Commenting on third quarter 2018 results, Steve Laut, Executive Vice-Chairman of Canadian Natural stated, "The strength of our well balanced and diverse portfolio, combined with Canadian Natural's ability to effectively and efficiently execute, delivered a strong third quarter for the Company. Record quarterly adjusted funds flow of over $2.8 billion was achieved in the third quarter and adjusted funds flow of $7.9 billion was achieved in the first nine months of 2018. Capital allocation continued to be balanced amongst our four pillars to maximize shareholder value. In the first nine months of 2018, economic resource development remained disciplined at 40% of adjusted funds flow. Returns to shareholders were robust at 26% of adjusted funds flow and 31% of adjusted funds flow was allocated to the balance sheet further strengthening our financial position. Lastly, the Company executed on minor tuck-in acquisitions, 3% of adjusted funds flow, that add optionality and significant future value.
Based on the significant progress made to date in strengthening the Company's balance sheet as well as the sustainability of Canadian Natural's free cash flow, the Board of Directors has approved a more defined free cash flow allocation policy in accordance with the Company's four stated pillars. Under the new policy, the Company will target to allocate, on an annual basis, 50% of its residual free cash flow, after budgeted capital expenditures and dividends, to share purchases under its Normal Course Issuer Bid ("NCIB") and the remaining 50% to reducing debt levels on the Company's balance sheet. This free cash flow policy will target a ratio of debt to adjusted 12 months trailing EBITDA of 1.5x and an absolute debt level of $15.0 billion, at which time the policy will be reviewed by the Board. At present, this policy is expected to be in place until at least the Company's NCIB renewal in May 2019, subject to quarterly review by the Board of Directors. This policy is effective November 1, 2018."
Canadian Natural's President, Tim McKay, added, "Operations were strong in the third quarter of 2018 across our large, balanced and diverse asset base. The planned turnaround at our Horizon operations was successfully completed under budget and production ramped up on schedule. Our focus on effective and efficient operations resulted in strong quarterly unadjusted operating costs of $22.90/bbl (US$17.52/bbl) of Synthetic Crude Oil ("SCO") and adjusted operating costs of $19.95/bbl (US$15.26/bbl) of SCO at our Oil Sands Mining and Upgrading operations. International production volumes were strong in the quarter and exceeded previously issued Q3 guidance as a result of the successfully completed 2018 drilling program in the North Sea and strong production from a newly drilled well in Offshore Africa. Our International light crude oil volumes receive Brent pricing which averaged US$75.46/bbl in the third quarter, generating significant adjusted funds flow. Thermal in situ quarterly production volumes averaged 112,542 bbl/d, exceeding Q3/18 guidance, primarily due to the cyclical nature of steaming cycles and from production resuming following the completion of planned maintenance activities in Q2/18, as a result of proactive and strategic decisions made earlier in the year.
Canadian Natural maintains a flexible and disciplined capital allocation strategy with a focus on maintaining a strong financial position and delivering significant shareholder value. In light of current market conditions driven by market access restrictions, lack of fiscal competitiveness and regulatory uncertainties, the Company will exercise its capital flexibility and allocate capital to those areas that maximize shareholder value. Canadian Natural will continue to make strategic decisions to reduce drilling activity, delay well completions and shut in production. The effectiveness of our strategies, combined with our ability to execute on these strategies, allows us to be nimble, capture opportunities and be more sustainable through these challenges."
Canadian Natural's Chief Financial Officer, Corey Bieber, continued, "In the third quarter Canadian Natural continued to deliver on its commitment to strengthen the balance sheet. The Company achieved quarterly net earnings of $1,802 million and record quarterly adjusted funds flow of $2,830 million, contributing to absolute net long-term debt reduction of approximately $2,880 million year to date. In the quarter, available liquidity improved to $5,350 million, an increase of approximately $550 million from the second quarter of 2018. Debt to adjusted EBITDA strengthened to 1.7x and debt to book capitalization improved to 36.8% over the quarter. Our focus on returns to shareholders has resulted in $2,030 million being returned to shareholders, in the first nine months of 2018, by way of dividends of $1,156 million and share purchases of $874 million. Subsequent to the quarter, an additional 6,900,000 shares were purchased at a weighted average share price of $38.66. Our balance sheet strength gives us the flexibility to deliver our defined growth plan and continue to drive long-term shareholder value creation."