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Canadian Natural Resources posted strong Q1 2026 results, with production averaging about 1.643 million boe/d and adjusted net earnings of CAD 2.4 billion. The company also set multiple production records, including in liquids and natural gas.
Cash flow and shareholder returns increased as adjusted funds flow reached CAD 4.4 billion and the company returned about CAD 1.5 billion to shareholders in the quarter through dividends and buybacks. Management also raised the annualized dividend to CAD 2.50 per share, marking 26 straight years of dividend growth.
Debt reduction is driving a more aggressive return policy, with net debt falling below CAD 16 billion and triggering a move to return 75% of free cash flow to shareholders. Management said it is nearing its next target of CAD 13 billion net debt, which would raise that payout ratio to 100% of free cash flow.
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Canadian Natural Resources (NYSE:CNQ) reported strong first-quarter 2026 production and cash flow, with management highlighting record output across several operations, accelerating debt reduction and increased shareholder returns during its earnings call Thursday.
President Scott Stauth said quarterly production averaged approximately 1.643 million barrels of oil equivalent per day in Q1 2026, including total liquids production of about 1.198 million barrels per day. He said 66% of liquids production was made up of synthetic crude oil, light crude oil and natural gas liquids.
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Stauth said the company delivered multiple production records in the quarter, including record North American exploration and production liquids output of approximately 773,000 barrels of oil equivalent per day, record liquids production of 329,000 barrels per day and record natural gas production of 2.668 billion cubic feet per day. He also cited record quarterly production at Jackfish of approximately 134,000 barrels per day.
Stauth said Canadian Natural’s oil sands mining and upgrading assets achieved April production of approximately 630,000 barrels per day, representing about 52% of Q1 liquids production, with upgrader utilization of 106%.
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He said strong synthetic crude oil pricing, including a premium to WTI averaging about US$5.70 per barrel on the forward strip for the remainder of 2026, was contributing to significant free cash flow. Stauth said the company’s oil sands mining and upgrading assets generate “significant and best in class” cash flow as a result of operating costs, higher commodity prices and the SCO premium.
At Jackfish, Stauth said performance was supported by new Pike 1 pads. One pad came on in late Q4 2025, while a second pad came on production in late March 2026 and continues to ramp up. Current combined production from the two new pads is approximately 41,000 barrels per day and continues to exceed expectations, with a steam-oil ratio of about 1.8, he said.
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Stauth said Jackfish exceeded its facility nameplate capacity of 120,000 barrels per day by approximately 14,000 barrels per day on average in Q1, supported by the Pike 1 pads and facility optimizations, including pipeline interconnectivity and debottlenecking.
The company is also progressing front-end engineering in 2026 for thermal in-situ growth projects, including long-lead equipment items for a 30,000-barrel-per-day Jackfish expansion project and a 70,000-barrel-per-day Pike 2 growth project.
Chief Financial Officer Victor Darel said Canadian Natural generated adjusted net earnings of CAD 2.4 billion, or CAD 1.17 per share, and adjusted funds flow of CAD 4.4 billion, or CAD 2.10 per share, in the first quarter.
Net earnings were approximately CAD 1.3 billion. Darel said the result reflected strong operating earnings and certain non-cash items, including impacts related to a long-term LNG agreement, translation of U.S. dollar debt and higher share-based compensation expense tied to appreciation in the company’s share price during the quarter.
Darel said the company returned approximately CAD 1.5 billion directly to shareholders during Q1, including CAD 1.2 billion in dividends and CAD 300 million through share repurchases.
The board approved a quarterly dividend of CAD 0.625 per common share, payable July 7, 2026, to shareholders of record as of June 19, 2026. Darel said the previously announced dividend increase brought the annualized dividend to CAD 2.50 per common share and marked 26 consecutive years of dividend increases, with a compound annual growth rate of 20%.
Management said net debt fell below CAD 16 billion by the end of April, triggering a targeted increase in shareholder returns to 75% of free cash flow on a forward-looking basis. Stauth said share repurchases totaled approximately CAD 360 million since March 31.
Darel said year-to-date direct returns to shareholders, through dividends and share buybacks, totaled approximately CAD 3.2 billion. He added that the company’s next targeted debt level of CAD 13 billion is approaching, at which point Canadian Natural plans to increase shareholder returns to 100% of free cash flow.
In response to a question from RBC Capital Markets analyst Greg Pardy, Darel said that based on forward strip pricing, management sees “a path” to reaching the CAD 13 billion net debt target this year, though he did not commit to that timing.
Asked by Wolfe Research analyst Doug Leggate about dividend growth versus buybacks, Stauth said the company aims to balance both approaches. “Both of those are meaningful to our investors,” he said, adding that Canadian Natural wants a framework that supports production growth, free cash flow growth and shareholder returns.
Stauth said Canadian Natural remains prepared to grow oil sands production but needs long-term egress capacity, along with a regulatory and fiscal framework that supports investment. He referred to a recent Oil Sands Alliance press release and said the company is committed to working with federal and provincial governments on a memorandum of understanding framework to attract capital investment to the oil sands.
“Investment dollars must return value that is better than investment alternatives in other countries,” Stauth said.
Asked by Leggate what would be needed to greenlight large growth developments, Stauth said the company needs long-term egress capacity and a regulatory and fiscal framework that would allow oil sands growth. He said management is hopeful that discussions with governments and industry members can lead to an agreement “in short order.”
On market access, Stauth told Pardy that short- and medium-term egress prospects look stronger than they did a couple of years ago, citing Mainline expansions, the Prairie Connector opportunity and Trans Mountain expansion. He said a potential 1 million-barrel-per-day pipeline to the West Coast would be important for longer-term oil sands growth.
During the question-and-answer portion, Stauth said the Duvernay asset has met production growth expectations and that capital costs have declined significantly since acquisition. He said operating costs have also fallen by more than CAD 2 per barrel, improving netbacks, and that Canadian Natural has applied learnings from the Montney to the Duvernay.
On natural gas, Stauth said the company remains focused on liquids-rich production and is not drilling meaningful dry gas wells in the basin. He said Canadian Natural has significant Montney dry gas opportunities but is keeping those for the future while prioritizing higher-return liquids-rich areas.
Stauth also discussed solvent-enhanced recovery pilots in response to a question from Goldman Sachs analyst Neil Mehta. He said the company has tested butane to reduce steam use and emissions at certain assets, including a commercial pad at Kirby North, and has seen strong butane recoveries. He said solvent cost is the key factor and that the company wants to ensure it has the lowest-cost alternative before deploying the approach at significant scale.
Management also noted that sulfur prices have improved. Stauth said Canadian Natural is a significant sulfur producer at its oil sands upgraders and certain conventional operations, and that the company is positioned to benefit while the cycle remains favorable.
Canadian Natural Resources Limited (NYSE: CNQ) is a Calgary-based independent oil and natural gas exploration and production company. Established in the early 1970s and publicly listed in Canada and the United States, the company is principally engaged in the exploration, development, production, and marketing of crude oil, natural gas and natural gas liquids. Its asset base spans conventional and unconventional reservoirs and includes oil sands mining and in-situ thermal projects, midstream processing and upgrading capacity, and related field operations.
The company's operations are concentrated in Western Canada, where it develops heavy crude, bitumen from oil sands and conventional light crude and natural gas resources.
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The article "Canadian Natural Resources Q1 Earnings Call Highlights" was originally published by MarketBeat.
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