RBC Upgrades Canadian Natural Resources; Downgrades Nexen

RBC Capital Markets has upgraded Canadian Natural Resources Ltd. (CNQ) to “outperform” and downgraded Nexen Inc. (NXY) to “sector perform” citing their relative valuations and oil sands project execution risk.

Given the roughly 20% decline for Canadian Natural shares since peaking in mid-June, the stock is now at an attractive valuation relative to some of its peers, analyst Gordon Gee told clients. However, he lowered his price target from C$115 per share to C$110.

He said:

Despite our view that Horizon production will ramp up more slowly than company expectations, we believe the execution risk to be lower than that of a competing project such as Long Lake (Nexen and OPTI Canada Inc.).

The analyst also noted that Canadian Natural is discounting oil prices in the range of $90 per barrel.

As for Nexen, which saw its target price cut from C$48 to C$43, Mr. Gee noted that not only will Phase 1 of Long Lake face execution risk associated with achieving upstream production volumes, but upgrader and gasifier integration as well.

He noted that it too has an attractive valuation, but recommended switching into another producer like Canadian Natural given the declines for it and other names.

Comments

[Jim Kingsdale:]

RE: Nexen - I would not sell any oil sands stock until well after the SEC changes its reserve accounting rules. That change could cause massive investments by the major oil companies in whatever oil sands equities can be bought.

2008 Jul 11 11:44 AM

[Loup-Garou:]

CNQ has an excellent management. I own shares and am happy.

2008 Jul 11 02:40 PM

[Steven Ward:]

The Nexen execution risk has been exagerated to a fairly un-realistic degree. The product is there and at depths financially favorable. The execution will be slower, but will see 29,000 boed at worst 9 months longer than anticipated.

With the advent of the gassifier technology, Nexen will produce 39 to 40 API oil at only half the gas consumption and far less water consumption and hardly any remediation expenses as compared to the miners of bit, such as Suncor.

Nexen has been dissapointing in execution but will deliver. I see no need to switch out to CNQ. Add money to develop a position in CNQ but don't sell Nexen to get it. Nexen is better diversified than CNQ and it's Buzzard field is the proverbial "company maker".

2008 Jul 15 10:25 PM