INSTITUTIONAL INVESTOR OPEN HOUSE December 5, 2018 PREMIUM VALUE. DEFINED GROWTH. INDEPENDENT.
Agenda • Presentations ? Introduction Mark Stainthorpe ? Strategy & 2019 Budget Tim McKay ? Exploration & Production Darren Fichter ? Oil Sands Mining & Upgrading Scott Stauth ? Technology, Innovation & Continuous Improvement Pam…
Strategy Tim McKay, President
Key Message Increasing Returns Unique, Balanced Asset Base Robust Throughout Cycles Proven Effective Strategy Optimal Cash Flow Allocation
Canadian Natural A Unique E&P Company Built for All Cycles Long Life Low Decline asset base • Low maintenance capital requirements • Effective and efficient operations • Flexible, disciplined free cash flow allocation • Strong…
Canadian Natural Strategy • Flexible capital allocation to maximize value • Strong Balance Sheet supports investment grade credit ratings • Defined growth / value enhancement plans by product and basin • Large, diverse, balanced…
Balanced, Diverse Portfolio Balanced, diverse production mix • International exposure • Vast, balanced resource base to develop • Growing, sustainable adjusted funds flow • >50% light crude oil and SCO production BOE Production Mix…
Canadian Natural’s Competitive Advantages Balanced portfolio of assets ? Diverse product inventory and time horizons ? Owned and controlled infrastructure ?Long Life Low Decline assets ?Low maintenance capital requirements ? Size…
Canadian Natural’s Advantage Impact of Long Life Low Decline Assets on Corporate Decline Rate Long Life Low Decline Production ~57% Low Capital Exposure Production ~43% Oil Sands Mining & Upgrading ~0% Decline Pelican & Thermal…
Long Life Low Decline Asset Profile Price Impact on Production & Value Long Life Low Decline Asset Profile Price Impact on Production & Value Commodity Price Long Life Low Decline Production LONG LIFE LOW DECLINE PRODUCTION SUPPORTS…
Low Capital Exposure Asset Profile Price Impact on Production & Value Timing has major impact on project NPV • Significant declining production • Operating costs increase with lower production Production* Commodity Price TIMING CAN…
Balanced Model Price Impact on Production & Value Time • Ability to ramp up production faster with improving prices • Stronger Balance Sheet • Long life assets provide sustainable production and low declines • Exercising capital…
Balanced Model – Production per Share Basis Price Impact on Production & Value • Production per share grows at a higher rate • Production per share grows at a higher rate • Assets deliver free cash flow in low price environment •…
1P Reserves After Royalties – 2017 Peers Integrated Peers SIGNIFICANT VALUE TO UNLOCK
Industry Leading 1P FD&A Costs (2015 - 2017) 3 Year Average Peers Integrated Peers TOP TIER FD&A COSTS
Recycle Ratio (2015 - 2017) 3 Year Average Peers Integrated Peers TOP TIER RECYCLE RATIO
Production per Share (2012 - 2017) 5 Year CAGR Peers Integrated Peers TOP TIER PRODUCTION PER SHARE GROWTH
Return on Capital Employed (2013 - 2017) 5 Year Average Peers Integrated Peers TOP TIER RETURN ON CAPITAL
Delivers on Four Pillars of Capital Allocation Balance Sheet Strength Opportunistic Acquisitions Returns to Shareholders Economic Resource Development Maximizing Shareholder Value FLEXIBLE CAPITAL ALLOCATION MAXIMIZES…
2018 Delivered on Expectations
Track Record of Delivering on the Four Pillars From 2017 Open House ? Will get larger portion near term ? Balance Sheet strengthens quickly ? Disciplined corporate capital ~$4.0 to $4.5 billion ? Will be prudent to not create cost…
Track Record of Delivering on the Four Pillars 2018 Execution • Resource Development ? Remained disciplined with $4.2 billion(1) in capital expenditures ? Focus on effective and efficient operations ? ~12% production growth •…
Track Record of Delivering on the Four Pillars 2018 Execution Balance Sheet Strength ? Debt to book capitalization improved from 41% to 37% ? Debt to adjusted EBITDA improved from 2.7x to 1.7x ? Net debt reduction of $2.8 billion(1)…
Track Record of Delivering on the Four Pillars 2018 Execution Returns to Shareholders ? 18th consecutive year of dividend increases ? Increased quarterly dividend by 22% ? Purchased ~29.6 million shares for an aggregate total of $1.2…
Free Cash Flow Allocation 2018 Year to Date Ending Q3/18 Note: See Advisory for definitions. Capital expenditures exclude net acquisitions. Share Purchases ~$875 million Balance Sheet Strength ~$2.6 billion Adjusted Funds Flow…
Free Cash Flow Allocation Policy Targets = 1.5x Debt/EBITDA and $15.0 billion in Absolute Debt Note: Policy is effective November 1, 2018 and targeted to be in place until at least the Company’s Normal Course Issuer Bid renewal in May…
2019 Plan
Balancing the Four Pillars 2019 Plan • Balance Sheet Strength ? Balance Sheet strengthens through free cash flow allocation policy • Economic Resource Development ? Disciplined corporate capital allocation ? Will be prudent to not…
2019 Budget Strategy • Align capital spend and production growth with takeaway capacity in short-term ?Incremental takeaway capacity of ~615,000 bbl/d through 2019 • Disciplined capital allocation ? 2019 base capital budget slightly…
2019 Execution Priorities Optimize assets ?Oil Sands Mining & Upgrading capture synergies ? Pelican Lake optimize field • Primrose pad adds targeting first oil in Q4/19 • Execute on Kirby North targeting first oil in Q4/19 • Enhance…
2019 Capital Budget ($ million) 2018 Guidance 2019 Base Budget 2019 Normalized Budget North America Natural Gas & NGLs $440 $365 $365 North America Crude Oil 1,115 775 1,055 International Crude Oil 410 460 460 Total…
2019 Budget Drilling Program 2018F* 2019 Base Budget 2019 Normalized Budget Natural Gas Wells 15 5 5 Crude Oil Wells Heavy Oil 250 58 175 Thermal 126 - 38 Pelican 22 - 17 Light 97 29 55 International 6 5 5 Total 516 97 295…
2019 Base Budget Production Targeted Production 2018F 2019B % Change(1) Natural Gas (MMcf/d) 1,545 - 1,555 1,485 - 1,545 (2%) Crude Oil & NGLs (Mbbl/d) North America 240 - 242 221 - 241 (4%) North America – Thermal In Situ 106 - 108…
2019 Base Budget Capital Breakdown Maintenance Capital ($ million)(1) 2019B Exploration & Production(2)(3) $1,490 Thermal In Situ Oil Sands 375 Oil Sands Mining & Upgrading 950 Abandonment & Reclamation 265 Total Maintenance…
2019 Value Adding Options Growth Projects $MM Value Oil Sands Mining* $200 Horizon Stages 1B/2 Horizon Paraffinic Froth On-stream date not delayed one year Increase reliability and lowers operating costs Restart execution, adds…
5 Year Production per Share Growth (Production/Share) Capital ($ billion) Based upon midpoint to midpoint for indicated year range. Note: See Advisory for pricing assumptions, cautionary statements and definitions. SIGNIFICANT…
Key Message Optimal Cash Flow Allocation Increasing Returns Robust Throughout Cycles Proven Effective Strategy Unique, Balanced Asset Base A UNIQUE EXPLORATION & PRODUCTION COMPANY
Exploration & Production Assets Darren Fichter, Chief Operating Officer, Exploration and Production
Economic Resource Development Exploration & Production 42 Economic Resource Development Exploration & Production Economic Resource Development Returns to Shareholders Economic Resource Development Balance Sheet Strength…
Natural Gas, Light Crude Oil & NGLs Strategy • Maximize value through disciplined area approach ? Proactive, disciplined, flexible development • Continue focus on liquids rich natural gas and light crude oil assets • Maximize value…
Largest natural gas producer in Canada ? Q3/18 ~1,489 MMcf/d ? 9.5 Tcf 2P reserves* • Significant light crude oil and NGL production base ? Q3/18 ~93,000 bbl/d light oil & NGLs ? 574 million barrels 2P reserves* ? High quality…
Large inventory of defined development projects • Many large contiguous land holdings ?~1.0 million net acres • Key liquids rich / light crude oil properties ? Greater Wembley Area ? Wembley, Albright, Knopcik, Gordondale ?…
Smoky Gordondale Septimus Minor Gold Creek Graham Umbach Septimus West Nig Greater Wembley Elmworth • Extensive owned and controlled infrastructure • Facilitates low capital exposure drill to fill strategy • Strategic…
Natural Gas, Light Crude Oil & NGLs Greater Wembley Area Large, concentrated liquids rich Montney land ? Facilitates efficient area program • ~155 net sections of undeveloped land de-risked by proven production • Strategic owned…
18 Montney crude oil wells drilled to date • 213 potential net locations on 88 net sections ? Targeting ~530 bbl/d liquids and ~2 MMcf/d natural gas per well* • Leveraging technology & area expertise to lower costs ?Applying…
Natural Gas, Light Crude Oil & NGLs Wembley Project Drilling Performance (C$ 000’s) Source: Company reports. ?Monobore drilling ?Pad developments ?Concentrated land Drill Cost Per Well DRIVING DRILLING COSTS LOWER
North America Light Crude Oil & NGLs Rich Gas Septimus Montney Area – Success Story Liquids rich, drill to fill, natural gas development ?100% owned ~160 MMcf/d gas plant • Leveraging infrastructure to maximize value from the…
Technology Development Septimus Natural Gas Reinjection Pilot Gas cycling/storage targets two objectives ? Increased liquids recovery ? Store produced gas during low price periods • Pilot targeted for Septimus in 2019 •…
Natural Gas, Light Crude Oil & NGLs Summary Large inventory of defined development projects ? Liquids rich natural gas and light crude oil Montney opportunities • Extensive owned and strategically located infrastructure • Leveraging…
Heavy Crude Oil Strategy • Maximize value through: ? Proactive, disciplined, flexible development ?Optimizing and expansion of Pelican Lake polymer flood ?Leveraging technology, innovation and continuous improvement to: ? Increase…
Heavy Crude Oil Core Area Summary • Largest Primary heavy crude oil producer in Canada ? Q3/18 production of ~92,000 bbl/d • Industry leading polymer flood at Pelican Lake ? Q3/18 production of ~63,000 bbl/d • 2P reserves ? 741…
Heavy Crude Oil Primary Heavy Crude Oil Disciplined area approach • Extensive land base with deep inventory of repeatable programs • Commitment to environmental stewardship, with proven track record of reducing GHG emissions ?71%…
Heavy Crude Oil Pelican Lake Industry leading Enhanced Oil Recovery (EOR) technology • Long Life Low Decline assets • Industry leading heavy crude oil recovery ?Primary recovery 6% ?Water flood after primary 15% ?Polymer after…
Pelican Lake Operating Costs Leveraging area and technological expertise • Economies of scale ? Facility consolidation on target for April 2019 ? ~$6 million/year in operating cost savings ?Targeting additional savings from: ? Bulk…
Heavy Crude Oil Technological Advancement Horizontal multilateral opportunities ?Extensive land base provides exposure to many emerging plays ?2 examples ? Smith, AB ? Golden Lake, SK ? Potential for ~150 horizontal multilateral…
Heavy Crude Oil Horizontal Multilateral Technology – Smith, Alberta • Leveraging technology and area knowledge • 6 horizontal multilateral wells drilled in 2018 ? Initial rates exceeded expectations by >50% at ~325 bbl/d per well •…
Heavy Crude Oil Horizontal Multilateral Technology – Golden Lake, SK Vintage vertical wells ? Pool average…
Heavy Crude Oil Horizontal Multilateral Opportunities ~500 km AB SK CNQ Land Base CNQ Heavy Crude Oil Producing Properties Potential Multilateral Horizontal Opportunities Smith Golden Lake • Extensive land base provides…
Pelican Lake • Long Life Low Decline ? 2P reserves 469 million barrels(1) ?~20 year reserve life • Industry leading EOR technology and expertise unlocks reserves and value ?Polymer recovery factor of 22 - 28% • Effective and…
International Operations Strategy • Maximize value through: ?Leveraging offshore expertise in Aberdeen ? Capturing low risk development opportunities ? Effective and efficient operations • Maximize operating free cash flow*…
International Light Crude Oil Summary Q3/18 light crude oil production ? ~47,000 bbl/d • 2P reserves ? 305 million barrels* • North Sea ? Low decline ? Low risk development opportunities • Côte d’Ivoire ? High return, low risk…
International Light Crude Oil North Sea 2019 platform drilling program ? 6.7 net well program ? 3.9 net producer wells ? Follow-up of 2018 drilling success ? ~28,700 bbl/d in Q3/18 ~17% increase from 2016 levels ? Effective and…
International Light Crude Oil Côte d’Ivoire Baobab • Extended Phase 4 development • Exit 2018 production targeted to exceed original plan of 5,370 bbl/d* ? First two wells producing at ~5,700 bbl/d* ? Third well on stream November…
International Light Crude Oil South Africa Exploration Drilling 5 structures identified with up to ~1.0 billion barrels OOIP per structure • 25% working interest ? Upfront cash consideration and financial carry ? Future bonus…
Economic Resource Development Exploration & Production Returns to Shareholders Economic Resource Development Balance Sheet Strength Opportunistic Acquisitions Highly flexible capital Owned and controlled infrastructure…
Oil Sands Scott Stauth, Chief Operating Officer, Oil Sands
Economic Resource Development Oil Sands Returns to Shareholders Economic Resource Development Balance Sheet Strength Opportunistic Acquisitions Economic Resource Development Maximize value through continuous improvement…
Thermal In Situ Oil Sands
Thermal In Situ Oil Sands Strategy • Maximize value through strategic timing of development ? Align with improved market access • Leverage infrastructure ? Land consolidation at Primrose, Pelican Lake and Kirby • Utilize and…
Thermal In Situ Oil Sands Portfolio (1) Includes Kirby South, Kirby North, Primrose and Wolf Lake facility capacities. (2) Company Gross proved plus probable reserves as at December 31, 2017. CNQ Thermal Producing Properties CNQ In…
Thermal In Situ Oil Sands Portfolio Peace River Lindbergh McMurray Producing Bluesky Producing Grand Rapids Producing Grosmont Future Potential Saleski Liege Germain Pelican Wolf Lake Primrose Grouse Leismer Gregoire…
Thermal In Situ Oil Sands Portfolio Potential 44.0 billion barrels OBIP* ? Significant future potential • ~2.8 billion barrels OBIP* ? Currently producing at Peace River • ~32.0 billion barrels OBIP* ? Currently producing at Kirby…
Overlapping Clearwater, Grand Rapids and McMurray developments ? Higher netback pricing • Decades of highly economic pad additions ?High rate and recovery in early life of CSS • Decades of Long Life Low Decline, low capital Steam…
2018 pad add program drilling 63 wells ? Targeted first oil production in Q4/19 ? Targeted first 12 month production of ~26,000 bbl/d • Significant development opportunities (50+ years) ? Maximize utilization of existing facilities…
Strong Q3/18 performance ? Production of ~36,000 bbl/d and SOR of 2.8 ? Operating…
Thermal In Situ Oil Sands Kirby North SAGD Kirby North Overall project 84% complete and ahead of schedule ? Drilling is ~85% complete ? Technology added VITs and ICDs* • Commissioning of facility targeted for Q3/19 • Targeted…
Large and diverse asset base with significant potential ?Long Life Low Decline assets ? Total of 101.7 billion barrels OBIP(1) • Leverage technical expertise to unlock reserves • Leverage infrastructure ?Highly economic pad add…
Oil Sands Mining & Upgrading
Oil Sands Mining & Upgrading Strategy • Leverage technology, innovation and continuous improvement ?Reduce operating costs ? Increase reliability ?Optimize production and recovery ?Reduce environmental footprint ? Continue to…
Oil Sands Mining & Upgrading Advantages Q3/18 production volumes of ~394,000 bbl/d • Total of ~17.5 billion barrels OBIP(1) • 2P reserves ? 6.06 billion barrels(2) • Significant resource in place 50+ year life(3) • No decline,…
Oil Sands Mining & Upgrading Synergy Updates Implementation of Canadian Natural’s Continuous Improvement initiatives at the Albian mine operations • Utilized synergies and the sharing of best practices • On-going implementation of…
Oil Sands Mining & Upgrading Canadian Natural’s Continuous Improvement Pathway Top Tier Performance Acquisition of Albian mines (70%) Implementation of best practices and optimizations at Albian, increases production and reduces…
Oil Sands Mining & Upgrading Plant Capacity Utilization CNQ Peer Average Note: Sourced from TD research, Mine your own Business, dated November 6, 2018. Peers Include: IMO, SU, and Syncrude. CONTINUOUS IMPROVEMENT DRIVES HIGH…
Oil Sands Mining & Upgrading Operating Costs CONTINUOUS IMPROVEMENT DRIVES SIGNIFICANT REDUCTIONS Equivalent to ~$3.3 billion in additional margin in 2018 Cash Costs Fuel Costs 2018 based upon YTD actuals. Operating expenses reflect…
Oil Sands Mining & Upgrading Operating Costs Peer Compare CNQ 2018F based upon midpoint of 2018 operating expense corporate guidance. Peers 2018F is average of first three quarter actuals. Operating expenses include energy costs and…
INDUSTRY LEADING OPERATING COSTS Significant value realized from savings and efficiencies from optimizing the mine plan ? Estimated cost savings of over $500 million ? Allows the extension of current Horizon South pit operations to new…
Horizon Oil Sands Paraffinic Froth Treatment Expansion Incremental production target of 40,000 - 50,000 bbl/d of diluted bitumen • Project utilizes excess capacity in extraction and OPP to produce diluted bitumen ? Utilize excess…
Horizon Oil Sands Reliability Opportunities Reliability opportunities provide incremental economic production ?Incremental 35,000 bbl/d - 45,000 bbl/d of SCO • Stage 1B – reliability improvements on Diluent Recovery Unit and install…
Oil Sands Mining & Upgrading Autonomous Trucks Longer term opportunity compared to peers due to current top tier haul truck utilization ? Current haul truck utilization ~90% • Jackpine Mine 18 truck operation pilot ? Capital cost of…
Oil Sands Mining & Upgrading In Pit Extraction Process (IPEP) Potential for cost savings of $2.00/bbl - $3.00/bbl for operating and sustaining costs • ~40% less GHG emissions during bitumen production • Eliminates tailings ponds •…
Horizon Oil Sands Long Term Opportunities Horizon Phase 4 & 5 ? Increase capacity by ~260,000 bbl/d of SCO ? Executed in a step wise and disciplined manner ? Significant potential, contingent on market access • Pierre River ?…
Economic Resource Development Oil Sands Returns to Shareholders Economic Resource Development Balance Sheet Strength Opportunistic Acquisitions Economic Resource Development Maximize value through continuous improvement…
Sustainable Operations Through Technology, Innovation & Continuous Improvement Pam McIntyre, Senior Vice-President, Safety, Risk Management and Innovation
Technology, Innovation & Continuous Improvement Strategy • Invest in research and development • Leverage technology and innovation • Canadian Natural’s continuous improvement culture drives long-term value • Socially responsible and…
Technology, Innovation & Continuous Improvement Leading R&D investor ? ~$3.1 billion invested since 2009 • Benefits ?Unlocking reserves ?Becoming more effective and efficient ? Increasing production ?Reducing environmental…
Structured Research & Development Funnel Implemented Projects Deploy Develop Design Discovery Capital Employed DISCIPLINED VALUE FOCUSED R&D
Technology & Innovation
Technology & Innovation Why is it important? ? Basis for entrepreneurial culture ? Enhances sustainability ? Improves efficiencies ? Adds significant shareholder value today and in the future • Creating value ?Lowers costs…
Carbon Capture & Sequestration / Storage Technology 3rd largest CO2 capturer and sequesterer for oil and gas sector in the world(1) • Reduced CO2 footprint • Reduced CO2 charges STRONG ENVIRONMENTAL INITIATIVES 103 Tonnes per Year…
Loading...
