Buy-recommended Canadian Natural Resources (CNQ) offers unlevered appreciation potential of 28% to estimated net present value [NPV] of $124 a share, up from $99 a share. For calculating NPV, we raise our long-term oil price assumption to $100 a barrel from $80. Futures prices for oil to be delivered over the next six years have reached $117 a barrel. First quarter results released by CNQ after the market close on May 8 reflected oil and natural gas prices that exceeded expectations of three months ago.
Projected volumes along with current futures prices promise a continuing high level of unlevered cash flow (EBITDA). Volumes do not include Phase I of the Horizon oil sands mine/upgrader that may reach design capacity of 110,000 barrels daily next year. NPV includes Horizon along with existing natural gas and oil operations, all estimated at 20% higher value. Our increase of 25% in Present Value for oil price is tempered to 20% to reflect management’s use of financial hedging.
Oil price continues in a strong uptrend though a pause in the advance of the current quote would allow the 40-week average to catch up in order to better support higher levels of the current quote.
Originally published on May 9, 2008.