Good morning, ladies and gentlemen and welcome to the Canadian Natural Resources Q3, 2017 Earnings Results Conference Call. [Operator Instructions] Please note that this call is being recorded today, November 2, at 9:00 a.m. Mountain Time. I would now like to turn the meeting over to your host for today's call, Mark Stainthorpe, Director Treasury and Investor Relations of Canadian Natural Resources. Please go ahead, Mr. Stainthorpe.

Thank you, Julie. Good morning, everyone, and thank you for joining our conference call today, where we will discuss our operational and financial results for the third quarter of 2017 and provide an update regarding our ongoing projects and operations. With me this morning are Steve Laut, our President; Tim McKay, our Chief Operating Officer; and Corey Bieber, our Chief Financial Officer. Before we begin, I would refer you to the comments regarding forward-looking information contained in our press release and also note that all amounts are in Canadian dollars and production and reserves are expressed as before royalties, unless otherwise stated. With that, I'll now pass the call over to Steve Laut.

Thanks, Mark, and good morning, everyone, and thank you for joining the call this morning. Canadian Natural has completed the transition to a largely long-life, low-decline asset base with Horizon Phase 3 tie-in complete, and the production ramp up starting this week. As a result, Canadian Natural is in a very strong and enviable position. There are very few EP companies that can deliver substantial and growing free cash flow, production growth per share, top-tier effectiveness and efficiency, a flexible cash flow allocation program to maximize value for shareholders and drive increasing return on equity, return on capital employed as well as return to shareholders, and at the same time strengthen the balance sheet. Canadian Natural is robust, sustainable and clearly, a unique E&P company. Canadian Natural delivered record production in Q3 over 1,036,000 BOEs a day, a 14% increase over Q2 2017. Cash flow was strong. And more importantly, we generated $1.2 billion of free cash flow year-to-date, excluding the Athabasca Oil Sands Project acquisition, reflecting the strength of our operations and assets. It's also a harbinger of what will come in 2018. At Horizon, the major 45-day turnaround and the work to improve reliability and the tie-in of Phase 3 are complete. All 3 of these projects came in under budget. As you've heard, we experienced so far among the electrical buildings as we brought the plant down for turnaround. We repaired the electrical buildings to lay the startup of the plant by 7 days. These repairs are now complete and we're now on stage start-up of all 3 phases of Horizon and expect to be at full rates by mid-December. At Albian, production has been strong, running at 197,900 barrels a day in the quarter. Very strong for Canadian Natural's first full quarter of operations. Operating cost…

Thank you, Steve. Good morning, everyone. I will now do a brief overview of our assets and talk through our 2017 third quarter results. Starting with North American natural gas, our third quarter production of 1.593 Bcf was slightly down from Q2 2017. During the quarter, the third-party frac liability improved by September and was close to capacity. But due to low gas -- natural gas prices during the quarter, we shut in approximately 27 million a day impacting the quarter. During the month of October, we continued to have approximately 50 million a day shut in, and it has been accounted for in our fourth quarter guidance. Overall, Q4 guidance is targeted to be 1.7 to 1.75 Bcf per day. In Q3, we drilled three net gas well, one preserving our Montney plant position, the other two were in the Gold Creek area following up on earlier success. All wells have a low-cost tie-in to our own and operated infrastructure and targeted to be on production in Q4. North American natural gas operating costs were $1.15 per Mcf for Q3 2017, down from Q2 2017, as we continue to focus on managing and reducing our cost. Our North American light oil and NGL production for Q3 2017 was 92,676 barrels per day, an increase of approximately 2% from Q2 2017. We've seen some good results from our small drilling program and the areas we're continuing to optimize our waterfloods, our operating costs were $14.45 per barrel, slightly higher than Q2 2017 at $13.98 per barrel. In Q3, we drilled three net wells with one well following up on our earlier success in the Karr area. In this area, we have drilled six net wells this year, four wells are on production currently averaging approximately 425 barrels per day of…

Thanks, Tim, for that operations update. As Steve noted, we have achieved strong financial performance during the first 9 months of 2017. Net earnings of $2 billion were achieved as compared with a loss of $770 million during the same 9-month period of 2016. This improvement reflects stronger commodity pricing as well as higher production volumes and the effective and efficient operations that Tim spoke about. Adjusted earnings for the first nine months of 2017 were $838 million as compared with a loss of $1.1 billion for the prior year, again reflecting higher commodity pricing and production volumes. Year-to-date, fund flow for the corporation was also robust at $5 billion, almost two times than recorded during the first three quarters of 2016. Net debt reduced by about $650 million during the quarter despite downtime taken for the Horizon turnarounds and tie-ins as well as the $1 billion Pelican Lake acquisition. Correspondingly, liquidity exited the quarter at $3.9 billion, about $300 million stronger than it entered the quarter. To build on this further, over the last 12 months since September 30, 2016, and following the completion of Horizon Phase 2B, net debt, normalized for both the AOSP acquisition and its related cash flows, has reduced by about $2.5 billion. This $2.5 billion debt reduction was achieved, while spending about $1.1 billion on Horizon Phase 3 completion and $1 billion on the Pelican Lake acquisition. All in all, this is a very strong indicator of a robust free cash flow enterprise. With Horizon Phase 3 now completed and the integration of AOSP also completed, the company has reached a very significant inflection point in its ability to generate sustainable free cash flow well in excess of current dividend levels and maintenance CapEx. Our current focus on the four pillars remains, as Steve mentioned, balance sheet strength, which I'd expect to come rapidly given higher levels of EBITDA and continued debt repayments. Based upon current strip pricing, we would expect to exit the year at approximately 2.8 times debt to EBITDA with debt to book cap in the range of 40% to 42%. If the AOSP acquisition was pro forma'ed from January 1, 2017, this year-end metric would've reduced to about 2.55 times. Delivery of the defined plan continues, and our teams are remaining focused on growing value for our shareholders. In closing, I believe that Canadian Natural continues to represent a sustainable, flexible and balanced E&P company with a high degree of resilience to commodity price volatility. With that, I'll hand it back to you, Steve, for your closing comments.

Thanks, Corey. As you've heard from both, Corey and Tim, this morning, Canadian Natural is in a very strong and enviable position. As I said earlier, there are very few E&P companies that can deliver substantial and growing free cash flow, production growth per share, top-tier effectiveness and efficiency, a flexible capital allocation program that maximizes value for shareholders and drives increasing return on equity, return on capital employed as well as returns to shareholders; and at the same time, as Corey pointed out, strengthen our balance sheet. Canadian Natural is robust, sustainable and clearly a unique E&P company. With that, we'll open up the call for questions.

[Operator Instructions] Your first question comes from Greg Pardy with RBC Capital Markets. Please go ahead. Your line is open.

Couple of questions, Steve. Just the first one is on Horizon. Is the thinking that you'll need, call it, maybe a two or three week turnaround at Horizon in 2018? And then the other thing is, could you just confirm that you're still thinking about OpEx dropping below 20 next year?

We're still working through the budget, Greg, so that will come out probably next week. I don't want to prerun the budget, but we have always been saying that there will be a turnaround in '18. So that will come up in the budget, the length of that and when that will occur. I would expect the operating cost, you obviously see, when we're running outside the turnaround times, we are at $20 a barrel. On outside the turnarounds, I think we'll be lower than that in 2018.

Okay, great. And you may push me into next week, again, on the second question, but the last few years, obviously, you've been funding the Horizon expansion with, call it, limited activity or less activity on the conventional side. But if you start to reignite the shorter cycle time growth opportunities that you had, is there anything that is standing out right now that is -- that you consider attractive? Is that primary heavy? Or is it liquids-rich gas? Just wondering where you guys will go next year?

I think you're right on your prediction. We'll wait...

Your next question comes from Neil Mehta with Goldman Sachs.

I want to talk a little bit about the pillars of capital allocation. You guys came out with a flat dividend this quarter versus last quarter, but just want to understand, kind of, how does dividend growth and buybacks fit into the equation, especially now that Horizon is online because there should be a wall of free cash flow? And I guess, the biggest concern that some investors have, it really is more like allege, if the company becomes overly focused on growth instead of return on capital?

Thanks for the question, Neil. It gives me a platform to talk about it. We'll talk more about this when we release the budget. Obviously, it's something people are very interested in. I think we've always said that we'll balance the four pillars of cash flow. And that's our balance sheet, returns to shareholders with dividends or buybacks, resource development and opportunistic acquisitions. We've been pretty consistent. Opportunistic acquisitions, we don't have any gaps in our portfolio, Neil. So we don't see any need to do an acquisition. That being said, we're not afraid to do them, and we're good at it. So we won't be adverse to doing that. They have to make sense and they have to add value. On the resource development side, and I think, as Tim talked about, our real strong focus has always been that way at Canadian Natural, on effectiveness and efficiency and ability to execute. And one of the things we're conscious about here is allocating too much capital to resource development because we could create our own cost inflation and that just erodes returns. So we're very focused on returns. Our balance sheet strength, and as Corey talked about it, it's coming down quickly. And I think that'll likely get the greater proportion here initially and then that leaves the shareholders as the other allocation. But we'll talk more about that when we release the budget.

That's great. We're looking forward to next week. The follow-up is on the WTI, WCS differential going forward. We've seen some widening lately. But as your business has shifted more to Syncrude barrels versus maybe more of a bitumen-discounted barrels, can you just talk about the sensitivity that you have to that differential? And how the portfolio has evolved over time to have less sensitivity to that spread?

Yes, I think, clearly, our light synthetic upgraded barrel has grown quite a bit. And I think we're up to about 45%. And I think Corey is going to talk a little bit more about the differential, but what you're seeing here, the differential, actually, has been pretty good. If you look at November differentials, they're about $11, which is sort of on that 21%, 22%, which is like the historic average, which is pretty good since we're going into the, sort of, winter season where differentials normally widen. So we're not seeing that widening that maybe some people anticipated.

Yes, I think that's fair. And in terms of the sensitivity, Neil, dollar change in the U.S. and the differential equates to about $80 million on cash flow and earnings.

[Operator Instructions] Your next question comes from Phil Gresh with JP Morgan. Please go ahead, your line is open.

This is John Royall filling in for Phil. First question is on AOSP. Your OpEx came in well below guidance this quarter. Should we consider this level sustainable? And ultimately, where do you think you can get that number down to now that you've owned the asset for some time?

[indiscernible] the number is very good. There's still a lot of work we've got to do here over the coming months. We're still going through the assets. We're identifying items that need to be repaired or upgraded. So I still see this coming year to be more of a transition year. Obviously, these are very large facilities and very complex. So it takes a lot of engineering and a lot of effort to make sure we make the right steps in order to be -- improve reliability and reduce our costs.

And then you mentioned in the release, there's $350 million debt paydown. First of all, just having a little trouble finding that outflow in your statement of cash flow, so maybe you can help me with mechanics on that? And then, maybe if you can talk about any expected future retirements over the next couple of quarters?

Yes. We can take your offline in terms of the actual numbers, but the debt last year -- sorry, at the end of last quarter was about $23.3 billion. Today, it's about $22.9 billion at the end of September. And that, obviously, was a derivative of funds flow, CapEx as well as some working capital adjustments.

And then in the next couple of quarters, if you have any more gross debt paydowns that you're expecting?

We have two maturities in Q1 of next year. And there is very good opportunity to repay those, permanently retire those debts out of cash flow. But we'll make that decision as we get closer to the maturity.

We'll probably give you more color as we go forward here on the budget release.

Your next question comes from Menno Hulshof with TD Securities. Please go ahead, your line is open.

I've just got one question on your low-pressure steamflood at Primrose. It looks like you're seeing some pretty strong results there. So just at a high level, how are you tracking relative to your initial expectations on that front? And at what point we should consider applying that to other parts of Primrose, if at all?

Yes, the steamflood has been performing above our expectations. And we are looking to expand it further in Primrose East and Primrose North. And the issue that -- with the steamflood is that you're basically pinned with the steam generation. So there is a limit to how much we can do quickly and effectively.

I think the big thing here, Menno, is that we have a very robust and economic cyclic steam process. You can now follow it up with steamflood process where you can increase recovery to much higher levels with very little capital cost because all the wells and everything is there. So it's actually a good value add for us at Primrose.

There are no further questions at this time. I will now turn the call back over to Mr. Stainthorpe for closing remarks.

Thank you, Julie. And thank you, everyone, for attending our conference call this monitoring. Canadian Natural's asset base, along with our operational, technical and financial expertise continues to deliver shareholder value. We are now essentially complete in the transition to long-life, low-decline assets and target sustainable and growing free cash flow with a continued focus on effective capital allocation to maximize shareholder returns. Finally, we do target to release our 2018 budget on November 7, followed by a webcast, providing more details on current and future plans. This will all be posted on our website. If you have any further questions, please give us a call. Thank you again, and we look forward to our Q4 2017 conference call in March. Thank you.

This concludes today's conference call. You may now disconnect.