Canadian Natural Resources Limited Announces 2016 Second Quarter Results
Commenting on second quarter 2016 results, Steve Laut, President of Canadian Natural stated, “Canadian Natural delivered strong cash flow during the quarter while facing a number of challenges, ranging from low commodity prices to the proactive shut down of the Primrose East pipeline and operational issues at third party owned and operated natural gas facilities, which impacted quarterly production volumes. The major turnaround at Horizon is now largely complete with on spec production targeted for August 11, 2016. Start-up of the Horizon 2B expansion is targeted in October, with full production targeted in November, delivering additional sustainable production and cash flow. As a result, Canadian Natural is in an excellent position to become an even stronger and more robust company.”
Canadian Natural’s Chief Financial Officer, Corey Bieber, continued, “In the first half of 2016, we continued to realize significant operating cost savings of approximately $430 million when compared with the previous year through our continued focus on top tier effectiveness and efficiency. Canadian Natural is nearing an inflection point, with the completion of Horizon Phase 2B. Upon completion, decreased project capital expenditures, coupled with greater cash flow generation potential, significantly enhances our ability to strengthen our balance sheet, maximize returns to shareholders, invest in economic resource development and execute on opportunistic acquisitions.”
Three Months Ended Six Months Ended
($ Millions, except per Jun 30 Mar 31 Jun 30 Jun 30 Jun 30
common share amounts) 2016 2016 2015 2016 2015
Net earnings (loss) $ (339) $ (105) $ (405) $ (444) $ (657)
Per common share – basic $ (0.31) $ (0.10) $ (0.37) $ (0.41) $ (0.60)
– diluted $ (0.31) $ (0.10) $ (0.37) $ (0.41) $ (0.60)
Adjusted net earnings
(loss) from operations(1) $ (210) $ (543) $ 178 $ (753) $ 199
Per common share – basic $ (0.19) $ (0.50) $ 0.16 $ (0.69) $ 0.18
– diluted $ (0.19) $ (0.50) $ 0.16 $ (0.69) $ 0.18
Cash flow from operations
(2) $ 938 $ 657 $ 1,503 $ 1,595 $ 2,873
Per common share – basic $ 0.85 $ 0.60 $ 1.38 $ 1.45 $ 2.63
– diluted $ 0.85 $ 0.60 $ 1.37 $ 1.45 $ 2.62
Net Capital expenditures $ 1,158 $ 1,040 $ 1,297 $ 2,198 $ 2,709
Daily production, before
Natural gas (MMcf/d) 1,689 1,786 1,779 1,738 1,775
Crude oil and NGLs
(bbl/d) 502,410 546,927 509,047 524,668 555,669
(BOE/d) (3) 783,988 844,531 805,547 814,259 851,545
(1) Adjusted net (loss) 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) Cash 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) 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.
– Canadian Natural realized cash flow from operations in Q2/16 of $938 million, an increase from $657 million in Q1/16. The decrease in Q2/16 from $1,503 million in Q2/15 primarily reflects lower crude oil and NGL and natural gas netbacks and lower sales volumes of North America crude oil and NGLs.
– For Q2/16, the Company had a net loss of $339 million compared to a net loss of $405 million in Q2/15 and net loss of $105 million in Q1/16. Adjusted net loss from operations was $210 million in Q2/16 compared to adjusted net earnings of $178 million in Q2/15 and adjusted net loss of $543 million in Q1/16. Changes in adjusted net earnings primarily reflect the changes in cash flow from operations.
– Canadian Natural’s corporate production volumes averaged 783,988 BOE/d in Q2/16, representing a 3% and 7% decrease from Q2/15 and Q1/16 levels respectively. Q2/16 production volumes were lower than Q2/15 and Q1/16 levels due to expected natural production declines, minimal conventional development capital expenditures, as well as unexpected weather and pipeline related events.
– Crude oil and NGL production volumes averaged 502,410 bbl/d in Q2/16.
— During the quarter, Horizon Oil Sands (“Horizon”) operations were not significantly affected by the wild fires in Fort McMurray. Q2/16 production averaged 119,511 bbl/d of synthetic crude oil (“SCO”) as minor unplanned downtime was required during the quarter to optimize the diluent recovery unit (“DRU”). Horizon achieved strong operating costs of $26.82/bbl (US$20.81/bbl) in Q2/16, representing an 8% decrease over Q2/15 and comparable to Q1/16, as a result of a continued focus on effective and efficient operations.
— Kirby South achieved record quarterly production volumes of 38,695 bbl/d as operations continue to be optimized. Operating costs of $8.56/bbl (US$6.64/bbl) represented a 37% and 18% reduction over Q2/15 and Q1/16 levels respectively. The steam to oil ratio (“SOR”) was 2.55 in the quarter and is expected to be in the 2.50 – 2.60 range for the rest of the year.
— At Pelican Lake, Canadian Natural’s industry leading polymer flood, quarterly production was 47,797 bbl/d, reflecting strong polymer flood performance offset by natural declines in base primary crude oil production. Q2/16 operating costs have decreased by 2% from Q2/15 to $6.81/bbl (US$5.29/bbl).
— International Exploration & Production (“E&P”) quarterly crude oil production volumes averaged 54,218 bbl/d, representing a 45% and 11% increase over Q2/15 and Q1/16 levels respectively.
— Q2/16 represented the first full quarter of production at Espoir and Baobab in Offshore Africa after the completion of the Company’s successful infill drilling program. Crude oil production increased by 81% and 20% from Q2/15 and Q1/16 levels respectively, averaging 30,858 bbl/d. Crude oil operating costs increased in the quarter over Q1/16 to $20.13/bbl (US$15.62/bbl) due to timing of liftings from various fields, however year-over-year have significantly decreased by 54%.
— Q2/16 North Sea crude oil production averaged 23,360 bbl/d. Production enhancements, increased reliability and waterflood optimization resulted in an increase of production by approximately 3,000 bbl/d, or 15%, in Q2/16 over Q2/15 and comparable to Q1/16. Quarterly crude oil operating costs averaged $40.74/bbl (US$31.62/bbl), reductions of 33% and 15% from Q2/15 and Q1/16 levels respectively, as a result of the Company’s continued focus on effective and efficient operations.
– Quarterly natural gas volumes averaged 1,689 MMcf/d, representing a 5% decrease from both Q2/15 and Q1/16 levels mainly due to third party pipeline and facility outages. North America natural gas operating costs in Q2/16 averaged $1.17/Mcf, 9% and 1% lower as compared to Q2/15 and Q1/16 levels respectively, reflecting a continued focus on process optimization.
– During the forest fires in the Fort McMurray region, Horizon’s teams effectively and efficiently worked together to mobilize resources and organize logistics in support of over 2,700 evacuees all while ensuring the safety and well-being of everyone on site and keeping operations stable. Horizon personnel focused on supporting its employees, their families, Fort McMurray and neighboring community residents with accommodations, meals, medical treatment, and flights from the Horizon site to Edmonton or Calgary. In support of firefighting efforts, a portion of Horizon’s firefighters worked alongside crews from the city and contributed firefighting equipment to help protect critical infrastructure and homes while government officials were offered access to Horizon’s aerodrome services. The Company would like to recognize and thank its teams for their strong commitment and hard work through this challenging time.
– Subsequent to June 30, 2016, the Company began a scheduled major turnaround at Horizon to complete maintenance activities within the plant facilities and tie-in of major components of the Horizon Phase 2B expansion. The turnaround is now largely complete with SCO production targeted to resume on August 11, 2016.
– 2016 is a milestone year for Canadian Natural as the Company advances the completion of the Horizon expansion with the addition of 45,000 bbl/d of SCO from Phase 2B, targeted to start up in October 2016 with full production targeted in November 2016. With the completion of Phase 2B, Canadian Natural expects Horizon’s 2016 exit nameplate capacity to be rated at 182,000 bbl/d of SCO, resulting in a step change in the sustainability of the production and cash flow profiles for the Company.
– Concurrent with the completion of maintenance activities, tie-in of major components of the Horizon Phase 2B expansion has been completed as planned. Staged completion of plant system commissioning activities commenced in March 2016 and remains on schedule.
– Horizon project capital in 2016 is targeted to range from $1.89 billion to $1.99 billion, the majority of which will be spent over the first nine months of 2016. Horizon project costs in Q2/16 totaled $583 million and are $1,005 million year-to-date. In 2017, Horizon project capital costs are targeted to decline to approximately $1 billion for Phase 3 completion, which is targeted to add incremental production volumes of 80,000 bbl/d in Q4/17. The addition of Phase 3 marks the completion of the current Horizon expansion and volumes are targeted to average 250,000 bbl/d of SCO with operating costs trending below C$25.00/bbl (US$19.40/bbl).
– The Company continues to proactively manage the cost structures within its crude oil and natural gas drilling programs. As a result of realizing 20% to 25% of drilling and completions cost reductions year-over-year and increasing commodity prices, the Company has reallocated $50 million of development capital across the basin while remaining within annual corporate capital guidance. In the second half of 2016, Canadian Natural targets to increase its drilling activity by approximately 130 net North America E&P crude oil wells and 4 net producing thermal in situ wells.
– Canadian Natural continues to realize excellent results from its commitment to effective and efficient operations resulting in approximately $430 million of operating cost savings in the first half of 2016 over the same period in 2015.
*Press Release from CNRL