Canadian Natural Resources Strengths Offer Market Immunity - Analyst Blog

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On Jul 15, 2014, we issued an updated research report on Canadian Natural Resources Limited ( CNQ ). The independent oil and gas explorer's diverse asset base, strong financial backup and efficient management team provide a buffer against uncertainties in the sector. However, we remain concerned as the company's total costs have been rising for the last two years. This balanced view is reflected in Canadian Natural's current Zacks Rank #3 (Hold) - implying that the company is expected to perform in line with the broader U.S. equity market over the next one to three months.

Canadian Natural has a broad portfolio of low-risk exploration and development projects that yield long-term volume growth at above-average rates. We appreciate the company's diverse asset base both geographically and in terms of products, comprising approximately 30% natural gas and 70% crude oil with the bulk of production located in G8 countries. We believe that this significantly reduces the company's risk profile and lends a high level of stability.

In addition to the conventional oil and gas production assets, Canadian Natural is also a major oil sands player with several projects lined up. The company achieved a significant milestone in Feb 2009 when it started the Horizon oil sands program. Production of Synthetic Crude Oil (SCO) from the project has averaged more than 100,000 barrels per day (Bbl/d) in 2013. The company expects annual production to eventually ramp up to 500,000 Bbl/d by the next decade, and significantly augment Canadian Natural's long-term production growth profile.

Canadian Natural also displays a healthy financial position, reflected by a debt-to-capitalization ratio of 28.2%, making the company less susceptible to financial risks. Backed by this strength, management has hiked dividend for 14 consecutive years.

On the flip side, Canadian Natural's total costs have been rising over the last two years, raising concerns. The company reported total expenses of C$13,109 million in 2013, reflecting an increase of roughly 32.7% from 2011 and 9.4% from 2012.

Moreover, environmental organizations argue that oil sand crude is greenhouse-gas intensive, and contribute to global warming. As such, there have been widespread regulations over Canada's oil sands development in an attempt to stem global climate change and meet the country's emissions-reduction goals. These policies could impact the future profitability of the company.  

Stocks that Warrant a Look

Better-ranked energy players include ConocoPhillips ( COP ), TC PipeLines LP ( TCP ) and Magellan Midstream Partners LP ( MMP ). All these stocks sport a Zacks Rank #1 (Strong Buy).


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MAGELLAN MDSTRM (MMP): Free Stock Analysis Report

CDN NTRL RSRCS (CNQ): Free Stock Analysis Report

TC PIPELINES (TCP): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: SCO , COP , MMP , CNQ , TCP

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