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Canadian Natural Resources Ltd (NYSE:CNQ)
Q4 2020 Earnings Call
Mar 4, 2021, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Canadian Natural Resources Fourth Quarter and 2020 Earnings Results Conference Call and Webcast. [Operator Instructions]

I'd now like to turn the conference call over to Mr. Corey Bieber, Executive Advisor. Please go ahead.

Corey Bieber -- Executive Advisor

Thank you, operator. Good morning everyone and thank you for joining our fourth quarter and year-end 2020 conference call. With me this morning are Tim McKay, our President; Darren Fichter, Chief Operating Officer, Exploration and Production; and Mark Stainthorpe, our Chief Financial Officer.

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 statements contained in our press release and would also note that all amounts are in Canadian dollars and production and reserves are expressed as before royalties, unless otherwise stated.

With that, I will now pass the call over to Tim McKay.

Tim S. McKay -- President

Tank you, Corey. Good morning, everyone. The COVID-19 pandemic has impacted our lives and the way we operated our businesses in 2020, including the many precautions that we had to put in place to protect our stakeholders. Canadian Natural would like to thank our employees, contractors, suppliers and shareholders for their support through this challenging year.

Despite the challenges in 2020, Canadian Natural delivered top-tier operational and financial results, which is a result of the strength of our low life -- long life [Phonetic] low decline assets and operational excellence of our people which maximized free cash flow in a challenging year. In 2020 we were nimble. Quickly lowering our capital with our long life low decline and high-quality asset base, we still achieved record annual corporate BOE production of 1.16 million BOEs per day or approximately 65,000 BOE/d increase over 2019 levels.

With our culture of continuous improvement, we continued to drive effective and efficient operations and as a result, we had record low annual operating costs of CAD20.46 per barrel of SCO in our Oil Sands Mining, Upgrading group, a decrease of CAD2.10 per barrel as well in our North American E&P liquids, we achieved significant operating cost reduction of CAD1.20 per barrel or 10% lower than 2019 levels.

We continue to apply the same drive to ESG, environmental, social and governance, to deliver industry-leading performance across the board, a significant factor in our long-term sustainability. Canadian Natural and the entire Canadian oil and gas sector leads the world and has delivered game-changing environmental performance.

In 2020, we reduced our corporate GHG intensity by 18%, methane emissions by 28% from 2016 levels. Our safety record is top tier, as our corporate total recordable injury frequency improved to 0.21 in 2020, a reduction of 58% from 2016 levels. We reached significant environmental milestones, including the 5 million tonne of CO2 captured at Quest and now have planted 2.5 million trees at our Oil Sands Mining Operations.

In our Oil Sands operations, we can develop technologies using Canadian ingenuity to continue to move us closer to Canadian Natural's aspirational goal of reaching net zero emissions. Canadian Natural has multiple pathways to achieve net zero with actions identified in the near, mid and long term and the strength of the Canadian oil sands mining assets is that with its long life no decline and with its manufacturing like operation, it can have one of the clearest routes, if not the clearest route to net zero of any global assets.

I will now do a brief overview of our assets starting with natural gas. Overall 2020 annual North American natural -- annual natural gas production was 1.48 Bcf per day, which is comparable to our 2019 production of 1.49 with North American annual natural gas production of 1.45 versus 1.44 for 2019, which is up slightly as a result of the Company's strategic decision to invest in low-cost natural gas opportunities and the acquisition of Painted Pony in Q4. Our annual North American natural gas operating cost was CAD1.14 which is down 2% when compared to 2019 of CAD1.16. For the fourth quarter North American natural gas production was approximately 1.6 Bcf per day versus 1.45 for Q4 2019 with strong operating cost of CAD1.07 per Mcf versus Q4 2019 of CAD1.11, impressive year-over-year operating cost performance as we continued to focus on operational excellence.

At Septimus, the Company's high value liquids rich Montney area in the second half of 2020 eight wells were drilled. All came on production in Q4 '20. This project was completed with strong capital efficiencies of approximately CAD4,800 per BOE/d with total current production rates from the new wells at approximately 46 million cubic feet per day and 2,200 barrels a day of NGLs, delivering as expected.

Looking forward on annual strip basis, AECO prices for '21 look very strong at CAD2.78 per GJ, an increase of approximately 31% over 2020 levels, improving the economics of natural gas projects. In 2021 within our high quality Montney lands at Townsend six to seven wells were brought on production at strong rates totaling approximately 74 million cubic feet per day compared to our target of 50 million, resulting in strong capital efficiency of approximately CAD2,200 per flowing BOE.

For North American light oil and NGLs annual production was 84,658 barrels per day, down 13% from 2019, primarily result of natural field declines. Annual operating costs were strong at CAD14.61 per barrel, which is 4% lower than in the 2019 annual operating cost of CAD15.21 per barrel. Q4 production was 88,161 barrels per day, down 6% when comparing to Q4 2019 with fourth quarter operating costs that were down 10% to CAD13.88 per barrel as compared to Q4 2019 operating cost of CAD15.41 per barrel.

In '21 -- in 2021, the Company continues to advance high-value Montney light crude oil development plan at Wembley, targeting 18 net wells and the construction of a new crude oil battery with a targeted on-stream date of October 2021. With the crude oil battery in place, new wells are targeted to be brought on stream at strong capital efficiencies of approximately CAD9,400 per flowing barrel. This project is targeting to exit 2021 at total production rates of approximately 8,500 barrels a day of liquids and 28 million cubit feet of natural gas.

Our international assets in 2020 had annual oil production of approximately 40,200 barrels per day, a decrease of 19% versus 2019 levels, primarily due to natural declines. Our international assets continue to generate strong free cash flow and value for the Company. Offshore Africa annual production was approximately 17,000 versus 2019 of 21,400 barrels a day, which is down due to natural field declines. CDI operating costs for 2020 were CAD13.29 per barrel versus 2019 of CAD11.21 per barrel.

In the North Sea annual production averaged 23,142 barrels a day in 2020 versus 2019 of approximately 28,000 barrels a day, primarily -- down primarily due to natural field declines and the cessation of production in Banff field in 2020. Annual operating costs were strong at CAD36.51 per barrel and were comparable to 2019 levels. The team did a great job managing costs.

Moving to heavy oil. Annual production was 70,279 barrels a day in 2020 versus 82,189 barrels in 2019, reflecting natural decline, limited investment due to commodity prices and the Alberta mandatory curtailment program. Annual operating costs were CAD17.59 per barrel versus 2019 operating costs of CAD16.66 per barrel. Fourth quarter 2020 production was 65,513 barrels versus Q4 2019 production of 94,262 barrels per day while operating costs were CAD17.61 per barrel versus Q4 2019 of CAD15.03. We continue to focus on effective and efficient operations.

A key component of our long life low decline assets is our world-class Pelican Lake pool where our leading edge polymer flood continues to deliver significant value. 2020 annual production was 56,535 barrels per day versus 2019 average of 58,855 barrels a day, only a 4% decline reflecting the very low decline of the property. The team continues to do a great job and we had very strong annual operating costs of CAD6.03 per barrel, a 3% reduction versus 2019 operating costs of CAD6.22 per barrel.

Fourth quarter 2020 production was approximately 56,000 down from the fourth quarter of 2019 of 59,000. Operating costs in Q4 2020 were very strong at CAD5.85 per barrel. At Pelican, our team continues to drive for operational excellence and has been able to mitigate the impact of decline in production over the last five years reducing the annual operating costs on a BOE basis, an excellent accomplishment by them. With a low decline and very low operating cost, Pelican Lake continues to have excellent netbacks.

We had a strong year in the thermal operations in 2020 as we continued to leverage our continuous improvement culture and our expertise to deliver effective and efficient operations. In 2020 our thermal production reached the record of approximately 249,000 barrels a day as we optimized production throughout the year under our curtailment optimization strategy. The strong annual performance in thermal reflects increase in volumes from pad adds at Primrose, production ramp-up of Kirby North and additional pad tie-in at Jackfish. Thermal annual operating costs were very strong at CAD9.44 per barrel, a decrease of 13% from 2019 levels of CAD10.83 as a result of cost synergies achieved as we integrated Jackfish and Kirby field operations as well as continued to focus on effective and efficient operations.

Q4 production was approximately 266,200 barrels a day, down from Q3 as part of our curtailment optimization strategy with operating costs of CAD9.17 per barrel. In October, our thermal team optimized the ramp up of additional pad add at Jackfish as we recorded a record monthly production of approximately 128,600 barrels a day, a great result by our team.

In the Company's world-class Oil Sands Mining and Upgrading assets, annual production averaged 417,351 barrels a day of SCO, an increase of 6% for 2019 levels, primarily as a result of high utilization rates and operational enhancements. Record low annual operating costs were achieved in 2020 and remain industry leading averaging CAD20.46 per barrel of SCO, a decrease of CAD2.10 from 2019 levels, driven by the Company's continued focus on high reliability, cost control as well as operational enhancements.

In summary, the Company increased annual SCO production by approximately 22,000 barrels a day over 2019 levels as well we reduced the total annual operating cost by CAD183 million, excluding energy costs. Our teams continue to do an excellent job here and they are focused on continuous improvement and effective and efficient operations.

At Oil Sands Mining Operations production in Q4 was approximately 417,100 barrels a day as planned maintenance was concluded at Horizon and ASOP ran well at expanded capacity. In the quarter, operating costs were strong at CAD20.20 per barrel of SCO as our teams drive for operational excellence. As well in December in our Oil Sands Mining assets, we recorded a record monthly of approximate 490,800 barrels a day as we had high utilization rates combined with enhanced capacity and operational excellence. As part of our 2021 budget, a planned 30-day turnaround is scheduled for the month of April. During the shutdown, new incremental operational tankage at the upgrader is coordinated to be tied in.

I will now turn it over to Darren for a 2020 reserves review.

Darren M. Fichter -- Chief Operating Officer, Exploration and Production

Thank you, Tim and good morning. To start, as in previous years, 100% of Canadian Natural's reserves are externally evaluated and reviewed by independent qualified reserve evaluators. Our 2020 reserves disclosure is presented in accordance with Canadian reporting requirements using forecast prices and escalated costs. The Canadian standards also require the disclosure of reserves on a Company gross working interest share before royalties.

In 2020 Canadian Natural had an excellent year, replacing 361% of the Company's 2020 production on a total proved basis, 282% for crude oil, NGLs, bitumen and synthetic crude oil and 656% for natural gas. On a total proved plus probable basis, the Company replaced 493% of the 2020 production. Total proved reserves increased 10% to 12.1 billion BOE and total proved plus probable reserves increased 12% to 15.9 billion BOE. Of the 12.9 billion BOE of total proved reserves, approximately 7 billion barrels are high-value, no decline SCO reserves. It's also important to note that 71% of Canadian Natural's total proved reserves are proved, developed, producing reserves at 8.6 billion BOE.

Finding and development costs are key indicators of the strength of our assets and the Company's ability to execute. Canadian Natural delivered top-tier results in 2020. And our strong performance is reflected in our finding and development costs. The corporate planning, development and acquisition costs, excluding changes to future development costs are CAD1.91 per BOE for total proved and CAD1.40 per BOE for total proved plus probable reserves.

Canadian Natural's finding, development and acquisition costs, including changes to future development costs, are CAD4.46 per BOE for total proved and CAD3.46 per BOE for total proved plus probable reserves. The strength and depth of the Company's asset base is evident as approximately 80% of the total proved reserves are long life, low decline resulting in our top-tier proved reserve life index of 29.8 years and total proved plus probable reserve life index of 39.2 years. The net present value of future net revenue before income taxes using a 10% discount rate and including the full Company ARO CAD80.7 billion for total proved reserves and CAD98 billion for total proved plus probable reserves.

In summary these excellent results reflect the strength and depth of Canadian Natural's asset base, the value of the Company's long life low decline reserves and our ability to execute.

Now I will hand over to Mark for the financial highlights.

Mark Stainthorpe -- Chief Financial Officer and Senior Vice-President, Finance

Thanks, Darren. The fourth quarter was strong operationally and financially as the base business delivered significant adjusted funds flow of CAD1.85 billion and free cash flow of approximately CAD700 million after capital and dividends in the quarter excluding both the Painted Pony acquisition and the transportation provision taken in the quarter related to the Keystone XL pipeline project. This was a very strong result and contributed to us exiting 2020 in a robust financial position.

Our net debt balance at the end of 2020 would have been down approximately CAD80 million from ending 2019 levels excluding costs related to the acquisition completed in Q4. This includes over CAD2.2 billion returned to shareholders in 2020 through an increased dividend and share repurchases in the year. Focusing on the second half of 2020, we reduced absolute net debt by over CAD1.5 billion as free cash flow was allocated to debt reduction. To date in 2021 we continue to generate significant and growing free cash flow, which has already been allocated to debt repayment, including retiring CAD362.5 million of non-revolving term loans.

The robust free cash flow generation from our assets will continue to facilitate further balanced allocation to our four pillars over the long term. This clearly demonstrates the sustainability of our business model, the ability of our unique long life, low decline asset base with low maintenance capital requirements and effective and efficient operations to generate significant free cash flow. We continue to maintain significant liquidity. Including revolving bank facilities, cash and short-term investments, liquidity at year-end 2020 was approximately CAD5.4 billion and we had approximately CAD0.5 billion in commercial paper for which we reserve capacity under these revolving facilities.

Given the confidence in our long life low decline assets and sustainability of our free cash flow, the Board of Directors have increased the dividend by 11% to CAD1.88 per share annually with the first quarterly payment of CAD0.47 per share payable on April 5th, 2021. This represents the 21st consecutive year of dividend increases, represents a 20% CAGR since inception, and further demonstrates the commitment to returning value to shareholders.

In addition, subsequent to year-end, the Board of Directors authorized management subject to acceptance by the TSX to repurchase shares under a Normal Course Issuer Bid targeted to equal options exercised throughout the coming year in order to eliminate dilution to shareholders. Given the increase in commodity prices since our budget release in December, the forecast for free cash flow generation in 2021 is significantly higher. At an average price of approximately $57 WTI, we now target to generate between CAD10.3 billion and CAD10.8 billion of adjusted funds flow which equates to CAD4.9 billion to CAD5.4 billion of free cash flow after capital and the increased dividend. This provides significant opportunity to optimize allocation to our four pillars, including further debt reductions and continued returns to shareholders.

With that, I'll turn it back to you, Tim.

Tim S. McKay -- President

Thanks, Mark. Canadian Natural's advantage is our ability to effectively allocate cash flow to our four pillars. We have a well-balanced, diverse and large asset base of which a significant portion is long life low decline assets which requires less capital to maintain volumes. We balanced our commodities in 2020 with approximately 47% of our BOEs light crude oil and SCO, 32% heavy and 21% natural gas, which lessens our exposure to the volatility in any one commodity as we move through 2021.

We will continue to allocate cash flow to our four pillars in a disciplined manner to maximize value for our shareholders, which is all driven by effective capital allocation, effective and efficient operations and by our teams who delivered top tier results. We have robust sustainable free cash flow. And even in a challenging year as 2020, returns to shareholders were significant at approximately CAD2 billion in dividends, CAD0.3 billion in share purchases for a total of CAD2.3 billion. And today, our dividend was increased by 11% for the 21st consecutive year.

In summary, we continue to focus on safe, reliable operations and enhancing our top-tier operations and we will continue to drive our environmental performance. We are in a very strong position. Being nimble enhances our capacity to create value for our shareholders. Canadian Natural is delivering top tier, free cash flow generation which is unique, sustainable and robust and clearly demonstrates our ability to both grow economically the business and deliver returns to shareholders by balancing our four pillars.

With that, we will now open the call to questions. Thank you.

Questions and Answers:

Operator

[Operator Instructions] First question comes from Menno Hulshof with TD Securities.

Menno Hulshof -- TD Securities -- Analyst

Good morning everyone and thanks for taking my questions. I'll just start with one on your ongoing two-year solvent EOR pilot at Kirby South. And I believe you have a second pilot plan for Primrose. So maybe you could just give us an update on how that's going and what is your best guess on when you'll have the confidence to roll out that process commercially.

Tim S. McKay -- President

Sure. Tim here. At Kirby South we got one more year in which we need to see how much of our solvent will recover to get that piece comfortable with where our recoveries would be. And then at Primrose we're just initiating that pilot. And again it's kind of a two to three-year period. And based on Kirby South we feel very confident obviously to try it down at Primrose. So in general, it's about a two to three-year period to get kind of a full cycle of results.

Menno Hulshof -- TD Securities -- Analyst

So do you think you would have to complete the Primrose pilot first before you would consider the commercial rollout?

Tim S. McKay -- President

For the Primrose area absolutely.

Menno Hulshof -- TD Securities -- Analyst

Okay.

Tim S. McKay -- President

At Kirby South to do that piece, we just need one more year.

Menno Hulshof -- TD Securities -- Analyst

Okay. And then my --

Tim S. McKay -- President

They are different.

Menno Hulshof -- TD Securities -- Analyst

Sorry, go ahead.

Tim S. McKay -- President

Yeah, they are different processes. Obviously Kirby South is SAGD. And then Primrose where we're leveraging that technology is on the steam flood area.

Menno Hulshof -- TD Securities -- Analyst

Okay. Okay. Thanks for that, Tim. And then I'll follow up with a question on CSS given all of the news flow that we've had on that front, including Exxon yesterday. Obviously you're a dominant CCS player already, but is there any low-hanging fruit in terms of brownfield expansions on either the capture or storage side of things that could boost existing capacity over the mid-term?

Tim S. McKay -- President

So not quite sure with your question but at Primrose obviously we have extra steam capacity. So really all we would have to do is just get the OK to do more pad adds and we can add approximately 80,000 barrels a day right at Primrose itself. So obviously that's not in our plan today. We're taking a conservative approach here this year waiting on some Enbridge to get Line 3 approved and on stream. So we have that in our back pocket for future development.

Mark Stainthorpe -- Chief Financial Officer and Senior Vice-President, Finance

Hey, Menno, this is Mark. Was your question on CSS or CCS? [Speech Overlap]

Menno Hulshof -- TD Securities -- Analyst

Oh, sorry, CCS, I might have -- I might have misspoken. Yeah, I was referring to CCS.

Mark Stainthorpe -- Chief Financial Officer and Senior Vice-President, Finance

So, more on the carbon capture front?

Menno Hulshof -- TD Securities -- Analyst

Yeah. Yeah, that's right. Any -- my specific question was is there any low-hanging fruit in terms of expansions on the capture or storage side of things that could take your existing capacity up within the next, call it, three to five years?

Mark Stainthorpe -- Chief Financial Officer and Senior Vice-President, Finance

Well, we're just working through those details right now. Obviously our advantage is having the infrastructure in place. So obviously to do that it's quite easily done. The biggest issue is just trying to walk through the technical changes. So if you look at something like in the thermal side, if we go toward solvents, we're going to cut our GHG emissions in half. And then in certain areas there is areas where you can do CO2 disposal quite cheaply without tying into the infrastructure. So there's lots of options. Our teams are very focused on going through those details and coming up with the best solution to reduce our greenhouse gases.

Menno Hulshof -- TD Securities -- Analyst

Excellent. Thanks for that, Tim and Mark.

Operator

Next question comes from Philip Gresh with J.P. Morgan.

Philip Gresh -- J.P. Morgan -- Analyst

Hey. Good morning. First question, very helpful color on the free cash flow generation potential here. Mark, I guess, is the goal here for 2021 just to ratchet the debt down toward that CAD15 billion net debt target that you've talked about in the past is get there as quickly as you can or I guess what other considerations do you have in terms of areas of potential uses of cash, whether it's capital or buybacks, what are scenarios where you might consider other options? Thank you.

Mark Stainthorpe -- Chief Financial Officer and Senior Vice-President, Finance

Yeah. Thanks, Phil. And as you mentioned, we put some clarity around the free cash flow profile for 2021. As we mentioned, the dividend has been increased by the Board. So that's been set here CAD1.88 a share. And then we've instituted or we've been given the direction by the Board that we can buy back shares equal to the amount that is exercised from our option program, so basically just to eliminate the dilution to shareholders. So those are kind of the two free cash flow profiles right now for a shareholder return and then it goes to debt repayment. So you'll see in my view, significant reductions in debt as we go forward, given that significant free cash flow profile.

Philip Gresh -- J.P. Morgan -- Analyst

Right, OK. And as you -- having gone through the COVID environment, is CAD15 billion still roughly the right target you're thinking about or has anything changed in that regard, in your view?

Mark Stainthorpe -- Chief Financial Officer and Senior Vice-President, Finance

Yeah, right now we're just -- we generate significant free cash flow. About CAD15 billion was part of free cash flow allocation profile. I think if you look at where we exited 2020, able to keep that flat from basically flat from 2019 levels shows that we are going to increase that debt level likely quite quickly here given the strip pricing. So I think you will see that level get achieved very quickly.

Philip Gresh -- J.P. Morgan -- Analyst

Okay. And that would still be generally where your target -- your long-term target would be that's where you're comfortable on, say, a mid-cycle or however you want to look at it in a volatile oil price environment?

Mark Stainthorpe -- Chief Financial Officer and Senior Vice-President, Finance

Yeah. So I think when the free cash flow allocation policy was out there that was a target, but that was when we would revisit looking at different allocation profiles. So we'll just continue here to manage the four pillars as we have in the past.

Philip Gresh -- J.P. Morgan -- Analyst

Sure. Last one for me just on the capex side of things. I mean, it seems like pretty clear that you would prefer not to raise capital in this environment. I'm guessing inflation is probably pretty tame as well. So is there just essentially no real scenario here in 2021 where you think about allocating more to growth capitals in more of a 2022 and beyond type of event or just any last thoughts there? Thanks a lot.

Tim S. McKay -- President

I think -- Tim, here again. I think if you look at, let's say, 2020 that year started off very robust and changed very quickly. If we look at into 2021 the volatility can still be quite extreme. Obviously, there is still spare capacity in opex. So I think we're very happy where we are today with our capex and we'll just look to manage our balance sheet to the end of the year.

Philip Gresh -- J.P. Morgan -- Analyst

Okay, very clear. Thank you.

Operator

Next question comes from Greg Pardy with RBC Capital Markets.

Greg Pardy -- RBC Capital Markets -- Analyst

Yeah. Thanks. Good morning. I'm going to come back to Phil's question, but maybe just to ask in a slightly different way. When you go back to the minor downgrade from S&P, right, which was sort of placing a greater industry risk or what have you around the oil sands business generally or energy, generally, I guess, Mark does that cause you to think differently about what the appropriate level of debt to cash flow or debt to cap is, maybe in the context of how the rating agencies are going to work with you guys versus in the past?

Mark Stainthorpe -- Chief Financial Officer and Senior Vice-President, Finance

Thanks, Greg. We always monitor and look at these things over the long term. So 2020 obviously an aberration in pricing given the global pandemic. We have our four pillars of capital allocation that we've always been focused on being relatively balanced. So you have to also look Greg at the source of the cash flow. It's certainly different compared to different E&P companies, because of the sustainability of that cash flow, because of the assets and reserves as Darren went over that underlie in that free cash flow. So it's much more sustainable in different pricing environment. So I think we saw that through 2020.

Greg Pardy -- RBC Capital Markets -- Analyst

Okay. Perfect. Yeah, that's it for me. Thank you.

Operator

Next question comes from Manav Gupta with Credit Suisse.

Manav Gupta -- Credit Suisse -- Analyst

So first of all, I want to congratulate you. I think it was only two quarters ago that many were questioning the sustainability of your dividend. You have proven that you are always right and you knew your assets better than everybody else by raising the dividend. So wanted to congratulate you on that.

Tim S. McKay -- President

Yes, Manav. Thank you.

Manav Gupta -- Credit Suisse -- Analyst

My quick question here is, I think I heard that in December, you hit 490,000 at Oil Sands. I wanted to confirm if that was the right number. It wasn't for 419,000, it was 490,000. And I just want to understand have you ever hit that level before? I think you did very well in 2Q of '20 when you hit for the quarter about 465,000. But I don't think you hit 490,000 even back then. So if you could just help us understand how you got to 49,000 in the month of December.

Tim S. McKay -- President

Sure. So that was me with my words getting lost there, but it was 490,800 barrels a day for the month of December. And obviously December 1st curtailment came off. We had the extra capacity at ASOP, gross capacity of 320,000 barrels a day and then as well at Horizon they had an excellent month around 260,000. So in both areas, you really have to look at how well our teams have done there in terms of enhancing our production. It's been small increments, but every year they've been able to find a little more capacity and lower our costs. And they've really done an excellent job. They really look at what are sustainable changes that we can enhance, our operating costs, increase our reliability and enhance our production volume. So, yeah, it was 490,800 barrels a day. It's a tremendous job by our team there.

Manav Gupta -- Credit Suisse -- Analyst

Congratulations. Great result. I have a quick follow-up. You always have a very informed view on apportionments, pipelines. We had a little bit of a setback here with Keystone. But do you think Enbridge Line 3 and TMX can still make sure that this don't blow out any comments you have on the apportionment at current times?

Tim S. McKay -- President

Sure. Right now apportionment obviously on the right side is zero. So that's very positive for the light oil side. And then on the heavy side, we're still seeing, I would say elevated apportionment, 47% for March. And this will change, it will go down again as we start into our turnaround seasons and ourselves and many others will be doing maintenance activities. I guess on the heavy side, the interesting part, even though it's a 47% apportionment the differentials are quite low at about CAD11. So it's a kind of an interesting phenomena now. Obviously, we feel very comfortable that Line 3 will progress onward and we're going to this year work through that and see that Enbridge will get that on stream here in Q3.

Manav Gupta -- Credit Suisse -- Analyst

Thank you for taking my questions and congrats on the dividend hike.

Tim S. McKay -- President

Thank you.

Mark Stainthorpe -- Chief Financial Officer and Senior Vice-President, Finance

Thanks, Manav.

Operator

[Operator Instructions] You have a question from Neil Mehta with Goldman Sachs.

Neil Mehta -- Goldman Sachs -- Analyst

Good morning, team and congrats again on this free cash flow guidance. I guess the first question is just really around the cash flow number, the CAD10.3 billion to CAD10.8 billion is predicated on $57 WTI, obviously post-OPEC today. We are significantly above that. So the question is sort of the assumptions that go into that CAD10.3 billion to CAD10.8 billion. What are you assuming for crude differentials? And then can you remind us what you're using for FX as well? And then -- and what the sensitivity is to every dollar change in WTI?

Mark Stainthorpe -- Chief Financial Officer and Senior Vice-President, Finance

Hey, Neil. It's Mark. Thanks for that. Just so everybody knows in the advisory at the back of the press release, you will find these numbers as far as the forecasts that went into those numbers. So the WCS discount was $11.77 per barrel, AECO was at CAD2.88 at GJ and FX about CAD1.27. So those are all just strip prices at the time that we ran the forecast.

Neil Mehta -- Goldman Sachs -- Analyst

And the sensitivity to every dollar change?

Mark Stainthorpe -- Chief Financial Officer and Senior Vice-President, Finance

So the sensitivity every dollar change -- obviously changes as the cash flow goes up because you generate more US dollar revenue. So at budget time it was probably in the neighborhood of CAD82 million. It's probably above CAD100 million to CAD125 million now at -- out of penny change. I'm sorry, and that's cash flow after tax for a yearly average.

Neil Mehta -- Goldman Sachs -- Analyst

I'm sorry, that's for FX right? But for every dollar change in WTI?

Mark Stainthorpe -- Chief Financial Officer and Senior Vice-President, Finance

Every dollar change in WTI is about CAD330 million cash flow after tax Canadian.

Neil Mehta -- Goldman Sachs -- Analyst

Okay. That's perfect. And then just a follow-up is your thoughts around M&A, do you still -- you've been opportunistic or able to tuck-in Painted Pony last year. What do you think the market environment is for bolt-on acquisitions in Canada or do you view this as a time that you really want to just organically delever and return capital to shareholders with the strong recovery in valuations and the commodity price?

Tim S. McKay -- President

I think our real key focus is delever work on our operations here. But you never can say never. We've always been opportunistic in our acquisitions and we look at a lot of opportunities that we have synergies that we feel we can add a lot of value for our shareholders. So to me, today we are looking to delever very quickly but we always look for, in terms of optimistic opportunities.

Neil Mehta -- Goldman Sachs -- Analyst

Thanks, guys.

Tim S. McKay -- President

Thanks, Neil.

Operator

The last question comes from William Lacey with ATB Capital Markets.

William Lacey -- ATB Capital Markets -- Analyst

Gentlemen, just real quick question and I apologize if you've got this outlined somewhere. Just your thoughts on taxes other than the fact that you hate them and on royalties, especially in terms of sort of post payout timing for projects, do you have any insights on that?

Mark Stainthorpe -- Chief Financial Officer and Senior Vice-President, Finance

Sure, William. It's Mark. I'll leave some of the detail, maybe to IR to go through with you after, but if you look at cash taxes, when we ran the budget for 2021 in December when we had our budget press release, we were running at $45 WTI. Just to give you some perspective, at that time cash taxes were in the CAD250 million to CAD300 million range. I would suggest that strip here and $57 WTI range we'd be north of CAD1 billion. But again, I'll let you take that off with IR and kind of go through the detailed modeling on it.

Same goes for royalties. You're right. We have Oil Sands Royalty projects that of course of a royalty regime that has a pre and post payout. So as we generate more cash flow from those properties, we can get into payout. So another thing that I'll let IR take off with you.

William Lacey -- ATB Capital Markets -- Analyst

All right. Thanks.

Operator

And at this time, I will turn the call over to Mr. Bieber.

Corey Bieber -- Executive Advisor

Thank you, operator and thank you everyone for attending this conference call this morning. Canadian Natural's large well diverse asset base continues to drive significant shareholder value, even through years as turbulent as 2020. The ability of our teams to deliver effective and efficient operations with top-tier performance is contributing to proven resilience as well as substantial and sustainable free cash flow. 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 us a shout. Thank you and goodbye.

Operator

[Operator Closing Remarks]

Duration: 41 minutes

Call participants:

Corey Bieber -- Executive Advisor

Tim S. McKay -- President

Darren M. Fichter -- Chief Operating Officer, Exploration and Production

Mark Stainthorpe -- Chief Financial Officer and Senior Vice-President, Finance

Menno Hulshof -- TD Securities -- Analyst

Philip Gresh -- J.P. Morgan -- Analyst

Greg Pardy -- RBC Capital Markets -- Analyst

Manav Gupta -- Credit Suisse -- Analyst

Neil Mehta -- Goldman Sachs -- Analyst

William Lacey -- ATB Capital Markets -- Analyst

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