Calgary, Alberta based independent exploration and production (E&P) company, Canadian Natural Resources Ltd. (CNQ) reported strong second-quarter 2013 results on the back of factors such as a decline in E&P operating costs and higher natural gas price realizations.
Earnings per share, excluding one-time and non-cash items, of 42 Canadian cents (41 US cents) surpassed the Zacks Consensus Estimate of 39 US cents.
However, CNQ’s per share profits came lower than the second quarter 2012 level of 55 Canadian cents due to reduction in crude oil and SCO (Synthetic Crude Oil) volumes in the North American and Oil Sands Mining and Upgrading segments.
Quarterly revenues of C$3,784.0 million (US $3,697.7 million) also surpassed our projection of US $3,568.0 million. However, it failed to cross the prior year quarter revenue of C$3,826.0 million.
CNQ’s second-quarter cash flow from operations – a key metric to gauge capability to fund new projects and drilling – amounted to C$1,670.0 million, down 4.8% year over year.
Total production of CNQ during the quarter was down 8.3% year over year at 623,315 barrels of oil-equivalent per day (BOE/d).
Oil and natural gas liquids (NGLs) production fell approximately 7.3% year over year to 436,363 barrels per day (Bbl/d) and natural gas production declined 10.6% from the prior-year quarter to 1,122 million cubic feet per day (Mmcfe/d). The volume levels were within CNQ’s guidance and the decline was primarily due to planned maintenance activity and production timing cycle. It was partially offset by intensive heavy crude oil drilling activity.
The average realized crude oil price (before hedging) during the second quarter was C$75.10 per barrel, representing a rise of 4.1% from the corresponding quarter last year. The average realized natural gas price (excluding hedging) during the three months ended Jun 30, 2013 was C$4.05 per thousand cubic feet (Mcf), up 88.7% year over year.
Capital Expenditure & Balance Sheet
CNQ’s total capital spending during the quarter was C$1,792.0 million against C$1,324.0 million in the year-ago quarter.
As of Jun 30, 2013, Canada’s second-largest oil producer had C$17.0 million cash in hand and long-term debt of approximately C$10,033.0 million, representing a debt-to-capitalization ratio of 29.0%.
Management is guiding towards production of 506,000–529,000 Bbl/d of liquids and 1,135–1,155 MMcf/d of natural gas during the third quarter of 2013. The company plans to drill 47 net thermal in-situ wells and 255 net crude oil wells in North America during the Jul-Sep period of 2013.
For 2013, CNQ estimates production of 482,000–513,000 Bbl/d of liquids and 1,085–1,145 MMcf/d of natural gas.
Stocks to Consider
CNQ currently carries a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.
Meanwhile, one can look at other companies in the energy sector such as ARC Resources Ltd. (AETUF), Canadian Oil Sands Limited (COSWF) and Enerplus Corp. (ERF) as good investment opportunities. All three firms sport a Zacks Rank #2 (Buy).
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