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Canadian Natural Misses

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Independent oil and gas explorer Canadian Natural Resources Ltd. (CNQ) reported weak fourth-quarter and full year 2011 results, hurt by lower volumes in North Sea and Offshore Africa, lower realized natural gas prices and steeper production costs.

Earnings per share, excluding one-time and non-cash items, came in at 88 Canadian cents (86 U.S. cents) in the quarter, slightly below the Zacks Consensus Estimate of 90 U.S. cents. The Calgary, Alberta-based operator’s per share profits, however, were higher than the fourth-quarter 2010 level of 53 Canadian cents (52 U.S. cents), on the back of stronger results from North America and Horizon crude oil project.

For the full year, earnings per share were C$2.30 (U.S.$2.32), up 3.1% from C$2.23 (U.S.$2.16) per share in 2010.

Quarterly revenue of C$4,218.0 million (U.S$4,121.4 million) was up 25.7% from the year-ago period. However, the result failed to meet our projection of U.S$4,270.0 million.

Canadian Natural generated revenues of C$13,792.0 million (U.S$13,950.6 million) in fiscal 2011, compared with C$12,901.0 million (U.S$12,520.4 million) in 2010.

Canadian Natural’s fourth quarter cash flow – a key metrics to gauge its capability to fund new projects and drilling – amounted to C$2,158.0 million, which was 30.6% higher than that achieved in the fourth quarter of 2010.


Total production during the quarter was up 1.6% year over year at 657,599 oil-equivalent barrels per day (BOE/d). Oil and natural gas liquids (NGLs) production hiked approximately 1.2% to 444,286 barrels per day (Bbl/d), primarily due to higher volumes from the “Horizon” Oil Sands Project and increased drilling activities.

Natural gas production also improved 2.2% year over year to 1,280 million cubic feet per day (MMcf/d), with strong contributions from various natural gas producing properties.

For 2011, total production dropped to 598,526 BOE/d, from 632,191 BOE/d recorded in the prior year, hurt by an 8.5% year-over-year decline in oil and NGLs. The negative effect was somewhat mitigated by a 1.1% increase in natural gas volumes.

Realized Prices

The average realized crude oil price (before hedging) during the fourth quarter was C$85.28 per barrel, representing an increase of 25.9% from the corresponding period of the previous year. The average realized natural gas price (excluding hedging) during the three months ended December 31, 2011 was C$3.50 per thousand cubic feet (Mcf), down from the year-ago level of C$3.56 per Mcf.

Capital Expenditure & Balance Sheet

Canadian Natural's total capital spending during 2011 was C$6,414.0 million, as against C$5,514.0 million a year ago. The increase in spending reflects higher property acquisitions and a rise in drilling expenditures.

As of December 31, 2011, Canada’s No. 2 oil producer had cash on hand of C$34.0 million and long-term debt of approximately C$8,571.0 million, representing a debt-to-capitalization ratio of 27.2%.


As of the end of 2011, the company had approximately 4.83 billion oil-equivalent barrels (:BBOE) of total proved reserves, up 7% from 2010 levels. Almost 92% of the company’s proved reserves are located in North America.


Management is guiding toward production of 367,000–400,000 Bbl/d of liquids and 1,300–1,320 MMcf/d of natural gas during the first quarter of 2012.

For 2012, the company guided towards a production of 440,000–480,000 Bbl/d of liquids and 1,247–1,297 MMcf/d of natural gas. The company is planning to drill 159 thermal in situ wells and 956 crude oil wells in North America during the year.


Canadian Natural, which competes with other Canadian behemoths like EnCana Corp. (ECA) and Suncor Energy Inc. (SU), currently, retains a Zacks #3 Rank, which translates into a short-term Hold rating.

We are maintaining our long-term Neutral recommendation on Canadian Natural, reflecting its large, diversified asset base, a favorable mix of conventional and unconventional prospects, and a strong balance sheet, partially offset by volatile oil and gas fundamentals, project cost overruns and delays.

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