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

Hello and welcome to the Annual and Special Meeting of Shareholders of Canadian Natural Resources Limited. Please note that today's meeting is being recorded. [Operator Instructions] It is now my pleasure to turn today's meeting over to Mr. Murray Edwards, Executive Chairman of Canadian Natural. Mr. Edwards, the floor is yours.

Thank you, Carter. Given the appointed time has arrived, we'll commence the meeting. Good afternoon, ladies and gentlemen, and welcome to the Annual and Special Meeting of the Shareholders of Canadian Natural Resources. It says here, my name is Murray Edwards, in case I didn't know that in my script, but I am, and I'm the Chairman of the corporation. And on behalf of Canadian Natural, we wish to thank you for attending this meeting. Due to the challenge, change in travel and gathering restricts implement as a result of the COVID-19 pandemic, we are again holding this year's annual and special meeting of shareholders in a virtual format. However, we do hope that next year, we'll be able to return to meetings in person, which we'll have an opportunity to meet many of our long-term shareholders and staff and talk about the future opportunities of the corporation. In fact, just today, we had our first in-person Board meeting in over 2 years, and our directors who are across North America returned to Calgary for an in-person meeting and had an opportunity to get a strategic review last night by our conventional natural gas part of the business, and I know that most of the directors were quite positive by the fact of being able to return to in-person meetings. Pursuant to the bylaws of the corporation, I shall act as Chairman of this meeting. The purpose of this meeting is the routine annual business of the corporation, which is the receipt of the annual report of Canadian Natural containing the consolidated financial statements and the report of the auditors thereon; second, the election of directors of Canadian Natural; and third, the appointment of auditors. In addition, the shareholders will be asked for 2 other matters: first, to consider resolution reapproving the stock option plan of the corporation; and second, the shareholders will be asked to consider, on an advisory basis, a resolution on the corporation's approach to executive compensation. Participation at the meeting is the right reserved solely for registered shareholders of Canadian Natural or their designated proxy holder. A number of people who are not shareholders of Canadian Natural have also joined the meeting online. You are welcome as guests of the meeting to follow the proceedings, but only registered shareholders or their designated proxy holders should ask questions on matters and should raise them at the appropriate time. As this meeting is being held virtually via live webcast, we think it is necessary to set out a few rules for the ordinary conduct of the meeting. One, questions in respect to the motion can be submitted by any registered shareholder or duly appointed proxy holder using the instant messaging service of the virtual interface. Please note, there will be a slight delay in the publication of the communication received. Second, when asking a question, please indicate your name, which entity you represent, if any, and confirm that you are a registered shareholder or duly appointed proxy holder. Three, for the purpose of meeting today, voting on all matters will be conducted by electronic ballot. Registered shareholders and their duly appointed proxy holders will be asked to vote on each business item. And finally, four, when you're able to vote, you will receive a message on the virtual interface requesting you to register your votes. This will be only gained for registered shareholders and their duly appointed proxy holder. When you receive that message, you only have a certain amount of time to do so once the poll is closed. With those 4 instructions, we'll now proceed with today's meeting. To expedite the formal part of the meeting, we will present all motions as moved. First, I shall ask Mr. Paul Mendes, Vice President of Legal, General Counsel and Corporate Secretary of the Corporation, to act as Secretary of the meeting, and Computershare Trust Company of Canada, through its representatives, to act as scrutineers to compute the votes taken at this meeting and to report thereon. The notice calling this meeting of shareholders, together with the form of proxy, management information circular and the audited consolidated finance statements for the corporation, were mailed to the shareholders, the directors and the auditors of the corporation. A formal declaration as to such mailing has been provided by Computershare as the corporation's transfer agent. The Secretary has been instructed to attach the declaration of the mailing to the minutes of this meeting. For this meeting, quorum, as set out in the bylaws of the corporation, is shareholders present in person or by proxy, representing not less than 5% of the common shares of the corporation [ that then ] outstanding. We are advised that there is a quorum present, and we propose, therefore, to proceed with the formal business of the meeting. As such, we now declare this Annual and Special Meeting of the Shareholders of Canadian Natural Resources Limited be readily convened and properly constituted for the transaction of business. We will now open the polls. As we mentioned, voting today will be conducted by electronic ballot. The ballots are now open. At this point, all registered holders or their duly appointed proxy holders who have previously logged in with their control numbers or user name and wish to vote will be able to see on the screen all motions being brought forward at this meeting. The first matter of business is the approval of the minutes of the corporation last annual meeting, which was held virtually on May 6, 2021. And as there are no matters arising from the last Annual Meeting of Shareholders and there has been no intervening meetings, I suggest we take the minutes of the last meeting as read and approved. The next item is the presentation of the corporation's consolidated financial statements and management and audit report for the year ended December 31, 2021. All of these have been made available to the shareholders, and unless there is an objection, we will dispense with reading of the management report, the consolidated financial statements and the auditor's report. In addition, Ms. Alisa Sorochan, who is a partner of the chartered accounting firm, PricewaterhouseCoopers, our auditors, and as the managing partner on our file, is on the line and has agreed to respond to any questions in regard to the auditor. If there are any questions regarding the firm or for Alisa, please submit your questions now using the instant message function. So we're just checking to see if any questions come in. No questions. Thank you. As there are no questions, we will now proceed with the next item of business. The next item of business is the election of orders -- the election of directors. It is now -- in order to proceed with the election, pursuant to the Articles of the Corporation, the corporation must have a minimum of 3 directors and a maximum of 50 directors. It is proposed that a total of 12 individuals be elected as directors of the corporation at this meeting. The following 12 nominees of the corporation have agreed to stand for election. They are as follows: Catherine Best, Elizabeth Cannon, Dawn Farrell, Chris Fong, Gordon Giffin, Wilf Gobert, Steve Laut, Timothy S. McKay, Frank McKenna, David Tuer, Annette Verschuren and Murray Edwards. Are there any further nominations for directors? Paul, any other nominations?

No.

The Corporate Secretary has advised there are no further nomination. Therefore, I now declare the nomination closed. I am advised that based on the calculation of proxy received, each director nomination will be elected as a director by a majority of the votes cast to the meeting in favor of their election. As such, I now declare the following to be duly elected directors of the corporation to serve until the next annual met shareholders or until their respective successors have been duly elected or appointed. Those elected are as follows: Catherine Best, Elizabeth Cannon, Dawn Farrell, Chris Fong, Gordon Giffin, Wilf Gobert, Steve Laut, Tim McKay, Frank McKenna, David Tuer, Annette Verschuren and Murray Edwards. The next formal item of the business is the appointment of auditors and a resolution to authorize the Audit Committee of the board to fixed remuneration. We have been advised that based on the calculation of proxy received and the resolution regarding the appointment of auditors of the corporation and the authority of the Audit Committee to fixed remuneration will be approved. So they [ deemed ]that motion to be passed. Now we move to the final 2 items. Number one is the approval of unallocated stock options. This meeting has been asked to consider, and if thought advisable, pass, with or without amendment an ordinary resolution of the corporation, reapproving the stock option plan of the corporation and approving the grant of the unallocated stock options under the plan. When stock options are granted pursuant to the corporation's stock option plans, the common shares that are reserved, for instance, the outstanding stock options, are referred to as allocated common shares. The corporation has additional common shares that may be reserved, for instance, pursuant to future grant stock options plan. As they have not been subject to current stock option grants, they're referred to as unallocated stock options. On May 9, 2019, 3 years ago, the shareholders last approved an amendment of the stock option plan provide that the aggregate number of common shares reserved for issuance pursuant to all share-based compensation plans, including stock options, not on a [ growing ] basis, not exceed 7% of the issued and outstanding common shares of the corporation outstanding from time-to-time. As a result, there may be unallocated stock options reserved under the stock option plan from time-to-time. The rules of the Toronto Stock Exchange governing the corporation provide that as the stock option plan does not have a fixed maximum number of common shares issuable, a majority of the directors and shareholders must approve unallocated options every 3 years. As I mentioned previously at the corporation's Annual Meeting held on May 9, 2019, the appropriate approvals of the corporation's directors and stockholders were last obtained. I can also confirm that directors of the corporation have reapproved the new stock option plan and authorized the unallocated stock options contemplated hereunder. So now we're looking for shareholder's approval for the annual 3-year approval of the stock option plan. If there are any questions on that, please submit those questions using the instant messaging function. Any questions, Paul?

There are no question.

No question. Paul, thank you. As there are no questions, I'm advised from Computershare that based on the calculation of proxies received, the resolution regarding the approval and authorization of unallocated stock options pursuant to the stock option plan will be approved. The final vote on this meeting is the vote on executive compensation. And of this vote, we will have an advisory vote on the corporation's approach to executive compensation. Although this is an advisory vote only and not binding of the corporation, the results of the vote will be considered by the Compensation Committee of the Board of directors objectively determining its approach to executive compensation in the future. If you have any questions, again please use the instant message function to ask a question. Paul, any questions received?

There are no questions.

There are no questions received. This resolution on executive compensation is required to be passed by a simple majority of the votes cast at the meeting. We've been advised by Computershare that based on the calculation of proxies received, the resolution regarding the approach to [ exec ] will be approved by a majority just under 98% in favor and just over 2% opposed. At this point, I can announce that the resolution regarding advisory vote has been endorsed and passed by the shareholders with a substantial majority. Given that we have now have all formal parts of the meeting, I would ask that the scrutineers, Computershare, compile their report confirming the results of voting on all business matters conducted at this meeting, and these results will then be published on SEDAR and by a press release of the corporation. As there is no formal further business to be brought before the meeting, this concludes the formal part of the meeting. I now declare the meeting be terminated. Thank you. Now we will just, if any shareholders want to have any questions about the corporation, Tim McKay here, our President; and Mark Stainthorpe, our CFO, are sitting here, and will be able -- will be willing to consider -- answer any questions, if there are any, Paul. Paul?

There's -- just trying to read it.

Can we have a question here, Paul? Go ahead. Tim, is there any?

On the [ issuer bid ] yes [indiscernible]

Okay. So we have a question regarding the normal course issuer bid. As it points out to last year, we repurchased 33 million shares at an average cost of roughly $43 per share. And the question notes that given the current share price, that was a prudent investment of funds, but the question was a concern about that -- when you buy back shares, sometimes you can overpay for where the market comes and it would not be better to invest the money for share buyback into additional growth in the business or more dividends in which we return cash to shareholders. I guess, this is a discussion that's taken place at our Board on a regular basis. And our Board, which is just reelected today, stands very strong, very thorough, very knowledgeable independent directors, and they consider all aspects of how we deploy our capital. And I think that the one thing that I know the Board feels is paramount, and the most important thing is the long-term sustainability and maintenance of our base dividend payment. I think that was exhibited through 2020 when -- in May of 2020 through a very challenging time for the industry, the Board, after a robust discussion in the meeting, and we provided the Board with ample information and paper that showed that our dividend was sustainable at a price down to $30 [ well it's ex ] at the time, the Board, in their wisdom, agreed to maintain the dividend. They felt that was imperative. And so I think that, that is the first priority of where cash goes to, providing shareholders with a regular return. Then the corporation has, in terms of where it invests its additional money, it looks at all opportunities. Obviously, a portion of our funds have been invested into the business to keep the base business operational, what we call maintenance capital. We feel that our base maintenance capital is somewhere between $3.5 billion and $4 billion a year, which is required to maintain our facilities and keep our production flat. In addition, we do have growth projects. We -- this year, we have a defined cash flow policy in which half of our cash flow goes to balance sheet and is made available for growth as long as the debt is below $15 billion. Our current debt is about $13 billion. And so this year, we have a growth budget of $750 million, in which we're incurring a number of projects. On the oil sands side, it's going to give us growth of 63,000 barrels a day approximately by 2025. And then at the same time, the other half of our cash flow right now is going back to share buybacks. And given that we are -- right now that we, currently, we have a dividend yield of roughly just under 4% mark, just under 4%. Actually buying shares today, we can borrow funds today at sub 3%. Actually, it's accretive to our shareholders right now, buying back shares and not having to fund the dividend at 4% where we can fund in our balance sheet. So I think our Board, with the support of management, always feels that #1 thing is, one, maintenance of our existing base dividend and see that grow over time. I think we've got a compound growth rate mark over the last 20 years of 22%. So I think that growth dividend is clearly the most important part of our business. And we want to be able to continue to grow that in the foreseeable future. And then I think we want to have a balance between investment in maintenance capital, base capital, through investment in growth capital opportunities. But in both cases, we have to be very disciplined because the industry has had a track record of investing capital with sub-economic returns. I think, one thing, we've been always very diligent on our capital investment and have been able to provide our shareholders with fairly consistent attractive returns, and so we'll find some balance there. And then to the extent we have excess cash flow beyond that, we look at a combination of balance sheet debt reduction or some share buybacks. And I think the Board here, it feels that a balance of each of those approach, as Mark stated, our CFO, calls it the 4 legs of a stool in our investor deck, which is on our website, we see about the 4 pillars that we [ see ] and where we allocate our cash. So we think a balance is prudent, with the first imperative, the maintenance and growth of that base dividend. That was a good question, long answer. I apologize. Any other questions, Paul?

There are no further questions.

No further questions. Okay. We'll wait here for just a minute. Paul, here's a question here. What's the estimated forecast score in the Calgary Flames hockey game tonight? I'm not going to answer that one. I'm not objective. But both Mark and Tim are wearing Calgary Flames hats right now. So they're telling me we're in good shape. So with that, I will adjourn now the meeting. Thank everybody for your attendance and your support. And hopefully, we'll see you in person next year. Thank you very much. Bye-bye.

This concludes the meeting. You may now disconnect.