Canadian Natural Resources Ltd

TSX:CNQ

Earnings Call Transcript 2020-Q1

[Operator]

Good morning, ladies and gentlemen, and welcome to the Canadian Natural Resources earnings results conference call/webcast. [Operator Instructions] Please note that this call is being recorded today, May 7, 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. Thanks, and enjoy the day.

[Corey B. Bieber, Executive Advisor]

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.

[Timothy Shawn McKay, President & Director]

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 6. Canadian Natural continues to be proactive and effective, take proactive and effective steps to ensure the health and safety of people working for us. We continue to enhance our COVID-19 program across the company and now have added the requirement of 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 to our operations.Moving to Slide 7. Canadian Natural had a 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 Government of Alberta 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 a 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 $13.71 a barrel or USD 10.19 per barrel. And our industry-leading Oil Sands Mining and Upgrading costs were impressive $20.76 per barrel or USD 15.43 per barrel. More importantly, we are targeting an impressive $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 8. As a reminder, Canadian Natural has a balanced and diverse product mix and with approximately 48% that is light crude oil, SCO, NGL on a BOE basis, limiting our exposure to 1 product. Our liquids production, 77% is 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 9. 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, our area of knowledge, ownership and operatorship of infrastructure. We have 1.4 Bcf of natural gas and our assets -- and with our assets' ability to add low cost production. Our culture of continuous improvement is unique among our peers, as our teams are focused on delivering margin growth across the asset base over and above what we see today. Canadian Natural's strategy includes a flexible and effective capital allocation and our ability to be nimble to capture those opportunities. Our strategy is simply to optimize capital allocation to maximize value for our shareholders. Our teams are focused and are continuing 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, quality of our assets, we have a low free cash breakeven, including capital expenditures plus current dividend of approximately USD 30 to USD 31 per barrel. I will now talk to the robustness of our assets. Slide 12. Canadian Natural 1P reserves are the highest among peers, showing the strength and depth of our assets with approximately 27-year reserve life index, of which 84% represents long-life, low-decline reserves. Our Oil Sands Mining Reserve Index is an impressive 40-plus years. Not only -- Slide 13, not only do we have the largest proven developed producing reserve base when compared to peers, our low-cost structure, effective and efficient 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 compared -- when comparing to our peers, once again reflecting the strength of our low-cost structure and effective and efficient operations.Slide 15. As a result of our unique asset base, Canadian Natural corporate decline is low at approximately 10% with approximately 62% of our production being long-life, low-decline or 0-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 USD 6 per BOE, which is -- was approximately 75% lower than the peer average. We have -- for 2020, we have reduced it to USD 4 -- approximately USD 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 when 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, our Oil Sands Mining and Upgrading operations continue to be top-tier and is 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 to our capital and operational discipline. Slide 20. Canadian Natural has a relatively balanced capital spending throughout 2020. And at the end of Q1, we had only spent 31% of our capital. Since the beginning of the year, we have been able to continue to modify our capital program and reduce our spending forecast, which is now targeting $2.68 billion, down almost approximately $1.4 billion. As well, Canadian Natural is focused on continuous improvement, effective and efficient operations. We continue to find opportunities to drive our costs down and are continually working with our service providers to find other savings. We are targeting significant savings of approximately $745 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 $1.4 billion of capital reduction and $0.8 billion of margin enhancements. We are focused on delivering excellence. A total free cash flow enhancement of $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. With that, I will turn it over to Mark for a financial review.

[Mark A. Stainthorpe, CFO & Senior VP of Finance]

Thanks, Tim. I'd now like to just take a few minutes and 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 4 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 is a strength of Canadian Natural. The ability to be nimble and flexible and manage our business real time supports our unique and advantaged 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 $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 '20, strong, safe, reliable production provided significant adjusted funds flow in excess of Q1 capital program and dividend.Slide 26. Canadian Natural has demonstrated flexibility through adjusting our capital budget to the current environment with an annual reduction of $1.4 billion from the original budget to the current $2.7 billion or a 34% reduction. Our balance sheet remains strong with significant liquidity at the end of Q1 of about $5 billion, including cash of approximately $1.1 billion. In the quarter, we have maintained strong investment-grade credit ratings, supported by our unique asset base, that was 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 to maximize 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 we will continue to focus on our financial position as we progress through the commodity price cycle. Our financial focus includes continuous dialogue with all 3 of our rating agencies to make sure 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 delivering on 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 $250 million a term loan in 2020, providing additional liquidity. And as mentioned, total liquidity at the end of Q1 was strong at $5 billion, including cash of approximately $1.1 billion.Slide 29. In the context of our massive reserve base, we have one of the lowest overall debt for proved net reserves. And as mentioned before, these reserves are high quality, long life and low decline, providing additional support to 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 as well as 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. As well, 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 real time with current forecasts, including cash flow, production and capital to ensure continued effective and efficient 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.

[Timothy Shawn McKay, President & Director]

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 down 20% since 2018 and 30% reduction for our contractors.Slide 34. As many of you are aware, Canadian Natural has the aspirational goal of net 0 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 25% reduction in greenhouse gas emissions by 2025. We target reducing methane emissions in the E&P business by 20% by 2025 as well reducing our in situ fresh water intensity 50% and our fresh water river intensity in the mining by 30%, both by 2022. Slide 35. Canadian Natural is robust. And with our long-life, low-decline assets, we are built for the long term. Our teams are focused on reducing costs and deliver 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, a high-quality, long-life, low-decline assets that have low maintenance cost and significant reserves that are 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 have the ability to add low-cost production with strengthening natural gas prices. Our culture of continuous improvement is unique among our peers as the teams are focused on delivering margin growth across the asset base. And 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, operational excellence. We have robust, economic, long-life, low-decline assets, and relative to most of our peers, ability to enhance our margins with a free cash flow breakeven at approximately USD 30 to USD 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.

[Operator]

[Operator Instructions] And your first question comes from the line of Greg Pardy.

[Greg M. Pardy, MD & Co]

A couple of quick ones for you. Tim, maybe the first is, you mentioned the $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?

[Timothy Shawn McKay, President & Director]

Okay, great. So with the $745 million, what that is, is every area, every team has goals and objectives to get to. So 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 list. So what it is, it's a combination of looking at what we do, whether it's capital or operating, and see what we can do differently to improve our efficiencies and to drive our costs. On top of that, we've been very, I would say, proactive in terms of our cost structure. So early March there, we indicated that we're reducing our salaries here as a company. And I can say that all our companies that we work with, in fact all Alberta companies, feel the pinch that we have here in Alberta and are working extremely well with, I think all companies, not only ourselves, in terms of looking for opportunities, how they can be more effective and efficient in their operations as well as what they can do to lower our costs. They recognize we are in it together, and we've had excellent response from many of our vendors and service providers.

[Greg M. Pardy, MD & Co]

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

[Timothy Shawn McKay, President & Director]

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

[Greg M. Pardy, MD & Co]

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

[Timothy Shawn McKay, President & Director]

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. And they understand how important it is to get our cost structure down. So, yes, some of it will be permanent. And yes, some will be not permanent in sense 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 in their way they do work as well as ourselves. So there is -- it's a combination.

[Operator]

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

[Benny Wong, Vice President]

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 also for many other companies. Can you maybe walk us through the rationale for maintaining your dividend just kind of through this downturn? And what gives you confidence you're going to be able to maintain it while a lot of your peers, both in Canada, internationally are reducing? And just so we can kind of think about it 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 in terms of how you guys are thinking about that.

[Timothy Shawn McKay, President & Director]

Yes, Benny. So before we start, and 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. So I think for the start of it, you have to start there in understanding how good we are in terms of operational excellence. So with that, I'll pass it on to Mark for further comment.

[Mark A. Stainthorpe, CFO & Senior VP of Finance]

Yes. Benny, I think what Tim says is bang on. So I think it speaks to the resilience and sustainability of the assets. And the Board understands the underlying assets, their ability to generate free cash flow sustainably even in low commodity price environments. So that, coupled with low-cost structures, makes the dividend sustainable in low commodity price environment. So the Board has shown confidence in that today.

[Benny Wong, Vice President]

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, and 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 maybe expand on that in terms of how you guys think you guys can manage through this period? And broader, do you think the industry needs to cut more production? Or there needs to be more actions taken to kind of get through this?

[Timothy Shawn McKay, President & Director]

Okay. Benny. Tim McKay, here. So with that, best we can tell is probably about 1 million barrels that is soft line here in Alberta, Western Canada. And if you look not only at ourselves, but many companies, we're all looking to look for creative ways to take barrels off the system. So everything from -- in the thermal side, slowing down, production curtailing, again not servicing wells if they're in heavy oil. And then probably the one part that's kind of, I would say, not understood well is all the maintenance levels in the Oil Sands. So if you look at ourselves, we're going to be going into some maintenance at Horizon in the month of May at AOSP. There's a couple of months in July and August. And then we do our major turnaround in Horizon in the fall. So -- and we're just one operator. And I know many companies have been moving their turnarounds and activities to coincide with this lower price period. So I would suspect that 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.

[Operator]

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

[Philip Mulkey Gresh, Senior Equity Research Analyst]

Just 1 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 somewhere 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?

[Mark A. Stainthorpe, CFO & Senior VP of Finance]

Thanks, Phil. Yes, it's Mark here. The $15 billion and 1.5x targets we have related to the free cash flow allocation policy. And again, you're bang on, 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 time frame here, that won't be in the near term. Now 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. And we talk about the 25% to 45% debt to book cap as a comfort range. And as I look at the strip and look through 2020, I see us within that comfort range at this point.

[Philip Mulkey Gresh, Senior Equity Research Analyst]

Okay. Okay. Got it. And then in a prior press release, you had talked about an ability to essentially maintain flat production in 2021 and 2022. And while you have removed your production guidance for this year, you did still note that prices match the strip. You actually do 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 be able to achieve that?

[Timothy Shawn McKay, President & Director]

Yes. Phil, it's Tim McKay here. Yes, our view is still the same. And yes, it's around $3 billion. And, again, part of it has been the volatility of our pricing. And so here in May, we're obviously reducing or curtailing, however you would like, about 120,000 barrels, and we may do some numbers in -- some type of number in June. So as we go through each month and look at the price going forward, those decisions would be made at that time.

[Philip Mulkey Gresh, Senior Equity Research Analyst]

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

[Mark A. Stainthorpe, CFO & Senior VP of Finance]

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

[Operator]

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

[Philip Ross Skolnick, Principal & MD Research]

Just back on the whole dividend. Just don't mean to beat on that, but you do have the 2 maturities that are coming up, 1 in June and 1 in August. Like how is the -- how did the Board think about that? And how should we look at that, how you take care of it?

[Mark A. Stainthorpe, CFO & Senior VP of Finance]

Yes. Phil, it's Mark. I mean I talked about it in the kind of the slide deck here. When we look at liquidity, it's very strong today. And then I look at a couple of opportunities. One is the banking group has been very supportive. So we know that the ability there for additional liquidity from our banking group has been basically offered. So it's there. And when you 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 is open for us as well. So we'll continue to just monitor that with, again, the idea that today we have very, very strong liquidity.

[Philip Ross Skolnick, Principal & MD Research]

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 like this will be a time that's too tempting to ignore, is it -- or is it just the bid-ask spreads are just going to be too wide?

[Timothy Shawn McKay, President & Director]

Well, I think you hit it bang on at the beginning there. No gaps in our portfolio, but I also believe you're absolutely right. I think the bid-ask would be far apart at this time. But yes, I think we're quite happy with the assets we have. And if you look at the way we operate as a company on those assets, we -- I feel we do a great job. So we don't have any gaps, and we're able to just manage very well through this volatility.

[Operator]

Your next question comes from the line of Mike Dunn.

[Michael Paul Dunn, Director of Institutional Research]

Apologies if I missed this earlier in the Q&A session. But the cuts to OpEx this year, certainly a bigger drop than we or probably anybody else was modeling. But 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, I think they had mentioned a few thousand barrels a day permanently impaired due to some of their curtailments they were implementing here. So just wondering if you guys have a rough guess on that.

[Timothy Shawn McKay, President & Director]

The way we look at it is, everything we curtail we look to minimize any impact to 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 keep that oil going into a tank. So I think from our perspective, it will have no impact.

[Operator]

The next question comes from the line of Menno Hulshof.

[Menno Hulshof, Research Analyst]

I just have a -- I've got a question on the uptick in natural gas spending. It's a small number 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 exactly are you seeing that is giving you that confidence on AECO in particular?

[Timothy Shawn McKay, President & Director]

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

[Menno Hulshof, Research Analyst]

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

[Timothy Shawn McKay, President & Director]

On the ones that were in the press release, they are under 6 months.

[Menno Hulshof, Research Analyst]

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

[Timothy Shawn McKay, President & Director]

Yes. My understanding, it has been pushed out, but it really had nothing to do with the market conditions. The original plan was to start to work earlier this year. And with the COVID-19 issue, they deferred it. So really, what's happening is -- and as you're probably aware, is that it's going to be very adjusted in terms of maintenance activities here coming up very shortly. And so they felt that doing that 1 piece this year and deferring the rest until next year was probably the prudent thing as not to overlap with other maintenance activities from other operators.

[Operator]

The next question comes from the line of Manav Gupta.

[Manav Gupta, Research Analyst]

I'm trying to understand something here. So help me out a little. Generally, when we look at your netbacks, the gap between the Oil Sands mining and bitumen is somewhere between $10 and $15. Now in this particular quarter, it was more like $27. I'm trying to understand what is just basically the lag in the condensate pricing which depressed bitumen. And broader question I'm trying to understand is given your low-cost operations in bitumen, as you go ahead in the year and some of this condensate reverses, do you expect the bitumen, in thermal to be relatively more competitive versus the Oil Sands in terms of the gap narrowing versus the $27 we saw in 1Q?

[Timothy Shawn McKay, President & Director]

Obviously, it's always difficult to say with the market. If I look today, with, let's say, the spot heavy oil differential, that is under 20% today. Obviously, there's many factors here. In terms of the market, we've seen differentials on synthetic, we've seen a wider differential swings on the bitumen everywhere from 40%, 50% down to 120% today. So it's a very difficult question there. And as you know, those differentials are illiquid when you look out going into the third and fourth quarters. So it's very difficult. To that, I would suggest you'd have to just model it with what your best estimate of that would be.

[Manav Gupta, Research Analyst]

Okay. And a quick follow-up. You guys always have very insightful commentary on the apportionment side. We have seen Enbridge come in and basically say no apportionments. And considering the declines we are seeing in Canada, can we be in the situation where there -- we have no apportionments period for probably 2 or 3 quarters, which helps you out a lot?

[Timothy Shawn McKay, President & Director]

Yes. I -- what I look at, over and above what we people have announced the shut-in and curtailed is that really from now until probably October, many of the Oil Sands operators are doing their maintenance. And so I look at it as that -- because of that, there shouldn't be any apportionment here in the near term.

[Operator]

Your next question comes from the line of Neil Mehta.

[Neil Singhvi Mehta, VP and Integrated Oil & Refining Analyst]

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? And what do you think the price-setting mechanism is going to be for Western Canadian crude versus WTI and Brent?

[Timothy Shawn McKay, President & Director]

Boy, I could get into the stock market if I really knew all those answers. It's -- our gut feel is that every company is curtailing production and that every company has taken this opportunity at this lower price, high index differential to do maintenance. So I believe we'll see the inventory levels stable. To me, the big wildcard will be really the draw on the U.S. and the refineries increasing their runs. Obviously, today, if you look at some of the export lines, they're not at capacity. So really that will -- for us, it will be the indicator of the refinery runs increasing, so demand side increasing in the U.S. and the pipeline export lines getting closer to capacity.

[Neil Singhvi Mehta, VP and Integrated Oil & Refining Analyst]

And you guys have done a terrific job reducing your capital intensity in 2020. I know there are a lot of moving pieces about going into 2021. So I guess a couple of questions here. One is what production impact, if any, do you see a lower capital spend in 2020 having in 2021? And the follow-up is just any pluses and minuses as you think about the 2021 spend, recognizing there are a ton of variables, particularly around price would be appreciated.

[Timothy Shawn McKay, President & Director]

Yes. Today, I see very little impact. The items we've deferred or modified, not have really marginal impact. We still have more capital than we could remove out of -- or defer, I guess, out of 2020, and that would have an impact on 2021. But that capital is still in our program today. And so today, I would say, no impact.

[Neil Singhvi Mehta, VP and Integrated Oil & Refining Analyst]

And thoughts on 2021 spend levels?

[Timothy Shawn McKay, President & Director]

I would say, if you're in that $3 billion range-ish that that's probably a reasonable piece. Obviously, a large part of it will depend on pricing.

[Operator]

Your next question comes from the line of Harry Mateer.

[Harry Mead Mateer, Head of Global Energy Credit Research & Co]

Mark, as you think through options and 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 more kind of longer-term permanent debt to the balance sheet?

[Mark A. Stainthorpe, CFO & Senior VP of Finance]

Yes. Harry, I think right now we are looking at all the optionality. I think that, to your point, they're both available to us. The debt capital markets, as you're very astute with, I think, is open for the investment-grade market. We've seen some -- a lot of guys get in there. So we'll see how it goes here. And as I mentioned, the banks have been very supportive to us in providing that opportunity if we so desire. So I think we're in a very good spot there with that optionality.

[Harry Mead Mateer, Head of Global Energy Credit Research & Co]

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?

[Mark A. Stainthorpe, CFO & Senior VP of Finance]

Yes. I think we would obviously look at both markets, and we can obviously manage the currency exposure if we need to afterwards. Obviously, as you know, we've got a natural hedge on currency a little bit with U.S. debt and then, of course, revenue being kind of priced off U.S. So there's a few factors to think there, but there's no preference. We would look at all that optionality.

[Operator]

[Operator Instructions] And there are no further questions at this time.

[Corey B. Bieber, Executive Advisor]

Well, thank you, operator, and thank you, everyone, for attending our conference call this morning. As you can see, Canadian Natural's large, well diverse 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 substantial and a sustainable business model. This, together with effective capital allocation, contributes to achieving our goal of maximizing shareholder value. If you do have any further questions, please don't hesitate to give Investor Relations a call. Thank you, and goodbye.

[Operator]

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