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Independent oil and gas explorer Canadian Natural Resources Ltd. reported weak third-quarter 2012 results, owing to weak contributions from North Sea and Offshore Africa and higher operating expense.

Earnings per share, excluding one-time and non-cash items, came in at 32 Canadian cents (32 cents US) in the quarter, way behind the Zacks Consensus Estimate of 46 cents US. The Calgary, Alberta-based operator’s per share profits were also less than the third-quarter 2011 level of 65 Canadian cents (65 cents US), hurt by the lower price realizations for oil and gas.

Quarterly revenue of C$3,536.0 million (US$3,559.3 million) was up 7.5% from the year-ago period. The result, however, missed our projection of US$3,580.0 million.

Canadian Natural’s third quarter cash flow – a key metric to gauge its capability to fund new projects and drilling – amounted to C$1,431.0 million, which was 19.0% lower than that achieved in the third quarter of 2011.

Production

Total production during the quarter was up 9.0% year over year at 667,616 oil-equivalent barrels per day (BOE/d). Oil and natural gas liquids (NGLs) production hiked approximately 16.2% to 469,168 barrels per day (Bbl/d), primarily due to higher volumes from the “Horizon” Oil Sands Project and some other fields.

Natural gas production declined 4.9% from the prior-year period to 1,191 million cubic feet per day (MMcf/d), due to weak natural gas scenario.

Realized Prices

On a reported basis, the average realized crude oil price (before hedging) during the third quarter was C$67.59 per barrel, representing a drop of 8.4% from the corresponding quarter last year. The average realized natural gas price (excluding hedging) during the three months ended September 30, 2012 was C$2.28 per thousand cubic feet (Mcf), down from the year-ago level of C$3.76 per Mcf.

Capital Expenditure & Balance Sheet

Canadian Natural's total capital spending during the quarter was C$1,621.0 million, as against C$1,406.0 million in the year-ago quarter.

As of September 30, 2012, Canada’s second largest oil producer had C$21.0 million cash on hand and long-term debt of approximately C$8,416.0 million, representing a debt-to-capitalization ratio of 25.9%.

Guidance

Management is guiding toward production of 467,000–495,000 Bbl/d of liquids and 1,145–1,165 MMcf/d of natural gas during the fourth quarter of 2012. The company is planning to drill 42 net thermal in situ wells and 302 net crude oil wells in North America during the quarter.

For 2012, the company guided toward production of 452,000–460,000 Bbl/d of liquids and 1,222–1,229 MMcf/d of natural gas.

Our Take

Canada’s largest natural gas producer Encana Corporation reported mixed third-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. We also maintain our long-term Neutral rating on the stock.
 

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