Good morning. We would like to welcome everyone to the Canadian Natural Resources 2021 Third Quarter Earnings Conference Call and Webcast. After the presentation, we will conduct a question-and-answer session. Instructions will be given at that time. Please note that this call is being recorded today, November 4, 2021 at 9:00 AM Mountain Time. I would now like to turn the meeting over to your host for today's call, Mr. Corey Bieber, Executive Advisor. Please go ahead, Mr. Bieber.

Thank you, operator, and good morning, everyone, and welcome to Canadian Natural's third quarter 2021 corporate update conference call. Canadian Naturals had another very strong quarter financially and operationally. As I commented before, I believe our asset base is unique amongst our peer group, underpinned by long-life, low-decline assets and complemented by our conventional assets that allow significant flexibility and all of which can generate very significant free cash flow. Beyond our robust asset base, there is a corporate strategy that focuses on generating real returns for shareholders and a driven management team and a corporate culture that focuses on being effective and efficient. Over the years, Canadian Natural has clearly demonstrated its robustness, sustainability and the strength of its business plan. For 2021 and beyond, I believe that we are one of the few companies capable of delivering meaningful economic growth, increasing returns to shareholders and reducing absolute debt in a responsible manner. For today's call, Tim McKay, our President, will first provide a corporate update. Mark Stainthorpe, our Chief Financial Officer, will then provide an update on our 2021 financial outlook as well as our strong financial position. Tim will then provide a summary prior to opening up for questions. Before we kick off, I'd like to remind you of our forward-looking statements. Of note, in our reporting disclosures, is that everything will be in Canadian dollars unless otherwise stated. And as well, we report our reserves and production before royalties. To that end, I would suggest that you review our comments on non-GAAP disclosures in our financial statements. So with that, I'll turn it over to you, Tim.

Thank you, Corey. Good morning, everyone. Canadian Natural delivered strong operational results in the third quarter as we achieved quarterly production of approximately 1.238 million BOEs per day as a result of our robust long life low decline assets, operational excellence; and with our capital discipline, we generated significant free cash flow. We balanced free cash flow to our 4 pillars of capital allocation, maximizing value for our shareholders. In the 3 quarters of 2021, we have reduced net debt by $5.4 billion, returned approximately $2.4 billion to our shareholders through dividends and share repurchases, maintained capital discipline, executed on opportunistic transactions, which all add long-term value. The strengths of Canadian Natural's business model are also applied to environmental, social and governance to deliver industry-leading performance across the board, a significant factor in our long-term sustainability. Our safety record is top tier as the corporate total recordable industry frequency improved 0.021 in 2020, a reduction of 58% from 2016 levels. For the period, from 2016 to 2020, North American E&P methane emissions are down 28%. In our Oil Sands operation, our GHG emission intensity is down 38%. And corporately, in this period, we've taken equivalent of over 1 million cars off the road annually. And over and above this, we are the leading capture and sequester of CO2 in the oil and gas industry worldwide. In June, we announced the Oil Sands pathway to net-zero initiative. An alliance with Oil Sands industry participants, we have a goal of achieving net-zero emissions in the Oil Sands operations by 2050. This initiative of Oil Sands industry participants and Canadian Natural will further strengthen our leading ESG performance, while delivering meaningful emission reductions, balancing sustainable economic development, and we will require collaboration with the Federal and Alberta government so that together, we can…

Thanks, Tim. We delivered strong financial results in the third quarter as our business realized net earnings of over $2.2 billion. Adjusted funds flow generation was significant at over $3.6 billion, and free cash flow was approximately $2.2 billion after capital and dividends, excluding acquisitions in the quarter. As a result of our significant free cash flow generation, net debt decreased to approximately $15.9 billion at Q3, $2.3 billion lower than Q2 levels. While the debt repayment in the quarter was significant, so were returns to shareholders, with approximately $1.1 billion returned through dividends and share repurchases. We continue to maintain strong liquidity, including revolving bank facilities, cash and short-term investments, liquidity at Q3 was approximately $6.2 billion. Our long life low decline assets support a sustainable, growing and predictable dividend. This was evident through the period of challenging commodity prices in 2020, where we increased and maintained our dividend, then further increased it in March of 2021, marking the 21st year of dividend increases. Subsequent to the quarter end, the Board of Directors has approved a 25% increase to our quarterly dividend to $0.5875 per share payable on January 5, 2022. This represents a $0.47 per share annualized increase. This clearly demonstrates the confidence that the Board of Directors have in the sustainability of our business model, the strength of our balance sheet and the company's effective and efficient operations, supported by a robust, long-life, low-decline asset base and associated low maintenance capital requirements. With this increase, 2022 will mark the 22nd consecutive year of dividend increases for the company. And this 25% increase from our previous quarterly dividend is in excess of our historical dividend compound annual growth rate of 20% over the last 22 years. Last quarter, we discussed that effective July 1, 2021, our free cash…

Thank you, Mark. Canadian Natural's ability to deliver significant, sustainable free cash flow is driven by our effective efficient operations, our high-quality, long-life, low-decline assets that have low maintenance capital and significant reserves. We balanced our commodities in Q3 2021 with approximately 47% of our BOEs, light crude oil, NGL, SCO, 30% heavy and 23% natural gas, which gives us exposure to all improving commodity prices. Canadian Natural's advantage is our ability to effectively allocate cash flow to our 4 pillars, and we will continue to allocate 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. Our commitment on delivering returns to shareholders has been significant, totaling $3.1 billion year-to-date through dividends and share repurchases. Subsequent to the quarter end, the Directors have approved a 25% increase to our quarterly dividend payable on January 5, 2022. This will mark the 22nd year -- consecutive year of dividend increases for the company and is a 25% increase from our previous quarterly dividend and is in excess of a historical CAGR growth of 20% over the last 22 years. In the third quarter, we set new environmental targets; by 2030, reduce absolute methane emissions by 50% from our 2016 baseline; by 2026, reduced in situ freshwater usage and mining freshwater usage intensity by 40% from our 2017 baseline; as well with our Oil Sands pathway to net-zero initiative, we will work with our industry partners to advance key milestones as we work towards our goal of net-zero in the Oil Sands by 2050. In summary, we continue to focus on safe, reliable operations, reducing our environmental footprint, enhancing our top-tier operations. Canadian Natural is delivering top-tier cash flow generation, unique, sustainable and robust. And clearly demonstrates the ability to deliver returns to shareholders by balancing our 4 pillars. That concludes our Q3 conference call. I will now open the line for questions.

[Operator Instructions]. Your first question comes from the line of Greg Pardy from RBC Capital Markets.

Maybe just the first question is on net debt. Mark, we're about midway through 4Q, how close are you to that $15 billion number?

Yes. Well, it's imminent, Greg. We're very close to that number of $15 billion. The way the free cash flow allocation policy works and the way -- or the significance of the free cash flow that we're generating in Q4 and certainly the outlook for 2022, that balance sheet continues to improve in that scenario. So it's imminent we're getting close. And that's really why you see the enhancement to the policy, which really shows that we're getting to that target, maybe a little earlier than originally expected.

Okay. And that's really where I wanted to go. That's probably where most of the static is that we're picking up. So the language in the release around your sub-15 that opens up opportunities in terms of growth or acquisitions. And I'm just trying to better understand, is that -- like is this intended to just wave a big flag, look, $15 billion is the new number, but does this limit your flexibility? I'm just wondering what has changed in your game plan as a result of that policy language?

I think you got to think of this, Greg, as nothing has changed as far as the long-term planning. I mean the $15 billion was a target that we had set before. And like I said, we're getting there sooner. This just provide some flexibility, and I think reinforces what we've been saying as far as continued increasing returns to shareholders and balance sheet strength going forward with the significance of the free cash flow. You have to remember that free cash flow is generated because of the long life assets, the low decline and favorable maintenance capital requirements of those assets, which we think sets us apart.

Okay. Terrific. And last one for me, if you wouldn't mind. I'm just wondering on Kirby in terms of scale, timing or cost. Tim, can you address any of that? Like how big is this and when do you think would come on?

Yes. It's -- well, the first thing is we're just doing the engineering and design of the pad today. So we're looking -- it probably starts construction in 2 years. And the cost, it's too early.

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

The first question is just to tie in to Greg on M&A. And you guys have done a good job over the last couple of years being opportunistic around M&A and creating value that way. Just how do you see the landscape for potential acquisitions? And do you think this is a buyers’ market or a sellers’ market right now?

Really, we don't see really too much difference here today. As you know, we don't have any gaps in our portfolio. And however, we always look at opportunities in our core areas. If they look like they can create value for our shareholders, then we're opportunistic on those opportunities. But I really don't see any change.

Okay. And -- the follow-up here is just on the Canadian oil macro. We have seen WCS differentials widen out a little bit, which is surprising in light of Line 3 coming online. Just what are your thoughts on differentials here? And how do you see them moving into '22 as you have some Canadian production coming back, some heavy OPEC barrels coming into the market, but a better egress situation?

Yes. Traditionally, I feel historically, the WCS differential always widens out in December. Obviously, a change in demand. People have their inventory adjustments that they do in December. So they're still very good, and we don't see it really changing that much into next year. So I would say it's still going to be in the sub 20% going into next year. But historically, they've always widened out in that November, December and then tightened back up in the new year.

Your next question comes from the line of Menno Hulshof from TD Securities.

So your stock is effectively at all-time highs as of this morning, which is pretty incredible given where things stood out 18 months ago. So my question is, would you ever reconsider your 50% free cash flow allocation to buybacks with the stock where it is? And how much does the entry points? And where we stand in the cycle come into play when it comes to how aggressively you want to buy back your stock?

Yes. Thanks, Menno. It's Mark. Right now, that's the policy. And as we get to that $15 billion, the 50-50 allocation. What you see from us, obviously, is the balanced approach. Tim talked about the 4 pillars, but we have a balanced approach across increasing dividends, which you saw the increase today, buybacks, debt repayment and economic resource development. So I foresee that, that balance continues going forward.

Okay. Perfect. And then one more for you, Mark, I believe. Can you just give us a sense of what the cash tax profile is going to look like into 2022 on the strip?

Well, no, it will just depend on, of course, your price forecasting, not only a strip on benchmark but on other things like royalties. So we do have payouts, of course, happening in some of the royalty projects that we can get IR to walk through that will help kind of manage down to that exact tax. But you're -- we are a taxpayer and you see it coming in 2021 and into 2022.

Your next question comes from the line of Phil Gresh from JPMorgan.

First question would just be thoughts on capital spending as we look out to 2022. Any kind of early goalposts you could share with us?

No early goalpost yet. We're still working through our budget. And as you know, we have a large, high-quality asset base that we have numerous opportunities on. So we're just going through the process of looking at it and deciding on where we want to allocate capital to generate the strongest returns. So we're just still in that process.

Okay. And then my second question, just one additional follow-up, I guess, on the debt targets. With the wording in the release and the way you're framing it around the $15 billion, is that meant to say that you kind of view that as more of like an efficient level of leverage to hold for a company of this size and with the flat production profile and things that -- in other words, you're not going to have like another secondary leverage target at some point that will be $10 billion instead of $15 billion? Or just any additional color there would be interesting.

Yes. Thanks, Phil. I think the one thing, obviously, as you look at it as a long-term target, certainly there's different scenarios that you go through when you're budgeting and planning. So that changes the way how you look at it. Right now, a long-term target of $15 billion, as I mentioned, looks like about 1x debt to EBITDA in that range today. And we're getting there very quickly. And right now, the free cash flow allocation policy, again, just focuses on both returns to shareholders and continued balance sheet strength. And as we go forward, you'll continue to see that capital discipline and a balanced approach.

Your next question comes from the line of Dennis Fong from CIBC World Market.

The first one here is, I guess, historically, Canadian Natural has discussed 2 potential projects at Horizon, one which was a light oil debottlenecking project, and the second is potential [PFT] brownfield bolt-on component to Horizon. Obviously, you've seen very strong production between both Horizon and AOSP. And given obviously the strong production and financial performance, you guys are approaching payout. So I was curious as to how some of the, we call it, optimization projects that you've done kind of over the past few years may have changed your outlook on some of these debottlenecking projects? And secondarily, how are you guys looking at the potential of moving forward with some of these, now that you are very close to hitting your net debt target as well as we're obviously in a very strong oil price environment currently?

Yes. So that's good questions here. So with Horizon and at ASOP, our teams have done a tremendous job looking at what opportunities we have currently on the ground. And that's part of the reason we're seeing such strong production performance out of the Oil Sands mining. And so as we look ahead, those projects are changing because we're finding different ways to get extra volumes, different ways to get higher reliability, and looking at different opportunities that may actually further enhance what we can do in those sites. So they're still in our -- kind of in our range of opportunities, but they're going to look different than what we had originally envisioned. And that's just because the teams have done such a great job there in terms of inching up the production and creating a higher reliability out there. So on a look forward, we still got similar projects that the teams are working on, but it's looking -- it would be different than what we had originally envisioned.

Great. Great. And then I guess, I know those were -- I don't want to say put on the back burner, but there's a lot of engineering work essentially continue to have been done on those over the past several years. How the economics of those projects move forward in your mind? And then I just wouldn't mind potentially an incremental update on IPEP as well and kind of where you're proceeding with that? And those would be my questions.

So the work has continued to progress, actually on both sites in terms of looking at what opportunities we could do to enhance the volumes and enhance our operating costs on both sites. So we have not slowed down. Our teams have been doing a lot of background work. Obviously, part of it is if they compete for capital, and that's part of what we do in terms of managing our long-term outlook. With IPEP, again, it's still part of our portfolio. The team is working on enhancements to that project as well. And we're still advancing it. It's just a matter of deciding if it's something we want to do at this time or keep it, do additional work to further enhance the economics of it. So it's just -- it's a lot of work this last year with the COVID, a lot of the, what I would call, on the groundwork was shut down as we went down to essential personnel. So a bunch of work would still need to be done to absolutely proven up that process. But it is still progressing at least on the engineering side of how we can enhance that opportunity.

Your next question comes from the line of Roger Read from Wells Fargo.

Probably just a little bit of a follow-up from Phil's question earlier, thinking about CapEx in '22. Can you give us an idea as we think about what your very modest decline rate and sort of a minimum level of CapEx for '22 or a maintenance level of CapEx in '22 would be?

Yes. Well, our decline is about 10%. And it's really not too much different than it has been historically into that 3 -- a little over $3 billion range. So for the most part, it's in that range. It depends on obviously what kind of commodities we want to do, but it's still in that range.

That's helpful. And then almost everywhere else in the world dealing with exceptionally high gas prices, certainly higher in Canada, but not quite stretched. Just curious, as you're looking at both gas as a positive and a negative for your businesses, how you're managing around that if you are at all?

Yes. We're in a very fortunate position where we're long natural gas. So while it is a cost to us, it is also a benefit on the commodity side. So it, for the most part, very fortunate that way.

Yes. I was just curious, is there anything you've done to mitigate on the usage side at all? Or is has not risen to that level yet?

Oh, we're constantly looking for enhancements to reduce it. You see it in the thermal side through solvents. We've got steam generation opportunities that we're advancing. Oh, yes, Horizon and Cogen, absolutely, there's always opportunities to lower our fuel consumption and the teams are very focused on that.

There are no more questions at this time. Presenters, please continue.

Thank you, operator, and thank you to those who joined us on the call and webcast this morning. If you do have any follow-up questions, please don't hesitate to give our teams a call. Thanks, and have a great day.

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