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Why Canadian Natural Agreed to Sell C$1.8B Royalty Assets?

Canadian Natural Resources LimitedCNQ , a leading exploration and production (E&P) company in Canada, has decided to divest a chunk of its royalty land resources to PrairieSky Royalty Ltd, a company that upstream firm Encana Corporation ECA had spun-off last year .

The to-be divested properties cover roughly 5.4 million acres all over Western Canada for which PrairieSky will pay C$1.8 billion - including 44.4 million common shares and C$680 million in cash. It is to be noted that with the inclusion of 5.4 million acres of land, PrairieSky will have a total of roughly 14.7 million royalty acres.

The asset sale reflects Canadian Natural's intention to strengthen its balance sheet amid weak oil and natural prices. In fact, Canadian Natural had for some time been considering the sale of its royalty operations in 2015. Cenovus Energy Inc. CVE , among other players, has also decided to divest its royalty producing acres in Canada.

Unlike a few energy players like Royal Dutch Shell plc RDS.A , Canadian Natural recently reported better-than-expected third-quarter 2015 earnings. Earnings per share came at 14 cents that surpassed the Zacks Consensus Estimate of 11 cents. Substantial increase in oil production volumes and cost-improvement measures resulted in the beat.

Calgary, Alberta-based Canadian Natural Resources is engaged in the acquisition, development and exploitation of crude oil and natural gas properties. It is one of the largest independent E&P companies in Canada, with extensive heavy crude oil and natural gas developments. We are concerned about the company's prospect as persistent weakness in crude prices has put pressure on its financials.

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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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