Canadian Natural’s ‘Drill-to-Fill’ Strategy Results in Record ‘22 Natural Gas Production

Calgary-based independent Canadian Natural Resources Ltd. made a strategic decision to ramp up its substantial natural gas portfolio last year, which resulted in a 23% increase in output year/year.

“For North American operations, 2022 annual natural gas production was 2.08 Bcf/d, versus the 1.68 Bcf/d for 2021, up almost 395 MMcf/d,” said President Tim McKay during the company’s year-end earnings call. 

The gains primarily a “result of the company’s strategic decision to invest in liquid-rich natural gas areas through our drill-to-fill strategy, adding low cost, high value liquid-rich gas production, as well as opportunistic acquisitions completed in late 2021 and early 2022.”

During 4Q2022, North American natural gas production rose to 2.1 Bcf/d from the year-earlier average of 1.84 Bcf/d. 

The producer reports in Canadian dollars (C$1.00/US 75 cents).

Natural gas fetched a 2022 annual average of $6.55/Mcf versus $4.07 in 2021. The corporate performance exceeded the 2022 Alberta hub average of $5.54 by 17%. The North American natural gas operating cost was $1.19/Mcf, an increase of 3% year/year on higher energy costs.

Vigorous marketing raised the value of sales by spreading them out to points across Canada and the United States beyond the crowded, chronically low-priced AECO hub in Alberta.

About 28% of the natural gas production was sold at AECO/Station 2 pricing. Another 34% was exported to other North American and international markets, to capture higher natural gas prices. Additionally, the company used the equivalent of 38% of its natural gas production in its operations in 2022.

The natural gas strength enabled the company to report a record combined oil and liquids output of 1.28 million boe/d in 2022, up 4% year/year. Fourth quarter output averaged 1.29 million boe/d, down from 1.31 boe/d in 4Q2021.

“We are balanced in our commodities,” McKay noted. “In 2022, approximately 44% of our boes were light crude oil and synthetic crude, 29% heavy oil and 27% natural gas, which lessens our exposure to the volatility in any one commodity as we move through 2023.”

That said, don’t expect to see record gas production if prices continue to slump, he said.

“There is a little bit of pressure on natural gas prices coming into the summer and maybe partly into next year,” he said during the call. “So we constantly continue to high grade our opportunities.

“While I don’t see anything materially different, I do see that…at the end of this year, we could end up doing a few less gas wells and a few more oil wells. I would suspect that as we get into breakup here,” referring to the spring breakup as the ground thaws, “we’ll review our go-forward plans and adjust accordingly to always continue to high grade our opportunities.”

Net income slipped to $1.5 billion ($1.36/share) in 4Q2022 from $2.5 billion ($2.14) in 4Q2021. Net profits for 2022 more than quadrupled year/year to $10.9 million ($9.52) from $2.5 billion ($2.14).

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