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Analyst Blog

On Aug 7, independent exploration and production (E&P) company, Canadian Natural Resources Ltd. (CNQ - Analyst Report) reported better-than-expected second-quarter 2014 earnings on the back of higher production and improved realizations.  

The company reported earnings (excluding one-time and non-cash items) of C$1.04 (approximately 95 U.S. cents), substantially higher than the year-ago quarter’s adjusted profit of 42 Canadian cents and ahead of the Zacks Consensus Estimate of 91 cents.

Quarterly revenues of C$5,371million (US$4,923.1 million) were up about 42% from the year-ago period on higher product sales.  However, the top line fell short of the Zacks Consensus Estimate of US$5,132 million.

Canadian Natural’s second-quarter cash flow from operations – a key metric to gauge its capability to fund new projects and drilling – amounted to C$2,633 million, 57.7% higher than second-quarter 2013.

Dividend

The company declared a quarterly cash dividend of 22.5 cents per share, flat sequentially. The dividend will be paid on Oct 1 to shareholders of record as of Sep 12.

Production

Canadian Natural reported quarterly production of 817,471 barrels of oil equivalent per day (BOE/d), 31.2% higher than 623,315 BOE/d in the prior-year quarter.

Natural gas production increased to 1,634 million cubic feet per day (MMcf/d) from 1,122 MMcf/d in the second quarter of 2013. Oil and natural gas liquids (NGLs) production increased to 545,169 barrels per day (Bbl/d) – a record quarterly production –up from 436,363 Bbl/d in the year-ago quarter.

Realized Prices

On a reported basis, the average realized crude oil price (before hedging) during the second quarter was C$87.03 per barrel, representing an increase of nearly 16% from the corresponding quarter last year. The average realized natural gas price (excluding hedging) during the three months ended Jun 30, 2014 was C$5.06 per thousand cubic feet (Mcf), up from the year-ago level of C$4.05 per Mcf.

Total Expenses

Total expenses came in at C$3,927 million, reflecting a rise of roughly 25.4% from C$3,132 million in the year-earlier quarter.

Capital Expenditure & Balance Sheet

Canadian Natural's total capital spending during the reported quarter was C$5,456 million, as against C$1,792 million in the year-ago quarter.

As of Jun 30, 2014, Canada’s second-largest natural gas producer had C$31 million cash and cash equivalents and long-term debt (including current portion) of approximately C$13,437 million, representing a debt-to-capitalization ratio of 33%.

Guidance

For third-quarter 2014, Canadian Natural anticipates liquid production in the 505,000– 532,000 Bbl/d range while natural gas output is expected between 1,645 MMcf/d to 1,675 MMcf/d.

Canadian Natural anticipates 2014 liquid production in the 531,000–557,000 Bbl/d band, lower than the previous guidance. However, the company increased its expected 2014 natural gas output to the 1,550–1,570 MMcf/d range.

The company anticipates 2014 capital expenditure in the range of C$11,825–C$12,225 million.

Zacks Rank & Other Stocks

Canadian Natural currently carries a Zacks Rank #2 (Buy), implying that it is expected to outperform the broader U.S. equity market over the next one to three months.

One can also consider other upstream players like Cheniere Energy, Inc. (LNG - Snapshot Report), Gastar Exploration Inc. (GST - Snapshot Report) and Clayton Williams Energy, Inc. (CWEI - Snapshot Report). All these stocks have a Zacks Rank #1 (Strong Buy).

 

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