Canadian Natural Resources Limited (CNQ) Q1 2013 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen. Welcome to the Canadian Natural Resources 2013 Budget Conference Call. The slides for this conference call are available to view with the webcast and in PDF format at www.cnrl.com. I would like to meeting over to Mr. John Langille, Vice Chairman of Canadian Natural Resources. Please go ahead, Mr. Langille.

Thank you, operator, and good morning, everyone. Thanks for attending this conference call where we will review our planned budget for 2013, which was included in our press release issued earlier today. Participating with me today is Steve Laut, our President. Doug Proll, our Chief Financial Officer is also here, available to answer any questions at the end of Steve's presentation. Steve will be referring to certain information contained on slides which, as the operator indicated, can be accessed through our website at www.cnrl.com. Before we start, I would refer you to the comments regarding forward-looking information contained in our press release, and also note that all dollar amounts are in Canadian dollars and production of reserves are both expressed as before royalties, unless otherwise stated. We'll make some additional comments before I turn the call over to Steve. Our targeted 2013 budget reflects our established business principles. We have maintained our overall balance in a number of ways. CapEx is established in the context of cash flow, with allowance for excess cash flow to pursue dividends and share repurchases, which we have been completing more aggressively; spending on mid- and long-term projects, but not affecting capital to realize current short-term production increases; growing production of 9% in high return oil projects, offsetting an overall decline in natural gas production due to continued reduced capital directed to lower return natural gas projects; continued free cash flow derived from international operations where CapEx has been increased we drill additional infill-producing wells; and we have built in flexibility in our capital allocation through all of 2013. I'll now turn the call over to Steve for his detailed comments.

Thanks, John, and good morning, everyone. Before I go through the 2013 budget overview and our assets, I'll spend a few minutes talking about our -- what sets Canadian Natural apart from our peer group in terms of our objectives, strengths and advantages starting at Slide 4. Canadian Natural has and will continue to build a premium value defined growth independent. We're one of the few companies in our peer group that has the assets that deliver free cash flow on a sustainable basis, a direct result of our ability to effectively execute our strategies. Canadian Natural has the largest reserve base in our peer group, a reserve base that ranks with global industry players. It's balanced and is delivering significant cash flow. Critical to our ability to continue to grow free cash flow is our very large, undeveloped resources that we own and control. Resources that are long life and low decline. Importantly, we require only a portion of our cash flow to grow current year production, about 40% in 2013, reflecting the strength of our assets and Canadian Natural's tremendous capital flexibility. The remaining cash flow can be utilized to increase the strength of our free cash flowing reserves by unlocking the value of our undeveloped resources; return to shareholders through increasing dividends and share buybacks, acquisitions or pay down debt. Probably the most important of all, we have the people, the expertise and the experience to execute our programs and operate effective, efficient operations. Looking out, you'll see that we are not undertaking any projects that are new to Canadian Natural. Our balance sheet is strong with the capacity to capture opportunities and weather any commodity price volatility we might encounter. Canadian Natural is in a very enviable position, and has a clear advantage compared to many…

[Operator Instructions] And the first question is from Chris Feltin from Macquarie.

A quick question, maybe just trying to pin you down on the Horizon cost. I think, Real had indicated at the Investor Day earlier this year that you're targeting on an integrated basis, to keep cost below the 100,000 of flowing barrel basis. And just curious, I think you mentioned that you've committed about $2 billion to date. So looking forward, just trying to confirm what's been spent to date, and that, that 100,000 benchmark on an unintegrated basis is still the target that you're striving to keep below?

Yes, Chris, I think you got it right there. We still see that we'll able to achieve less than $100,000 a barrel target -- per flowing barrel at Horizon, on a fully integrated basis, and we're tracking below that right now. And we have committed $2 billion or spent $2 billion and committed $5 billion. So we have lump sum contracts, and we have other contracts we awarded that add up to $5 billion. So we feel pretty good at that 36% point here that we're going to be able to achieve or do better than our target of less than 100,000 a flowing barrel.

Okay. And maybe just jumping over to the Duvernay, very large land position, obviously. Just kind of curious what your original read is on that play. Starting to see some other operators get some data points out there. Just kind of get a sense of where you think this is or where it ranks, what rates you would maybe like to see or liquid deals that make it compete with the rest of your oil-related portfolio.

So on the Duvernay, you're right. We do have a very large land base here. And we have land, both in the liquids-rich, the volatile oil and the gas windows. I think right now at the stage of play is we're starting to see a definition of where that crossover is between dry gas and liquids-rich and volatile oil. So that's getting defined right now. I would say from what we're seeing right now, the rates are a little less than what we would expect to see of economic return on capital. So right now, we are being cautious and taking our time to make sure we understand what's going on. I think rates would have to be a little better than what we're seeing right now.

[Operator Instructions] Mr. Langille, there are no further questions registered at this time.

Okay. Thank you very much, operator. As you can see our budget has been well thought out, and it provides the right balance to ensure our projects are advanced in an orderly and efficient manner, while growing current production and having capacity to increase returns to shareholders. We will always continue to make sure that creating value for our shareholders is #1 in our things to do. Thank you very much for attending the call. And as usual, if you have any further questions or comments, do not hesitate to call us. Thank you, Lynn, have a good day.

Thank you, Mr. Langille. The conference has now ended. Please disconnect your lines at this time, and thank you for your participation.