Canadian Natural CEO Discusses Q3 2010 Results - Earnings Call Transcript
Canadian Natural Resources Limited (
)
Q3 2010 Earnings Call
November 4, 2010 11:00 am ET
Executives
John Langille - Vice-Chairman, Canadian Natural Resources
Allan Markin - Chairman
Steve Laut - President
Peter Janson - VP, Horizon Operations
Doug Proll - SVP, Finance
Analysts
Andrew Fairbanks - Bank of America
Joe Citarrella - Goldman Sachs
Mark Polak - Scotia Capital
George Toriola - UBS Securities
Monroe Helm - Barrow Hanley
Mike Dunn - FirstEnergy Capital
John Herrlin - Société Générale
Kam Sandhar - Peters & Co.
Barbara Betanski - Addenda Capital
Presentation
Operator
Compare to:
Previous Statements by CNQ
»
Canadian Natural Resources Ltd. Q2 2010 Earnings Call Transcript
»
Canadian Natural Resources Limited Q1 2010 Earnings Call Transcript
»
Canadian Natural Resources Limited Q4 2009 Earnings Call Transcript
»
Canadian Natural Resources Limited Q3 2009 Earnings Call Transcript
Good morning, ladies and gentlemen. Welcome to the Canadian Natural Resources 2010 third quarter results conference call. I would now like to turn the meeting over to Mr. John Langille, Vice-Chairman of Canadian Natural Resources.
John Langille
Good morning everyone. Thank you for attending our conference call. We will discuss our 2010 third quarter results and also update our operational plans for the remainder of 2010 and into 2011.
Participating with me today are Allan Markin, our Chairman; Steve Laut, our President; Peter Janson, our Vice President of Horizon Operations, and Doug Proll, our Senior Vice President of Finance.
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 and reserves are both expressed as before royalties, unless otherwise stated.
Again in the third quarter, as a result of strong operational results and efficient control over our operating costs, we achieved significant cash flow of over $1.5 billion, well in excess of our capital expenditures. This is in line with our overall plans for 2010, where we originally budgeted the 2010 year to produce somewhere between $2.5 billion to 2.8 billion of free cash flow. We have used this free cash flow to increase the dividends paid in 2010 by 42%, repay some of our debt and strengthen our balance sheet and acquire some strategic assets and institute a share buyback program.
All of the acquisitions have complemented our activities in our core areas and provide opportunities for value creation through reductions in cash operating costs and the assets purchased, synergetic sharing of production facilities and increases in our land bases for future development.
Our developments continue to be primarily focused on low projects and oil sales contributed 86% of our gross revenue stream.
Commodity prices continue to follow the trend they have been in for the last several years. Oil prices are relatively strong and natural gas prices continue to weaken under the oversupply situation we find in North America.
In the last month of the third quarter, the discount factor for heavy oil price compared to the West Texas price widened as a result of a number of pipeline outages caused by ruptured pipe on one of the export pipelines transporting heavy oil out of Canada.
This differential remained high until it was clear that the pipeline was repaired and put back into service. Upon resumption of pipeline deliveries, the differential has fallen back to levels prior to the outage.
Before we turn this call over to Steve for the operating details, I would ask Allan to make some comments. Allen.
Allan Markin
Hello and good morning everyone. It was at this time last year that we reaffirmed our commitment to our core values, spending where we need to, maintaining balance and continuing to optimize costs and production through safe and effective operations. And since that time, the company has remained disciplined in its approach to expenditures.
We have maintained a diversified portfolio of assets of crude oil and natural gas, and we have demonstrated our ability to adhere to our effective strategy. And looking to third quarter performance, the company had a well-grounded three months where all of our teams continually worked towards strong operational performance and cost optimization and efficiency.
At Horizon, things are progressing, and we continue to fine-tune operations in the plant in order to reach a state of reliability at the nameplate production capacity.
At our thermal operations, we are progressing steadily with our growth plan. We have expanded the Kirby asset through acquisition growth, and we are moving ahead with Kirby Phase 1 after recently receiving Board sanction.
As we have indicated many times before, our long term objectives, especially production, have not changed as we remain prudent in our approach. This year is not different, as we will end the year on a positive production and financial note.
Primary heavy oil and natural gas continue to deliver. We are confident in our execution strategy, as we continue to create consistent value for our shareholders. Steve.
Steve Laut
As both Al and John have pointed out, Canadian Natural is in a very enviable position.
Our strong, well-balanced assets, combined with our capital discipline, focus on execution and effective operations has again delivered a strong quarter, even with slightly lower production volumes than expected.
Operating costs are very good, with overall operating costs for the first nine months of 2010 down 6% year-over-year on a boe basis, driven by a 17% reduction in oil operating costs in North America, and our capital spending is on track. This reflects the strength of Canadian Natural's assets and our ability to generate free cash flow.
Based on the current strip pricing, we'd expect to generate between $2.5 billion and $2.7 billion of free cash flow over what is required to deliver production growth, excluding discretionary property acquisitions.
In the third quarter we have been able to execute additional opportunistic and strategic acquisitions to strengthen our asset base in the near and long term. As a result, we expect to allocate $1.5 billion of this $2.5 billion to $2.7 billion of free cash flow to property acquisitions for 2010, up approximately $500 million from our expectation at the end of Q2. Taking into account property acquisitions, we expect to deliver between $1 billion and $1.2 billion of free cash flow in 2010, which will be used to further strengthen our balance sheet.
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