Hold-rated Canadian Natural Resources (CNQ) offers unlevered appreciation potential of 63% to estimated net present value (NPV) of $85 a share. On October 28, we reset NPV from $124 a share on the basis of a long-term oil price assumption of $75 a barrel, down from $100. Patience may be necessary as CNQ stock price remains below the 200-day average of $77.
Released today, third quarter results displayed strength in unlevered cash flow (Ebitda) driven by crude oil and natural gas prices. Futures prices now look lower for the next four quarters. Projected cash flow capitalized at unlevered multiples (PV/Ebitda) related to reserve life (Adjusted R/P) supports NPV.
For the first time, projected NTM cash flow includes a contribution from the new Horizon oil sands mine/upgrader. Initial production may be achieved in the first quarter next year and build to 60,000 barrels daily by the end of the third quarter. Meanwhile, because the price for the company’s conventional crude oil is sensitive to the price for heavy crude, 60% of oil production, we use the average discount for the past four years in our projection. Especially favorable recent relative pricing helps call attention to the hidden value in 5 billion barrels of recoverable contingent heavy oil resources not counted in currently proven reserves.
Originally published on November 6, 2008.