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Mixed 1Q for Canadian Natural

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Independent oil and gas explorer Canadian Natural Resources Ltd. (CNQ - Free Report) reported mixed first-quarter 2012 results, reflecting a strong production mix and higher realized prices for crude oil, partially offset by lower volumes in North Sea and Offshore Africa, and steeper production costs.

Earnings per share, excluding one-time and non-cash items, came in at 27 Canadian cents (27 U.S. cents) in the quarter that came in below the Zacks Consensus Estimate of 45 U.S. cents. The Calgary, Alberta-based operator’s per share profits, however, were higher than the first-quarter 2011 level of 21 Canadian cents (21 U.S. cents), on the back of stronger results from the North America and Horizon crude oil project.

Quarterly revenue of C$3,527.0 million (U.S$3,518.9 million) was up 19.5% from the year-ago period.  The result also surpassed our projection of U.S$2,960.0 million.

Canadian Natural’s first quarter cash flow – a key metric to gauge its capability to fund new projects and drilling – amounted to C$1,280.0 million, which was 19.2% higher than that achieved in the first quarter of 2011.


Total production during the quarter was up 8.1% year over year at 612,279 oil-equivalent barrels per day (BOE/d). Oil and natural gas liquids (NGLs) production hiked approximately 10.8% to 395,461 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 3.7% year over year to 1,302 million cubic feet per day (MMcf/d), with strong contributions from the acquired natural gas producing properties.

Realized Prices

The average realized crude oil price (before hedging) during the first quarter was C$80.08 per barrel, representing an increase of 17.8% from the corresponding prior-year quarter. The average realized natural gas price (excluding hedging) during the three months ended March 31, 2012 was C$2.47 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$1,596.0 million, as against C$1,694.0 million in a year-ago quarter. The decrease in spending reflects slower property acquisitions and a drop in drilling expenditures.

As of March 31, 2012, Canada’s No. 2 oil producer had C$13.0 million cash on hand and long-term debt of approximately C$8,241.0 million, representing a debt-to-capitalization ratio of 26.1%.


Management is guiding toward production of 453,000–482,000 Bbl/d of liquids and 1,250–1,270 MMcf/d of natural gas during the second quarter of 2012. The company is planning to drill 44 net thermal in situ wells and 182 net crude oil wells in North America during the quarter.

For 2012, the company guided towards production of 440,000–480,000 Bbl/d of liquids and 1,220–1,260 MMcf/d of natural gas.


Canadian Natural, which competes with other Canadian behemoths like EnCana Corp. (ECA - Free Report) and Suncor Energy Inc. (SU - Free Report) , currently, retains a Zacks #3 Rank, which translates into a short-term Hold rating.

We are maintaining our long-term Neutral recommendation on Canadian Natural, reflecting its broad portfolio of low-risk exploration and development projects that yield long-term volume growth at above-average rates. We appreciate the company’s diverse asset base both geographically and in terms of product, comprising approximately 35% natural gas and 65% crude oil.

However, we think that these factors are adequately reflected in the present valuation, leaving little room for meaningful upside from the current levels.  Moreover, volatile oil and gas fundamentals, project cost overruns and delays also add to our pessimistic sentiment.

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