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Canadian Natural (CNQ) Slashes Capex Amid Pipeline Pinch

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Reeling under discounted crude prices and pipeline crisis, the Canadian energy sector is struggling to find a path to growth. Amid the growing crisis, one of the country’s leading energy companies, Canadian Natural Resources Limited (CNQ - Free Report) recently slashed its capital budget by C$1 billion. The Zacks Rank #3 (Hold) company’s capital budget for 2019 is estimated at C$3.7 billion, down 20% from projected investment in 2018 and well below its preferred range of C$4.7-C$5 billion. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
 
Canadian Natural expects its 2019 oil and natural gas liquid production at 782,000-861,000 barrels per day, on par with 2018 levels.However, natural gas output for the next year is expected within 1.49-1.55 billion cubic feet per day, reflecting a year-over-year decline of 2%. Overall production is targeted within 1.03-1.12 million barrels of oil equivalent (comprising 76% liquids and 24% gas), which is slightly lower than this year’s projected output.
 
Notably, Canadian Natural is the first major company in Canada to slash its 2019 capex. In fact, considering the current state of affairs in the Canadian oil industry, it would not come much as a surprise if most of its peers like Imperial Oil Limited (IMO - Free Report) , Suncor Energy Inc (SU - Free Report) , Cenovus Energy Inc (CVE - Free Report) , among others, make similar capex-cut announcements. 
 
Although the company has stated its plans to ramp up spending levels, in case the crude prices in Canada witness a rebound or energy infrastructure improves, it will still take some time. In fact, the uncertain state of Canada’s oil industry recently prompted the Alberta government to order production cuts across the province, in a bid to deal with the supply glut.  
 
As we know, pipeline construction in Canada has failed to keep pace with rising domestic oil, forcing producers to sell their products at a discounted rate. While oil production is surging in Canada, the country's exploration and production companies remain out of favor, primarily due to the scarcity of pipelines. The infrastructural bottlenecks have resulted in a supply glut situation. This has forced producers to give away their products in the United States — Canada’s major market — at a discounted rate. The price gap between Alberta’s Western Canada Select and the New York-traded West Texas Intermediate is currently around $20 a barrel. However, with quite a few pipelines coming online next year along with the government’s plans to curb output, things may gradually work better for the Canadian oil industry. 
 
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