Good morning, ladies and gentlemen, and welcome to the Canadian Natural Resources Q3 2019 Earnings Results Conference Call and Webcast. [Operator Instructions]. Please note that this call is being recorded today, November 7, 2019, at 9:00 a.m. Mountain Time. I would now like to turn the meeting over to your host for today's call, Corey Bieber, Executive Advisor. Please go ahead, Mr. Bieber.

Thank you, Operator, good morning, everyone, and thank you for joining our third quarter conference call. With me this morning are, Steve Laut, our Executive Vice Chairman, who will briefly discuss our strategic focus on creating shareholder value and highlight some of the factors that set us apart from our peers. Steve will also provide an update on Canadian Natural and our industry's efforts on the environmental front, where significant performance and game-changing achievements are now well understood. Tim McKay, our President, will provide a more detailed update on the quarter, as well as discuss our ongoing projects and operations. Then Mark Stainthorpe, our Chief Financial Officer, will provide an update on our robust financial position. Before we begin, I would refer you to the special note, regarding non-GAAP measures, contained in our press release. These measures used to evaluate the company's performance, should not be considered to be more meaningful than those determined in accordance with IFRS. I would also like to refer you to the comments regarding forward-looking statements 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 it over to Steve.

Thank you, Corey, and good morning, everyone. As you've seen Canadian Natural's third quarter was very strong, delivering strong, sustainable free cash flow. Very few companies can deliver this level of sustainable free cash flow that is safe, secure and provide substantial upside going forward. Canadian Natural maximizes the value of our free cash flow for shareholders by optimizing our cash flow allocation between our four pillars and leveraging our competitive advantages. Our competitive advantages include effective and efficient operations, a diverse and balanced asset base with significant development potential. The advantage of owned and controlled infrastructure, the economies of scale, which we can leverage with our size, and our culture that is entrepreneurial, accountable and leverages our operational, tactical and financial expertise to execute at high levels. Our ability to leverage our competitive advantages is reflected in our third quarter, where we delivered strong and increasing free cash flow, significantly lower operating costs and production growth per share, up an impressive, 14%. All in a curtailed production environment. Combining our competitive advantage with our optimize cash flow allocation drives top-tier value creation, from both an economic and environmental perspective, strengthening our 4 pillars. Our balance sheet with our targeted year-end debt-to-EBITDA at or below 1.9x. Returns to shareholders, with $2.1 billion return to shareholders in the first 9 months, $1.3 billion through dividends and $0.8 billion through share buybacks. Opportunistic acquisitions, and with the Devon assets being the latest example, of our ability to leverage our competitive advantages to grow value and production in a constrained market access environment. And resource development, where we've taken the opportunity in the current market to progress engineering and value engineering on our projects to create even greater value by leveraging technology, optimizing design, configuration, strategies and execution plans. And importantly, focus on…

Thank you, Steve. Good morning, everyone. Canadian Natural had a very strong third quarter with top-tier operational results. Production from our assets were strong as we executed our curtailment optimization strategy, and over and above that, we continue to reduce our operating costs even under curtailment in Alberta. This is a reflection of our operational excellence of our people, the strength in vast assets and our ability to execute effectively under the curtailment optimization strategy to maximize free cash flow for our shareholders. I'll now give a brief overview of our assets. Starting with natural gas. Overall, third quarter production of 1.469 Bcf was down from our Q2 production of 1.532 Bcf, as expected, and exceeded the Q3 guidance primarily as the result of phasing of turnaround activities and strong operational performance in all areas. North American natural gas was 1.425 Bcf with operating cost of $1.07 per Mcf, which went down compared to Q2 2019 $1.15 and Q3 of 2018 $1.33 per Mcf. As a result of our continued focus of operational excellence and our operating costs. As Septimus, the company's high-value liquids-rich Montney area, additional natural gas wells came on production in late Q2, as we talked about last quarter. As a result, Septimus had top-tier operating costs in Q3 of $0.26 per Mcfe, down from Q2 of $0.33 per Mcf, our effective and efficient operations at Septimus supports this high-value liquid-rich development. At Gold Creek, our liquid-rich natural gas development, which are not subject to curtailment, 2 net wells come on production, averaging approximately 660 barrels per day of liquids and 4 million per well, exceeding expectations of approximately 110 barrels per day per well. In the third quarter, Canadian Natural realized natural gas price of $1.64 per Mcf. Canadian Natural has a diverse natural gas sales…

Thanks, Tim. Canadian Natural had a strong financial quarter, with net earnings of over $1 billion, adjusted net earnings of over $1.2 billion, cash flow from operations of over $2.5 billion and adjusted funds flow of approximately $2.9 billion. As Tim discussed, effective and efficient operations in the quarter, including a continued focus on cost control and our ability to effectively execute our curtailment optimization strategy has again led to the solid financial results. Canadian Natural's unique long-life, low-decline asset base continues to generate significant free cash flow. In Q3, free cash flow was approximately $1.5 billion. After net capital expenditures of $963 million and dividends of $447 million. We continue to execute on our disciplined free cash flow allocation policy as gross debt was reduced by over $1 billion in the quarter and approximately $800 million on a net of cash basis. This included the permanent retirement of bank facility debt of $800 million in the quarter. Subsequent to the quarter end, an additional $500 million of bank facility debt was permanently retired in October. These repayments have meaningfully reduced our debt levels from Q2 '19. Share buybacks for the first 9 months of 2019, have totaled approximately 22 million shares for over $800 million, including $169 million in Q3 '19, and dividends have totaled $1.3 billion for an impressive total return to shareholders of over $2.1 billion so far in 2019. Our balance sheet metrics remain strong and are targeted to get even stronger throughout 2019. At current strip pricing, and based on our corporate guidance, we target to exit 2019 with a debt-to-adjusted EBITDA, debt-to-cash flow and debt-to-book capital at levels below those existing at December 31, 2018. This is significant as it includes the completion of the Devon Canada acquisition, along with very significant returns to shareholders by way of dividends and share repurchases throughout the year. Finally, available liquidity represented by bank facilities and cash at quarter end was approximately $4.7 billion, an increase of $120 million over Q2 '19 levels, providing flexibility to manage throughout the business cycle and drive increasing shareholder value. Canadian Natural's balanced, diverse asset base, combined with our effective and efficient operations and disciplined cash flow allocation between our 4 pillars has strengthened the company's balance sheet, a balance sheet that is set to get even stronger as we move forward. With that, I'll turn it back to you, Tim.

Thanks, Mark. In summary, we are delivering robust and sustainable top-tier free cash flow. Canadian Natural has many advantages. Our balance sheet is strong and will continue to strengthen. We have a well-balanced, diverse and large asset base. A significant portion of our asset base is long-life, low-decline assets, which requires less capital to maintain volumes. We have a balance in our commodities with approximately 48% of our BOEs, light crude oil and SCO, 31% heavy and 21% natural gas in Q3, which lessened our exposure and volatility to one commodity. Canadian Natural will continue to allocate cash flow to our 4 pillars in a disciplined manner to maximize value for our shareholders, which is all driven by effective capital allocation, effective and efficient operations and by our teams who deliver top-tier results. We have a robust, sustainable free cash flow. Our dividend was increased approximately 12% earlier this year, and we have 19 consecutive years of dividend increases, which has a CAGR of 21%. Share purchases, year-to-date, were approximately 23.5 million shares or $846 million, and when combined with 2018 shares of about 30.9 million shares, it equals to a cumulative 54.4 million shares or approximately $2.1 million return to shareholders through share purchases of loan. In summary, Canadian Natural has top-tier free cash flow generation. It is unique, sustainable and robust. With that, we will open up the call for questions.

[Operator Instructions]. And your first question here comes from the line of Greg Pardy with RBC.

Great results, to say the least. You've identified a number of areas where you're going to be boosting production. Primrose, Jackfish, Kirby North, just to mention a few. And then you've observed the optimization on the pipes. Question for me is, can you move all of those barrels by pipe? Or do you kind of envision crude by rail playing a bigger role in the Egress mix for you?

Thanks, Greg. It's Tim here. Yes, what we see here with the 225,000 barrels a day that's coming into next year is that we should be able to move majority of our production or all of our production by pipe. At present, the company has approximately 30,000 to 50,000 barrels a day of production that we can produce for short periods as per our curtailment optimization strategy, but this volume is not on a sustained basis. But it can be done in short term to mitigate both planned and unplanned production outages that we have across the company.

Okay. And I know you were running about 14,000 barrels a day of crude by rail. I mean do you have appetite for more under the right terms?

Well, Canadian Natural is in the process with the Alberta government. And with respect to the crude by rail, the contractual terms are very complex, as only a portion of full cost to move crude by rail to their delivery points is covered. So as a result, the process has taken some time for the parties to understand the complexity and how to bridge the missing contractual pieces. So it's hard to say where that will head. But again, as the importance of crude by rail is decreasing, and pipelines are still preferred to be the safest and most the ESG friendly option. And we see it becoming less important going into 2020 with that 225,000 barrels a day of incremental egress happening.

Okay. And just one more from me. Just you touched on the Keystone outage and expectation -- you expect it to come back here in the next few weeks and so on, is it having a material impact on your ops? And should we be thinking about inventory builds with you guys in the fourth quarter?

No. It's had a very little impact on us here today.

Your next question comes from the line of Benny Wong with Morgan Stanley.

My first one is really around your debt reduction. I noticed you paid out quite a bit of debt, while you kind of moderated your buyback a little bit, which I think most people appreciated. Hoping you can give some color around the rationale behind this? Is it more of a strategic shift or more of an opportunistic situation? And how do you think about balancing between the buyback and debt reduction for the rest of the year and into next year?

Thanks, Benny. It's Mark. Just to remind everybody, we have our free cash flow allocation policy where we take our adjusted funds flow less our capital expenditures less our dividend. And the free cash flow that remains is allocated 50% to buybacks and 50% to debt. And that allocation policy has really meant over a longer-term period. So we continue to monitor that. The targets continue to be that allocation, Benny, so 50-50 on a longer-term basis. When you look from quarter-to-quarter, you will see changes as we've had quarters with higher share buybacks and debt repayment. And this quarter, we had significant debt repayment. So no, there's no change in the strategy going forward.

Okay. Appreciate that. And my next question is on AOSP. It seems like you had a very strong, robust production this quarter. Can you tell us what you're doing differently there? And is that level of project -- can it operate at that run rate on a sustainable basis, if there was no curtailments going forward?

Yes. Good question, Benny. Yes. Well, first of all, we were really not doing anything different than what we normally do. Our teams are very focused on looking for opportunities to find incremental capacity, whether it's a Horizon, Jackfish or AOSP. So that part, I think our teams are very focused on doing the right work to increase our reliability and increase our production as well as reduce our costs. So that part is really no different than what we do across the company. As far as the run rate, I would say it probably won't be at 318,000 barrels a day. I mean this is our first test. Obviously, under curtailment, it is very difficult to have anything sustained because it impacts other areas of the company. So while Horizon is down. It's a nice to have to be able to crank up our production, whether it's at AOSP, Jackfish, Primrose. So to me, I look at it as one of the levers we can use to manage our overall production. And -- but I would think that -- and we'll see over the coming months, if that $318 million is -- just closer to $318 million or something a little less.

Your next question comes from the line of Phil Gresh with JP Morgan.

First question would just be whether you have any thoughts around 2020 capital spending at this point based on some of the comments you made about the uncertainties on takeaway and things like that. It sounds like you're probably going to be closer to flattish than not, but any color you might be able to share?

Sure. Phil, thank you for the question. At present, we're working through the 2020 budget currently. And I would say this year, which is a little different than past years, there's additional complexities and uncertainties around curtailment, crude by rail, FPAs. So normally, for our budget, we'd have it ready for the open house. I don't know if that will be or not be the case this year. But there are many complexities in regards to finalizing our budget.

Okay. No, understood. Yes, last year, I thought you guys did a nice job of just giving scenarios around it?

Just some ballpark -- from a ballpark way to view it. I mean I don't see it really much different than it was this year. You had in -- a little bit of Devon's sustaining capital, and you're pretty well at kind of around that $4 billion mark.

Yes, okay. That's what I figured. Okay. Second question, I guess, this is for Mark. On the working capital, last year, it was a big source. This year has been a big use I feel like maybe earlier this year, you had thought perhaps some of this would turn around in the second half, but then this quarter was a headwind. So is there any thought as to whether you get some tailwind from working capital? Is any of that contemplated in the end-of-year leverage target that you gave?

Yes. Phil, it really comes down to how the revenue gets paid and received, right? So the way it works, of course, is that we get paid the following month for cash flow in a month. So if you're looking at a September production, you actually get paid for that in October. So it depends on the pricing and receivables that you go through in a quarter that roll into the cash in the next quarter. So it's hard to predict quarter-to-quarter. But over time, it does kind of unwind itself. And what you saw, Phil, when jump back in -- for Q4 was the big adjustment because, of course, December pricing is way down.

Sure. And your 1.9x leverage target is fairly neutral assumption, I guess, then versus the end of the quarter?

Yes, it's neutral.

Right. Okay. And then, I guess, last one would just be, long term, you have, I believe, from the last Analyst Day, you have a target in mind, I think, of something closer to $15 billion of net debt. At some stage. I guess could you confirm if that's still the right way to think about it? And with respect to your earlier question about the 50-50 split and whatnot, is there any idea of maybe accelerating that a bit to get to the $15 billion faster?

So I mean, the strategy around the 50-50 remains. So that over a period of time is what is currently in place, and we plan to continue to execute over a period of time. So the $15 billion and 1.5x debt-to-EBITDA remain the targets. Now of course, that will -- the pace of those -- of getting to those will depend on pricing and cash flow and those sorts of things. So we continue to manage that on a go-forward and ongoing basis.

Your next question comes from the line of Neil Mehta with Goldman Sachs.

Congrats here on really strong results. The first question I had was just on Keystone. I think you alluded to your expectation, and you think it'll be back in the next couple of weeks. Can you provide any more color around what you're seeing there?

I really can't give you any more color on it. All I can say is that if you look back at the 2017 incident that took about, I think, it was 10 to 15 days for it to come back in service. So I'm actually just looking at it and say, if it's on a similar path as what it was back in 2017, it should be on in the next couple of weeks.

Okay, that's helpful. And then just thoughts on the cost side would be helpful. And one part of the beat versus our expectations, at least, was your operating costs came in lower than our expectations. Where are we in terms of being able to drive cost out of the business, especially in an environment where production is still being held back?

Yes, see, it's a very good question. And I think if you look at the company's history, we've always been able to find opportunities to reduce our costs. And probably the easiest one to look at is something like Pelican, where it was -- a year ago, it was 63,000 barrels a day. Today, maybe average around 59,000 on a yearly basis, yet our operating costs are staying flat. So the production has declined 6%, and we're able to take roughly 6% of our costs on a BOE basis out of it. Horizon and ASOP, you've seen a constant march down. That not has passed. But there is opportunities to mitigate any inflation in terms of labor costs or anything else by doing things more efficiently and effective. So I just look at our teams, they're very focused at trying to mitigate any cost increases as well as work to be more efficient and effective across the whole business, and they've been able to do a great job. There's not one item that doesn't -- the teams don't look at in terms of trying to do it better and more effectively and more efficiently.

Your next question comes from the line of Mike Dunn with GMP FirstEnergy.

Thanks, everyone. A couple of questions. I guess, first one, probably for Mark. Are you guys expecting any big changes either next year or the year after, I guess, assuming capital levels are similar to 2019 and to your cash taxability in North America? Or is that sort of a fairly steady thing, I guess, relative to pretax cash flow. And I have a follow-up on greenhouse gas.

I don't expect any big changes, Mike. So I would look at it as a [indiscernible].

Great. And then, as I'm sure you're all aware, the Alberta government has recently come out with a new greenhouse gas tax structure, I forget exactly what it's called, but I believe the old one, the CCIR has been suspended at some point here in 2019. So can you guys share in terms of total corporate costs, how much you think it's going to be down in 2019 versus 2018? And then what 2020 might look like in terms of relative changes, I would presume that, overall, the 2020 GHD taxes you'd be paying in Alberta would be less than what they would have otherwise been under the CCIR, but I know that Alberta government thinks that the total tax that's taken in would be less from industry. But any thoughts on that would be helpful.

Yes, Mike. Yes, the TIER, the government announced, I believe it was earlier this week, the TIER system, the technology innovation emissions reduction program. And yes, it is a positive step forward. Obviously, the government still has to go through to get it to equivalency on a federal basis. From an overall perspective, you're correct, we do see a reduction compared to the CCIR. Right now our teams are just working through it. Obviously, there's two parts to it. The large emitters and then, of course, the smaller sites, which can opt in. So we're just going through it in detail now, but it does look to be a pretty good decrease as compared to the federal program.

Okay. And then, maybe if you could just clarify for me. Under the CCIR, I believe your smaller sites like primary heavy oil would have been subject to some GHD tax. Would you be anticipating that, that would still be the case in 2020, I guess, under the new system?

Yes. If we can get the equivalency of the TIER system approved. Those sites would actually fall under the small and mid-emitters under the TIER program. And to your point, yes, they would save us money in terms of tax. So that's what we're working on right now is to go through that process. But yes, under CI -- CCIR, it is a more cost on a small -- heavy oil wells and such.

Okay. And then also, sorry, just to clarify, too, I believe, for 2019, all of these taxes have been suspended. So overall, 2020 over 2019, you'd probably expect overall to pay more?

Yes, a little bit, but I wouldn't know what that difference is, I'm sorry.

Your next question comes from the line of Manav Gupta with Crédit Suisse.

Congrats on a good result. I was actually surprised to see the Jackfish cost down to 944. That's like a 24% reduction from the time you acquired the asset. I'm just trying to understand, was there a lot of low-hanging fruit? Is this what you've planned, how did you manage to hit synergies or lower cost by 25% in just 1 quarter of acquiring the asset.

Yes. So it's a combination of lower fuel costs and as well as the operational efficiency as the teams immediately jumped on. So if you go back in time, when we talked about the Devon acquisition. There are a lot of synergies between our Kirby operations and to the Jackfish operations. So those opportunities have been exercised by the team. I can say that they've closed on the ground in the field going through how they could execute our high-level plan of how to reduce cost and a capture the synergies between the two sites.

And a quick follow-up here is, can you just remind us how much are your volumes currently curtailed and then Kirby North and Primrose, I'm trying to understand if real over curtailment is approved, and you add real capacity, what could the production levels look like as you are exiting 2020 if there are status cues maintained?

Yes. So what I talked about earlier is, like, at the present time, we have approximately 30,000 to 50,000 barrels a day of production that can be produced for short periods, as per our curtailment optimization strategy. So this volume isn't sustainable on a sustained basis, we can use it to -- these are levers that we are, as a company, that we're able to use in the short term to mitigate both planned and unplanned production. So we're working through our 2020 budget, as we talked about earlier. So I can't speculate on what the -- that number would be into 2020.

And last quick one is, is there any update on the NWR Refinery start-up?

There was an update by NWR, I think, a couple of days ago. But I would just suggest you go to their website to get all the exact details.

And I'm showing no further questions that are in the queue at this time. I will now turn the call back over to Mr. Corey Bieber for any closing remarks.

Thank you, operator, and thank you, everyone for attending our conference call this morning. Canadian Natural's large, diverse asset base continues to drive significant shareholder value. The ability of our teams to deliver effective and efficient operations with top-tier performance is contributing to substantial and sustainable free cash flow. This, together with effective capital allocation contributes to achieving our goal of maximizing shareholder value. If you do have any further questions, please don't hesitate to give our teams a call, and thank you, and goodbye.

And ladies and gentlemen, this concludes today's call. Thanks, and enjoy the day.