The oil industry is in jeopardy, thanks to the coronavirus pandemic that rattled most sectors until now. China's fuel demand is visibly crippled in the aftermath of large-scale travel bans imposed globally. To worsen matters, oil prices plummeted as Saudi Arabia waged a price war and ramped up its oil production significantly in retaliation to Russia’s resistance to lower its crude production at the OPEC meeting.
Notably, West Texas Intermediate commenced the year with a little above $60 per barrel of oil. However, this upsurge was momentary with the commodity price plunging to 18-year lows to settle at $20.37 on Mar 18.
Such headwinds compelled the energy players to reassess their strategies as well as capital spending budgets.
Further adding to the woes is the status of Canadian oil market, which is in complete disarray. Heavy Canadian crude, which usually trades at a discount to U.S. West Texas Intermediate oil, seems sinking after the country’s oil-sands producers were required to suspend maintenance activity, thereby choking the market with a possible supply glut. The price of Heavy Canadian crude collapsed to a record low of $9.19 a barrel, more than $15 below the U.S. benchmark in between the trading on Wednesday.
As a response to the bearish oil environment, Canadian Natural Ltd. CNQ trimmed its 2020 capital spending in excess of C$1 billion from the past projection of C$3.95 billion to C$2.96 billion.
The updated budget will not at all upset the company’s current production scale, which in turn, underlines its heightened operating efficiency. The company anticipates 2020 production in the range of 1,137,000-1,207,000 barrels of oil equivalent per day.
Notably, investors should know that this Calgary-based company has a solid financial foundation with $5 billion current liquidity. Apart from $1 billion in cash reserves, this includes availability under committed credit facilities. Importantly, Canadian Natural’s current liquidity is comfortable enough to take care of the near-term debt obligations.
Even though Canadian Natural hopes to gain traction from these key adopted measures, it looks to keenly observe the commodity price movement, adapting to the capex adjustment plans further in response to a unpredictable price scenario.
With the strategic capex-cut move, Canadian Natural joins other energy companies including Matador Resources Company MTDR, Apache Corporation APA and Occidental Petroleum Corporation OXY. These industry players aim to overcome the tough times while maintaining financial flexibility and operational excellence. Markedly, strengthening the companies’ capital positions during a phase when oil prices barely yield any profits for most producers, is touted to be an intelligent stand.
This Zacks Rank #5 (Strong Sell) stock has lost 75.9% year to date compared with 74.8% decline of the industry it belongs to. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Canadian Natural Resources Limited Price
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