Canadian Nat'l in Neutral Lane - Analyst Blog
September 11 2012 - 9:45AM
Zacks
We are maintaining our Neutral
recommendation on Canadian Natural Resources Ltd.
(CNQ) – a company engaged in the acquisition, development and
exploitation of crude oil and natural gas properties.
The company displays an impressive portfolio of exploration and
development projects, planned investment program and updated
outlook. We also appreciate Canadian Natural’s diverse asset base
both geographically and in terms of product, comprising
approximately 35% natural gas and 65% crude oil with the bulk of
production located in G8 countries.
During the second quarter of 2012, Canadian Natural performed
modestly with earnings per share, excluding one-time and non-cash
items, of 55 Canadian cents (54 U.S. cents) lagging our estimate of
59 U.S. cents. Quarterly revenue of C$3,826.0 million (US$3,864.2
million), however, surpassed our projection of US$3,504.0
million.
The quarterly results reflect robust crude oil and natural gas
liquids sales volumes in North America, partially negated by poor
performing North Sea region and steeper production costs.
For the third quarter, the company is guiding toward production of
451,000–480,000 barrels per day (Bbl/d) of liquids and 1,170–1,190
million cubic feet per day (MMcf/d) of natural gas. For 2012, the
company guided toward production of 454,000–474,000 Bbl/d of
liquids and 1,220–1,235 MMcf/d of natural gas. We believe that
extensive drilling activities, development works at Primrose unit
and advanced technological applications will aid the company in
accomplishing the set goal.
Calgary, Alberta-based Canadian Natural’s strong, balanced and
diverse asset portfolio, combined with its focus on low cost
operations, allowed it to generate substantial free cash flow even
in a low price environment. Additionally, with most of the
company’s production generated from North America, Canadian Natural
escapes the political risk associated with operations in unstable
countries.
However, the unstable macro environment and unpredictable
operational hazards pose as overhangs for the stock. The company’s
results for the coming quarters are directly exposed to oil and gas
prices, which are inherently volatile and subject to complex market
forces.
A significant portion of Canadian Natural’s production/reserves
growth in the last few years has come from property acquisitions,
exposing it to acquisition-related risks. The company may find it
difficult to complete accretive transactions in the future, which
could negatively impact its growth rate.
Considering these factors, we recommend investors to hold on to the
stock, until major catalysts push it higher. Canadian Natural, like
the other domestic energy company Encana Corp.
(ECA), 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
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