Canadian Natural Resources Limited (NYSE:CNQ) Q4 2025 Earnings Call Transcript

Canadian Natural Resources Limited (NYSE:CNQ) Q4 2025 Earnings Call Transcript March 5, 2026

Operator: Good morning. We would like to welcome everyone to Canadian Natural’s 2025 Fourth Quarter and Year-End Earnings Conference Call and Webcast. [Operator Instructions] Please note that this call is being recorded today, March 5, 2026, at 9:00 a.m. Mountain Time. I’d now like to turn the conference over to your host for today’s call, Lance Casson, Manager of Investor Relations.

Lance Casson: Thank you, and good morning, everyone. Thank you for joining Canadian Natural’s 2025 Fourth Quarter and Year-end Results Conference Call. As always, 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. Also, I would suggest to review the advisory section in our financial statements that includes comments on non-GAAP disclosures. Speaking on today’s call will be Scott Stauth, our President; Robin Zabek, COO of E&P; and Victor Darel, our Chief Financial Officer. Additionally, in the room with us this morning is Jay Froc, COO of Oil Sands.

Scott will first run through our strategic updates and our strong operational performance that once again included numerous production records in the quarter and annually. Next, Robin will provide highlights of our growing high-value reserves that are significant when compared to other major oil and gas companies. And Victor will summarize our strong financial results and our significant return to shareholders in the year, along with details on the enhancement of our free cash flow allocation policy. To close, Scott will summarize prior to open up the line for questions. With that, over to you, Scott.

Scott Stauth: Thank you, Lance, and good morning, everyone. 2025 was the best operational year in the company’s long history of maximizing value for our shareholders. We set several new production records, lowered operating costs, and capital expenditures came in under our previous forecast. We grew our production organically as well as completed several accretive acquisitions. These include the Palliser Block assets, Southern Alberta, liquid-rich Montney assets in the Grande Prairie area, as well as increasing our ownership in the Albian mines 100% through an asset swap. We achieved record annual production of 1,571,000 BOEs per day in ’25, resulting in year-over-year growth of 15% or approximately 207,000 BOEs per day from 2024 levels.

We also showed continuous improvement in our safety record with our total recordable injury frequency at the lowest levels ever. Our teams continue to be focused on safe, steady applications with a goal of no harm to people and no safety incidents. Specific to some of the annual operating highlights, record annual total liquids production of approximately 1,146,000 barrels per day, an increase annual liquids production of 141,000 barrels per day or 14% from 2024 levels. 65% are our liquids production at SCO, light crude oil or NGLs. Strong total corporate liquids operating costs of $18.44 per barrel. Record Oil Sands mining and upgrading production of approximately 565,000 barrels per day of zero decline SCO with upgrader utilization of 100%, including the planned turnaround at AOSP.

Industry-leading Oil Sands mining and upgrading operating costs of $22.66 per barrel. Record thermal in-situ production of approximately 275,000 barrels per day of long life, low decline production and primary heavy crude oil production growth of approximately 88,000 barrels per day, which is 11% growth from 2024 levels. This reflects strong drilling results from our multilateral well program. Operating costs in our primary heavy crude oil operations averaged $16.68 per barrel in 2025, a decrease of 8% from 2024 levels, primarily reflecting lower operating costs from multilateral production. Record natural gas production of approximately 2.5 Bcf per day, an increase of 400 million per day or 19% from 2024 levels. In December, we received regulatory approval for our Pike 2 70,000 barrel per day SAGD Growth Project opportunity.

Shifting to our quarterly results. Q4 2025 was equally impressive with numerous records, including record quarterly production of approximately 1,659,000 BOEs per day. Record total liquids production of approximately 1,215,000 barrels per day, an increase of 125,000 barrels per day or 12% from Q4 2024 levels. Record Oil Sands mining and upgrading production of approximately 620,000 barrels per day of SCO with upgrader utilization of 105%. Industry-leading Oil Sands mining and upgrading operating costs of $21.84 per barrel. Within our thermal areas, production from the first Pike 1 pad came on production ahead of schedule in December. Current production from this pad exceeds our expectation at approximately 27,000 barrels per day with an SOR of approximately 1.8 xas we target to keep the production at the Jackfish facilities at full capacity.

Second Pike 1 pad will come on production in the second quarter. Canadian Natural’s reserves are significant when compared to other major oil companies, which support long-term growth opportunities. Year-end 2025 total proved reserves and total proved plus probable reserves increased by 4% and 3% respectively from year-end 2024 levels, another strong year of reserve replacement with very strong F&D costs. Robin will provide additional color on our year-end reserve shortly. Strong execution across our large, diverse asset base continues to provide significant opportunities to create shareholder value in 2026 and beyond. This is evident by our increased production, cash flow, and reserves achieved in 2025 through accretive acquisitions and organic growth, which gave the board of directors confidence in their approval of a quarterly dividend increase of 6.4% and the enhancement of our free cash flow allocation policy by adjusting our net debt targets, accelerating direct returns to shareholders.

Victor will explain in more detail in this finance section this morning. In addition, we completed a strategic acquisition in Q1 of ’26, and as a result, we are increasing the midpoint of our 2026 production guidance by 20,000 BOEs per day with a range of 1,615,000 BOEs per day to 1,665,000 BOEs per day, and we are reducing our ’26 capital, operating capital forecast by $310 million to approximately $6 billion. We continue to progress our defined short and medium-term growth strategy development in our conventional EMP assets. Our drill to fill pad additions and FEED capital on both the 70,000 barrel per day Pike 2 Greenfield project and the 30,000 barrel per day Jackfish Brownfield expansion project. As part of our long-term growth strategy, we are deferring FEED capital for the Oil Sands Jackpine Mine expansion opportunity at Albian that was included in our 2026 capital budget.

This approximately $8.25 billion project is being deferred due to lack of finalization of government regulatory policies around carbon pricing and methane, which creates uncertainty and economic burden for our long-term growth investment. Once there’s more certainty on improved regulatory policy, improved timelines, and additionally egress, we will reassess the economic viability of this project. Complementing the accretive and opportunistic acquisitions completed in 2025 and in Q1 of 2026, we have plenty of organic growth opportunities within our large, diverse asset base. We will leverage our portfolio of opportunities to continue creating long-term shareholder value while maintaining flexibility to manage the pace of these development opportunities and continue to maximize shareholder value.

Now I will turn it over to Robin to provide additional details on our year-end 2025 reserves.

Robin Zabek: Thank you, Scott. Good morning, everyone. I’ll start by reminding everyone that 100% of Canadian Natural’s reserves are externally evaluated and reviewed by independent qualified reserve evaluators. Our 2025 reserve disclosure is presented in accordance with Canadian reporting requirements using forecast pricing and escalated costs on a company working interest or royalties basis. As you just heard from Scott, 2025 was another very strong year for Canadian Natural, with that strength including the company’s reserves. For December 31st, 2025, total proved reserves are 15.9 billion BOE, representing a 4% increase compared to 2024. Total proved plus probable reserves increased 3% to 20.75 billion. Through a combination of organic growth and accretive acquisitions, Canadian Natural replaced 2025 production by 218% on a total proved basis and 212% on a total proved plus probable basis.

To put that in context, that’s more than 1.2 billion BOEs of reserves added in each of the proved and proved plus probable categories. As you heard from Scott, we’ve done that while achieving industry-leading finding, development, and acquisition costs. For 2025, our FD&A, including changes in future development cost, was $3.64 per BOE for total proved and $2.42 per BOE for total proved plus probable, underscoring the strength of our extensive diverse assets. Highlighting one of the attributes that differentiates Canadian Natural, approximately 73% of total proved reserves are from long life, low decline or zero decline assets, resulting in a total proved reserve life index of 31 years and a total proved plus probable RLI of 40 years. Notably, at year-end 2025, approximately 50% of the company’s total proved reserves are high-value SCO and mining bitumen reserves with zero decline and a total proved RLI of 39.

In summary, our 2025 reserves continue to reflect the strength and depth of Canadian Natural’s diverse asset base, the predictability of the company’s long life, low decline reserves, and our proven ability to create value through organic growth and accretive acquisitions. I will now hand over to Victor for the financial highlights.

Victor Darel: Thanks, Robin, and good morning. The fourth quarter full year 2025 results were excellent, with record operational performance, which also reflected the impact of the acquisitions we did in 2024 and 2025, and which contributed to similarly strong financial performance. The strong execution by our teams in 2025 has resulted in adjusted net earnings of $7.4 billion or $3.56, and adjusted funds flow for the year of $15.5 billion or $7.39. Quarterly performance was equally strong, with adjusted net earnings of $1.7 billion or $0.82 per share and adjusted funds flow of approximately $3.7 billion or $1.82. Net earnings of $5.3 billion this quarter or $2.55 per share was higher than the operational earnings related to the accounting for the AOSP asset swap, which resulted in a non-cash gain of approximately $3.8 billion after tax this quarter.

Following the asset swap, where we assumed the entirety of the interest and control of the AOSP mines, we accounted for the transaction in accordance with the relevant requirements and recognized an adjustment from the previous carrying value to its fair value in accordance with GAAP. In doing so, we demonstrated the significant value that has been created in those operations since the acquisition of the initial interest in AOSP in 2017. As Scott mentioned, the accretive acquisitions in late 2024 and throughout 2025, including the AOSP asset swap in November of this past year, have increased reserves, production and cash flow while contributing to net debt reduction of approximately $2.7 billion at year-end 2024, with net debt at approximately $16 billion at the year-end 2025.

In 2025, the company returned approximately $9 billion to our shareholders, including direct returns of approximately $4.9 billion in dividends, $1.4 billion in share repurchases, and additionally the $2.7 billion in net debt reduction I just mentioned. As we end 2025, our balance sheet is strong, with quarter-end debt to EBITDA of 0.9 xand debt to book capital coming in at 26%. Liquidity was also strong at over $6.3 billion at year-end, reflecting undrawn revolving bank credit facilities and cash on hand at end of period. Demonstrating the continued performance of and their confidence in our business, the board approved a 6% increase to our quarterly dividend, bringing the annualized dividend to $0.52 per common share. This marks 2026 as the 26th consecutive year of dividend increases by Canadian Natural, with a compound annual growth rate of 20% over that time, demonstrating the sustainability of our business model, our strong balance sheet, and the strength of our diverse, long-life, low-decline reserves and asset base that Robin spoke to.

Additionally, the board of directors have, effective January 1st, 2026, adjusted the net debt target level in our free cash flow allocation policy, which results in an acceleration of the next increase to shareholder returns. When net debt is below $16 billion compared to the previous target of $15 billion, we will increase shareholder returns to 75% of free cash flow generated and managed on a forward-looking basis. When net debt levels reach $13 billion compared to the previous target of $12 billion, we will target to increase shareholder returns to 100% of free cash flow generated. Our robust funds flow generation and strong balance sheet demonstrates our industry-leading cost structure, large reserve base, high quality, long-life, low-decline assets, and our commitment to continuous improvement and reliable execution.

These factors, along with the company’s track record of delivering strong shareholder returns, support significant long-term value creation for Canadian Natural and its shareholders. Our financial flexibility and low maintenance capital requirements demonstrate a track record of execution and allow us the opportunity to provide strong returns to shareholders going forward. With that, Scott, I’ll turn it back to you.

Scott Stauth: Thanks, Victor. In summary, our strong 2025 results and our growing reserves are supported by safe, reliable and consistent operations. Our commitment to continuous improvement as part of our effective and efficient operations is driven by focusing on cost improvement, margin expansion, and strong execution. This is combined with our increased production guidance and accelerated shareholder returns. We are set up to continue to return real value to our shareholders in the near, medium, and long term. With that, I will turn it over for questions.

Q&A Session

Operator: [Operator Instructions] Your first question comes from the line of Dennis Fong from CIBC World Markets.

Dennis Fong: Congratulations on a strong quarter and year. My first one here is really you guys have shown a track record of applying CQ best practices on kind of new assets you’ve acquired or taken over operatorship of. And as you alluded to in your prepared comments, really a focus on continuous improvement. Can you talk to some of the opportunities you’re looking to chase down or that you’re seeing now that you control 100% of the Albian mine? And how does that maybe interact with Horizon on a go-forward basis?

Scott Stauth: Yes, Dennis, I think if you recall, we did have a bit of this discussion at the last quarter. We had estimated an instantaneous savings of about $30 million and an annual savings in around $30 million per year, $30 million to $40 million per year. It’s just really about the synergies of being able to utilize the equipment and the people resources, the contractors back and forth at the mine sites in a more efficient manner than we would have otherwise been able to do so before. Better utilization of your service providers allows for more efficient practices and ultimately more efficient costs. You know, over time, Dennis Fong, it’s fairly evident to be able to see the reduction in operating costs from 2017 going right through to the acquisition of Chevron 2024, and we continue to make improvements in the operating costs from that point going forward here, just through our continuous improvement methodology and also, you know, significant increase in production in the range of 50,000 barrels a day since 2017.

You know, we had made some significant gain certainly before the acquisition of Chevron, and at this point in time, we’ll be working more on the continuous improvement portions of that where small dollars add up to big dollars.

Dennis Fong: Great. . Really appreciate that color. My second question shifts here a little bit. It’s obviously great to see the confidence in the board or from the board on the current strength of the balance sheet and the potential acceleration of returning free cash to shareholders. Can you talk towards a little bit around where the discussions may have gone in terms of we’ll call it bookends or ensuring kind of key metrics that both management and the board focus on in terms of determining some of these factors, as well as maybe touching on some of the flexibility that you still have in the capital program, obviously either higher or lower, given the volatile commodity price environment that we’re in today.

Scott Stauth: Yes, Dennis, it’s really about the robustness of our balance sheet. On the backs of the synergies created through these recent acquisitions, we’ve been able to achieve increased cash flow, lowering the operating costs, increasing the production. All of those things combined don’t necessarily lead towards bookends per se, Dennis, but what they do is show a continued improvement to the overall strength of our balance sheet, primarily providing additional cash flow. That’s resulted in the board taking a look at all of the acquisitions that we’ve done, combined with the way we’ve been able to effectively and efficiently manage our capital development programs through organic growth, have really provided that stepping stone to get to change the net debt levels for the free cash flow policy and obviously continue to increase our dividends.

Dennis, not really about bookends, but just part of the ongoing continued growth of the company, both organically and through acquisitions that have strengthened the balance sheet and have set us up for continued strength through strong commodity prices, lower commodity prices or any cycle.

Operator: Your next question comes from the line of Patrick O’Rourke from ATB Capital Markets.

Patrick O’Rourke: Maybe just a little bit more on the capital side of the equation here. Obviously, the bulk of the capital that came out was, it seems like with respect to Jackpine. I just wonder what opportunities there are still remaining for the rest of the year. I think back to years past, we were looking at a sort of a weaker gas tape right now. Are there any opportunities to potentially shift some capital from the liquids rich gas portfolio towards some of the short cycle oil here remaining in 2026?

Scott Stauth: We always carry that nimbleness, certainly when we’re looking at our capital allocation. Seeing good returns, strong returns with strong liquids pricing on the liquid rich natural gas activity areas that do compete. If you look at it, Patrick, we’ve got payouts in our multilaterals 12 months or less, very comparable payouts to 12, 13 months or less on the strong liquid rich gas areas. They’re very competitive with each other. I think what the way to look at it is we have a very well-balanced rig program across all of the areas. We’re working very hard to ensure that we don’t sort of apply any self-inflicted inflation in the areas in which we’re operating in. We do that by having that balanced rig program. We continue to monitor the commodity prices.

We have about 21 rigs working, very well balanced across the entire basin here. Looking at strong returns, we’re not spending money on dry gas activity. We’re really focused on the value returns. I don’t see us making significant changes to that a whole lot. We do have the capacity to be able to increase the heavy oil multilateral potentially to a small percentage. Again, we’re running very well balanced. We’re not creating inflation. We’re making sure we’re keeping up with the efficiencies in our drill times. People are very focused, and we wanna keep the momentum going in that direction.

Patrick O’Rourke: Okay, great. Just thinking about the operational performance, sort of one thing that really stuck out to me was the 105% upgrade or utilization in the quarter. Just wondering how you think about how repeatable this is, does that open sort of the pathway to a potential rerate on these assets going forward?

Scott Stauth: Patrick, we’ll see on a go-forward basis here. I think you’ve seen some strong production in the fourth quarter. That’s not unique, in compared to previous years. Strong efficiencies, running into the fourth quarters, coming out of turnarounds and so forth. You know, 105% is certainly very strong. And 620,000 barrels a day is extremely strong production levels. We’re happy with, in the range of 600,000 barrels a day is very strong efficiencies and utilization. You know, we certainly strive to continue to work towards maximizing and overutilizing the facilities from a utilization perspective. I doubt it’s gonna lead us to a rewrite. We’ll look at that some point down the road at Horizon, potentially when we bring on the 6,300 barrels a day of SCO from the NRU project. Until that time, Patrick, I think we’re pretty happy with where our capacities are rated at.

Operator: Your last question for today comes from the line of Neil Mehta from Goldman Sachs.

Neil Mehta: Congrats on a good quarter as always. I had some more macro questions, so I want to get your perspective on the environment that we’re in right now, where there’s a lot of volatility. There’s talk of, obviously, the Venezuela barrels coming to the market. At the same time, we’ve got some disruptions here in the Middle East in terms of supply. How you are seeing real-time that flowing through into the heavy markets and how that shapes your near-term view around TIWCs? That’s a good starting point, and then I have follow-up on gas.

Scott Stauth: Yes, Neil, I think if you look back a month or so ago with the potential to increase the volumes into the US Gulf Coast, the differentials to WTI did widen out. We did see increased barrels of Venezuelan barrels coming into the US Gulf Coast for processing. Now as to your point, there has been some tightening in the market with the recent developments in the Middle East. We’re seeing differentials swing back down, probably about $1.50 to $1.60 lower than they were. Approximately tighter than they were, excuse me, about a month or so ago. For us, it’s all about continued focus on our operating costs and ensuring that we can be competitive in all the markets, and that we also have a diversified portfolio. We’ve got 256,000 barrels a day, and we’ve got that well diversified between the U.S. Gulf Coast and the West Coast of Canada here.

Continue to focus on those types of opportunities for diversification of our portfolio and continue to focus on our operating cost to ensure that in the long run, rather than just on the short-term thinking, that in the long run, we can manage and excel and be competitive in any market condition.

Neil Mehta: And to the extent we are in a firmer market condition as the world is now pulling on heavy barrels maybe a little bit harder, does that change the way you think about your near-term activity, or you kind of have to stay level loaded just given the long-term planning assumptions?

Scott Stauth: We have to go by long-term planning assumptions, Neil. You know, there’s ebbs and flows that are caused by various different factors. Obviously a major factor going on right now in the Middle East, but also what times in the year, there’s factors of turnarounds that happen in the U.S. refining complexes. You know, again, the thinking has to be long-term and ensuring that we’re achieving the best net backs that we can with our portfolio.

Neil Mehta: And then that’s a follow-up is just natural gas. I think a number of us have been waiting for AECO to get firmer, and it just seems like production is ever flowing. Just how do you guys think about this cleaning itself up? As you guys look at the AECO balances, is this a structural issue or is there line of sight to better pricing on the Horizon?

Scott Stauth: Well, I think it’s evident that you’re seeing with LNG Canada, processing in the range of about 1.5 Bcf, not yet approaching full capacity, but not that far away from full capacity. You’re seeing the market is suggesting that the system is full. That’s likely coming through the development of, a lot of liquids rich gas production and some producers, drilling with potentially, lower liquids, gas production as well. A very strong, supply market. We continue to see on a go-forward basis that those conditions will remain tight, over time. Canada really needs additional LNG export capacity and the projects to be approved in an expeditious matter, so we can take advantage of prosperity for all Canadians by increasing our gas production and our exports, and providing a product the world truly needs.

Operator: We have an additional question coming from the line of Greg Pardy from RBC Capital Markets.

Greg Pardy: Scott. I was not gonna let you off that easy. Look, just maybe I may have missed this. It’s, it’s kind of a question for Victor, but effectively, are you at 75% payout now? I.e. post everything in terms of the updated budget, year-end numbers, the acquisition and so forth. Is the debt at a level where it’s now triggered that higher payout or is that still to come?

Scott Stauth: Yes. So to your point, Greg, at December 31st, we were below 16%. Under the policy, we would have achieved the target for sure. Of course, as a result of that target increase returns here in 2026. As you know, we do that on a forward-looking basis. We model the script and the cash flows for it as we look at the policy over the course of the year. Of course, keep in mind significant volatility in pricing, we’re all aware. Under the current policy as just announced, strong pricing we’re seeing we’d be very solidly there in Q3 with slightly higher and slightly lower debt over the course of the first and second quarter. Hopefully that helps.

Greg Pardy: Yes, yes. No, exactly from a modeling perspective.

Operator: There are no further questions at this time. So I’d like to turn the call back to Lance Casson for closing comments. Sir, please go ahead.

Lance Casson: Thank you, operator, and thanks to everyone for joining us this morning. If you have any questions, please give us a call. Thank you.

Operator: Ladies and gentlemen, this concludes today’s conference call. Thank you very much for your participation. You may now disconnect.