Canadian Natural Stays Neutral - Analyst Blog

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We are maintaining a Neutral rating on Canadian Natural Resources Ltd. ( CNQ ), reflecting its large, diversified oil and gas asset base, capital investment plans and healthy financial position, partially offset by volatile oil and gas fundamentals.

Calgary, Alberta-based Canadian Natural is engaged in the acquisition, development and exploitation of crude oil and natural gas properties. It is one of the largest independent exploration and production companies in Canada, with extensive heavy crude oil and natural gas developments.

As of the end of 2011, the company had approximately 4.83 billion oil-equivalent barrels (BBOE) in total proved reserves, of which approximately 85% was crude oil/liquids and 15% natural gas. In addition, Canadian Natural had approximately 2.12 billion barrels in total proved reserves in its oil sands (naturally occurring mixtures of bitumen water and sand) operations in the Province of Alberta.


The company exhibits 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, with the bulk of production located in various countries.

Canadian Natural has invested a significant amount of capital in oily projects to boost production. The company expects light oil and natural gas and liquids in Canada to grow 17%, primary heavy oil to increase 16% and thermal in situ heavy oil to expand 10% in 2012. We believe that extensive drilling activities, development works at Primrose unit and advanced technological applications will aid the company in accomplishing the set goal.

However, our optimism is somewhat clouded by the company's weak performance in the last three months of 2011, hurt by lower volumes in North Sea and Offshore Africa, lower realized natural gas prices and steeper production costs.

Additionally, Canadian Natural pursues long-term oil projects, which call for large capital outlays and several years of development before any cash flow is realized. Therefore,cost and time overrun in the company's ongoing projects have a negative impact on the stock's performance.

The company's results in the coming months are directly exposed to the oil and gas prices, which are inherently volatile and subject to complex market forces. Realized prices could differ significantly from our estimates, thereby affecting the company's revenues, earnings and cash flow.

Canadian Natural, which competes with other Canadian behemoths like EnCana Corp. ( ECA ) and Suncor Energy Inc. ( SU ), currently, retains a Zacks #3 Rank that translates into a short-term Hold rating.


 
CDN NTRL RSRCS ( CNQ ): Free Stock Analysis Report
 
ENCANA CORP ( ECA ): Free Stock Analysis Report
 
SUNCOR ENERGY ( SU ): 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: CNQ , ECA , SU

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As of 12/18/2014, 04:15 PM


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