Canadian Natural Resources: Fourth Quarter Results Reflect Lagging Price for Heavy Oil

Buy-recommended Canadian Natural Resources (CNQ) offers unlevered appreciation potential of 26% to estimated net present value [NPV] of $99 a share, concentrated 73% on oil and 27% on natural gas. Fourth quarter results released today reflected a lagging price for the company’s heavy oil compared to light, sweet crude.

Year-end oil and gas reserves matched those of a year ago. Earlier on December 18, we increased NPV from $87 a share when we increased long-term oil price for calculating present value to $80 from $66 a barrel. Projected volumes along with current futures prices promise a continuing high level of unlevered cash flow (Ebitda). NPV is supported by projected cash flow capitalized at unlevered multiples (PV/Ebitda) related to reserve life (Adjusted R/P).

The Horizon oil sands mining and upgrading project remains scheduled for startup in the third quarter. Recently disclosed cost increases may have contradicted earlier management insistence, but were well anticipated in our present value estimate. The company’s prospects are boosted by a continued uptrend for oil price and more recently natural gas price.

Originally published on February 28, 2008.