Good morning, ladies and gentlemen, and welcome to the Canadian Natural Resources Second Quarter 2014 Conference Call. [Operator Instructions] Please note that this call is being recorded today, Thursday, August 7, 2014, at 9:00 a.m. Mountain Time. I would now like to turn the meeting over to your host for today's call, Doug Proll, Executive Vice President of Canadian Natural Resources. Please go ahead, Mr. Proll.

Thank you, and good morning, everyone, and thank you, for joining our second quarter 2014 conference call. Today, we will review with you our quarterly financial and operating results and provide an update on certain projects, including the integration of the significant asset acquisitions undertaken in the first half of this year. With me this morning are Steve Laut, our President; and Corey Bieber, our Chief Financial Officer. Before we begin, I would refer you to the comments regarding forward-looking information contained in our press release, and also note that dollar amounts are in Canadian dollars, and production and reserves are expressed as before royalties unless otherwise stated. I would like to make a few brief comments before turning the call over to Steve and Corey. Cash flow from operations in the second quarter amounted to CAD 2.63 billion or CAD 2.41 per share, an increase of 22% from the CAD 2.15 billion from the first quarter and a 58% increase over the CAD 1.67 billion realized in the second quarter of 2013. Net earnings and adjusted earnings from operations for the second quarter were also very strong at CAD 0.98 and CAD 1.05 per share, respectively, significant increases over the first quarter of 2014 and the second quarter of 2013, demonstrating the record level of cash flow and the profitable growth potential of our strong and diversified asset base. Higher realized netbacks from crude oil were driven by WTI and dated Brent benchmark pricing and lower heavy oil differentials for Canadian select, as well as the attention to detail that Canadian Natural brings to managing our operations effectively and efficiently. Our second quarter 2014 BOE production amounted to approximately 817,500 BOEs per day and is very balanced across the diverse product line. Light oil, natural gas and SCO represented 30% of BOE production. The components of our Western Canadian select product stream, including primary heavy Pelican Lake and bitumen crude oil represented 30% -- 37% and natural gas was 33%. This balanced production mix provides exposure to these commodity prices, the related volatility and also provides us with the opportunity to allocate capital to the highest return assets in our portfolio. We continue to execute on our capital allocation formula, capital allocation to maximize the value of our diverse asset base for profitable growth, returns to shareholders through sustainable dividends and share purchases, nimbly executed acquisitions in our core areas and the maintenance of our balance sheet. I will now turn you to Steve for his synopsis of the quarter and the outlook for the remainder of 2014.

Thanks, Doug, and good morning, everyone. The second quarter was a strong quarter. Canadian Natural's balance and diverse assets, combined with our strong teams focused on a cost-effective development and effective and efficient operations, delivered in the second quarter. With record cash flow driven by excellent operations performance, record liquids production, near-record natural gas production, declining operating costs and strong oil prices as a result of good WTI pricing and heavy oil differentials, offset somewhat lower gas prices versus Q1, delivered a 5.5% increase in Q2 netbacks. Canadian Natural's primary heavy oil delivered another record production quarter at 143,100 barrels a day, a 5% increase year-over-year. We drilled 122 wells in Q2 and are on track to drill 850 Wells in 2014. Operating costs were down in Q2 by 3.6% over Q1. Primary heavy oil continues to deliver the highest return on capital in our Canadian portfolio and delivers consistent and growing free cash flow. Our Canadian light oil and NGL production delivered record quarterly production of 93,000 barrels a day, up 46% year-over-year as result of property acquisitions and the successful realization of horizontal multi-frac wells in a wide cross-section of light oil pools in our portfolio, as well as the ongoing development of enhanced recovery projects. The polymer flood at Pelican Lake continues to perform, as we've achieved another at record quarterly production of 49,600 barrels a day, a 19% year-over-year increase. We continue to optimize our polymer flood operations, dropping operating costs to 8% in Q2 over Q1, enhancing the effectiveness of the polymer flood, setting the stage for an even more effective conversion of the remainder of the field to polymer flood. We will have roughly 57% of the pool under polymer flood by year-end. At Primrose, production exceeded the top end of guidance by 6%…

Thank you, Steve, and good morning, everyone. As earlier noted, our second quarter cash flow represented record levels of quarterly liquids production, BOE production, adjusted earnings and cash flow. The integration of acquired property, exceptional reliability at Horizon, continued organic growth in our Pelican, primary and thermal heavy oil properties, together with stronger benchmark oil pricing and weaker Canadian dollar, helped drive this result. For the first 6 months of 2014, we have recorded a 12% percent liquids production growth, 24% natural gas production growth and 15% overall BOE/d growth versus the first 6 months of 2013. More importantly, 6-month cash flow from operations have increased an impressive 47% over 2013 levels to CAD 4.8 billion from CAD 3.2 billion or CAD 4.368 per common share from versus CAD 2.97 common share last year. Adjusted earnings have grown 139% to CAD 2.1 billion or CAD 1.90 per common share from CAD 860 million or CAD 0.79 per common share in 2013. To drive these results, capital expenditures of CAD 7.3 billion were made during the first half, including CAD 3.6 billion in asset acquisitions and CAD 1.1 billion on Phase 2/3 project expenditures at Horizon. As you look forward, we see continued organic growth during the second half of 2014, highlighted by the commissioning of the 2 additional coke drums at Horizon during the Q3 pit stop, the continued ramp of Kirby South volumes, the return to production of Tiffany and Banff/Kyle in the North Sea, as well as commencement of the Offshore Africa drilling program. From a balance sheet perspective, we remain strong with debt to book capitalization ratio of 33%, still within our targeted ranges. And with further improvements expected during the second half of the year. It's worth noting that this forecast ratio does not consider the…

Thank you, Steve and Corey. Operator, I would like to now open the call for questions.

[Operator Instructions] Your first question comes from the line of David McColl from Morningstar.

Two questions today. One on Horizon and one that's a little more broadly focused. I'll shoot them both out at once. You provide some comments on the next round of expansions at Horizon. That was the 45,000-barrel-a-day expansion. Given the success we've seen with Phase 2A, has there been any talk about an earlier start up, perhaps a mid-2016 for that expansion or are we still really thinking that late 2016 is far more likely? And then, my second question really relates to cost pressures. It sounds like Kirby's in good shape, and while we've seen some minor pressure, I think, from other firms in Alberta it still seems fairly muted. I'm just wondering if your assessment, I guess, would be maybe similar in terms of labor, material, that it's just things in Alberta seem to be on track.

Thanks, David, and I'll answer your question as a series. Horizon, obviously we're doing very well. Phase 2A, the coker expansion, as you noted, came on early and it came under budget by a significant amount. We are on track with the rest of the expansion and we're running slightly below budget, and we're running right to schedule. At this point in time, I don't see us coming on any earlier than the schedule. But there could be a possibility of that, but I don't think it's very high. So we would not change that schedule of late 2016 for the 45,000 barrels a day. And on the Phase 3 would be 80,000, we're not changing that schedule either. As far as cost pressure goes, I think you're right. It is somewhat muted. You do see the pressures here and there. I think, actually the industry as a whole has learned how to deal more effectively with these mega projects, and you're starting to see that. You see in our case, where we've broken a project into many small pieces and we're using lump sum to much higher degree, mainly because we have so much engineering and detailed engineering done that we can get lump sums. We're also breaking into smaller pieces so that if we do not get the bits that we need to build the project or that small piece, we will slow it down and break it down to a different proportion and be very cost-focused versus schedule-focused. And that has worked very well. We expect it to work well going forward. Although I think, with more work coming, you could see additional pressure in the future. But right now, we're not seeing much.

I guess maybe just one quick little follow-up on that. Is there any concern that depreciation of the Canadian dollar, if we keep seeing it go down relative to the U.S., that, that could put a bit under some of these costs of what you're importing?

Well, that will affect the cost of equipment that's being imported. However, most of our contracts that we have left for Phase 2/3 are lump sum, so that risk is already accounted for. And most of the material and the big equipment that we need has already been purchased. So I don't expect to see much pressure from the Canadian dollar on Phase 2/3.

Your next question comes from the line of Greg Pardy from RBC.

A couple of questions. Steve, you mentioned that you're making some fixes to the steam generation facility at Kirby. Can you just touch on those, what they are?

What happened here, Greg, it's -- I guess, it does happen occasionally with steam generation. We're seeing metal loss on the steam tubes. Basically, you run the water through steam tubes, the heat to generate steam. We're seeing excessive metal loss in some of the tubes in the steam generators. At this point, it's probably a combination of factors. It may be design. It may be operating conditions. It may be water quality or it may be a number of other issues. We know what the fix is. We've already got 1 of the 5 steam generators repaired. It's not a big thing to do. It's not a very expensive thing to do. It just takes time.

The second thing is -- a little bit broadly but still on Primrose. How should we be thinking about Primrose from the standpoint of capacity production? I'm wondering if you can just spend a minute on that now. With the final report going in later, you mentioned that you've seen a little bit of a deferral in terms of the implementation of low-pressure steam flood. Is low-pressure steam flood the way you were going to be going at Primrose on a go forward basis or is that more with respect to Primrose East?

Low-pressure steam is applied for in Primrose East Area 1, and Primrose East Area 1 is the area where we've had here seepages here and the most area of concern. It's also had 3 or 4 cycles, so we had good communication between the wells. And converting to a steam flood was always the ultimate goal of Primrose East Area 1, so we have made that application to do that. We expect that to be approved because it's -- in steam flood, you have no ability to actually have a seepage. Primrose East Area 1 is probably a unique area. Geologically, it's on a salt dissolution edge, so maybe different stresses in the rock. And as it started earlier, it's difficult to get a good cement job on some of these old legacy wellbores, so that's likely why we've seen these seepages here in this area. Outside of Primrose Area 1, we will continue to go with our preferred method of cyclic steaming, and that is ongoing as it is right now. So the reason the shift in production is we actually expected to have steam flooding going sooner. It took us longer to get all the data assimilated. As you can imagine, we've collected a tremendous amount of data here in this causation review and it has allowed us to really fine-tune exactly what's going and really helped us develop the mitigation plans. That took us longer than we thought, to put that whole report together to get to the AER. And of course, they could need some time to go through it. And as I said earlier, the steam flood been applied for last week and we're looking forward to getting that approved, and once we do, then we'll start steam flooding.

Okay. And then just Area 1, what was the capacity perhaps under high pressure cyclic versus going to the steam flood? How much is that going to change and...

Overall, the whole Primrose East Area had a capacity of 40,000 barrels a day, and there were 4 areas. So at Primrose East is the one that is spread so long. So, as you know each cycle, you have less production. So I think, actually, the impact on production is going to be relatively minimal. Although I would say, with cyclic you get production sooner. It'll take a little while for production to ramp up with steam flood. So, overall, when you get it lined out 3 or 4 months from now, you wouldn't see much drop in overall yearly average production from a steam flood at this stage versus a cyclic program at this stage because we're 3 or 4 cycles in.

[Operator Instructions] Your next question comes from the line of Mike Dunn from FirstEnergy.

Just wonder if Steve or if one of you folks could talk about your outlook for crude price differentials as we head into this winter. I see you've added some more WTI, WCS spread hedges there.

Thanks, Mike. I think we're fairly bullish on heavy oil differentials as we have been here for a while. Normally, you will see the heavy oil differential widen slightly as you go into the winter months, just because asphalt demand is down. But we still see heavy oil differentials being quite good and very strong compared particularly to last year going forward.

And I have no further questions at this time. I turn the call back over to Mr. Proll for closing remarks.

Thank you, operator, and thank you, ladies and gentlemen, for attending our conference call. As you have seen today, Canadian Natural has a very strong and diverse asset base, a complementary balance of production and strong well-developed plan for the systematic development of this asset base. We concentrate on safe, efficient and reliable operations and a strong financial position supported by readily available liquid resources. We are focused on profitable growth through the development of our balanced asset base and returns to shareholders in the near-, mid- and long-term. If you have any further questions, please give us a call. Thank you, again, and we look forward to our third quarter conference call in November.

This concludes today's conference call. You may now disconnect.