Independent oil and gas explorer Canadian Natural Resources Ltd. (CNQ) recently announced the pricing of C$500 million 2.89% unsecured notes due Aug 14, 2020. The notes were priced at C$100.003 a piece.
The company plans to utilize the proceeds for the repayment of bank debts and for general corporate purposes.
As of Mar 31, 2013, Canadian Natural had C$18.0 million cash in hand and long-term debt of approximately C$9,322.0 million, representing a debt-to-capitalization ratio of 27.7%. The company paid net interest of $77.0 during the first quarter. We expect this interest expense to increase with the sale of the new notes.
Calgary, Alberta-based Canadian Natural is engaged in the acquisition, development and exploitation of crude oil and natural gas properties. It is one of the largest independent exploration and production companies in Canada, with extensive heavy crude oil and natural gas developments. Its core operations are focused in western Canada, the United Kingdom sector of the North Sea and offshore West Africa.
Canadian Natural enjoys the benefits of oil price leverage. As a result, a steep rise in crude prices may lead to improvement in the company’s cash flows and profitability.
However, the company’s exposure to the inherently cyclical and volatile E&P sector offsets these strengths and remains a key area of concern, in our view. The stock has also been held back by operational challenges, continued volatility in natural gas prices and a fresh round of cost inflation in the oil sands regions.
As a result, Canadian Natural currently retains a Zacks Rank #3 (Hold). This implies that it is expected to perform in line with the broader U.S. equity market over the next one to three months.
Meanwhile, there are certain other Canadian exploration and production firms that are expected to perform better in the short term. These include ARC Resources Ltd. (AETUF) as well as Enerplus Corporation (ERF) with Zacks Rank #1 (Strong Buy) and Gastar Exploration Ltd (GST) with Zacks Rank #2 (Buy).
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