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Canadian Natural Misses, Tops Rev

CNQ ECA

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Independent oil and gas explorer Canadian Natural Resources Ltd. (CNQ - Analyst Report) reported mixed second-quarter 2012 results, reflecting robust crude oil and natural gas liquids sales volumes in North America, partially offset by poor performing North Sea region and steeper production costs.

Earnings per share, excluding one-time and non-cash items, came in at 55 Canadian cents (54 cents US) in the quarter lagging the Zacks Consensus Estimate of 59 cents US. The Calgary, Alberta-based operator’s per share profits were also slightly lower than the second-quarter 2011 level of 56 Canadian cents (55 cents US), hurt by the lower price realizations for oil and gas.

Quarterly revenue of C$3,826.0 million (US$3,864.2 million) was up 14.8% from the year-ago period. The result also surpassed our projection of US$3,504.0 million.

Canadian Natural’s second quarter cash flow – a key metric to gauge its capability to fund new projects and drilling – amounted to C$1,754.0 million, which was 13.3% higher than that achieved in the second quarter of 2011.

Production

Total production during the quarter was up 22.1% year over year at 679,607 oil-equivalent barrels per day (BOE/d). Oil and natural gas liquids (NGLs) production hiked approximately 34.5% to 470,523 barrels per day (Bbl/d), primarily due to higher volumes from the “Horizon” Oil Sands Project and increased drilling activities.

Natural gas production also improved 1.2% year over year to 1,255 million cubic feet per day (MMcf/d), with strong contributions from the acquired natural gas producing properties.

Realized Prices

On a reported basis, the average realized crude oil price (before hedging) during the second quarter was C$69.99 per barrel, representing a drop of 15.2% from the corresponding quarter last year. The average realized natural gas price (excluding hedging) during the three months ended June 30, 2012 was C$1.90 per thousand cubic feet (Mcf), down from the year-ago level of C$3.83 per Mcf.

Capital Expenditure & Balance Sheet

Canadian Natural's total capital spending during the quarter was C$1,324.0 million, as against C$1,405.0 million in the year-ago quarter. The decrease in spending reflects slower property acquisitions and a drop in drilling expenditures.

As of June 30, 2012, Canada’s No. 2 oil producer had C$10.0 million cash on hand and long-term debt of approximately C$7,501.0 million, representing a debt-to-capitalization ratio of 23.9%.

Guidance

Management is guiding toward production of 451,000–480,000 Bbl/d of liquids and 1,170–1,190 MMcf/d of natural gas during the third quarter of 2012. The company is planning to drill 42 net thermal in situ wells and 290 net crude oil wells in North America during the quarter.

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.

Outlook

Canada’s largest natural gas producer Encana Corporation (ECA - Analyst Report) also reported mixed second-quarter 2012 results, with earnings per share, beating the Zacks Consensus Estimate and revenue failing to match our projection.

Canadian Natural retains a Zacks #3 Rank, which translates into a short-term Hold rating.

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