Independent oil explorer Canadian Natural Resources Ltd. (CNQ) reported mixed fourth quarter and full-year 2010 results due to higher volumes, reduced production expenses and significant free cash flow.
Earnings per share, excluding one-time and non-cash items, came in at 57 Canadian cents (US 56 cents), below the Zacks Consensus Estimate of 72 cents and prior-year quarter’s 61 Canadian cents.
Full-year 2010 earnings, excluding special items, were C$2.36 ($2.33) per share, down 4.8% year over year and a marginal 2.5% below our projection.
Total revenue of C$3.78 billion ($3.73 billion) in the fourth quarter was up 14.1% from the prior-year quarter level. Total revenue also exceeded the Zacks Consensus Estimate of $3.41 billion. Canadian Natural generated total revenue of C$14.32 billion in 2010 compared with C$11.07 billion in 2009.
Production
Total production during the quarter was up 12.6% year over year at 647,441 oil-equivalent barrels per day (BOE/d). Oil and natural gas liquids (NGLs) production increased approximately 19.8% year over year to 438,835 barrels per day (Bbl/d), reflecting higher production from Horizon Oil Sands. Natural gas production inched up 0.2% year over year to 1,252 million cubic feet per day (MMcf/d).
Realized Prices
The average realized crude oil price (before hedging) during the fourth quarter was C$67.74 per barrel, representing a decrease of 0.4% from the comparable quarter prior year. The average realized natural gas price (excluding hedging) during the fourth quarter was C$3.56 per thousand cubic feet (Mcf), down 25.1% from the year-ago period.
Capital Expenditure & Balance Sheet
Canadian Natural’s total capital spending during 2010 was C$5.50 billion, as against C$2.99 billion in 2009. Of the total expenditure, approximately 79.3% was targeted toward North American activities.
As of December 31, 2010, the company had C$22 million cash on hand and long-term debt of approximately C$8.50 billion, representing a debt-to-capitalization ratio of 28.8%.
Dividend
Canadian Natural increased its quarterly cash dividend on common shares by 20% to 9 Canadian cents from 7.5 Canadian cents per share. The dividend is payable on April 1, 2011, to shareholders of record on March 18, 2011.
Guidance
For the first quarter of 2011, management is guiding toward production of 348,000 Bbl/d to 365,000 Bbl/d of liquids and 1,249 MMcf/d to 1,273 MMcf/d of natural gas.
For 2011, Canadian Natural expects oil and NGLs production in the range of 385,000 Bbl/d to 427,000 Bbl/d while natural gas volumes of 1,177 MMcf/d to 1,246 MMcf/d.
Our Recommendation
We believe that Canadian Natural‘s large, diversified oil and gas asset base, together with its international exposure and a proportionate blend of conventional and unconventional prospects, buffers it against macro uncertainties. Moreover, an active hedging policy, competitive cost structure, strong balance sheet and robust free cash flow keep the company comparatively better positioned.
However, taking into account the current unfavorable environmental conditions, operational challenges and natural gas price weakness, we are maintaining a long-term Neutral recommendation on the stock.
Canadian Natural, which faces competition from peers such as Chesapeake Energy Corporation (CHK) and Williams Companies Inc. (WMB), currently retains a Zacks #3 Rank (short-term Hold rating).
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