Canadian Natural Resources Limited 2026 Q2 Earnings Call

Good morning, everyone, and thank you for joining Canadian Natural's 2026 second quarter results conference call. Before we begin, I'd like to remind you of our forward-looking statements. It should be noted that in our reporting disclosures, everything is in Canadian dollars unless otherwise stated, and we report reserves and production before royalties. Also, I would suggest you review the advisory section in our financial statements that include comments on non-GAAP disclosures. Speaking on today's call will be Scott Stauth, our President, and Victor Darel, our Chief Financial Officer. As usual, also in the room with us this morning is Robin Zabek, CEO of E&P, Jay Froc, CEO of Oil Sands, and Ron Laing, Chief Commercial Officer. Scott will begin by going through our numerous operational records and leading operating costs as our teams continue to execute in the quarter.

Victor will then go through our strong financial results, significant returns to shareholders, and material net debt reduction. To close, Scott will summarize prior to opening up the line for questions. With that, over to you, Scott.

Thank you, Lance, and good morning, everyone. Q2 2026 was a very strong quarter, reflecting our continued focus on operational excellence, capital efficiency, and continuous improvement, which drove eight new operational and financial records across our asset base. An example of this performance was achieved in our world-class oil sands mining and upgrading operations, where we experienced challenging weather elements like other oil sands operations. However, our teams successfully managed those challenges, allowing the company to not only exceed our budget, but we also achieved the highest quarterly production in the company's history, averaging approximately 625,000 barrels per day Q2 with high upgrader utilization of 106%.

Oil sands mining and upgrading production in the quarter represents an increase of approximately 161,000 barrels per day or 35% compared to Q2 2025 levels, reflecting strong operational performance, the additional working interest in the AOSP mines acquired in Q4 of 2025, and the turnaround at AOSP completed last year. These world-class assets provide high-value synthetic crude oil, which captured robust pricing in Q2 with the SCO premium to WTI averaging $8.37 per barrel in the quarter. When combined with industry-leading low operating cost of CAD 22.19 per barrel, resulted in the highest oil sands mining and upgrading per-barrel net back ever achieved by the company during the quarter at approximately CAD 78 per barrel. Cash flow generation from our oil sands mining and upgrading assets was significant, and operations delivered strong results.

In addition to record oil sands mining and upgrading production, we also achieved record quarterly total corporate production of approximately 1,677,000 BOEs per day in Q2, resulting in year-over-year growth of approximately 256,000 BOEs per day or 18% from Q2 2025 levels. Other Q2 2026 production records include record total liquids production of approximately 1,249,000 barrels per day, an increase of 230,000 barrels per day or 23% from Q2 2025 levels. Importantly, two-thirds of our total liquids production in Q2 is high-value SCO, light crude oil, and NGLs, generating significant cash flow. We also achieved record North American conventional E&P liquids production of approximately 338,000 barrels per day, representing an increase of 67,000 barrels per day or 25% from Q2 2025 levels. Included in this record, North American light crude oil and NGLs production of approximately 205,000 barrels per day.

This production is up approximately 64,000 barrels per day or 45% from Q2 2025, primarily reflecting accretive acquisitions and strong drilling results. Thermal in-situ production was strong as well, with record production at Jackfish of approximately 136,000 barrels per day, exceeding our facility namesake capacity of 120,000 barrels per day. Strong production at Jackfish was supported by the two new SAG D pads at Pike 1, which are currently averaging approximately 46,000 barrels per day with an SOR of 1.8. The resource at Pike is top-tier, with results continuing to exceed our expectations. In addition to production records achieved this quarter, we also set some record financial results, including adjusted net earnings and adjusted funds flow, with which Victor will provide more details on later in the call.

Our financial results include the benefit from our material sulfur production as we produce approximately 30% of Canada's sulfur supply, which generated significant net revenue of approximately CAD 450 million in the first two quarters of this year. With record production and strong performance across our asset base, along with an accretive acquisition completed in Q2, we are increasing our annual production guidance range for the second time this year. Annual production is now targeted to be between 1.637 million BOEs per day and 1.682 million BOEs per day, a 20,000 BOE per day increase at the midpoint from the previous guidance range. We remain focused on executing our prudent and efficient 2026 capital program as our operating capital remains unchanged at approximately CAD 6 billion before net acquisition cost.

Our ability to effectively allocate capital across our large and diverse asset base provides us with a unique competitive advantage, and when combined with accretive acquisitions, continues to create significant long-term value for our shareholders. With that, I will pass it over to Victor for our Q2 financial review.

Thank you, good morning, everyone. As Scott already noted, the second quarter was marked by impressive performance with the company setting a number of quarterly records. Adjusted net earnings of CAD 4.6 billion or CAD 2.20 per share, adjusted funds flow of CAD 6.9 billion or approximately CAD 3.30 per share were the strongest in the history of the company and reflected excellent operational performance and the strong pricing we received for our products in the quarter. The Peace River area acquisitions were completed in the first and second quarters and are already well integrated into our operations and are contributing meaningfully to our already strong returns.

Robust cash flow generation continues to provide significant returns to shareholders, totaling approximately CAD 4 billion in the second quarter, including direct returns of CAD 2.4 billion, comprised of CAD 1.3 billion in dividends and CAD 1.1 billion in share repurchases, indirect returns of CAD 1.6 billion through net debt reduction in the quarter, further enhancing long-term shareholder value. Total direct returns to shareholders for the year to date now exceed CAD 5.7 billion. The significant level of returns and net debt reduction, even when completing an accretive acquisition in the quarter, is a clear demonstration of the cash-generating capability of our diverse, long life, low-decline asset base, supported by industry-leading cost performance across our operations. Our leading dividend continues with the board approving a quarterly dividend of CAD 0.525 per common share.

Following the dividend increase earlier this year, 2026 is the 26th consecutive year of dividend increases and reflects the sustainability of our business model, the strength of our balance sheet, and the durability of our asset base. The dividend is payable on October 2nd, 2026, to shareholders of record at the close of business on September 11th, 2026. Our share buyback program, which currently targets to return 75% of free cash flow and is calculated as funds flow after dividends, capital, abandonment expenditures, continues to be very strong. The program is forward-looking with the strong pricing environment, continues to be robust. Our capital expenditure program is disciplined, balanced and effective, the balance sheet is ever stronger.

Liquidity is equally strong, with approximately CAD 8 billion of availability supported by internally generated cash flow and undrawn credit facilities, and providing us with ongoing financial flexibility to drive resource value growth and deliver on strategic growth opportunities as demonstrated by the accretive acquisitions this year. Overall, the record results achieved in the second quarter further demonstrate the quality of our assets and the strength of our execution. Combined with a strong balance sheet and a disciplined approach to capital allocation, we remain well-positioned to continue delivering meaningful value to our shareholders. With that, Scott, I will turn it back to you.

Thanks, Victor. In summary, our relentless focus on continuous improvement combined with effective and efficient operations from our world-class assets has driven strong performance, low operating cost, high netbacks, and significant free cash flow generation so far in 2026. Our ability to effectively allocate capital across our strong asset base provides us with a competitive advantage. This ability, combined with shareholder alignment and accretive acquisitions, creates significant long-term value for our shareholders. Before I turn it over for questions, I wanted to comment on the recent trilateral MoU between the Oil Sands Alliance, Government of Alberta, and the federal government. The trilateral MoU outlines a potential regulatory and fiscal framework intended to support long-term competitiveness of Canada's energy industry and establishes a positive first step for future economic production growth in Canada when associated with additional egress opportunities and a clear pathway to reduce greenhouse gas emissions.