Previously "must-own" stocks for oil fans, Suncor (SU) and Canadian Natural Resources (CNQ) have lagged, in part thanks to booming U.S. energy production. Maybe not for long, writes Andrew Bary, noting not just possible Keystone pipeline approval, but a low price combined with valuable assets and conservative capital return policies might make each a target of activist investors (see CP).
If the Keystone pipeline is approved, analysts are more interested in Canadian oil producers and refiners along the Gulf of Mexico that can process the heavy stuff flowing south than in TransCanada (TRP) and rival pipeline operator Enbridge (ENB), whose gains are priced in. RBC likes SU, CNQ, BTE and MEGEF.PK, while Edward Jones prefers CVE, IMO, XOM, PSX and VLO along with SU.
Suncor Energy (SU -0.6%) may make its C$11.6B Voyageur oil sands project the first major spending reduction among Alberta energy producers, as cutting production costs is one of the few options available while the region’s crude prices sink to the lowest in the world. The revolution in U.S. production and the gridlock in pipeline approval is "a train wreck" for Canadian producers, an analyst says.
Canada’s independent oil producers may face months of depressed earnings and weak share prices as they jockey for space on over-full oil pipelines, analysts say. "The shortfall in takeaway capacity is absolutely going to weigh on realized prices for the Canadian producers over the near term on... especially heavy oil, which is at a pretty substantial discount to WTI right now," Macquarie says.
Encana’s (ECA) new JV with PetroChina, the first since Canada unveiled new restrictions for state-owned firms seeking to invest in its oil sands, is sure to be the first of many. Athabasca Oil (ATHOF.PK), Talisman Energy (TLM) and Canadian Natural Resources (CNQ) may attract overseas investors eager to gain access to resources, and the companies seek funds for drilling and development.
Canadian Natural Resources (CNQ -1%) announces a 2013 capital budget estimated at C$6.9B, delivering both near-term crude oil and natural gas liquids production growth of ~9%. Cash flow is targeted at $7.6B, providing ~$700M of free cash flow to allocate to dividends, share repurchases, opportunistic acquisitions or debt repayment.
Too much of a good thing: Many of Canada’s oil pipelines are full, and analysts warn of production shut-ins and only less-expensive oil sands projects moving ahead. Canadian Natural Resources (CNQ) and Suncor (SU) may delay plans for key projects, but others under development for years, such as Imperial Oil’s (IMO) Kearl mine that's on the verge of producing its first oil, can’t be switched off.
Shares of Canadian Natural Resources (CNQ -3.5%) open weaker after the country’s biggest independent oil and gas producer reported a 57% drop in quarterly profit on weak prices, and cut its full-year forecast for crude oil and natural gas liquids output to 452K-460K bbl/day vs. prior 454K-474K. Average realized natural gas prices, before hedging, fell 39% Y/Y.
Canada's oil sands producers will have to fight for space on pipelines at least until 2014 amid surging U.S. oil output that’s reducing prices for Canadian crude, analysts say. Some producers such as Imperial (IMO), Cenovus (CVE) and Suncor (SU) are able to partially offset price differences by boosting refinery output, but those without refining capability, such as CNQ and BTE, are more at risk.
Canadian Natural Resources (CNQ -2.5%) enters a gas processing agreement with the Canadian unit of Williams Cos. (WMB -1.8%), where WMB will invest C$500M-C$600M to help lower CO2 emissions at CNQ's Horizon oil sands project, and CNQ will receive methane in return, which will be used as fuel for Horizon.
Some potentially nasty roadblocks could force Canadian oil sands producers to slash millions of barrels per day from current targets, CIBC's Andrew Potter says: “When plotted against planned pipeline capacity, it becomes abundantly clear that not all company planned oil sands projects can proceed... No company voluntarily gives up the quest for growth [but] some will have to."
Canadian Natural Resources (CNQ +6.1%) surged as Q2 profits fell 19% due to lower prices for oil and natural gas, but results exceeded analyst estimates. Quarterly production rose 22%, hitting a record ~679K boe/day. CNQ also cut capital spending plans for 2012 by 10% and reallocated spending toward heavy oil from natural gas.
On a 2yr basis CNQ has lead SU on the ups and downs. SU offers better value but CNQ definitely underowned. Would buy here and sell at $36
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CNQ vs. ETF Alternatives
Canadian Natural Resources Ltd s a Canadian based senior independent energy company engaged in the acquisition, exploration, development, production, marketing and sale of crude oil, NGLs and natural gas.