UBS: Canadian Natural Resources' Biggest Resource is Its 'Wall of Cash'

Canadian Natural Resources Ltd. (CNQ) has built up one of the largest resource bases of any Canadian oil company — a potential “wall of cash” waiting to be tapped.

UBS Securities made note of Canadian Natural’s massive stable of oil and natural gas opportunities in a note to clients after hearing the Calgary-based company’s presentation at the annual UBS Global Oil & Gas Conference in Austin, Texas.

Current estimates from the big Calgary-based independent, whose operations span the globe, peg its recoverable resource of conventional heavy oil and thermal oilsands crude at 11 billion barrels.

The emerging oilsands miner now building the first phase of its C$6.8-billion Horizon project in northeastern Alberta has a further 6 billion barrels of oilsands mining resource.

Canadian Natural is also the country’s second largest natural gas producer, with recoverable gas potential of 10 trillion cubic feet.

It’s a “massive opportunity base that provides significant optionality to improving technology,” UBS analyst Andrew Potter wrote.

The point being, Canadian Natural is well-positioned to boost reserves, especially as current technologies, such as those used to exploit deeply-buried oilsands, become more efficient.

Mr. Potter also cited Canadian Natural’s estimate that once Horizon is built and into production in 2009 it will provide the company with an additional C$800-million to C$1.2-billion of free cash flow. The level of cash flow would increase to between C$1.7-billion and C$2.2-billion with an additional two Horizon phases.

“Based on our estimates, with US$51 a barrel long-term oil price, we would see compound annual growth rate in cash flow per share of 11% (excluding buybacks) from 2007-2012,” Mr. Potter wrote.

The financial services firm continues to rate Canadian Natural a “buy” with a target price of C$88.