On Jan 8, Zacks Investment Research downgraded independent exploration and production (E&P) company, Canadian Natural Resources Limited (CNQ) to a Zacks Rank #5 (Strong Sell).
Why the Downgrade?
The price of West Texas Intermediate (WTI) crude has tumbled more than 55% since Jun 2014. Crude is now trading below the $50 per barrel threshold. This is owing to plentiful supply of the commodity especially in the face of lackluster global demand. Moreover, oil price is not expected to recover any time soon and will likely remain weak throughout 2015.
Natural gas is also trading at a very low rate of less than $2.93 per million Btu. Expectations of modest winter heating demand during the rest of the season by the Energy Information Administration (EIA), which provides official energy statistics from the U.S. government, and abundant supplies lead to the price decline.
Being an upstream energy firm, Canadian Natural produces almost 71% of crude oil/liquid hydrocarbons and 29% gas. Since the prices of both commodities are weak, we don’t expect the company to earn significantly for shareholders in the near term.
Moreover, environmental organizations argue that oil and crude are greenhouse-gas intensive, thereby contributing to global warming. As such, there have been widespread regulations over the development of Canada’s oil sands − naturally occurring mixtures of bitumen water and sand − in an attempt to change the global climate and meet the country’s emissions-reduction goals. These policies could impact the future profitability of the company as it has 3,289 million barrels in total proved and probable reserves in its oil sands.
Stocks to Consider
Better-ranked players in the energy sector include Enbridge Energy Management LLC (EEQ), Cheniere Energy Partners LP (CQP) and Seadrill Partners LLC (SDLP). All these stocks sport a Zacks Rank #1 (Strong Buy).
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