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Canadian Natural Prospects Dulled by Recent Oil Price Slump - Analyst Blog

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We issued an updated research report on independent exploration and production firm, Canadian Natural Resources LimitedCNQ on Jul 8, 2015. The recent one-day steepest decline in crude price has impacted almost all upstream energy players. Canadian Natural is not an exception.

This is reflected in Canadian Natural's current Zacks Rank #4 (Sell), which implies that the stock will underperform the broader U.S. equity market over the next one to three months.

On Jul 6, crude price encountered the largest one-day fall since this February. A weakening Chinese economy and the probable flood of Iranian oil in an over-supplied commodity market led to the freefall. Moreover, some analysts are predicting crude to go even low to below $50 per barrel. These have impacted Canadian Natural as its business is directly related to oil price.

We should also consider that the company's total costs have been flaring up for the last three years. Canadian Natural reported total expenses of C$13,700 million in 2014, reflecting an increase of roughly 4.5% from 2013, 14.4% from 2012 and 38.6% from the 2011 level.

Additionally, Canadian Natural anticipates 2015 capital expenditures of C$5.75 billion, down from the previous guidance of C$6.04 billion and below the 2014 spending of $11.7 billion, to tackle pricing woes. Hence the reduced capital deployment is likely to result in lower drilling activities, which could hamper production volumes.

It is also necessary to know that environmental organizations argue that oil sands crude is greenhouse-gas intensive, and thereby contributes to global warming. As such, there have been widespread regulations over Canada's oil sands development in an attempt to bring about global climate change and meet the country's emissions-reduction goals. These policies could impact the future profitability in the oil sands business.

Stocks to Consider

Not all energy players are expected to underperform like Canadian Natural. Some better-ranked players in the same space are Linn Energy LLC LINE , Ocean Rig UDW Inc ORIG and Noble Energy Inc. NBL . All these stocks sport a Zacks Rank #1 (Strong Buy).

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CDN NTRL RSRCS (CNQ): Free Stock Analysis Report

NOBLE ENERGY (NBL): Free Stock Analysis Report

LINN ENERGY LLC (LINE): Free Stock Analysis Report

OCEAN RIG UDW (ORIG): 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 Nasdaq, Inc.


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

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