CNRL budget up by $250M with curtailment ease

Budget increase adds 60 drilling locations across Alberta and three more working drilling rigs, creating about 1,000 full-time jobs

Calgary-based energy giant Canadian Natural Resources Limited is increasing its capital expenditure to $4.05 billion in 2020, the company announced on Wednesday.

With the Alberta government’s recent announcement of the elimination of curtailment for some conventional drilling in Alberta, and its previously announced reduction in income tax rates, CNRL increased its 2020 capital budget by approximately $250 million over 2019 levels. It will add approximately 60 drilling locations across Alberta, and putting three additional drilling rigs to work. This move will create about 1,000 more full-time equivalent jobs for Albertans, said company president Tim McKay in a news release.

The $4.95 billion capital budget for next year will deliver targeted production of approximately 1,172,000 BOE/d, resulting in approximately nine per cent production per share growth in a curtailed environment. The extra capital will go to the highest return projects and progress projects that increase production and value in 2020 and beyond, said McKay. 

The 2020 volumes assume the Alberta government curtailment program will continue through the year, and as a result 2020 targeted production is 10,000 bbl/d to 25,000 bbl/d less than it would have been without the curtailment program.

“We will continue to manage within our curtailment optimization strategy and target to maintain capital flexibility by aligning production growth with improved market access. We are hopeful that the curtailment levels will be reduced or eliminated as we progress through 2020. Safe, reliable and low-cost operations continue to be a focus for the company as we capture synergies, increase margins and maximize value for our shareholders in 2020 and beyond.”

Steve Laut Executive Vice Chairman of Canadian Natural
Steve Laut
Executive Vice-Chairman of Canadian Natural

Steve Laut, executive vice-chairman of Canadian Natural, said the company’s ability to generate significant and sustainable free cash flow sets it apart from its peers.

“Our focus on capital discipline, as a part of our four pillars of capital allocation, operational excellence and leveraging our competitive advantages drives economic asset development, significant margin growth, and a strong balance sheet.”

Mark Stainthorpe, CNRL’s chief financial officer, said free cash flow in 2020 is targeted to be approximately $4.8 billion based on current strip WTI pricing and stable differentials relative to 2019.

“Based upon such pricing assumptions, according to Canadian Natural’s free cash flow allocation policy, the company targets to allocate, after current dividend requirements, approximately $2.4 billion to share repurchases and approximately $2.4 billion towards strengthening the balance sheet. As a result, the Company’s year end debt metrics are targeted to strengthen further throughout 2020 to approximately 1.6x debt to adjusted EBITDA and approximately 35 per cent debt to book capitalization at year-end. Our financial strength gives us the flexibility to deliver on our plan and continue to drive long-term shareholder value,” he said.

Mario Toneguzzi is a business reporter in Calgary.

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