Canadian Natural Resources Limited (CNQ) Earnings Call Transcript & Summary

Good morning. We would like to welcome everyone to the Canadian Natural Resources Limited 2022 Budget Conference Call. Presentation slides for this conference call are available to view with the webcast and in PDF format at www.cnrl.com. 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, January 11, 2022, at 9:00 a.m. Mountain Time. I would now like to turn the meeting over to your host for today's call, Corey Bieber, Executive Advisor. Please go ahead, Mr. Bieber.

Thank you, operator, and good morning, everyone, and welcome to Canadian Natural's 2022 Budget Conference Call. To facilitate today's call, you'll find a copy of our presentation slides on our website, along with our announced 2022 budget. As noted in mid-December, release of the 2022 budget was deferred to today to properly incorporate the impacts and synergies of the Storm Resources acquisition, which closed on December 17, 2021. Before we kick off, I'd like to remind you of our forward-looking statements and our reporting disclosures. Of note, in our reporting disclosures is that everything will be in Canadian dollars, unless otherwise stated, and as well, we report our reserves and production before royalties. I would also suggest you review our comments on non-GAAP disclosures. The theme you should come away with today is that Canadian Natural is a different kind of oil and gas company. Our asset base is unique amongst our peer group, underpinned by long-life, low-decline assets and complemented by our conventional assets that allow significant flexibility, all of which can generate significant free cash flow. Beyond our robust asset base, there is a corporate strategy that focuses on generating real returns for shareholders and a driven management team and corporate culture that focuses on being effective and efficient. With all of the economic volatility and disruption experienced by industry in the last few years, Canadian Natural has outperformed peers and clearly demonstrated its robustness, sustainability and the strength of its business plan. For 2022 and beyond, we'll demonstrate why we are 1 of the few companies capable of delivering meaningful economic growth, increasing returns to shareholders and managing debt in a responsible manner. For today's call, Tim Mckay, our President, will first recap our strategy, competitive advantages and commitment to ESG goals. He'll then provide greater detail to our 2022 capital budget and operational outlook. Mark Stainthorpe, our Chief Financial Officer, will then provide an update on our 2022 financial outlook as well as our strong financial position. Tim will then provide a summary prior to opening for questions. So with that, I will turn over to you, Tim.

Good morning everyone. Canadian Natural has a proven effective strategy. And as a result, sustainable free cash flow through all the commodity cycles, ensuring we can deliver to our shareholders. Canadian Natural strategy includes flexible and effective capital allocation and our ability to be nimble to capital opportunities. Our strategy is simply to optimize capital allocation to maximize value for our shareholders while ensuring we are maintaining a strong balance sheet. We have a defined growth and value-enhancement plan for every product and base in we operate in. This is driven by our effective and efficient operations, our area knowledge, ownership and operatorship of infrastructure. We have a history of capital discipline, operational excellence and we have robust long-life, low-decline assets. And low-maintenance capital relative to most of our peers and ability to grow production, all which results in more long-term value for our shareholders. Opportunistic acquisitions have always been a part of our strategy, however, we have no gaps in our portfolio. And acquisitions need to make sense and add long-term value. We have a culture of continuous improvement leveraging technology and innovation throughout the company, which gives us leading environmental, social and governance results. It is for these reasons, Canadian Natural has a leading free cash flow profile. I'll now talk to the advantage of our assets. Slide 7. Canadian Natural assets are unique and that we have low maintenance capital and low operating costs. Volatile pricing has little impact on our NPV as we have a low breakeven, large reserves, making our free cash flow robust and sustainable. We can grow our production cost effectively during periods of price certainty. And during low price periods, we can manage capital spending and it has little impact on the company's production as well in a low year pricing due to the short reserve life of unconventional producers, they will sell a central portion of their reserves at low prices. Unlike the oil sands, a small percentage of our long-life reserves are produced in low-price years. Slide 8. For example, in 2020, low price cycle, WTI averaged approximately $39 per barrel. With our low operating costs and maintenance capital, our ability to manage capital spending, we generated leading free cash flow. We had 6% production growth, maintained our debt levels and increased our dividend 13%, while many of our peers cut their dividend. Clearly, a Canadian Natural advantage versus our peers. As we move into 2021, Slide 9, WTI prices improved to approximately USD 68 per barrel. With our low maintenance capital, operating costs and a disciplined capital production capital profile, we grew our production 6%, quickly implemented our free cash flow policy as we were generating significant free cash flow and reduced our year-end debt to under $15 billion. Returns to shareholders was significant. Dividend increased 38%, share repurchases of $1.6 billion. Canadian Natural advantages that are effective and efficient operations, high-quality land and long-life low-decline assets delivers to our shareholders in all the cycles. Slide 10, Canadian Natural has a balanced and diverse product mix with approximately 61% that is high-value crude oil, SCO and NGL on a BOE basis, limiting our exposure to 1 product. For liquids production, approximately 78% is from long-life, low-decline assets, which are sustainable through volatile prices as they require less maintenance capital. As well, we have approximately 2 Bcf of natural gas production or 26% of our BOEs, which is well positioned to capture more value. Canadian Natural's 1P reserves, Slide 11, are 1 of the highest among our peers, showing the strength and depth of our assets with approximately a 30-year reserve life index, of which 61% represents long-life, no-decline SCO reserves, that have a lower execution risk and no differential risk. Slide 12. As a result of our unique asset base, Canadian Natural corporate decline is low at approximately 10%. And approximately 58% of our production being long-life, low-decline or 0 decline production, requiring less maintenance capital to maintain production. Slide 13. As you can see on this chart, we have 1 of the lowest maintenance capital, giving us an advantage over many peers. Moving to Slide 14. Our area knowledge, extensive operated known infrastructure and teams that are driven to deliver top-tier effective and efficient operations give us margin growth opportunities. They are focused on production optimization, technology and innovation as well as using our economies of scale to deliver effective and efficient operations. Canadian -- Slide 15, Canadian Natural takes a long-term view on ESG. We are continuously improving our performance each and every year. Our GHG intensity has decreased 18% and methane emissions reduced 28% from 2016 levels. We are 1 of the largest owners of carbon capture and storage. We have expertise in multiple projects in our portfolio, Horizon, Quest and NWR. As well in 2020, we achieved 4 of our environmental goals in GHG intensity, methane, freshwater intensity reductions in both thermal and oil sands mining. Moving to Slide 16. Last year, we introduced new targets for our company. As we work to reduce our methane emissions by 50% by 2030, from our 2016 baseline. As well, further reduced freshwater intensity by 40% in both thermal and oil sands mining operations by 2026 from our 2017 baseline. On Slide 17, on a corporate basis, since 2012, we have continued to drive our GHG intensity down an impressive 32%, equivalent to removing 1.9 million cars off the road annually. In a Rystad report, Slide 18, a third-party reviewed oil sands emissions and determine that for Scope 1 emissions, Canadian Natural was 35% lower than our peer average. A good result for our company. However, we know we have to still continue to drive our CO2 intensity down. Canadian Natural is using state-of-the-art carbon reduction technologies and is a leader in carbon capture and sequestration in the oil and gas industry in the world. We have 3 major facilities capturing 2.7 million tonnes of CO2 per year, equivalent to taking 576,000 cars off the road annually. Slide 20, getting to net zero takes the ability to leverage technology, be innovative, using Canadian ingenuity as well as having defined actions today and in the mid to long term. Canadian Natural has a huge technology funnel that with just a few of these activities listed here as we progress our journey to net zero. Slide 21. In June of 2021, a group of Canadian oil sands producers representing 95% of the oil sands production from new oil sands pathway to net zero. This initiative targets a number of pathways to reduce GHG emissions in the oil sands, with 1 of the main items being a CO2 trunk line, connecting various facilities and sequestering CO2 in the Cold Lake area and this represents a huge opportunity to reduce emissions in the oil sands. Slide 22. Canadian Natural is ensuring we identify, assess, quantify and align ourselves and execute to reduce our environmental footprint. And the Canadian oil sands is delivering industry-level performance across the board, a significant factor in our long-term sustainability. If you look overall ESG performance in terms of investment priority, it is very clear that Canadian Natural -- that Canada is a world leader and scores the highest in every category and should be an investment priority. I'll now talk to our 2022 budget, Slide 24. Canadian Natural has a long history of successfully balancing our 4 pillars of capital allocation with a focus on maximizing shareholder value. Our 4 pillars are balance sheet strength, returns to shareholders, resource value growth and opportunistic acquisitions. Our ability to generate significant and sustainable free cash flow ensures a strengthening balance sheet and sustainable returns to shareholders. We are prudent and disciplined in our allocation to resource development while maintaining flexibility to adjust when necessary. We have a strong track record of effective and efficient operations and low maintenance capital. Finally, opportunist as positions have always been a part of our strategy, however we had no gaps in our portfolio. And as a result, any acquisition must add value to our shareholders. Balancing the 4 pillars with the focus on value creation maximizes long-term shareholder value. For 2022, we have a base capital of $3.6 billion that is targeted to deliver approximately a 5% year-over-year BOE production growth for approximately 60,000 BOEs per day, with strong production volume growth in both the conventional and natural gas and conventional liquids production. Additionally, we've allocated approximately $700 million of capital for strategic growth, targeting future growth in thermal and oil sands area. In our oil sands, thermal and mining, we are essentially flat year-over-year, as there are 2 major oil sands mining turnarounds, which will impact the year by approximately 35,000 barrels a day. Slide 26. Our base capital for the conventional E&P is approximately $1.8 billion, which consists of a balanced drilling program throughout 2022, which targets to continuously use the same rigs and ensure we can execute at an effective and efficient drilling program. This program gives us strong capital efficiencies in heavy oil and light oil of approximately $10,000 per BOE/d and natural gas efficiencies of approximately $6,000 per BOE/d, yielding 12% growth in the conventional base business and an exit target of approximately 605,000 BOEs per day. Slide 27, in the thermal area, we targeted capital of approximately $725 million, of which more than half or $385 million is targeted for strategic future growth activities at Primrose, Kirby and Jackfish, which we target first oil in mid-2023. Once again, we target to use the same rigs throughout 2022 and finish this program in the spring of 2023, ensuring we can execute these drilling programs cost effectively. Capital efficiencies of approximately $10,000 per BOE/d per Primrose and for our SAGD pads and Kirby and Jackfish or approximately $8,000 per BOE. As well at Kirby North, we are progressing a commercial-scale solvent SAGD pad with first injection in early 2024. On Slide 28, in the oil sands mining, 2 plant turnarounds are targeting -- targeted in 2022. At Horizon, a 32-day shutdown, similar to previous years. And at Scotford ASOP, a 65-day turnaround is targeted at the start in March as we're able to defer turnaround activity from 2021. This primarily impacts the second quarter. And for the year, the combined impact is approximately 35,000 barrels a day. In 2022, strategic growth capital of approximately $350 million has been allocated primarily to Horizon for advancing the reliability enhancement project, which targets to extend the turnaround cycle from 1 per year to once every 2 years, adding more incremental high-margin barrels at Horizon. Slide 29. Our 2022 conventional drilling program consists of 54 natural gas wells, 116 -- 161 heavy oil wells, primarily consisting of our successful multilateral wells, and 29 light oil wells. For thermal, 102 wells will be drilled across Primrose, the 2 Kirbys and Jackfish, focused on ensuring a cost-effective program in all areas. Slide 30. As you've seen, we have a disciplined capital program of approximately $3.6 billion in allocation for short-term projects, providing the highest return on capital. As well, we've allocated approximately $700 million for strategic future growth opportunities that compressed projects and add value and production in 2023 and beyond. This capital budget provides for significant free cash flow, allowing for further strengthening of the balance sheet and continued sustainable returns to shareholders. We target to continue our effective efficient operations in 2022 and maintain the cost detection efficiencies achieved in 2021. Therefore, maximizing economic returns, free cash flow, consistent on how Canadian Natural drives long-term share value. I will now turn it over to Mark for a review of our financial strength.

Thanks, Tim. Good morning, everyone, and Happy New Year. I'll now talk to our strong financial position, Canadian Natural's significant free cash flow generation, our increasing returns to shareholders and target further debt reduction. I'll start on Slide 32. It's important to recognize how our committed and dedicated teams with a strong track record of execution, along with the company's assets and strategy, have delivered a long-term track record for shareholder value and how they support a strong financial position. In 2021, we continued to deliver with significant net debt reduction to approximately $14 billion outstanding at the end of the year, representing a $7.3 billion reduction from 2021 opening net debt levels. We also implemented a free cash flow allocation policy that clearly demonstrates a commitment to increasing returns to shareholders and further balance sheet strength. In 2021, the dividend was increased twice, representing a combined 38% increase and share repurchases were accelerated. Our assets are unique. They deliver significant free cash flow through the cycle and provide an advantage for driving long-term shareholder value. On Slide 33, you can see how Canadian Natural delivers through the cycle. The sustainability of the free cash flow generation allows for leading increases to shareholder returns through a sustainable and increasing dividend even in periods of lower commodity prices. This is a differentiating factor compared to global peers. Canadian Natural has delivered 22 years of consecutive dividend increases, representing a 20% compound annual growth rate since inception in 2001. Slide 34 is a 10-year compound growth rate of dividends against the global peer group, showing that Canadian Natural has delivered leading long-term sustainable dividend growth. The sustainability of our free cash flow is industry-leading and so is the magnitude, as can be seen on Slide 35. Canadian Natural has the highest forecast free cash flow yield among global peers, an indicator of the strength of our long-life, low-decline assets, our effective and efficient operations, and low maintenance capital requirements. Moving to Slide 36. Canadian Natural is focused on value creation over the long term, and we have been successful by balancing our 4 pillars: balance sheet strength, returns to shareholders, resource value growth, and although we have no gaps in our portfolio, capturing opportunistic acquisitions. With the significant targeted free cash flow generation in 2022, we will continue to apply disciplined balance across our pillars. Slide 37 shows our free cash flow allocation policy as discussed at our Q3 earnings release in November 2021. Since achieving net debt levels in 2021 below $15 billion with the year-end 2021 forecast at approximately $14 billion, in 2022, we will target to allocate 50% of free cash flow to share repurchases and 50% of free cash flow to the balance sheet strategic growth acquisitions, all as defined in our free cash flow allocation policy. On Slide 38, you see the significant impact of cash returns to shareholders as a result of the free cash flow policy and the current dividend. The graph shows that over a 2-year period, the estimated returns to shareholders over $10 billion via dividend and share repurchases, representing 16% of the company's market cap with further upside given strong commodity prices and continued effective and efficient operations. The ability to return cash to shareholders through share repurchases, the long-life, low-decline nature of our assets with disciplined capital allocation leads to an impressive per-share production growth target in 2022 as seen on Slide 39. This is another indication of the advantage of our assets with low decline, low maintenance capital and the sustainable free cash flow generated through the cycle with a target 8% compound rate since 2019. Slide 40 further illustrates the sustainability of the increasing returns to shareholders with 22 years of consecutive dividend increases, representing a 20% compound rate. The slide also shows the impressive incremental targeted returns through share repurchases in 2021 and 2022, given our free cash flow generation with significant upside torque to commodity prices. The free cash flow allocation policy also ensures a continued focus on a strong financial position, as seen on Slide 41, with 50% of free cash flow being allocated to the balance sheet. And with net debt below $15 billion, a modest allocation strategic growth capital opportunities in 2022. These estimates show our debt levels reaching below 1x cash flow and approximately 25% debt to book capital. Very strong metrics that support strong investment-grade credit ratings. In summary, on Slide 42, Canadian Natural's financial position is solid and is targeted to improve even further in 2022. We have a long track record of increasing shareholder returns and that is targeted to continue in 2022. We have maximum financial flexibility with significant liquidity and a purposeful maturity schedule that optimizes financial management and allows for absolute debt repayment. We are in an envious position as a result of the nature of our long-life, low-decline assets with embedded low maintenance capital requirements, our effective and efficient operations and a strong track record of execution. All factors that continue to differentiate us from our peers. These contribute to significant free cash flow generation that supports a disciplined balance between our 4 pillars, including increasing returns to shareholders and further financial strength, all with the goal of providing long-term shareholder value. With that, I'll turn it back to you, Tim, for some summary comments.

Thank you, Mark. Slide 44. In 2022, we will be disciplined with our capital, always ensuring we are adding long-term value for our shareholders. We're targeting base capital of approximately $3.6 billion is targeted to deliver approximately 5% production growth or 11% on a per share basis based on a $70 WTI. Additionally, we have allocated approximately $700 million for strategic growth projects that will add production growth in 2023 and beyond. Canadian Natural is positioned to consistently deliver top-tier free cash flow. In summary, Canadian Natural has a proven effective strategy, and we are delivering in today's environment and will continue in the future. We have an inventory of economic growth projects embedded in our vast conventional and unconventional assets, thermal pad adds that can leverage off existing facilities as well as enhancements to oil sands mining and upgrading segments. Canadian Natural's ability to deliver significant free cash flow is driven by our effective and efficient operations, a high-quality assets that have low maintenance capital at approximately $3.5 billion and significant reserves. A culture of continuous improvement is unique among our peers as our teams are focused on delivering operational excellence across our asset base. We will continue to leverage technology and innovation and continue to reduce our environmental footprint. Few, if any of our peers, can be robust through all the cycles, show economic growth, have a sustainable growing dividend of [ 2020, '22 years ] increasing returns to shareholders and showed debt reduction. Canadian Natural is truly robust through all the cycles. That concludes our presentation. I'll now open the call for questions.

[Operator Instructions] Your first question comes from the line of Greg Pardy with RBC Capital Markets.

Maybe just a couple of quick ones for me. Tim, you mentioned that you plan to go to 1 -- or sorry, I guess, a turnaround every 2 years as opposed to every year of Horizon. I may have missed it, but when do you expect to be able to do that? Would that be in 2023 or later?

Really, you'll see the impact of that in 2024. So we're still doing some spending in 2023, but the real impact is 2024 and beyond.

Okay. Terrific. And maybe just a question for Mark is just around cash taxes. I think we've got a couple of billion dialed in. But just any thoughts around what your cash tax picture is going to look like this year?

Sure, Greg. Same answer, depends a lot on your forecast of commodity prices and things like that. I expect the cash tax to be relatively flat year-over-year 2021 to 2022.

Your next question comes from the line of Neil Mehta with Goldman Sachs.

Congrats on getting that leverage level lower here over the last couple of years, and it's allowed you to talk about capital returns. So that's my first question, which is Slide 37. I just want to clarify, when you're saying 50% of free cash flow after the dividend and that's on base CapEx is going to go to share repurchase. When we think about M&A and bolt-on M&A that you might do, that is not going to influence the base case, your share repurchase program. That would be out of the deleveraging profile, is that a fair assessment?

Neil, it's Mark. That is a fair assessment. That's right. The -- on that Slide 37, you can see on the left-hand side, that's less of the strategic growth capital and acquisition opportunity. So yes, you have it right.

And then to that point, in around share repurchases, are there any restrictions in your ability to execute the buyback via NCIB? Do you see a potential where you're going to need to tender for shares? Or can you do it all through normal course?

I don't see any issues at this point, all through normal course.

Okay. Very good. And then the follow-up is in the press release, you talked about longer-term capital -- strategic growth capital spending and what that means for production really in 2024, 2025, which I know is a long way away, but can you just talk about the out years and that the production growth that you guys are talking about in the deck. It looks like there's some thermal in situ production potentially being added. But give us a little more color on what those projects are? And is that what the spend this year is really translating into in a couple of years?

Yes. The spending on the thermal side really roles from this year into next year. And so it's a small 3-rig program, which we're doing sequentially throughout 2022, and they are really wind up, the rigs were done in the spring of 2023. So through our -- through this program, it's very methodical, very well thought out in that we will do the drilling sequentially. If we decide that we want to slow down the drilling activity, we can and the facilities and the completions of those wells will follow behind it. So really, that's all we have. That program ends in 2023. So really no decisions have been made past 2023.

And so what's the growth out there in '24 and '25?

That 27,000 and the 63,000 ] has -- is related to the production ramp-up at Horizon through the reliability project and then the thermal wells ramping up.

Your next question comes from Phil Gresh with JPMorgan.

First one, obviously, you highlighted the opportunities in thermal and oil sands. I was curious if you're thinking about any other organic opportunities more on the conventional side from a growth perspective or if you'd say, the main focus will be on thermal and oil sands?

No, I think my personal opinion is we have a really nice balance program. It's all about driving returns. And so this program, I feel very comfortable with it. We're essentially keeping anywhere from 12 to 14 rigs going throughout the year for not only the conventional but the thermal side. So I look at it, it will be more effective and cost-efficient to just keep those same rigs moving throughout the whole year. And that's what we're really trying to progress, Phil. It's not about trying to do too many activities and really inflate the price and lose efficiencies.

Right. Okay. And then my follow-up, just to clarify on the prior questions with respect to the thermal growth. Is any of that needed to offset the base declines? Or do you see that as all truly incremental growth relative to the 2022 all-in production guidance?

Yes, for the thermal and oil sands, that is actually increased above the 2022 basis. So that is truly incremental to the base production of 2022.

Your next question comes from Manav Gupta with Credit Suisse.

I just wanted to pick a little bit of your brain on the overall crude oil macro. We have IEA out there saying 2022 global oil markets could be oversupplied to the order of 1.5 million or 2 million, something we don't agree with. You're obviously looking to grow your volumes and put in some growth capital. So I'm assuming you also don't fully agree with their assessment that global oil markets will be oversupplied in the near term. So if you could talk a little bit about the crude oil macro as you see folding out to the next couple of years at least?

Yes, it's always difficult to say if it will be oversupplied because obviously, it's a big hinge on the demand side, really works on the slide side, issues. But from a macro perspective, we believe there is, in general, an underinvestment in commodities and general energy. And as such, they're, in our mind, a pretty stable pricing. Now what that pricing could be in 2022 and beyond is always difficult to say. But the way we structured our program is we can slow down activities if we feel that it's not -- it's the right thing to do. So it's always difficult to say because a big portion of it is what is the demand side, which has been quite volatile over the last few years, but the latest numbers I've seen is that demand is pretty close to pre-COVID numbers. So hopefully that helps you.

Absolutely. And the second quick follow-up here is, you always have a very informative view on apportionments, differential outlook. If you could talk a little bit about what you see possibly for the next 6 to 12 months on both apportionments and what you think both light and heavy Canadian differentials could look like?

Sure. On the apportionment, I mean, it's really quite a fiction number in my mind because there's many -- as we've talked about in the past, many factors going into that. But if you look at it structurally, in November, we were close to 40 million barrels. Today, I believe we're down under 32 million barrels in storage in Alberta, and we've had the apportionment. So I look at it as being very favorable for egress. The differentials are, I believe, around $12 to $13, which is basically 16%, roughly 16%. So I look at it as very favorable for the next 12 months, both on the egress side and on the pricing side for differentials.

Your next question comes from Dennis Fong with CIBC Capital Markets.

The first 1 is just related to Horizon as well as the advancing of the reliability enhancement projects. Can you describe a little bit of what that necessarily entails and how that potentially differs from some of the previously -- in previous budgets, you mentioned either debottlenecking or production optimization projects that you had outlined. Are they the same? Are they different? Or is it kind of a blend of the 2? I know in a previous conversation, you kind of outlined that, that optimization was being reworked. So I'm just wondering if a -- this is kind of that new plan with respect to Horizon?

Yes. That's exactly what it is, Dennis. Obviously, through the past couple of years, we've been continuing to work that opportunity to see what needs to be done, where we should be focusing our capital in terms of getting that increased reliability. So it is actually a blend of what we've learned over the last few years and what the engineers have come up with has creative ideas to get that reliability up and get that incremental high-margin barrels. So yes, it's just -- there are continuous focus on what needs to happen to increase our reliability. And that same work is also happening, obviously, at ASOP. As you've seen, our volumes have been creeping up over the last year or there too as well.

Great. And then just a quick follow-up on that item. You've obviously talked about the production potential add, but can you maybe speak to maybe some of the high-level expectations around cost savings? Obviously, adding barrels to either of these 2 facilities and extending the time between turnarounds has significant both capital as well as operating cost savings. Can you outline a little bit of your expectations around some of these, obviously, growth capital opportunities outside of, obviously, just the production adds, which are obviously helpful to the economics of these projects?

Sure. From a high-level point of view, just on the oil sands mining, the highest risk you have is when you have to take your facility down and then bring it back up. That is always -- from an operational point, always the issue. And as you can appreciate, when you take things down, the equipment changes, you find things that break. And as well, at the same time, when you bring it up, you also find issues with various components. So the best and most operational efficient thing to do is keep the facilities running, keep them running smoothly and safely. And so from that perspective, I look at it as cost savings. If you look at from a turnaround risk point of view, these are very large turnarounds and obviously, with a lot of people. And as you've seen last year, with a lot of people on site, it's very difficult to be very effective and efficient every -- all the way through. So we see cost savings on the turnarounds. Obviously, cost -- these incremental barrels are high margin because you're not -- your operating fixed costs are the same every day. So I just look at it as a really huge opportunity in terms of both on the capital side and on the operational side.

Great. One last question, if you wouldn't mind indulging me, is just on the thermal in situ side. I know in -- again, in a previous presentation, I believe it was last year's budget, you talked about a potential capacity or throughput capacity at Primrose of close to 140,000 barrels a day. That's quite a significantly larger number than the numbers or the production levels that you're posting kind of in Q3 of '21. I'm just curious as to how much of the long term or mid- to long-term growth in the thermal projects is being targeted towards Primrose in terms of, I guess, the 49,000 barrel a day in 2025 strategic growth opportunity?

Yes. The Primrose is actually a small portion of this whole growth. Really, at Primrose, it's really 1 pad, I believe. And really, what we're working on there is actually that solvent enhancement program, so -- which we started here in October. And that is where we're focused as you're aware around, Primrose has higher GHG emissions relative to the SAGD. So we're really focused on the solvent piece to reduce our GHG input there.

Your next question comes from Menno Hulshof with TD Securities.

Just to follow up on Phil's question earlier, would you be able to better define the gas growth profile beyond 2022? Should we be thinking about low single-digit growth or something closer to a flat profile? And how much of a consideration is based in egress for gas through first LNG exports, which I'm assuming would be in the 2025 time frame?

It's always very difficult to outguess the market ahead of that. From just a macro perspective, we've always kind of said that between 0% and 5% growth on a BOE basis for the company. But whether it's gas or liquids, I mean we're really focused on the value and the value that we can create at that time within the context of the market. So it's always difficult to say what gas prices are in the future. To me, it still has to compete on a product basis with the oil side. So it's very difficult to speculate at this time.

Okay. And maybe I'll just follow up with a quick question on the current status of your operations here in Alberta. How much of an impact has the extreme cold had and omicron for that matter? And I'm just asking because it looks like industry supply has come off a little of late.

Yes. From a COVID piece, we're, in my opinion, very well positioned. We're 1 of the few companies that came in with the mandatory vaccination in December for all our people and vendors. And so we've been operating very well. And obviously, if people -- we have a very rigorous testing program for our sites. So that part has been going very well. With the extreme cold temperatures like most industry, we have seen the impact on our natural gas side, primarily the mature areas where there are lower volumes with the freeze offs. But the teams are making progress on that. And with the warmer weather here coming in, I'm positive things will be back to normal here by -- within the week. So -- but yes, it has impacted the natural gas side, but primarily it's the low-volume mature assets.

Your next question comes from Harry Mateer with Barclays.

Mark, I've got a follow-up question for you on Slide 41. I guess, first, is that targeted net debt reduction of $8.5 billion from end of '20 to end of '22 really a target? Or is that really just the math you're running through your free cash flow calculation at $70 being applied to the cash balance and the balance sheet? And then related to that, I know you've got a CAD 1 billion maturity next month. Is the plan at this point in time just to pay that down and then have additional capacity to reissue later if you need it? Or would you expect to refinance that since you are below your net debt target?

Yes, that's an estimate that's running the math that kind of goes through the $70 case to get to those levels. So it's just an estimate, not a target. And as far as the $1 billion maturity in February, right now, the plan would be that we have the free cash flow to handle it. As you know, we continually look at our maturity profile and manage it properly. But right now, the plan would be free cash flow.

Your next question comes from the line of Doug Leggate with Bank of America.

This is David Fernandez calling in for Doug today. I had a couple of questions. If I can start off just on the volume outlook. It appears that for 2022 volumes -- headline volumes are kind of in line with 4Q '21, if you adjust for the downtime and you adjust for the acquisition of Storm, which would then imply that maintenance CapEx to be closer to that $3.6 billion number. Clearly, there's like timing going on. And obviously, the downtime has costs associated with it. But can you generally speak to how your breakeven is trending? I think last year, you had talked about $30 to $31 WTI.

David, it's Mark. I think the ultimate question there was just around breakeven price, and you're right, the $30 to $31. And remember, that's a maintenance capital and dividend breakeven, so it covers our dividend. Our dividend has obviously increased year-over-year 38%, as we mentioned. So that breakeven is slightly higher, but still in that neighborhood.

Okay. So there's nothing to read into the -- kind of like the volume outlook for 2022 in terms of potentially creeping maintenance CapEx, like that means CapEx number is still relatively around that $3 billion number?

So the finance CapEx is $3.5 billion. Obviously, we're a larger company, and we've accounted for some cost inflation. Obviously, steel, labor, they have escalated since a year ago. So we've accounted for those 2 factors.

Okay. Excellent. And my last question, just kind of in terms of like the long-term capital structure, can you speak to how you plan on managing between deleveraging and allocating capital to growth like longer term, now that you're past like that $15 billion debt target? I guess my question is just kind of on why not take debt lower sooner as opposed to spending on growth? Is there like a target -- capital -- long-term capital structure that you have in mind that kind of constraints or frames kind of how you think about the deleveraging pace?

Yes. I think the best way to think about it is you look at the balanced approach, right? The ability to sort of be able to do all the pillars we talk about, where we have production growth, but at the same time, increasing returns to shareholders and driving debt down further. So you can kind of think of it as a balanced approach going forward. We think that's the best way to generate long-term shareholder value. Right now, that free cash flow allocation policy, as you know, has that 50-50 allocation to share repurchase and debt repayment. So that's the balance there that's driving improvements in both of those.

Your final question comes from Roger Read with Wells Fargo.

A question just on how to treat royalties within the oil sands operations. Prices have finally gotten a little more reasonable, which I'm sure is part of the effect on royalties, but it's been a long time since we've seen prices at these levels. And I didn't -- when I look back historically, royalties have been lower than what we saw in either the second or the third quarter. So I was just curious, what's the right way to think about what's affecting the royalties as a percentage of sales and how we should think about that, call it, a cost that drag on performance in oil sands as we go forward? Is it tied to price? Or is it tied to a cost recovery factor or to something else as we think about using the strip or using our own price tax as to what the impact could be?

Yes. Roger, it's Mark. I'll -- for the specifics around the modeling, I'll defer to IR. But you're right, there's a pre- and post payout scenarios within the oil sands, so you have a payout period. The 1 change for Canadian Natural 2022 is Horizon is paying out currently forecasted somewhere in Q2. So yes, you do have the impacts of pre versus post payout that impacts your modeling, but I'll defer to IR to get into the specifics with you.

And at this time, we'll turn the conference to the speakers for any closing remarks.

Yes. Thank you, operator. That wraps up our conference call for today. And I would like to thank those of you who joined us on the webcast. As always, if you do have any questions, please don't hesitate to give our teams a call. Thank you, and have a great day.

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