On Jul 15, 2014, we issued an updated research report on
Canadian Natural Resources Limited
). 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 (
TC PipeLines LP
Magellan Midstream Partners LP
). All these stocks sport a Zacks Rank #1 (Strong Buy).
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