Canadian Natural Resources Ltd Q1 FY2020 Earnings Call

Good morning, ladies and gentlemen, and welcome to the Canadian Natural Resources Earnings Results Conference Call/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, May 7th, 2020, at 8:00 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. Good morning, everyone, and thank you for joining our first quarter 2020 conference call. With me this morning are Tim McKay, our President; Scott Stauth, Chief Operating Officer for Oil Sands; Darren Fichter, Chief Operating Officer for Exploration and Production; and Mark Stainthorpe, Chief Financial Officer. In order to facilitate today's call, we will be referring to a number of slides which are currently available on our website. I would encourage you to download this package to facilitate following along with the presentation. Further, I would ask that any detailed modeling questions be directed to Investor Relations rather than be handled on this call. Before we begin, I would refer you to the special note regarding non-GAAP measures contained in our press release. These measures used to evaluate the company's performance should not be considered to be more meaningful than those determined in accordance with IFRS. I would also like to refer you to the comments regarding forward-looking information contained in our press release. And also note that all amounts are in Canadian dollars and production and reserves are expressed as before royalties unless otherwise noted. With that, I'll now pass the call over to Tim.

Thank you, Corey. Good morning, everyone. In Q1 2020, Canadian Natural delivered top-tier operational results. We are a unique energy company as we have robust economic long-life low-decline assets, a history of capital discipline, and operational excellence, and relative to most of our peers, the ability to enhance margins. Few, if any, of our peers can deliver sustainable cash flow. Canadian Natural has a proven effective strategy. And as a result, Canadian Natural is in a strong position, and we are delivering in today's environment, ensuring a sustainable dividend to our shareholders, which is robust in a volatile commodity price environment. Moving to slide six, Canadian Natural continues to be proactive and effective in ensuring the health and safety of people working for us. We continue to enhance our COVID-19 program across the company and have now added the requirement for field personnel in our camps to wear face masks in shared spaces. Our teams continue to do a great job in minimizing the impacts of COVID-19 on our operations. Moving to slide seven, Canadian Natural had very strong operational results as we achieved record quarterly production of 1.179 million BOEs per day and record liquids production of approximately 939,000 barrels per day. We effectively executed our curtailment optimization strategy, achieving the maximum allowable production under the Alberta government's curtailment guidelines, while prioritizing high-value SCO production. Oil Sands Mining and Upgrading also had a strong quarter, with March being a record production of approximately 478,000 barrels per day of SCO. Operating costs in the quarter were also very strong and will continue to improve. Our E&P liquids Q1 operating costs were CAD 13.71 per barrel or $10.19 per barrel. And our industry-leading Oil Sands Mining and Upgrading costs were impressive at CAD 20.76 per barrel or $15.43 per barrel. More importantly, we are targeting an impressive CAD 745 million of operating cost improvements in 2020. Finally, as a result of our operational excellence, we had no asset impairments despite the low prices at the end of the quarter. Slide eight, as a reminder, Canadian Natural has a balanced and diverse product mix, with approximately 48% that is light crude oil SCO, NGL, on a BOE basis, limiting our exposure to one product. Our liquids production, 77%, is from long-life low-decline assets which is sustainable through volatile prices as they require less maintenance capital. We have 1.4 Bcf of natural gas production or 20% of our BOEs, which is well-positioned to capture additional value with strengthening natural gas prices. Slide nine, Canadian Natural's ability to deliver cash flow in today's environment starts with our large long-life low-decline asset base of approximately 750,000 barrels a day, which has low maintenance capital requirements and is sustainable, allowing us to withstand commodity price changes. Our diversified products and assets are driven by our effective and efficient operations, area of knowledge, ownership, and operatorship of infrastructure. We have 1.4 Bcf of natural gas, and our assets have the ability to add low-cost production. Our culture of continuous improvement is unique among our peers, with our teams focused on delivering margin growth across the asset base beyond what we see today. Canadian Natural's strategy includes flexible and effective capital allocation, and our ability to be nimble to capture value. Our teams are focused and continue to drive efficiencies across the company. With improved pricing, our operating cash flow from our natural gas assets can contribute approximately $700 million over the next 12 months. As a result of our effective and efficient operations and the quality of our assets, we have a low free cash flow breakeven, including capital expenditures plus current dividend, of approximately US$30 to US$31 per barrel. I will now talk about the robustness of our assets. Slide 12 shows that Canadian Natural 1P reserves are the highest among peers, demonstrating the strength and depth of our assets with an approximate 27-year reserve life index, of which 84% represents long-life low-decline reserves. The Oil Sands Mining Reserve Index is an impressive 40-plus years. Not only do we have the largest proven developed producing reserve base compared to peers, but our low-cost structure and effective operations make our PDP reserves robust, giving us the highest value among peers. Slide 14. Similarly, compared to our peers, with our PDP and proven undeveloped reserves, we are massive when comparing to our peers, once again reflecting the strength of our low-cost structure and effective operations. Slide 15. As a result of our unique asset base, Canadian Natural's corporate decline is low at approximately 10%, with approximately 62% of our production being long-life low-decline or zero decline production requiring much less maintenance capital to maintain production, making our cash flow more predictable and sustainable. Canadian Natural's corporate maintenance capital is top-tier in 2019, at approximately US$6 per BOE, which was approximately 75% lower than the peer average. For 2020, we have reduced it to approximately US$4 to US$4.50 per barrel, which gives Canadian Natural a huge advantage over our peers and supports our industry-leading free cash flow and reflects the robustness of our asset base. Slide 17. Further, when comparing our breakeven price with dividends, we are top-tier compared to our global peers. An impressive result again, an indicator of the robustness of our assets and our top-tier operations. In the Oil Sands, Oil Sands Mining and Upgrading operations continue to be top-tier and are approximately 40% lower than other operations, which reinforces why Canadian Natural is unique and is in a strong position in a low-price environment. I will now talk about our capital and operational discipline. Slide 20. Canadian Natural has a relatively balanced capital spending throughout 2020. At the end of Q1, we had only spent 31% of our capital. Since the beginning of the year, we have continued to modify our capital program and reduce our spending forecast, which is now targeting CAD 2.68 billion, down almost CAD 1.4 billion. Canadian Natural is also focused on continuous improvement and effective operations. We continue to find opportunities to drive our costs down and continually work with our service providers to find other savings. We are targeting significant savings of approximately CAD745 million for 2020. Slide 22. As you can see, our teams have been focused on all of our costs. We have many opportunities and the drive to reduce the total costs in our company, which is now targeted at CAD 1.4 billion of capital reduction and CAD 0.8 billion of margin enhancements. We are focused on delivering excellence through a total free cash flow enhancement of CAD 2.2 billion. Canadian Natural is in a strong position in these challenging times. Our assets are robust. Our culture working together ensures we are effective, efficient, innovative, and nimble with our capital to add value for our shareholders.

Thanks, Tim. I'd now like to just take a few minutes to discuss the strength of our financial position. On Slide 24, Canadian Natural has a long history of capital discipline. We accomplished this by strategically allocating cash flow through our four pillars to maximize stakeholder value: returns to shareholders through dividends, share repurchases, balance sheet strength, disciplined resource development, and opportunistic acquisitions. These allocations change based on the economic environment and are a strength of Canadian Natural. The ability to be nimble and flexible and manage our business in real-time supports our unique and advantageous asset base and strong business model. Slide 25. The Board of Directors has shown confidence in the company's assets and ability to deliver strong and sustainable cash flow by maintaining the current quarterly dividend at CAD 0.425 per common share. With low breakeven pricing, the dividend remains sustainable. Supporting this low breakeven is strong operating cash flow from our large natural gas production that is benefiting from increased prices. In Q1 2020, strong safe reliable production provided significant adjusted funds flow in excess of the Q1 capital program and dividend. Slide 26. Canadian Natural has demonstrated flexibility by adjusting our capital budget to the current environment with an annual reduction of CAD 1.4 billion from the original budget to the current CAD 2.68 billion, or a 34% reduction. Our balance sheet remains strong with significant liquidity at the end of Q1 of about CAD 5 billion, including cash of approximately CAD 1.1 billion. In the quarter, we have maintained strong investment-grade credit ratings supported by our unique asset base, which is resilient through commodity price cycles. We have a strong track record of returns to shareholders through dividends and share repurchases and, as mentioned, have maintained the current dividend level. Share repurchases have been suspended since March 11, and the Board of Directors did not renew our NCI program, which expires in May 2020 at this time. Switching to Slide 27. Our financing strategy includes maintaining balance sheet strength while maximizing financial flexibility. The design considers cash flows, debt maturities, and liquidity, coupled with flexibility and disciplined capital programs that target maximizing returns on capital employed. We target strong investment-grade credit ratings, which facilitate access to capital markets. Balance sheet strength is core to Canadian Natural. We believe the balance sheet is strong today and will continue to focus on our financial position as we progress through the commodity price cycle. Our financial focus includes continuous dialogue with all three of our rating agencies to ensure they understand the uniqueness of our asset base and our business plan and, just as importantly, our flexibility to execute or revise the plan. We also maintain a flexible capital structure that's not overly reliant on any one source of funding with a focus on managing maturities. And as part of our robust financial position, we maintain ample liquidity to support the delivery of our financial plan. On Slide 28, we have a strong and very supportive banking group comprised of world-class Canadian, U.S., Asian, and European financial institutions. We extended to 2022 and upsized by CAD 250 million a term loan in 2020, providing additional liquidity. As mentioned, total liquidity at the end of Q1 was strong at CAD 5 billion, including cash of approximately CAD 1.1 billion. Slide 29. In the context of our massive reserve base, we have one of the lowest overall debt for improved net reserves. As mentioned before, these reserves are high quality, long life, and low decline, providing additional support to our debt levels. Slide 30. Beyond our strong adjusted funds flow capital and operating flexibility, we also have other levers that provide additional liquidity and support. We have in-the-money cross-currency swaps and liquid investments in third parties. We have seen very strong support from our banking group, demonstrated through the extension and upsize of the term loan in 2020. We have been approached by banks in our banking group to provide additional liquidity if requested. This allows us to be opportunistic in accessing additional liquidity and debt capital markets opportunities if so desired. Finally, we evaluate our business in real-time with current forecasts including cash flow production and capital to ensure continued effective financial management. On Slide 31, we target sustainable dividend growth through the cycle and have done so for the last 20 years. We are advantaged by our long-life low-decline production base, effective and efficient operations, and low-cost structure that provide low breakeven costs and sustainability through the cycle. With that, I'll pass it back to you, Tim, for summary.

Thanks, Mark. In summary, Canadian Natural continues to take proactive and effective steps to ensure the health and safety of our people working for us. We continue to enhance our COVID-19 program across the company, and our safety performance TRIF has decreased by 20% since 2018, with a 30% reduction for our contractors. Slide 34. As many of you are aware, Canadian Natural has the aspirational goal of net zero in the Oil Sands, and we remain committed to our environmental goals, and I'm confident we can achieve them. Last December, we stated our interim goal of a 25% reduction in greenhouse gas emissions by 2025. We are targeting a 20% reduction in methane emissions in the E&P business by 2025, as well as reducing our in situ fresh water intensity by 50% and our fresh water river intensity in mining by 30%, both by 2022. Slide 35. Canadian Natural is robust. With our long-life low-decline assets, we are built for the long term. Our teams are focused on reducing costs and delivering safe, reliable production. We are focused on all of our production streams to maximize value and cash flow for the company while ensuring we maintain credit rating and liquidity. 36 Canadian Natural's ability to deliver cash flow is driven by effective, efficient operations and high-quality long-life low-decline assets that have low maintenance costs and significant reserves resilient in a volatile price environment. As WTI prices improve, there is even more upside for our shareholders. Our diversified products and assets are driven by effective and efficient operations, our area knowledge, ownership, and operatorship of infrastructure. We have 1.4 Bcf of natural gas and the ability to add low-cost production with strengthening natural gas prices. Our culture of continuous improvement is unique among our peers, as our teams are focused on delivering margin growth across the asset base. As we move forward into 2020 and beyond, we see these opportunities to further enhance our effective and efficient operations. Canadian Natural continues to be effective and efficient in our capital allocation and nimble to capture opportunities to maximize value for our shareholders. We have a history of capital discipline and operational excellence, with robust economic long-life low-decline assets and, relative to most of our peers, an ability to enhance margins with a free cash flow breakeven at approximately US$30 to US$31 per barrel. We are delivering cash flow that is sustainable and, most importantly, allocating capital to drive increasing returns in a volatile price environment. That concludes our Q1 presentation. I will now open the line for questions.

Thank you. Your first question comes from the line of Greg Pardy.

Thanks. Good morning. A couple of quick ones for you, Tim. Maybe the first is you mentioned the CAD 745 million you're targeting. Could you talk about some of the steps you're taking or things that you're changing or will change in terms of achieving that number?

Okay, great. Thanks. So with the $745 million, what that is, is every area and every team has goals and objectives to reach. We've talked about it many times in the past. We're very focused on 4DX. We use what we call FIT, which is a Field Improvement Technique. We have rails, which are kind of rolling action lists. So, it is a combination of looking at what we do, whether it's capital or operating, and seeing what we can do differently to improve our efficiencies and drive our costs down. On top of that, we've been very proactive in terms of our cost structure. So, early March, we indicated that we're reducing salaries here as a company. I can say that all our related companies feel the pinch that we have here in Alberta and are working extremely well with us. I think all companies, not only ourselves, are looking for opportunities to be more effective and efficient in their operations as well as what they can do to lower costs. They recognize we are all in this together, and we've had an excellent response from many of our vendors and service providers.

Okay. Thanks for that. The $250 million of CapEx reduction, where is that coming from?

It's a blend between our Oil Sands and E&P operations. What it is, as we go through the year we're looking at all items to see what is potentially deferrable or what is not even really needed in this type of environment.

Okay. Last one for me is, has your sustaining capital permanently gone down with the reengineering of your cost structure going through now?

That's an interesting question. It really will depend on the price forecast, Greg. Because really what we're seeing is many of our vendors and service providers, as I said earlier, are working with us and many other companies. They understand how important it is to get our cost structure down. So yes, some of it will be permanent, and yes, some will not be permanent in terms of wages and such. If prices recover, you'll lose some of that wage part. But for the most part, many service providers are looking for opportunities to become more efficient and effective, both in the way they do work as well as ourselves. So, it’s a combination.

Thanks very much.

Thank you, Greg.

And your next question comes from the line of Benny Wong.

Hey, Tim. Good morning, and good morning, everyone. Thanks for taking my question and I hope everybody on the line is well and healthy. My first question is on the dividend. Obviously, there's been a lot of focus on it, not just for CNQ, but for many other companies. Can you walk us through the rationale for maintaining your dividend through this downturn? And what gives you confidence you're going to be able to maintain it while many of your peers in Canada and internationally are reducing? Just so we can think about going forward, how bad would it need to get before that's something that warrants a hard look? Is it a certain oil price level or certain leverage level? Just curious how you guys are thinking about that.

Yes, Benny. Before we start, I'll pass it on to Mark. You have to look at the underlying assets this company has and the uniqueness. We are a top-tier effective efficient operation, as well as we have very good assets. For the start of it, you have to understand how good we are in terms of operational excellence. So with that, I'll pass it on to Mark for further comment.

Yeah, Benny, I think what Tim says is spot on. It speaks to the resilience and sustainability of the assets. The Board understands the underlying assets' ability to generate free cash flow sustainably, even in low commodity price environments. Coupled with our low-cost structures, we feel the dividend remains sustainable in low commodity price conditions. So the Board has shown confidence in that today.

Great, I appreciate the thoughts. Second is really a lot of focus in the market around inventory levels and reaching congestion levels both in the U.S. and Canada. We're starting to see some creative ideas by the industry in terms of how to address it. I appreciate some of the details in terms of your guys' storage and logistics ability. Just curious if you can expand on that in terms of how you think you can manage through this period? And broader, do you think the industry needs to cut more production or take further actions to get through this? Thanks.

Okay, Benny. Tim McKay here. Best we can tell is probably about 1 million barrels that are soft in Alberta, Western Canada. If you look at ourselves and many other companies, we're all looking for creative ways to take barrels off the system. So everything from slowing down production, curtailing, and again, not servicing wells if they're in heavy oil. The one part that’s somewhat not well understood is all the maintenance levels in the Oil Sands. For ourselves, we're going into some maintenance at Horizon in the month of May at AOSP. There are a couple of months in July and August, and we do our major turnaround in Horizon in the fall. We're just one operator, and I know many companies have been moving their turnarounds and activities to coincide with this lower price period. I would suspect you will see a larger amount of oil come off the system as every company looks for an opportunity to do maintenance during a low pricing period and take oil off the system.

Great. Thank you very much. Please stay safe.

Thanks, Benny.

And your next question comes from the line of Phil Gresh.

Good morning. Just one follow-up, I guess it's for Mark on the dividend commentary. Obviously, you continue to demonstrate a very low breakeven from a cash flow perspective to cover it. From the balance sheet side, I think at one point there was a goal to get leverage down to around $15 billion longer-term. So as you think about that, has anything changed with that view? And is there a level of perhaps absolute leverage that you really don't want to go above if this downturn were to last longer?

Thanks, Phil. Yes, it's Mark here. The $15 billion and 1.5 times targets we have relate to the free cash flow allocation policy. And again, you're correct, that's a long-term goal. So as we go through the commodity price cycle here, given our low breakeven costs, we will look longer-term to drive towards those lower levels. Now in the timeframe here, that won't be in the near term. When we look at different metrics on the balance sheet, of course, we have a financial covenant of 65% debt to book cap, which we don't forecast to get anywhere near. We discuss the 25% to 45% debt to book cap as a comfort range, and as I look at the strip and through 2020, I see us within that comfort range at this point.

Okay, got it. And in a prior press release, you talked about an ability to maintain flat production in 2021 and 2022. While you have removed your production guidance for this year, you noted that prices match the strip. Do you still think you could be within the range despite lower CapEx? So does that view still hold as we look out? And what kind of capital do you think would be required? Do you need the $3 billion kind of annual capital to achieve that?

Yes. Phil, it's Tim McKay here. Yes, our view is still the same. Yes, it's around $3 billion. Part of it has been the volatility of our pricing and, here in May, we're obviously reducing or curtailing; however, we'd need about 120,000 barrels, and we may see some activity in June. As we evaluate each month, decisions will be made based on price forecasts.

Okay. Last question just for Mark. I know you don't have a guidance sheet out there at the moment, but can you provide any color on tax situation for this year? How do you think about current versus deferred taxes in a loss scenario for the year?

Yes. It's a tough question to answer, Phil, just because it really depends on your cash flow forecast and pricing forecast. We should take that offline and look at some of your assumptions to manage where you think it would land. When we look at the quarterly tax recovery, it incorporates the estimation for Q1 in the context of the whole year. So that's probably something we should take offline. There are a lot of variables there.

Okay, thanks.

And your next question comes from the line of Phil Skolnick.

Yes. Thanks. Good morning.

Good morning.

Just back on the dividend. I mean, feed on that, but you do have two maturities coming up, one in June and one in August. How is the Board thinking about that? And how should we look at that?

Yeah, Phil, it's Mark. I mean I talked about it in the slide deck. When we look at liquidity, it's very strong today. Plus, I see a couple of opportunities. One is the banking group is very supportive. We know that the ability for additional liquidity from our banking group has been offered. When we look at what's been going on in the investment-grade debt capital markets, they're open. We've been able to maintain our strong investment-grade credit rating. So that option is available to us as well. We'll continue to monitor that with the idea that today we have very strong liquidity.

Okay. Cool. The second one is just on M&A. How do you think about M&A? I know you always say no gaps in the portfolio, but it seems this will be a time that’s too tempting to ignore, or is it just that the bid-ask spreads are going to be too wide?

I think you hit it on the head at the outset. No gaps in our portfolio, but I believe you're correct. The bid-ask will likely be far apart at this time. We’re quite happy with the assets we have. The way we operate, we do a great job. I feel we don't have any gaps, and we're able to manage well through this volatility.

Okay. Great. Thanks.

Thank you, Phil.

Thank you, Phil.

And your next question comes from the line of Mike Dunn.

Yeah. Thanks. Good morning, everyone. Apologies if I missed this earlier in the Q&A session. The cuts to OpEx this year are certainly a bigger drop than we or probably anyone else was modeling. Is any of that or how much of that is going to impact well productivity, I guess in a non-curtailed situation? And I guess maybe combine that with some of your heavy oil well curtailments. I know Husky mentioned a few thousand barrels a day permanently impaired due to some of their curtailments they are implementing here. Just wondering if you guys have a rough guess on that.

The way we look at it is everything we curtail, we look to minimize any impact on our productivity. So, will there be some impact? Maybe, but very little. I would say it's even under the Husky number easily. We've been very strategic in how we reduce our production. So, turning our wells down, not necessarily off, and we keep that oil flowing into a tank. From our perspective, it will have minimal to no impact.

Okay. That's all for me. Thanks.

Thank you.

Thanks, Mike.

The next question comes from the line of Menno Hulshof.

Thank you. Good morning, everyone.

Good morning.

Hello.

So, I just have a question on the uptick in natural gas spending. It's a small amount in absolute dollar terms, but it does seem to suggest that you're a little more constructive on pricing than you've been for many years. So is that a fair read? And if so, what are you seeing that gives you that confidence in AECO in particular?

I think if you look back the last few years, AECO has been relatively depressed. We've allowed our natural gas production to decline. In that, we've always had opportunities to add gas volumes cheaply, but they would just never compete with the other value-adding opportunities we have in our portfolio. What we're seeing today is that with the lower oil prices, natural gas has been quite resilient. In the U.S., we may see a significant decline on the natural gas side, and we're seeing strengthening AECO prices this summer and going into winter. By being nimble and creative, we're looking at that as an opportunity to add some natural gas volumes that will add value to our bottom line.

And what sort of payout are you expecting on those wells?

On the ones that were mentioned in the press release, they are expected to come under six months.

Okay. And then my follow-up question is on the Scotford Upgrader. I believe per your last call, the original plan there was to increase capacity to 320,000 barrels per day in Q3 just to match up with Albian mine capacities. I understand you're not the operator there, but is that still the plan, or has that been pushed out given market conditions?

My understanding is that it has been pushed out, but it really had nothing to do with the market conditions. The original plan was to start work earlier this year, and with the COVID-19 issue, it was deferred. It’s going to be adjusted in terms of maintenance activities coming up very shortly. They felt it was prudent to do that one piece this year and defer the rest until next year to avoid overlapping with other maintenance activities from other operators.

Okay. Thanks a lot, Tim.

Thank you.

And we have the next question coming from the line of Manav Gupta.

Hey, guys, I'm trying to understand something here. Generally, when we look at your netbacks, the gap between the oil sands mining and bitumen is typically somewhere between CAD 10 and CAD 15. Now in this particular quarter, it was more like CAD 27. I'm trying to understand what is causing this, with the lag in the condensate pricing depressing the bitumen. A broader question I'm trying to understand is, given your low-cost operations in bitumen, as you move ahead in the year and some of this condensate reverses, do you expect the bitumen and in thermal to be relatively more competitive compared to oil sands in terms of the gap narrowing from the CAD 27 we saw in 1Q?

It's always difficult to say with the market. If I look today, the spot heavy oil differential is under 20%. There are many factors at play. We’ve seen differentials on synthetic, we've seen swings on the bitumen everywhere from 40%, 50% down to 120%. So it is challenging to project. I would suggest modeling it with your best estimates for the upcoming months.

Okay. A quick follow-up. You always provide insightful commentary on the apportionment side. We've seen Enbridge come in and basically say no apportionments. Considering the declines we're seeing in Canada, can we be in a situation where there are no apportionments for probably two or three quarters, which would help you out a lot?

Yes. I believe, beyond what companies have announced regarding shut-ins and curtailments, many oil sands operators are conducting maintenance, which should prevent any apportionment in the near-term.

Thank you so much for taking my questions.

Thank you.

Your next question comes from the line of Neil Mehta.

Hey, good morning, Tim. Thanks for taking the question. So, the first one is just, would love your thoughts on the Canadian oil macro, particularly for Western Canadian crude. We've seen differentials come in. Where are inventories now? How do you see them evolving? What do you think the price-setting mechanism is going to be for Western Canadian crude versus WTI and Brent?

Boy, it's tough to provide exact answers on that. Our gut feel is that every company is curtailing production, and we're taking this opportunity during this lower price environment to conduct maintenance. I believe the inventory levels will stabilize. It’s a wildcard; ultimately, the draw on the U.S. refineries increasing their runs will be the indicator we watch, including pipeline export lines getting closer to capacity.

Thanks. You guys have reduced your capital intensity in 2020 remarkably. I know there are a lot of moving factors heading into 2021. A couple of questions here: What production impact, if any, do you see a lower capital spend in 2020 having in 2021? And can you provide any pluses and minuses as you think about the 2021 spend recognizing the number of variables, especially around price?

Today, I see very little impact. The items we've deferred or modified will not have significant impact. We still have more capital than we could remove out of 2020, and that would affect 2021. Today I would say minimal impact.

And what are your thoughts on 2021 spend levels?

If you're in that CAD 3 billion range, that's probably reasonable. Obviously, a large part of it will depend on pricing.

Thanks so much, guys.

Thank you.

Your next question comes from the line of Harry Mateer.

Hi, good morning. Mark, as you think through options, you ran through some of the levers you have to deal with upcoming maturities. I'm curious how you think about balancing longer-term financing versus incremental borrowings from the banks that give you a little bit more prepayment flexibility, as opposed to adding longer-term permanent debt to the balance sheet?

Yes, Harry. Right now we're looking at all the optionality. Both options are available to us. The debt capital markets are open for investment-grade opportunities. We've seen a lot of activity there. We'll evaluate everything carefully. Our banking group has been very supportive in providing those opportunities if desired. I think we're well-positioned with that optionality.

And then as a follow-up, how do you think about currency mix? I know the upcoming maturities are CAD. How do you think about the mix between USD or Canadian on any incremental debt issuance?

Yes. We'll obviously look at both markets. We can manage the currency exposure post-issue. As you know, we have a natural hedge on currency due to U.S. debt and revenue priced off the U.S. market. There are several factors to weigh, but we have no strong preference. We'll consider all options.

Okay. Thank you.

Sure.

And there are no further questions at this time.

Well, thank you, operator, and thank you, everyone, for attending our conference call this morning. As you can see, Canadian Natural's large well-diversified asset base continues to drive significant shareholder value. The ability of our teams to deliver effective and efficient operations with top-tier performance is contributing to a substantial and sustainable business model. Together with effective capital allocation, we achieve our goal of maximizing shareholder value. If you have further questions, please don't hesitate to reach out to Investor Relations. Thank you and goodbye.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.