the deferred
Athabasca Oil Sands Project ("AOSP") acquisition liability by
totaling a reduction of approximately $965 million from Q4/17
levels, resulting in debt to adjusted EBITDA strengthening to 2.5x
and debt to book capitalization improving to 40.5%.
- Canadian Natural maintains strong financial stability and
liquidity represented by cash balances and committed bank
credit facilities. At March 31, 2018 the Company had approximately
$4.0 billion of available liquidity, including cash and cash
equivalents.
- Returns to shareholders remain a key focus for Canadian Natural
and as previously announced on March 1, 2018, the Company increased
its quarterly dividend by 22% to $0.335 per common share.
- Subsequent to quarter end, the Company initiated share buybacks
and purchased 700,000 common shares for cancellation at a weighted
average price of $41.95 per common share.
- Canadian Natural’s corporate crude oil and NGL production
volumes averaged 854,558 bbl/d, increases of 15% and 43% from Q4/17
and Q1/17 levels respectively, primarily as a result of a full
quarter of production from the Horizon Phase 3 expansion, as well
as high reliability and strong production from acquisitions
completed in 2017.
- At the Company's world class Oil Sands Mining and Upgrading
assets, operations were strong in Q1/18 with quarterly production
reaching a record 456,076 bbl/d of SCO. Through safe, steady and
reliable operations, a strong focus on cost control and
efficiencies, and high utilization rates, the Company realized
industry leading, record low operating costs of $21.37/bbl
(US$16.89/bbl) of SCO in Q1/18, a 14% decrease from Q4/17 levels.
- As a result of the Oil Sands Mining and Upgrading segment's
strong operational performance and cost savings, the Company
reduced annual operating cost guidance by $2.00/bbl of SCO, with
annual operating costs now targeted between $20.50/bbl and
$24.50/bbl (approximately US$16.25/bbl - US$19.50/bbl).
- At Horizon, following the successful completion of the Phase 3
expansion, the Company is evaluating Horizon Upgrader reliability
enhancements and potential creep capacity improvements.
- Stage 1 detailed engineering for reliability improvement which
involves pump and piping modification is targeted to be completed
by the end of 2018, with most of the activity taking place during
the planned 21 day turnaround targeted later this year.
- Stage 2 design based memorandum activities related to capacity
increases within the Upgrader is targeted to add 5,000 bbl/d
to15,000 bbl/d of potential creep capacity.
- At Horizon, work continues on the potential Paraffinic Froth
Treatment and Vacuum Gas Oil ("VGO") expansions.
- The engineering and design specification work on the potential
Paraffinic Froth Treatment expansion at Horizon is underway and has
the ability to produce high quality diluted bitumen, targeting to
add approximately 30,000 bbl/d to 40,000 bbl/d.
- The proposed VGO expansion at Horizon is in early scoping and
is targeted to add approximately 10,000 bbl/d to 15,000 bbl/d.
- At Kirby North, the Company's targeted 40,000 bbl/d Steam
Assisted Gravity Drainage ("SAGD") project is targeting first oil
in Q1/20. Over the quarter, top tier execution and strong
productivity was achieved and as a result, the project is trending
ahead of schedule and cost performance is on budget. Currently,
over 75% of the Central Processing Facility equipment has been
delivered to site and SAGD drilling is nearing 25% completion.
- Canadian Natural continues to focus on safe, reliable,
effective and efficient operations while minimizing its
environmental footprint.
- Canadian Natural has invested significant capital to capture
and sequester CO2. The Company has carbon capture and sequestration
facilities at Horizon, a 70% working interest in the Quest Carbon
Capture and Storage project at Scotford and has carbon capture
facilities at its 50% interest in the North West Redwater ("NWR")
refinery. As a result, Canadian Natural targets capacity to capture
and sequester 2.7 million tonnes of CO2 annually, equivalent to
taking 570,000 vehicles off the road, making the Company the 5th
largest capturer and sequester of CO2 globally once the NWR
refinery is fully running.
- At Canadian Natural's Oil Sands operations, which represent
approximately 66% of the Company's liquids production, the
Company's emissions intensity is only approximately 5% higher than
the average intensity for all global crude oils. By investing in
and leveraging technology, specifically carbon capture initiatives,
Canadian Natural has developed a pathway to reduce the Company's
greenhouse gas ("GHG") emissions intensity to be below the average
for global crude oils.
- Canadian Natural's commitment to leverage technology, adopting
innovation and continuous improvement is evidenced by its In Pit
Extraction Process ("IPEP") pilot at Horizon, which will test the
possibility to produce stackable dry tailings. The project has the
potential to reduce the Company's carbon emissions and
environmental footprint by reducing the usage of haul trucks, the
size and need for tailings ponds and accelerating site reclamation.
In addition this has the potential to significantly reduce capital
and operating costs.
- The Company's GHG emissions intensity has decreased materially
since 2013 as GHG emissions intensity has decreased by 18% from
2013 to 2017.
- Methane emissions have decreased 71% from 2013 to 2017 from the
Company's primary heavy crude oil operations.
- Balance sheet strength continues to be a focus of the Company
and strong financial performance was demonstrated in Q1/18 through
the retirement of US$ denominated notes and early retirement of
certain credit facilities as detailed in the Company's financial
statements.
- Since the AOSP acquisition in Q2/17 Canadian Natural has
decreased long term net debt and retired the deferred AOSP
acquisition liability, totaling a reduction of approximately $1.9
billion.
- In Q1/18, the Company has decreased long term net debt and
retired the deferred AOSP acquisition liability, totaling a
reduction of approximately $965 million, since Q4/17.
- Subsequent to quarter end, Canadian Natural declared a
quarterly cash dividend on common shares of $0.335 per share
payable on July 1, 2018.
OPERATIONS REVIEW AND CAPITAL ALLOCATION
Canadian Natural has a balanced and diverse
portfolio of assets, primarily Canadian-based, with international
exposure in the UK section of the North Sea and Offshore Africa.
Canadian Natural’s production is well balanced between light and
medium crude oil, primary heavy crude oil, Pelican Lake heavy crude
oil, bitumen and SCO (herein collectively referred to as “crude
oil”), natural gas and NGLs. This balance provides optionality for
capital investments, facilitating improved value for the Company’s
shareholders.
Underpinning this asset base is long life low
decline production from the Company's Oil Sands Mining and
Upgrading, thermal in situ oil sands and Pelican Lake heavy crude
oil assets. The combination of low decline, low reserves
replacement costs, and effective and efficient operations means
these assets provide substantial and sustainable cash flow
throughout the commodity price cycle.
Augmenting this, Canadian Natural maintains a
substantial inventory of low capital exposure projects within its
conventional asset base. These projects can be executed quickly and
with the right economic conditions, can provide excellent returns
and maximize value for shareholders. Supporting these projects is
the Company’s undeveloped land base which enables large, repeatable
drilling programs which can be optimized over time. Additionally,
by owning and operating most of the related infrastructure,
Canadian Natural is able to control a major component of its
operating cost and minimize production commitments. Low capital
exposure projects can be quickly stopped or started depending upon
success, market conditions, or corporate needs.
Canadian Natural’s balanced portfolio, built
with both long life low decline assets and low capital exposure
assets, enables effective capital allocation, production growth and
value creation.
Drilling Activity
|
Three Months Ended Mar 31 |
|
|
|
|
2018 |
2017 |
(number
of wells) |
Gross |
Net |
Gross |
Net |
Crude oil |
127 |
122 |
164 |
155 |
Natural gas |
8 |
5 |
11 |
11 |
Dry |
2 |
2 |
1 |
1 |
Subtotal |
137 |
129 |
176 |
167 |
Stratigraphic test / service wells |
528 |
450 |
226 |
226 |
Total |
665 |
579 |
402 |
393 |
Success rate (excluding stratigraphic test / service wells) |
|
98% |
|
99% |
- The Company's total Q1/18 crude oil and natural gas drilling
program was 129 net wells, excluding strat/service wells, a
decrease of 38 net wells drilled in Q1/17. The change in drilling
reflects Canadian Natural's disciplined capital allocation process
and proactive steps to improve execution excellence and control
costs by balancing overall drilling levels throughout the
year.
North America Exploration and Production
Crude oil
and NGLs – excluding Thermal In Situ Oil Sands |
|
Three Months Ended |
|
|
|
|
|
Mar 31 2018 |
Dec 31 2017 |
Mar 31 2017 |
Crude oil
and NGLs production (bbl/d) |
245,609 |
259,416 |
231,591 |
Net wells targeting
crude oil |
101 |
123 |
147 |
Net
successful wells drilled |
99 |
120 |
147 |
Success rate |
98% |
98% |
100% |
- Quarterly production volumes of North America crude oil and
NGLs averaged 245,609 bbl/d in Q1/18, within quarterly corporate
guidance and a 6% increase from Q1/17 levels. Q1/18 volumes
represent a decrease of 5% from Q4/17 levels as a result of reduced
drilling activity and delayed completion and ramp up of certain
primary heavy crude oil wells drilled in Q1/18. The Company made a
proactive decision to temporarily curtail heavy crude oil
production in Q1/18 to maximize value as a result of the wider than
expected Western Canadian Select ("WCS") differential. While this
temporary curtailment in production resulted in slightly higher
operating costs, it has created significant value for the Company
going forward.
- Pelican Lake quarterly production averaged 63,274 bbl/d, an
increase of 36% from Q1/17 and a decrease of 4% from Q4/17 levels.
The increase from Q1/17 was as a result of the Company's successful
integration of the acquired assets. The decrease from the prior
quarter was primarily due to the restoration of polymer flooding on
the acquired lands.
- Polymer flood restoration on the acquired lands is proceeding
ahead of schedule. To optimize long term oil recovery and
effectiveness of the polymer flood, the Company is using modified
injection parameters in the near term. As polymer flood conformance
improves, the Company expects to increase oil recovery and further
maximize value.
- Operating costs of $7.07/bbl were achieved in Q1/18, a 4%
increase from Q4/17 levels, reflective of lower production volumes
in the quarter as the Company optimizes the polymer flood on
acquired lands.
- In the quarter, the Company successfully drilled 7 net producer
wells. Subsequent to the quarter, all new wells are currently on
production at approximately 110 bbl/d per well, as expected.
- Primary heavy crude oil production decreased to 89,176 bbl/d in
Q1/18 as the Company curtailed approximately 7,100 bbl/d due to the
wider than expected WCS differential in the quarter. To maximize
value, Canadian Natural proactively decided to curtail volumes and
delay completions, recompletions and the ramp up of primary heavy
crude oil wells in Q1/18.
- Canadian Natural's disciplined capital allocation and proactive
steps to improve execution excellence and control costs by
balancing drilling levels in our heavy crude oil assets, resulted
in 64 net wells drilled in Q1/18 compared to 122 net wells drilled
in Q1/17. Completions were delayed on 31 net wells due to the
strategic decision to curtail production.
- Operating costs of $17.03/bbl were realized in Q1/18, an
increase over Q4/17 levels, primarily due to proactive curtailments
in primary heavy crude oil production volumes.
- North America light crude oil and NGL quarterly production
averaged 93,159 bbl/d, comparable to Q4/17 levels and a production
increase of 3% from Q1/17 levels due to development activity and
minor property acquisitions.
- Operating costs of $15.68/bbl were realized in Q1/18 reflecting
higher fuel, electricity and service costs in the Company's light
crude oil areas.
- The Company successfully drilled 30 net light crude oil wells
in Q1/18 with 19 net wells currently on production. The initial
production results from the Q1/18 new light crude oil wells are:
- 6 net wells in the Company's Tower light crude oil initial
development and related facility construction is proceeding on
budget and schedule with targeted production of approximately 3,000
bbl/d in early Q3/18.
- In the Wembley area, 1 net Montney well drilled is currently on
production producing approximately 740 bbl/d, as expected.
- In southeast Saskatchewan, 9 net wells drilled are currently on
production meeting expectations of approximately 125 bbl/d per
well.
- 6 net wells drilled in southern Alberta are currently producing
at a rate of approximately 120 bbl/d per well, as expected.
- In northwest Alberta, 3 net wells drilled are currently on
production at expected rates of approximately 145 bbl/d per
well.
- The Company’s 2018 North America E&P crude oil and NGL
annual production guidance remains unchanged and is targeted to
range from 253,000 bbl/d - 263,000 bbl/d.
Thermal In
Situ Oil Sands |
|
Three Months Ended |
|
|
|
|
|
Mar 31 2018 |
Dec 31 2017 |
Mar 31 2017 |
Bitumen
production (bbl/d) |
111,851 |
124,121 |
128,372 |
Net wells targeting
bitumen |
22 |
5 |
8 |
Net
successful wells drilled |
22 |
5 |
8 |
Success rate |
100% |
100% |
100% |
- Thermal in situ quarterly production volumes averaged 111,851
bbl/d, at the midpoint of Q1/18 guidance, as the Company curtailed
approximately 9,700 bbl/d due to the wider than expected WCS
differential in the quarter. To maximize value, Canadian Natural
proactively decided to curtail volumes and delay ramp up activities
of certain Thermal in situ assets in Q1/18.
- At Primrose, Q1/18 production volumes averaged 71,875 bbl/d, a
decrease of 15% from Q4/17 levels. Including energy costs,
operating costs of $16.61/bbl were realized in Q1/18, reflective of
the curtailed production volumes.
- At Kirby South, the Company's SAGD project, Canadian Natural
achieved quarterly production volumes of 36,986 bbl/d in Q1/18, a
5% increase from Q4/17 levels. The production increase was
particularly strong given the Company proactively delayed steaming,
slowed down completions and the ramp up of new wells due to the
wider than expected WCS differential.
- Including energy costs, Kirby South achieved strong Q1/18
operating costs of $9.13/bbl, representing a slight decrease from
Q4/17 and comparable to Q1/17 levels, supported by a Steam to Oil
Ratio of 2.5 in Q1/18.
- Subsequent to quarter end, the Company began maintenance
activities at its thermal in situ facilities at Primrose, Peace
River and Kirby South.
- At Kirby North, the Company's targeted 40,000 bbl/d SAGD
project is targeting first oil in Q1/20. Over the quarter, top tier
execution and strong productivity was achieved and as a result, the
project is trending ahead of schedule, while cost performance is on
budget. Currently, over 75% of the Central Processing Facility
equipment has been delivered to site and SAGD drilling is nearing
25% completion.
- The Company’s 2018 thermal in situ annual production guidance
remains unchanged and is targeted to range between 107,000 bbl/d -
127,000 bbl/d.
North
America Natural Gas |
|
Three Months Ended |
|
|
|
|
|
Mar 31 2018 |
Dec 31 2017 |
Mar 31 2017 |
Natural
gas production (MMcf/d) |
1,547 |
1,596 |
1,613 |
Net wells targeting
natural gas |
5 |
2 |
12 |
Net
successful wells drilled |
5 |
2 |
11 |
Success rate |
100% |
100% |
92% |
- North America natural gas production was 1,547 MMcf/d in Q1/18.
Production in Q1/18 decreased 3% from Q4/17 and 4% from Q1/17
levels primarily due to the 32 MMcf/d impact of a third party plant
operating with only one train. Also during the quarter, Canadian
Natural made a proactive decision to shut-in production volumes and
minimize capital on natural gas assets. As a result, the Company
shut-in approximately 14 MMcf/d of natural gas production and
delayed workovers and recompletions due to low natural gas prices.
- Operating costs of $1.31/Mcf were realized in Q1/18, an
increase of 4% primarily as a result of lower natural gas volumes
due to the Company's proactive decision to shut-in volumes and
delayed activity on natural gas assets.
- The Company uses natural gas in its operations represented by
approximately 32% of its total equivalent gas production providing
a natural hedge from the challenging Western Canadian natural gas
price environment. Approximately 29% of the natural gas production
is exported to other North American markets or sold
internationally, with the remaining 39% of the Company's production
being exposed to AECO/Station 2 pricing.
- The Company’s 2018 corporate natural gas annual production
guidance remains unchanged and is targeted to range from 1,650
MMcf/d - 1,710 MMcf/d.
International Exploration and
Production
|
Three Months Ended |
|
|
|
|
|
Mar 31 2018 |
Dec 31 2017 |
Mar 31 2017 |
Crude oil production
(bbl/d) |
|
|
|
North
Sea |
21,584 |
19,548 |
23,042 |
Offshore Africa |
19,438 |
19,519 |
22,616 |
Natural gas production
(MMcf/d) |
|
|
|
North
Sea |
37 |
37 |
37 |
Offshore Africa |
30 |
23 |
23 |
Net wells targeting
crude oil |
1.0 |
— |
— |
Net
successful wells drilled |
1.0 |
— |
— |
Success rate |
100% |
— |
— |
- International E&P quarterly production volumes were within
quarterly production guidance and reached 41,022 bbl/d in Q1/18.
- In the North Sea, volumes of 21,584 bbl/d were achieved in
Q1/18, an increase of 10% from Q4/17 levels and a decrease of 6%
from Q1/17 levels. The increase from Q4/17 was primarily due to
production resuming following the temporary unplanned shut down of
the Ninian South Platform as well as the Forties Pipeline System
outage in December 2017. The decrease from Q1/17 levels was a
result of the impact of the shut-in of the Ninian North platform in
May 2017 in preparation for decommissioning and natural field
declines, partially offset by new wells at Ninian South and
production optimization.
- Additionally, the Company's continued focus on production
enhancements, increased reliability and water flood optimization in
the North Sea resulted in operating costs decreasing by 2% to
$43.39/bbl, from Q4/17 levels. Excluding the impacts of the foreign
exchange rate, operating costs in the North Sea decreased by 5%
from Q4/17 levels.
- In Q1/18, the Company successfully drilled 1.0 net well in the
North Sea with current production of approximately 2,000 bbl/d of
light crude oil.
- Offshore Africa production volumes averaged 19,438 bbl/d,
comparable to Q4/17 levels and a 14% decrease from Q1/17 levels.
The decrease from Q1/17 was a result of natural field declines,
partially offset by successful production optimization.
- Côte d'Ivoire crude oil production expense in Q1/18 was strong
at $10.14/bbl, a 17% decrease from Q4/17 levels and below
previously issued annual Company guidance.
- In 2018, the Company is targeting to drill 1.7 net producing
wells and 1.2 net injector wells at Baobab where the rig is
currently enroute and scheduled to commence in late Q2/18. The
program targets to add average net production of approximately
5,700 bbl/d of light crude oil in Q4/18.
- The Company's 2018 International annual production guidance
remains unchanged and is targeted to range from 40,000 bbl/d -
45,000 bbl/d.
North America Oil Sands Mining and
Upgrading
|
Three Months Ended |
|
|
|
|
|
Mar 31 2018 |
Dec 31 2017 |
Mar 31 2017 |
Synthetic
crude oil production (bbl/d) (1) (2) |
456,076 |
321,496 |
192,491 |
(1) Q1/18 SCO production before royalties excludes 3,224 bbl/d
of SCO consumed internally as diesel (Q4/17 – 1,730 bbl/d; Q1/17 –
428 bbl/d).
(2) Consists of heavy and light synthetic crude oil
products.
- At Canadian Natural's world class Oil Sands Mining and
Upgrading assets, record quarterly production volumes of 456,076
bbl/d of SCO were achieved in Q1/18, a 42% increase from Q4/17
levels. The increase was as a result of a full quarter of
production from the Horizon Phase 3 expansion and strong production
from the acquired AOSP assets.
- Through safe, steady and reliable operations and a strong focus
on continuous improvement, the Company realized record low
quarterly average operating costs of $21.37/bbl (US$16.89/bbl) of
SCO at its Oil Sands Mining and Upgrading operations, a 14%
reduction from Q4/17 levels, representing strong performance at
both Horizon and the AOSP.
- As a result of the Oil Sands Mining and Upgrading segment's
strong operational performance and cost savings, the Company
reduced the midpoint of annual operating cost guidance by
$2.00/bbl, with annual operating costs now targeted between
$20.50/bbl and $24.50/bbl (approximately US$16.25/bbl -
US$19.50/bbl).
- Operations at Horizon are progressing as expected following the
successful ramp up of the Phase 3 expansion.
- At Horizon, following the completion of the Phase 3 expansion,
the Company is evaluating Horizon Upgrader reliability enhancements
and potential creep capacity improvements.
- Stage 1 detailed engineering for reliability improvement which
involves pump and piping modification is targeted to be completed
by the end of 2018, with most of the activity taking place during
the planned 21 day turnaround targeted in late Q3/18.
- Stage 2 design based memorandum activities related to capacity
increases within the Upgrader is targeted to add 5,000 bbl/d
to15,000 bbl/d of potential creep capacity.
- At Horizon, work continues on the potential Paraffinic Froth
Treatment and VGO expansions.
- The engineering and design specification work on the potential
Paraffinic Froth Treatment expansion at Horizon is underway and has
the ability to produce high quality diluted bitumen, targeting to
add approximately 30,000 bbl/d to 40,000 bbl/d.
- The proposed VGO expansion at Horizon is in early scoping and
is targeted to add approximately 10,000 bbl/d to 15,000 bbl/d.
- The planned pit stop at the Scotford Upgrader is ongoing and
aligned with timing of the planned pit stops at both the Jackpine
River and Muskeg River mines.
- Commencing April 8th, at Horizon, planned work began on the
Vacuum Distillation Unit ("VDU") furnaces to complete maintenance
involving decoking of the VDU furnaces. During this maintenance
activity, the Company identified additional repairs required to
ensure reliability, as a result production will be restricted for
an additional 15 days. The upgrader and mining operations continue
at reduced rates of approximately 145,000 bbl/d and are targeted to
resume full production on May 7th. Notwithstanding this
maintenance work, annual Oil Sands Mining and Upgrading production
guidance remains unchanged.
- The Company's 2018 Oil Sands Mining and Upgrading annual
production guidance is targeted to range from 415,000 bbl/d -
450,000 bbl/d of upgraded products.
MARKETING
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
Mar 31 2018 |
|
Dec 31 2017 |
|
Mar 31 2017 |
Crude oil and NGLs
pricing |
|
|
|
|
|
|
WTI
benchmark price (US$/bbl) (1) |
|
$ |
62.89 |
|
$ |
55.39 |
|
$ |
51.86 |
WCS heavy
differential from WTI (US$/bbl) (2) |
|
39% |
|
22% |
|
28% |
SCO price
(US$/bbl) |
|
$ |
61.45 |
|
$ |
58.64 |
|
$ |
51.45 |
Condensate benchmark pricing (US$/bbl) |
|
$ |
63.12 |
|
$ |
57.96 |
|
$ |
52.21 |
Average
realized pricing before risk management (C$/bbl) (3) |
|
$ |
43.06 |
|
$ |
53.42 |
|
$ |
47.05 |
Natural gas
pricing |
|
|
|
|
|
|
AECO
benchmark price (C$/GJ) |
|
$ |
1.75 |
|
$ |
1.85 |
|
$ |
2.79 |
Average realized pricing before risk management (C$/Mcf) |
|
$ |
2.74 |
|
$ |
2.55 |
|
$ |
3.25 |
(1) West Texas Intermediate (“WTI”).
(2) Western Canadian Select (“WCS”).
(3) Average crude oil and NGL pricing excludes SCO. Pricing is
net of blending costs and excluding risk management activities.
- The WCS heavy differential widened in Q1/18 as a result of
third party pipeline outages backing up heavy crude oil into
Western Canada. This resulted in anomalous heavy crude oil pricing
as the pipeline operators and rail transport worked to remove the
backlog of inventory. Currently, the WCS heavy differential is
narrowing as the backed up inventory is beginning to be moved to
market. Canadian Natural expects a more normalized WCS heavy
differential going forward.
- AECO natural gas prices for Q1/18 continued to reflect third
party pipeline constraints limiting flow of natural gas to export
markets, increased natural gas production in the basin and
constraints on export capacity out of Western Canada.
- The North West Redwater refinery, upon completion, will
strengthen the Company’s position by providing a competitive return
on investment and by adding 50,000 bbl/d of bitumen conversion
capacity in Alberta.
- The refinery will create demand for approximately 80,000 bbl/d
of dilbit that will not require export pipelines, which will help
reduce pricing volatility in all Western Canadian heavy crude
oil.
- The North West Redwater refinery began processing light crude
oil late in November 2017, and continues to progress as
expected.
- The Company has a 50% interest in the North West Redwater
Partnership. For project updates, please refer to:
https://nwrsturgeonrefinery.com/whats-happening/news/.
FINANCIAL
REVIEW
The Company continues to implement proven
strategies and its disciplined approach to capital allocation. As a
result, the financial position of Canadian Natural remains strong.
Canadian Natural’s funds flow generation, credit facilities, US
commercial paper program, diverse asset base and related flexible
capital expenditure programs all support a flexible financial
position and provide the appropriate financial resources for the
near-, mid- and long-term.
- The Company’s strategy is to maintain a diverse portfolio
balanced across various commodity types. The Company achieved
production levels of 1,123,546 BOE/d in Q1/18, with approximately
98% of total production located in G7 countries.
- Canadian Natural maintains a balance of products with current
product mix on a BOE/d basis of 50% light crude oil and SCO blends,
25% heavy crude oil blends and 25% natural gas, based upon the
midpoint of annual 2018 production guidance.
- Canadian Natural’s production is resilient as long life low
decline assets make up approximately 73% of 2018 liquids production
guidance, when including the AOSP, Horizon, Pelican Lake and
Thermal in situ oil sands assets.
- The Company generated significant free cash flow of
approximately $1,220 million in Q1/18 after net capital
expenditures. Including dividend commitments, approximately $880
million of free cash flow was realized in the quarter, which was
largely used to reduce the Company's debt levels.
- Balance sheet strength continues to be a focus of the Company
and strong financial performance was demonstrated in Q1/18 through
the retirement of US$ denominated notes and early retirement of
certain credit facilities as detailed in the Company's financial
statements.
- Since the AOSP acquisition in Q2/17 Canadian Natural has
decreased long term net debt and retired the deferred AOSP
acquisition liability, totaling a reduction of approximately $1.9
billion.
- In Q1/18, the Company decreased long term net debt and retired
the deferred AOSP acquisition liability, totaling a reduction of
approximately $965 million from Q4/17.
- Canadian Natural maintains financial stability and liquidity
represented by cash balances and committed bank credit
facilities. At March 31, 2018 the Company had approximately $4.0
billion of available liquidity, including cash and cash
equivalents.
- Debt to book capitalization improved to 40.5% from 41.4% in
Q4/17 and debt to adjusted EBITDA strengthened to 2.5x, as at March
31, 2018.
- In addition to its strong funds flow, capital flexibility and
access to debt capital markets, Canadian Natural has additional
financial levers at its disposal to effectively manage its
liquidity. As at March 31, 2018, these financial levers include the
Company’s third party equity investments of approximately $781
million.
- Subsequent to March 31, 2018, under the Company's Normal Course
Issuer Bid, Canadian Natural purchased and canceled 700,000 common
shares at a weighted average price of $41.95 per common share.
- Subsequent to quarter end, Canadian Natural declared a
quarterly cash dividend on common shares of $0.335 per share
payable on July 1, 2018.
OUTLOOK
The Company forecasts annual 2018 production
levels to average between 815,000 and 885,000 bbl/d of crude oil
and NGLs and between 1,650 and 1,710 MMcf/d of natural gas, before
royalties. Q2/18 production guidance before royalties is forecast
to average between 773,000 and 821,000 bbl/d of crude oil and NGLs
and between 1,515 and 1,565 MMcf/d of natural gas. Detailed
guidance on production levels, capital allocation and operating
costs can be found on the Company’s website at
www.cnrl.com.
Canadian Natural's annual 2018 capital
expenditures are targeted to be approximately $4.3 billion.
Forward-Looking Statements
Certain statements relating to Canadian Natural
Resources Limited (the “Company”) in this document or documents
incorporated herein by reference constitute forward-looking
statements or information (collectively referred to herein as
“forward-looking statements”) within the meaning of applicable
securities legislation. Forward-looking statements can be
identified by the words “believe”, “anticipate”, “expect”, “plan”,
“estimate”, “target”, “continue”, “could”, “intend”, “may”,
“potential”, “predict”, “should”, “will”, “objective”, “project”,
“forecast”, “goal”, “guidance”, “outlook”, “effort”, “seeks”,
“schedule”, “proposed” or expressions of a similar nature
suggesting future outcome or statements regarding an outlook.
Disclosure related to expected future commodity pricing, forecast
or anticipated production volumes, royalties, production expenses,
capital expenditures, income tax expenses and other guidance
provided throughout the Company's Management’s Discussion and
Analysis (“MD&A”), constitute forward-looking statements.
Disclosure of plans relating to and expected results of existing
and future developments, including but not limited to the Horizon
Oil Sands operations and future expansions, the Athabasca Oil Sands
Project ("AOSP"), Primrose thermal projects, the Pelican Lake water
and polymer flood project, the Kirby Thermal Oil Sands Project, the
cost of construction and future operations of the North West
Redwater bitumen upgrader and refinery, and construction by third
parties of new or expansion of existing pipeline capacity or other
means of transportation of bitumen, crude oil, natural gas or
synthetic crude oil (“SCO”) that the Company may be reliant upon to
transport its products to market also constitute forward-looking
statements. This forward-looking information is based on annual
budgets and multi-year forecasts, and is reviewed and revised
throughout the year as necessary in the context of targeted
financial ratios, project returns, product pricing expectations and
balance in project risk and time horizons. These statements are not
guarantees of future performance and are subject to certain risks.
The reader should not place undue reliance on these forward-looking
statements as there can be no assurances that the plans,
initiatives or expectations upon which they are based will
occur.
In addition, statements relating to “reserves”
are deemed to be forward-looking statements as they involve the
implied assessment based on certain estimates and assumptions that
the reserves described can be profitably produced in the future.
There are numerous uncertainties inherent in estimating quantities
of proved and proved plus probable crude oil, natural gas and
natural gas liquids (“NGLs”) reserves and in projecting future
rates of production and the timing of development expenditures. The
total amount or timing of actual future production may vary
significantly from reserves and production estimates.
The forward-looking statements are based on
current expectations, estimates and projections about the Company
and the industry in which the Company operates, which speak only as
of the date such statements were made or as of the date of the
report or document in which they are contained, and are subject to
known and unknown risks and uncertainties that could cause the
actual results, performance or achievements of the Company to be
materially different from any future results, performance or
achievements expressed or implied by such forward-looking
statements. Such risks and uncertainties include, among others:
general economic and business conditions which will, among other
things, impact demand for and market prices of the Company’s
products; volatility of and assumptions regarding crude oil and
natural gas prices; fluctuations in currency and interest rates;
assumptions on which the Company’s current guidance is based;
economic conditions in the countries and regions in which the
Company conducts business; political uncertainty, including actions
of or against terrorists, insurgent groups or other conflict
including conflict between states; industry capacity; ability of
the Company to implement its business strategy, including
exploration and development activities; impact of competition; the
Company’s defense of lawsuits; availability and cost of seismic,
drilling and other equipment; ability of the Company and its
subsidiaries to complete capital programs; the Company’s and its
subsidiaries’ ability to secure adequate transportation for its
products; unexpected disruptions or delays in the resumption of the
mining, extracting or upgrading of the Company’s bitumen products;
potential delays or changes in plans with respect to exploration or
development projects or capital expenditures; ability of the
Company to attract the necessary labour required to build its
thermal and oil sands mining projects; operating hazards and other
difficulties inherent in the exploration for and production and
sale of crude oil and natural gas and in mining, extracting or
upgrading the Company’s bitumen products; availability and cost of
financing; the Company’s and its subsidiaries’ success of
exploration and development activities and its ability to replace
and expand crude oil and natural gas reserves; timing and success
of integrating the business and operations of acquired companies
and assets; production levels; imprecision of reserves estimates
and estimates of recoverable quantities of crude oil, natural gas
and NGLs not currently classified as proved; actions by
governmental authorities; government regulations and the
expenditures required to comply with them (especially safety and
environmental laws and regulations and the impact of climate change
initiatives on capital expenditures and production expenses); asset
retirement obligations; the adequacy of the Company’s provision for
taxes; and other circumstances affecting revenues and expenses.
The Company’s operations have been, and in the
future may be, affected by political developments and by national,
federal, provincial and local laws and regulations such as
restrictions on production, changes in taxes, royalties and other
amounts payable to governments or governmental agencies, price or
gathering rate controls and environmental protection regulations.
Should one or more of these risks or uncertainties materialize, or
should any of the Company’s assumptions prove incorrect, actual
results may vary in material respects from those projected in the
forward-looking statements. The impact of any one factor on a
particular forward-looking statement is not determinable with
certainty as such factors are dependent upon other factors, and the
Company’s course of action would depend upon its assessment of the
future considering all information then available.
Readers are cautioned that the foregoing list of
factors is not exhaustive. Unpredictable or unknown factors not
discussed in this report could also have material adverse effects
on forward-looking statements. Although the Company believes that
the expectations conveyed by the forward-looking statements are
reasonable based on information available to it on the date such
forward-looking statements are made, no assurances can be given as
to future results, levels of activity and achievements. All
subsequent forward-looking statements, whether written or oral,
attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by these cautionary
statements. Except as required by law, the Company assumes no
obligation to update forward-looking statements, whether as a
result of new information, future events or other factors, or the
foregoing factors affecting this information, should circumstances
or Management’s estimates or opinions change.
Special Note Regarding Currency, Production and Non-GAPP
Financial Measures
The Company's MD&A of the financial
condition and results of operations of the Company should be read
in conjunction with the unaudited interim consolidated financial
statements for the three months ended March 31, 2018 and the
MD&A and the audited consolidated financial statements for the
year ended December 31, 2017.
All dollar amounts are referenced in millions of
Canadian dollars, except where noted otherwise. The Company’s
unaudited interim consolidated financial statements for the period
ended March 31, 2018 and the Company's MD&A have been
prepared in accordance with International Financial Reporting
Standards (“IFRS”) as issued by the International Accounting
Standards Board. The Company's MD&A includes references to
financial measures commonly used in the crude oil and natural gas
industry, such as adjusted net earnings from operations, funds flow
from operations, adjusted cash production costs and adjusted
depreciation, depletion and amortization. These financial measures
are not defined by IFRS and therefore are referred to as non-GAAP
measures. The non-GAAP measures used by the Company may not be
comparable to similar measures presented by other companies. The
Company uses these non-GAAP measures to evaluate its performance.
The non-GAAP measures should not be considered an alternative to or
more meaningful than net earnings and cash flows from operating
activities, as determined in accordance with IFRS, as an indication
of the Company's performance. The non-GAAP measures adjusted net
earnings from operations and funds flow from operations are
reconciled to net earnings, as determined in accordance with IFRS,
in the “Financial Highlights” section of the Company's MD&A.
The non-GAAP measure funds flow from operations is also reconciled
to cash flows from operating activities in this section. The
derivation of adjusted cash production costs and adjusted
depreciation, depletion and amortization are included in the
“Operating Highlights - Oil Sands Mining and Upgrading” section of
the Company's MD&A. The Company also presents certain non-GAAP
financial ratios and their derivation in the “Liquidity and Capital
Resources” section of the Company's MD&A.
A Barrel of Oil Equivalent (“BOE”) is derived by
converting six thousand cubic feet (“Mcf”) of natural gas to one
barrel (“bbl”) of crude oil (6 Mcf:1 bbl). This conversion may be
misleading, particularly if used in isolation, since the 6 Mcf:1
bbl ratio is based on an energy equivalency conversion method
primarily applicable at the burner tip and does not represent a
value equivalency at the wellhead. In comparing the value ratio
using current crude oil prices relative to natural gas prices, the
6 Mcf:1 bbl conversion ratio may be misleading as an indication of
value. In addition, for the purposes of the Company's MD&A,
crude oil is defined to include the following commodities: light
and medium crude oil, primary heavy crude oil, Pelican Lake heavy
crude oil, bitumen (thermal oil), and SCO.
Production volumes and per unit statistics are
presented throughout the Company's MD&A on a “before royalty”
or “gross” basis, and realized prices are net of blending and
feedstock costs and exclude the effect of risk management
activities. Production on an “after royalty” or “net” basis is also
presented for information purposes only. Results from operations
for the three months ended March 31, 2017 presented in the
Company's MD&A exclude the impact of the acquisition of
interests in AOSP on May 31, 2017.
Additional information relating to the Company,
including its Annual Information Form for the year ended
December 31, 2017, is available on SEDAR at www.sedar.com, and
on EDGAR at www.sec.gov.
CONFERENCE CALL
A conference call will be held at 8:00 a.m.
Mountain Time, 10:00 a.m. Eastern Time on Thursday, May 3,
2018.
The North American conference call number is
1-866-393-4306 and the outside North American conference call
number is 001-734-385-2616. Please call in 10 minutes prior to the
call starting time.
An archive of the broadcast will be available
until 6:00 p.m. Mountain Time, Thursday, May 17, 2018. To access
the rebroadcast in North America, dial 1-855-859-2056. Those
outside of North America, dial 001-404-537-3406. The conference
archive ID number is 9856698.
The conference call will also be webcast live
and may be accessed on the home page of our website at
www.cnrl.com.
Canadian Natural is a senior oil and natural gas
production company, with continuing operations in its core areas
located in Western Canada, the U.K. portion of the North Sea and
Offshore Africa.
CANADIAN NATURAL RESOURCES LIMITED |
2100,
855 - 2nd Street S.W. Calgary, Alberta, T2P4J8Phone:
403-517-7777 Email: ir@cnrl.comwww.cnrl.com |
|
|
STEVE W. LAUTExecutive Vice-Chairman TIM
S. MCKAYPresident COREY B. BIEBERChief
Financial Officer and Senior Vice-President, Finance MARK
A. STAINTHORPEVice-President, Finance – Capital Markets
Trading Symbol - CNQToronto Stock ExchangeNew York Stock
Exchange |
Canadian Natural Resources (NYSE:CNQ)
Historical Stock Chart
From Mar 2024 to Apr 2024
Canadian Natural Resources (NYSE:CNQ)
Historical Stock Chart
From Apr 2023 to Apr 2024