Independent oil explorer Canadian Natural Resources Ltd. (CNQ) reported mixed first quarter 2011 results due to lower volumes and realized prices, partially offset by reduced production expenses.
Earnings per share, excluding one-time and non-cash items, came in at 21 Canadian cents (US 21 cents), much below the Zacks Consensus Estimate of 37 cents and prior-year quarter’s 58 Canadian cents.
Total revenue of C$2.95 billion ($2.99 billion) in the first quarter was down 8.6% from the prior-year quarter level. However, total revenue exceeded the Zacks Consensus Estimate of $2.32 billion.
The company’s quarterly cash flow from operations plunged 28.7% year over year to $1.07 billion, hurt by reduced synthetic crude oil sales revenues.
Production
Total production during the quarter declined 7.3% year over year at 566,231 oil-equivalent barrels per day (BOE/d). Oil and natural gas liquids (NGLs) production decreased approximately 12.1% year over year to 356,988 barrels per day (Bbl/d) but natural gas production inched up 2.4% year over year to 1,256 million cubic feet per day (MMcf/d).
Realized Prices
The average realized crude oil price (before hedging) during the quarter was C$67.96 per barrel, representing a decrease of 1.2% from the comparable quarter prior year. The average realized natural gas price (excluding hedging) was C$3.83 per thousand cubic feet (Mcf), down 26.2% from the year-ago period.
Capital Expenditure & Balance Sheet
During the quarter, Canadian Natural incurred total capital spending of C$1.69 billion, with approximately 72.7% targeted toward North American activities.
As of March 31, 2011, the company had C$50 million cash on hand and long-term debt of approximately C$8.47 billion, representing a debt-to-capitalization ratio of 29.1%.
Guidance
For the second quarter of 2011, management guided toward production of 345,000 Bbl/d to 375,000 Bbl/d of crude oil and NGLs, while natural gas volumes are expected between 1,219 MMcf/d and 1,244 MMcf/d.
For 2011, Canadian Natural expects oil and NGLs production in the range of 381,000 Bbl/d to 421,000 Bbl/d and natural gas output in the range of 1,203 MMcf/d to 1,270 MMcf/d.
Our Recommendation
We believe that Canadian Natural displays a broad portfolio of low-risk exploration and development projects that yield long-term volume growth visibility. Additionally, the company’s strong, balanced and diverse assets in North America shelter it from geo-political risks associated with operations in international countries.
However, the company’s exposure to inherently cyclical and volatile oil and gas prices, cost inflations and project disruptions keep us concerned. Hence, we maintain our long-term Neutral rating on the stock.
Canadian Natural, which faces competition from peers such as Chesapeake Energy Corporation (CHK) and Williams Companies Inc. (WMB), currently retains a Zacks #3 Rank (short-term Hold rating).
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