Canadian Natural Resources Ltd. is tapping the brakes on natural gas production growth until prices improve, management said.
Upon announcing its second quarter earnings, the Calgary-based exploration and production firm said some “natural gas development activity in 2024 was shifted to higher return multilateral heavy oil wells due to low natural gas prices during the first half of 2024. Concurrently, approximately 20 wells of the company’s remaining planned 2024 natural gas wells will be drilled and curtailed.”
In other words, the wells will be drilled and completed, but not turned to sales until prices strengthen, according to President Scott Stauth.
The 20 wells in question comprise about one half of the gas-directed wells planned for the year, Stauth told analysts during the second quarter earnings call.
Canadian Natural “will maintain optionality to bring on production from these wells in late 2024 or early 2025, to align with improved natural gas prices, maximizing value for shareholders,” the firm added.
By that point, “I think we should see the benefits of LNG Canada starting to commission and come online,” Stauth said. “So I think we’ll see the prices start to turn around from there,” he added.
Asked what gas price would be needed for Canadian Natural to shift capital toward gassier assets, Stauth said it depends on the area. In the Montney Shale, for example, “you’ve got significant liquids production, which really drives the economics there, so it doesn’t take much of a gas price from that perspective…to drill and complete those wells.”
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For less liquids-rich wells, “I think we definitely need to see a little bit stronger pricing than we’re seeing right now…If you look at the forward pricing, we can make it work at what we’re seeing in the strip.”
Canadian natural gas pricing is based primarily off the AECO hub in Alberta. NGI’s NOVA/AECO C forward basis price for winter 2024/25 delivery averaged minus $1.194/MMBtu on Friday.
The company’s primarily Canada-based assets include a production mix of natural gas, natural gas liquids and heavy crude oil, as well as bitumen and synthetic crude oil from oilsands.
Energy-intensive oilsands production is expected to drive significant growth in Alberta natural gas consumption over the coming years, according to the government.
For 2024, Canadian Natural “is targeting to use the equivalent of approximately 38% of its budgeted natural gas production in its operations, with approximately 25% targeted to be sold at AECO/Station 2 pricing, and approximately 37% targeted to be exported to other North American and international markets capturing higher natural gas prices, maximizing value from its diversified natural gas marketing portfolio,” management said.
The company is forecasting natural gas production this year of 2.12-2.23 Bcf/d.
Canadian Natural produced 2.11 Bcf/d during 2Q2024, versus 2.09 Bcf/d in 2Q2023, “primarily reflecting strong results from our Montney and Deep Basin wells offset by natural field declines,” management said. The company fetched an average realized natural gas price of C$1.59/Mcf, from C$2.53 a year earlier.
“The decrease in North America realized natural gas prices for the three and six months ended June 30, 2024 from the comparable periods primarily reflected lower AECO benchmark and export pricing,” management said.
Total production was 1.29 million boe/d, up 8% year/year.
Commissioning of the Trans Mountain Expansion (TMX) crude oil pipeline during 2Q2024 “and the positive impact this incremental egress has on the Canadian economy represents a significant achievement for all Canadians,” said management. “The impact on the energy industry has been positive with narrowing of heavy oil differentials, improved realized pricing along with the development of a more diverse market for western Canadian crude oil.
“TMX is a significant accomplishment for Canada, adding much-needed egress capacity and increasing exposure to global market pricing for crude oil products.
“Canadian Natural has significant growth opportunities across its asset base, including sustainable production enhancements at its Oil Sands Mining and Upgrading operations,” the firm said.
Canadian Natural, which reports in Canadian currency (C$1.00/US 72 cents), posted net income of $1.72 billion (80 cents/share) for the second quarter, versus profits of $1.46 billion (67 cents) in the same period last year. Revenue totaled $9.05 billion, up from $7.89 billion a year earlier.
