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Canadian Natural Resources Ltd. Q2 2010 Earnings Call Transcript

Canadian Natural Resources Ltd. Q2 2010 Earnings Call Transcript

Canadian Natural Resources Ltd. (CNQ)

Q2 2010 Earnings Call

August 05, 2010 11:00 am ET


John Langille - Vice Chairman

Allan Markin - Chairman

Steve Laut - VP

Doug Proll - SVP, Finance


Andrew Fairbanks - Bank of America

Arjun Murti - Goldman Sachs

Greg Pardy - RBC Capital Markets

Amir Arif - Stifel

Monroe Helm - Barrow, Hanley

John Herrlin - Société Générale

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Good morning, ladies and gentlemen. Welcome to the Canadian Natural Resources 2010 second quarter results conference call. I would now like to turn the meeting over to Mr. John Langille, Vice Chairman of Canadian Natural Resources. Please go ahead, Mr. Langille.

John Langille

Thank you, operator, and good morning, everyone. Thank you for attending our conference call. We will discuss our 2010 second quarter results and also update our plans for the balance of 2010. Participating with me today are Allan Markin, our Chairman; Steve Laut, our Vice 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 reserves are both expressed as before royalties unless otherwise stated.

Our second quarter cash flow reflects the strong quarter we had as we achieved over 1.6 billion dollars of cash flow with higher production and very efficient control of our costs. Again our cash flow exceeded our capital expenditures in this quarter and our CapEx was inflated with the number of acquisitions amounting to approximately 900 million dollars, all closing in this quarter. We are allocating the majority of our capital to oil projects as go forward.

Commodity prices for our oil production continue to be volatile but the average West Texas price remains relatively flat in the second quarter without realizing the first quarter. However, as expected, the heavy oil differential widened slightly in the quarter doing average of 18% off WTI.

Natural gas pricing continues to be challenged and averaged less than 4 dollar during the quarter. We expect this relative pricing situation to continue during the remainder of the year.

This quarter really shows the tremendous balance in our portfolio of oil assets with all four types producing at or near 100,000 barrels per day and contributing almost 70% of our total production volumes. Light oil from Canada and our international areas averaged 116,000 barrels per day. Coal heavy oil from our primary production area in Pelican Lake averaged 131,000 barrels per day. Our thermal heavy oil averaged 96,000 per day and our heavy oil mined at Horizon which is sold as high value SCO averaged 100,000 per day.

Our natural gas properties had over 200,000 BOEs contributed the remaining 30% of our production. So a very, very balanced portfolio. However, our oil sales contributed 86% of our total revenue and oil projects continue to be the preferential reinvestment area.

Before we turn the call over to Steve for the operating details, I'd ask Allan to make some comments. Allan?

Allan Markin

Thanks, John. Good morning, everyone. I am not sure if I can add anything from John's great start but as I said many times, Canadian Natural's balanced asset base allows us to add value in any business cycle. The efficiency of our operations has allowed us to drop our costs in most sectors of the company and thus, as John mentioned, enhanced cash flows.

Daily production increased 6% quarter-over-quarter. Spending money wisely and excellent and good operating practices has allowed higher than expected volumes, especially on the primary heavy oil side, record drilling has reaped great returns. Primary oils, thermal volumes achieved record highs. Soon the Kirby thermal project will achieve regulatory approval. Horizon volumes were and are increasing but some hiccups that more proactive maintenance will solve. Light oil, internationally, continues to achieve strong cash flows, especially at current oil pressures. We remain committed to growing value through the drill bit and acquisitions with efficient, solid operating and financial performance.

Over to you, Steve.

Steve Laut

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 very strong quarter and that performance is reflected in stoning results or outstanding results in four key indicators, production, operating costs, capital costs and feel cash flow.

Production was up 10% over Q2 2009 and 6% over the first quarter of 2010. With oil production up 21% over Q2 2009, and more importantly, 9% over Q1 2010 driving that overall volume growth. Canadian Natural continues to benefit from the decision to allocate capital towards the oil portion of our portfolio versus our GAAP portfolio.

Operating costs are down 13.55 on a BOE basis over Q2 2009 and 10% from Q1 2010. This is driven by significant decrease in conventional and thermal oil cost in Canada, down 17% year-to-date versus 2009, as well as the strong operating quarter in Horizon, with operating cost at 32.27 a barrel, near the low end of our guidance

Gas operating cost are also down slightly which in itself is a very impressive achievement as we choose to let gas production volumes decline in the slow priced environment. Capital spending is on track, and in fact we have lowered our capital spending guidance for 2010 by roughly 150 million dollars as we optimize capital spending and capture efficiencies on the Horizon capital program.

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