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Is Canadian Natural Resources a Good Long-Term Investment?

|Includes: Canadian Natural Resources, Ltd. (CNQ)

Canadian oil and gas company Canadian Natural Resources has seen high volatility in its share price over the past year as a result of uncertainty in energy prices. Canadian Natural's most recent quarterly results for the second quarter of 2009, reveal that the company's production of both oil and gas have declined over the past year. Canadian Natural's gas production dropped 12% compared to the second quarter of 2008, due to natural declines in base production and the company's strategic decision to direct spending towards higher-return crude oil projects. Canadian Natural ramped up production at its new oil sands mining operations – producing an average of 59,599 bbl/d, up from 3,384 bbl/d in the first quarter of the year. The phase 1 plant has a capacity of 110,000 bbl/d. The company's results announcement indicates that the benchmark price of oil fell further than 50% between the second quarter of 2008 and the same period in 2009. NYMEX oil prices have dropped almost 40% since September of 2008. Despite the volatility in oil prices, Canadian Natural prides itself on its stability and liquidity. 94% of the company's production is located in G8 countries and Canadian Natural has a proactive hedging program to limit the negative effects of volatility in oil prices. However, when we are assessing the company as a potential long-term investment, we should focus on its long-term underlying fundamentals. After splitting the company's key long-term fundamental indicators into three groups (Business, Management, Price-Attractiveness) we run them though our proprietary StockMarks rating models, placing the company on a scale of 1-100. The chart below shows Canadian Natural's ratings for the three fundamental groups as well as a combined 'Total StockMark' rating since December 2006.



The long-term business growth rating has remained stable since the first quarter of 2008. The company's management efficiency rating, based on long-term measurements of factors such as return on assets and earnings per employee, has deteriorated.

Canadian Natural's price-attractiveness rating (Price StockMark) dipped in mid 2008 as the company's share price significantly disconnected from its underlying fundamentals due to the spike in oil prices. However, since oil prices have come down and investors moved away from the stock, we now believe that the CNQ is trading at a price below its fundamental long-term value. The rise in the price-attractiveness rating over the past year more than offsets the decline in the management rating. The company's SMP and overall SMT suggest that Canadian Natural is an above-average long-term investment.

A summary of our current StockMarks ratings for Canadian Natural Resources is available here

Disclosure: No positions