Canadian Natural Resources Limited (NYSE:CNQ) Q4 2023 Earnings Call Transcript

Canadian Natural Resources Limited (NYSE:CNQ) Q4 2023 Earnings Call Transcript February 29, 2024

Canadian Natural Resources Limited beats earnings expectations. Reported EPS is $2.34, expectations were $1.59. CNQ isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning. We would like to welcome everyone to the Canadian Natural Resources 2023 Fourth Quarter and Year-End Earnings Conference Call and Webcast. After the presentation, we will conduct a question-and-answer session. Instructions will be given at that time. Please note that this call is being recorded today, February 29, 2024 at 09:00 AM Mountain Time. I would now like to turn the meeting over to your host for today’s call, Lance Casson, Manager of Investor Relations. Please go ahead.

Lance Casson: Thank you, operator. Good morning, everyone, and thank you for joining Canadian Natural’s fourth quarter and annual 2023 earnings conference call. As always, before we begin, I’d like to remind you of our forward-looking statements and it should be noted that in our reporting disclosures, everything is in Canadian dollars, unless otherwise stated, and we report our reserves and production before royalties. Additionally, I would suggest you review our comments on non-GAAP disclosures in our financial statements. Speaking on today’s call with me today are Tim McKay, Vice Chairman; Scott Stauth, President; Robin Zabek, Chief Operating Officer, Conventional E&P; and Mark Stainthorpe, our Chief Financial Officer. Tim will first speak to how our strategy and execution has resulted in strong corporate results.

Scott will deliver specifics on our record production and additional details on our safe, reliable and world class operations. Next, Robin will provide highlights of our growing high value reserves. And then Mark will summarize our strong financial results including increasing shareholder returns as we reached an important net debt milestone. To close, Scott will summarize prior to open up the line for questions. With that, I’ll turn it over to you, Tim.

Tim McKay : Thank you, Lance. Good morning, everyone. Canadian Natural has a proven effective strategy and as a result in 2023, we delivered on our capital allocation strategy. We strengthened our balance sheet, we provided significant returns to shareholders, as well, we were strategic in developing our assets, achieving record annual production as well as growing our reserves organically on a both total proven and total proven plus probable basis with reserve replacement ratios of 166% and 194%, respectively. The strong execution in ’23 sets us up to continue to deliver on our capital allocation strategy through our disciplined ’24 capital budget of approximately $5.4 Billion. This budget is strategically weighted to longer cycle thermal development in the first half of 2024 and shorter growth in the second half of the year, targeting strong exit production levels.

As well it provides us with the flexibility to adjust to changing market egress and evolving market conditions, ensuring we are allocating capital effectively and maximizing value for our shareholders. Canadian Natural is committed to supporting Canada’s and Alberta’s climate goals and we continue to reduce our environmental footprint with our robust environmental targets, including net zero GHG emissions in the oil sands by 2050. We are uniquely positioned with a diverse, long life low decline assets which are ideal to apply technologies, to reduce GHG emissions and provide industry leading environmental performance. We believe, it’s important to continue to work together with the Canadian and the Alberta governments to make the Pathways Alliance a transformative industry collaboration and achieve meaningful GHG reductions in Canada.

We believe Canadian energy is one of the most responsibly produced sources of energy in the world and should be the preferred energy choice. I’ll now turn it over to Scott for a detailed review.

Scott Stauth: Thank you, Tim, and good morning, everyone. 2023 was a solid year for us with strong execution in our operations and record production levels across our diverse product mix generated significant free cash flow resulting in strong shareholder returns through our sustainable and growing dividend and significant share repurchases. We achieved record annual production of approximately 1.33 million BOEs per day, which included both record liquids production of 973,500 barrels per day and record total natural gas production of approximately 2.15 Bcf per day as a result of effective and efficient operations across all assets. Strong production in the second half of the year mitigated the impact of wildfires and unplanned pipeline outage and natural field declines as annual production is up 4% from 2022 levels or up 7% on a production per share basis.

I will now run through our asset highlights, starting with our robust natural gas assets. We had strong execution, including achieving record North American natural gas production averaging approximately 2.14 Bcf in 2023. And while this is up 3% on an annual basis from 2022, the increase on a Q4-to-Q4 basis is over 100 million Mcf per day. Operating costs in our natural gas averaged $1.27 per Mcf in 2023, which is up 7% from 2022, primarily as a result of higher service costs. We continue to focus on cost control and effective and efficient operations to offset cost pressures. North American light oil and NGL production averaged over 109,000 barrels per day in 2023 comparable to 2022 levels. Operating costs on our North American light crude oil and NGLs operations averaged $16.28 per barrel in 2023, an increase of 2% over 2022 levels reflecting higher service costs.

Our light oil, NGL and natural gas production was impacted by wildfires and a third-party pipeline outage in the early part of the year, which partially offset the growth from our capital-efficient drill-to-fill strategy on our liquids-rich Montney and Deep Basin assets. Primary heavy oil production of approximately 77,700 barrels per day in 2023, which is up 15% from 2022, reflecting strong results from our multilateral heavy oil wells in both the Mannville and Clearwater fairways. Primary heavy oil operating costs averaged $19.85 a barrel in 2023, which is down 9% from 2022 levels, primarily reflecting lower energy costs. Our Pelican Lake production averaged just over 46,000 barrels per day in 2023, which is down 5% from 2022, reflecting the long-life, low-decline nature of this world-class polymer flood asset.

Our operating cost at Pelican Lake remained strong, averaging $8.58 per barrel in 2023. In our thermal operations, we achieved record thermal in situ production in 2023, averaging 262,000 barrels per day, an increase of 4% from 2022. Thermal production also finished the year strong, averaging approximately 278,000 barrels per day in Q4. The growth in our thermal production was driven by strong execution on our thermal development plan, including capital accretion pad additions in Primrose and Kirby that came on production in 2023, partially offset by natural field declines. 2023 operating cost averaged $13.17 per barrel, which is down 20% compared to 2022, primarily on lower energy costs. At Primrose, we are drilling two cyclic steam pads this year, which are targeted to come on in production in Q2 2025.

We are also drilling a SAGD pad at Wolf Lake, which is targeted to come on production in Q1 of 2025. At Kirby, two of the four previously drilled SAGD pads have now reached their full production capacities with the two remaining pads targeted to ramp up the full production capacity in mid-2024. At Jackfish, two SAGD pads that were drilled in 2023 are targeted to ramp up to their full production capacities in Q3 and Q4 of this year, supporting continued high utilization rates at the Jackfish facilities. We are targeting to drill an additional SAGD pad in Jackfish in the second half of this year with production from this pad targeted to come on production in Q3 of 2025. We also have a commercial scale solvent SAGD pad development in Kirby North, which is approximately 80% complete now, and we are targeting to begin solid injection mid-2024.

We continue to use solvent enhanced oil recovery pilot in the steam flood area at Primos to optimize solvent efficiency and to further evaluate the commercial development opportunity. We have planned turnarounds in Jackfish and Kirby in the second quarter, which are targeted to impact Q2 2024 production by approximately 17,100 barrels per day, which is included in our production guidance disclosed with our 2024 capital budget. In our Oil Sands mining operations, we achieved strong results in 2023 at a world-class oil sands mining and upgrading assets, getting new production, annual record production levels with SCO production averaging approximately 451,000 barrels per day in 2023 and just over 500,000 barrels per day in Q4. We’ve been able to achieve these strong record production levels as we focus on continuous improvement and increase overall reliability through safe, reliable and effective and efficient operations.

Operating costs in oil sands mining and upgrading assets are top tier and averaged $24.32 in 2023, which is down 7% from 2022, primarily reflecting higher production volumes and lower energy costs. As previously noted in our 2024 budget, at Horizon, we have a turnaround planned in Q2 2024 with a full plant outage targeted for approximately 30 days. The estimated impact to Q2 quarterly average production is approximately 89,000 barrels per day and remains unchanged from budget. We will be completing the remainder of the tie-ins on reliability enhancement project during the planned turnaround at Horizon in Q2 of this year. This project will allow us to skip a turnaround in 2025, as we shift the downtime related to the maintenance activities once every two years instead of once every year.

So in 2025, we are targeting increased capacity by approximately 28,000 barrels per day or approximately 14,000 barrels per day on a 2-year average basis of incremental high-value SCO production. At AOSP, we have two turnarounds this year at the non-operated Scotford upgrader. The upgrader will operate at reduced rates. The first turnaround was originally targeted for 10 days in April 2024, but it has now been moved into March. Some additional scope has been added which will extend the duration of this maintenance period to 17 days, but there’s no change to the estimated production impact of approximately 10,000 barrels per day as production rates are targeted to run higher with the addition — the scope additions compared to the original targeted 10-day production rate.

This change will now shift the production impact into Q1 ’24 instead of Q2. The second turnaround at the Scotford Upgrader is targeted to begin in September 2024 and progress for a duration of 49 days, no change from what was previously announced with our budget. Total combined annual impact from production from the turnarounds at Scotford and AOSP will remain unchanged in the budget at approximately 12,400 barrels per day. We also have a debottlenecking project at the Scotford Upgrader, which is planned to be completed during the Q4 2024 turnaround and is targeted to add incremental capacity of approximately 5,600 barrels per day net to Canadian Natural. Beyond this, as previously announced with our 2024 budget, we have the Naphtha recovery unit tailings treatment project, which is targeted to add approximately 6,300 barrels per day of SCO in late 2027.

This project also provides environmental benefits, including a 6% reduction in Horizon’s Scope 1 emissions and lower reclamation costs over the life of the Horizon project. Now, I will turn it over to Robin to speak to our year-end reserves.

Robin Zabek: Thank you, Scott, and good morning, everyone. As in previous years, 100% of Canadian Natural reserves are externally evaluated and reviewed by independent, qualified reserve evaluators. Our 2023 reserves disclosure is presented in accordance with Canadian reporting requirements, using forecast prices and escalated costs on a before royalties company working interest basis. As you just heard from Scott, Canadian Natural had another strong year, which is also demonstrated by the company’s reserves. For 2023, total proved reserves increased by 2% to 13.9 billion BOE, of which 8.8 billion BOE are proved developed producing reserves. Total proved plus probable reserves increased by 3% to 18.5 billion BOE. The strength and depth of Canadian Natural’s assets are a competitive advantage which is evidenced by our reserve’s life.

Notably, approximately 75% of total proved reserves are from long life, low decline assets with approximately 50% of total proved reserves consisting of high-value synthetic crude oil with a zero decline and a reserve late index of 44 years. As a result of Canadian Natural’s unique world-class assets, our corporate total proved reserve life index is 32 years, and our total proved plus probable reserve life index is 43 years. In 2023, the strength of Canadian Natural’s assets and results also continue to be reflected in the key indicators of finding and development costs and reserve replacement. Corporate finding, development and acquisition costs, including changes in future development costs are $9.25 per BOE for total proved reserves and $8.28 per BOE for total proved plus probable reserves.

Additionally, as Tim noted, in 2023, Canadian Natural replaced production by 166% on a total proved basis and 194% on a total proved plus probable basis. The net present value of future net revenue before income tax using a 10% discount rate and including the full company asset retirement obligation is approximately $154 billion for total crude reserves and approximately $186 billion for total proved plus probable reserves. In summary, our 2023 reserves reflect the strength and depth of Canadian Natural’s assets, the value of the company’s long life low decline reserves and our proven ability to execute. I will now hand over to Mark for the financial highlights.

Mark Stainthorpe: Thanks, Robin, and good morning, everyone. The fourth quarter of 2023 was a strong financial quarter as we generated adjusted funds flow of $4.4 billion and adjusted net earnings of operations of $2.5 billion. The fourth quarter contributed to what was a very strong year in 2023 with impressive results as we achieved record production, disciplined capital allocation and robust financial results. For example, in 2023, we grew our production by 7% per share, grew our 2P reserves by 7% per share, paid just under 5% in dividend yield, purchased $3.3 billion in shares under our NCIB program and reached $10 billion in net debt earlier than originally targeted. This shifts our free cash flow allocation to now target 100% of free cash flow in 2024 being returned to shareholders in the form of dividends and share buybacks.

These results are driven by safe, effective and efficient operations and a unique asset base to deliver significant free cash flow. Subsequent to quarter end, the Board of Directors has approved a 5% increase to our base quarterly dividend to $1.05 per common share, demonstrating the confidence the Board has in the sustainability of our business model, our strong balance sheet, and the strength of our diverse long-life, low-decline reserves and asset base. We have increased our dividend for 24 consecutive years, with a compound annual growth rate of 21% over that time. Additionally, the Board has approved, subject to shareholder and regulatory approval at our May annual meeting, a proposal to split the company’s shares on a 2-for-1 basis. Our financial position is very strong with debt-to-EBITDA at 0.6x at the end of 2023, and we continue to maintain strong liquidity.

Including revolving bank facilities, cash and short-term investments, liquidity at the end of 2023 was approximately $6.9 billion. With our disciplined 2024 capital budget, low maintenance capital requirements and a long-life, low-decline asset base, we target to deliver strong returns on capital with robust free cash flow while continuing to provide significant returns to shareholders in 2024. With that, I’ll turn it over to you, Scott, for some final comments.

Scott Stauth: Thanks, Mark. In closing, 2023 was a strong year for Canadian Natural, both operationally and financially, providing significant returns to our shareholders. We will continue to focus on safe, reliable operations as well as enhancing our top-tier operations, and we will continue to drive top-tier environmental performance. I would also like to say a special thank you to Tim McKay for all his outstanding service and leadership at Canadian Natural, and in his new role as Vice Chairman, Tim will continue to support the management team. As you all know, Canadian Natural has a history of a well-established leadership succession plan that ensures we are maintaining our culture and delivering top-tier performance. With that, I will turn it over for questions.

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Q&A Session

Operator: [Operator Instructions] Your first question is from Doug Leggate from Bank of America.

Doug Leggate: Impressive by any measure, but I wonder if I could just poke a little bit on the capital budget. So $5.4 billion for the year. Obviously, that comes with growth, not only for this year but also for 2025. If I had to try and strip that back to growth versus sustaining capital, what would that look like?

Mark Stainthorpe: Doug, it’s Mark here. On a base capital or maintenance capital to growth capital, we’re probably running in the neighborhood of that $1 billion of growth capital. But it varies because of the nature of the asset base, right? Because what you’re doing is, for example, in 2024, we’re drilling some of the longer life asset earlier in the year, so we’re doing the thermal production here, and we’re doing the conventional type lower capital exposure opportunities later in the year, and that’s really to match up with that egress opportunity. So year-over-year, it’s going to change what you think of or how you classify, I guess, growth capital on that basis because we are doing growth capital in thermal, for example, but you don’t see some of that production until next year.

Doug Leggate: That’s very clear, Mark. I guess my follow-up is kind of a related question, and it really goes to that issue of egress. I mean there’s a lot of things obviously going on in Canada. TMX is perhaps front of mind. But there’s also Canada LNG down the road, and you’ve got 7% exit growth this year on gas in your plan. So my question is, is there any — I mean, would you anticipate any flex in the growth plan, specifically as it relates to gas in the second half of the year, given where AECO is trading? I’m just curious if there’s a risk of the CapEx budget ends up being lighter with lower gas production growth for 2024.

Scott Stauth: Yes, it’s a good question. I think that’s the great part about the robust nature of our assets. And so for us, we’re able to — as we move forward here throughout the year, continue to monitor the pricing and of course, we will allocate our capital to those areas that are going to provide us the best returns. So we have our heavy oil properties, yes, we have our gas properties, but we’re just going to continue to want the prices as we go forward, and we’ll react accordingly. But to your point, the LNG Canada project should bring some relief to the AECO system, and that’s what we’re thinking of as well.

Operator: Your next question is from Greg Pardy from RBC Capital Markets.

Greg Pardy: Yes. And I guess a big congrats to Tim, and thanks so much for the support over the years. So looking forward to your role as Vice Chairman. There are not a lot of questions to ask, I think, with results like this, but one that might come up is just with your operating performance hasn’t looked like thus far in the first quarter and there were one or two questions in terms of that cold snap we had, I think, back in January as to whether there was any impact on the business or by and large things are as expected?

Scott Stauth: Thanks, Greg. It’s Scott here. So yes, you’re right. In no extreme cold weather stretches like what we saw in January. There’s always short-term challenges in our conventional and oil sands mining assets. Generally, in this case, they’re short-lived, and the teams did a great job of managing through them. So no material impact.

Greg Pardy: Okay. Great. That was the question — that was the answer I was looking for. And maybe a question for Mark. With respect to the shareholder returns or the framework you have now, given that you effectively flipped over Jan first, and I believe I think you mentioned your buybacks are circa $350 million or so up until about now, hopefully, I’ve got that number right. Can we sort of expect a catch up in March? And to what extent might variable dividends kind of come into the mix? And because typically, you guys aren’t super — you don’t — you adhere to your plan, but you’re not super rigid. So I’m just trying to better understand that.

Mark Stainthorpe: Yes, Greg, good question. Let me try and explain how we’re thinking about this. So when we look at where we are today, of course, we’re now at the net debt of $10 billion, which means 100% of free cash flow to shareholders through dividends and share buybacks. So we have our base dividend that was just increased by the Board this quarter here. But what we’re doing here is we’re looking at this on an annual forward-looking basis. It’s not going to be a quarter-to-quarter basis. The reason for that is to make sure you’re managing working capital on those things. So what’s going to happen is debt may fluctuate around the $10 billion on a quarter-to-quarter basis, but we’re looking at this on a forward-looking annual basis to make sure we’re managing those outcomes properly.

So you will see, like you saw in 2023, changes in how much buyback is happening at each quarter, but the plan is to manage that forward-looking on what that free cash flow looks like. And then on the special dividend, I mean, I think today, the lever is the buyback program. We see lots of value there still. And after the current base dividend, that’s currently the plan. And then go forward, we’ll always look at other opportunities with the Board going forward on returns to shareholders.

Operator: Your next question is from Neil Mehta from Goldman Sachs.

Neil Mehta : Congrats, Tim, and congrats, Scott, on new responsibilities. My first question is on Horizon. You got pretty decent debottlenecking plan by 2025 and then also some at AOSP. So just would love your perspective on how that’s tracking and remind us what you’re looking to get out of both of those projects.

Scott Stauth: Sure. So it’s Scott here. And as you mentioned, the Horizon debottleneck project is nearing its end. We have one more installation to do tie-in in the — during the turnaround in Q2, and that will essentially wrap up that project. Results from that will allow us to go towards a non-turnaround year in 2025 and then a turnaround year in 2026. And so year-after-year, that how to look at turnaround every second year. I also talked earlier about the naphtha tailings project. So that had 6,300 barrels a day of SCO after 2027. And that’s in the early stages. And you guys will hear more from that as we go on and get towards near completion of that project. At Scotford, talked about the debottleneck project that will take place during — it will finish during the turnaround later on this year at Scotford. And so that will be adding 5,600 barrels per day net to Canadian Natural. And so those are the assets, and that’s the details on that production.

Neil Mehta: That’s helpful, Scott. And then just a follow-up, I just love your perspective on the macro. We’ve seen a lot of volatility in Syncrude prices and WCS prices, hopefully, things start to get better seasonally and also when TMX comes online. So maybe you can talk about your thoughts on the timing of TMX and how you think about both light and heavy crude diffs as we work our way through the year?

Scott Stauth: Yes, you bet. And so as we go forward here with TMX, we understand the timing of completion of the project and start up in Q2 of this year. And so you will see that help you alleviate the differentials on WCS also helped that see the SCO premium goes towards — back towards more of a premium than it’s been in the past few months. So both those products will benefit from TMX coming online.

Operator: Your next question is from Menno Hulshof from TD Cowen.

Menno Hulshof: I’ll start with a question on your thermal drilling program, which you talked about being front-end loaded. And just looking at your latest guidance, you point to most of those pads coming online in the first three quarters of 2025. Can you give us a sense of what the production ramp could look like for the middle of 2025? And maybe more specifically, could you give us a sense of what the production growth rate could look like on an exit 2025 over exit 2024 basis?

Scott Stauth: Yes, good question. I don’t have the exact profile of whatever will look like in 2025 on the thermal pads, but we had based on our discussions on the 2024 budget, we had looked at 2025 over 2024 at about 4%.

Menno Hulshof: Terrific. And then maybe I’ll just follow up with a sort of a refresher question on the inflationary outlook. I think it seems to me like everything is largely moderated. But are you seeing anything noteworthy as you look across the various line items within the cost structure? And do you still think that something in the range of 3% to 5% is still a reasonable expectation for this year?

Scott Stauth: Yes. I think largely the increases that we saw in the past have stabilized on a go-forward basis. And I believe we said this on the last call that we would expect 2024 to resemble mostly labor increases looking like in that 3% to 5% range. So you’re bang on.

Operator: Your next question is from Patrick O’Rourke from ATB Capital Markets.

Patrick O’Rourke: I guess you’ve covered a lot of ground here. But my first question is really with respect to the primary heavy oil results, which have been very, very impressive to date. And just wondering if you can speak to the potential scope of those assets and where it could go to? And then I wonder about potential with gas prices, you talked a little bit about flexibility here. But is this a specific asset where if gas prices remain low, you do have the flexibility to sort of increase the capital allocation?

Scott Stauth: Good question, Patrick. And yes, you’re bang on. It is an area where we can focus our capital allocation on. As you know and have seen, multilateral drilling programs have proven to be very effective. We have a very large land base in our primary heavy oil lands and multiple zones as well. So we’re able to really look at adding potential drilling in those areas, again, if gas prices are not favorable, as we originally planned, I could see us increasing potentially our multilateral primary heavy oil drilling program.

Patrick O’Rourke : Okay. And just a follow-up and sort of on the other side on the gas side of the equation because drills has become very topical. It’s been on a number of your peers’ conference calls recently. Just wondering because I would suspect that drill conditions would primarily impact the potential to operate in your Montney assets, how things sit today and sort of what the scope of your water reservoirs are relative to your ’24 program?

Scott Stauth: Yes. Good question. I think we’re in a pretty good shape overall here. We continue to monitor river levels, draw levels and all our access to water. Our teams are continually monitoring that and being prepared. But as it stands currently, our program not affected at this point. We’ll just continue to monitor it as it goes along throughout the year here.

Operator: Your next question is from John Royall from JPMorgan.

John Royall : So my first question is a bit hypothetical, and forgive me for that. But I’m just trying to understand how should we think about the framework on return of capital and the goalposts around capital returns going forward now that you’d hit the 100% level. And so let’s just say you did an acquisition and your net debt went above $10 billion as a result. Would you dial back to the 50% tier and keep your framework in place? Or was the framework sort of the thing of the past and you’re at 100% and it was just kind of a means to getting you there? Just trying to understand if this framework is more long-term or just kind of how you got to that 100%?

Mark Stainthorpe: Yes. I mean, well, looking back, we got to the 100%. When we looked at the net debt level of $10 billion was quite conservative when you think about the size of our company, the nature of the assets, the long-life reserves, the low-decline, low maintenance capital. So to us, it’s quite a conservative debt level. But coming out of 2020 and those years, it was prudent to make sure we had a strong, strong balance sheet. So that’s where we’ve got to now and the 100% makes sense to us. Of course, we’ve had the base dividend increasing, and that’s part of that returns to shareholders, and we’ve had three increases over the last year, over 20% returns there or additional returns there. So that gives us that opportunity.

And back to your question, if something more material is to happen, I don’t like speculating on those things. But if you have an acquisition that comes with cash flow and it comes with all those different things, we’d have to evaluate that. But for today, we’ve hit our $10 billion. We’re focused on the 100% returns to shareholders through dividends and share repurchases. And it’s a pretty big milestone, and it’s been — the reason for it has been a very strong, safe, reliable operations over the last couple of years.

John Royall: Got it. And then my follow-up is just on OpEx in mining. 4Q was the lowest level, I think, in two years in both per barrel terms but also in dollar millions. Can you talk about the OpEx side? Are gas prices a factor? Or is there some other kind of sustainability to these lower numbers? I know you’re doing a lot of work to extend the turnaround cycle and that’s the general focus, but I’m just trying to understand if there are kind of structural OpEx dollars that have come out there.

Scott Stauth: Yes. As you know, on oil sands mining, the costs are largely fixed. The variables will be in natural gas and diesel pricing. But they’re largely fixed. So as you have, obviously, as you have higher production levels, the cost remains about the same. So your cost per dollar will be lower as you have the higher volumes.

John Royall: Yes. The question was on the absolute dollar millions went down, but I think you answered it on the gas and diesel.

Operator: Your next question is from Mike Dunn from Stifel.

Michael Dunn: Just one question from me guys on Trans Mountain. You’ve got 94,000 barrels a day committed capacity once that starts up. Are you able to use some or even all that capacity for light crudes? I know the assumption has been that you would use it for heavy crudes, but I’m just wondering about your flexibility with that capacity.

Scott Stauth: Yes. You bet, Mike. So really with TMX, we’ll be looking to maximize the value of those committed barrels. So whether that’s through some of our light volumes or heavy volumes, we’re just looking at the opportunities to maximize — give us the best value back there. So it could be a mixture of both. And I wouldn’t lean for it to be all one way or the other way. So we’re just going to look at — our teams are reviewing what the best opportunities are and planning from there.

Operator: [Operator Instructions] Your next question is from Dennis Fong from CIBC.

Dennis Fong: My first one here is just related to the buybacks. I just wanted to hopefully understand a little bit better in terms of how you judge the return of buying back share of stock versus that of kind of investing in your own asset base? I understand the desire to remain strategic and disciplined on capital deployment. And I know you just updated or provided kind of 1P net asset value from a third-party evaluated at $139.07 a share. So how do you balance the return of — or the allocation of capital between buybacks and reinvestment in the asset base?

Mark Stainthorpe: Dennis, it’s Mark. When we look at reinvesting in our asset base versus the returns to shareholders, it is kind of what you said. It’s a little bit of looking at the balance. We want to make sure we have a prudent capital program that can deliver growth in a prudent stage, but we also want to provide that on a per share basis. And we’ve historically, been very — in my view, very good at that capital allocation and being prudent and making sure it’s delivering value, not just production growth. So we’re really looking at value growth. So it’s a matter of balancing what is efficient in any one year from a capital program perspective. What the advantage for Canadian Natural, of course, is the diversity of the asset base.

So as Scott talked a little bit about, we’ve got a lot of opportunity, no gaps in the portfolio. So it’s all right there to allocate. It’s just a matter of driving the best value in that year. And given where we are today, that’s going to leave a lot of free cash flow in the year. And we have now the ability to balance that between our dividend that’s been ever increasing and now share buyback program where we see a lot of value still for some of the reasons you mentioned.

Dennis Fong: Great. I appreciate that context. Switching gears for my second question is really focusing on Kirby and the continuation of the solvent project there. Can you discuss a little bit about the applicability to some of your other in situ assets in the region? And maybe how you think about it with respect to, I know kind of early stage, but the development of Pike as well?

Scott Stauth: Yes, you bet you, Dennis. So from solvent opportunity perspective, essentially what you’re doing is reducing your steam requirements by about half. So as you look and we go through this project, and we see the results that we’re expecting. And again, we’re going to monitor that, and it’s just going to be starting up in terms of the solvent injection in Q2 here. But we’ll monitor as we go forward. But it gives us, if it’s successful, like we believe it will be, then it gives us success in — or gives us the opportunity in the Jackfish and Kirby areas to continue with more pad development and not necessarily having to increase the capital to build more steam facilities. So the advantage there is lower overall capital and better capital efficiency for drilled fill opportunities.

Dennis Fong: Great. So maybe the thought process behind that then is that could be leveraged to showcase additional growth or redeploy this team to other regions within that project or those specific projects?

Scott Stauth: That’s right, yes.

Operator: Thank you. There are no further questions at this time. I will now hand the call back to Lance Casson for the closing remarks.

Lance Casson: Thank you, operator, and thanks, everyone, for joining us this morning. If you have any follow-up questions, please give us a call. Thanks, and have a great day.

Operator: Thank you. Ladies and gentlemen, the conference has ended. Thank you all for joining. You may all disconnect.