Canadian Natural Resources is a diversified and independent energy producer worldwide. It is the largest independent producer of natural gas and heavy oil in Canada.
It operates a balanced mix of natural gas, light crude oil, heavy crude oil and oil sands. The company has some of the best oil sands facilities in North America, particularly thermal in-situ properties, with tremendous growth potential.
The company’s business can be broadly divided into the segments of exploration and production (North America, North Sea, Offshore Africa), oil sands mining and upgrading, and midstream and refining. The Exploration and Production segment is Canadian Natural’s core business, while the other two businesses offer good diversification.
Canadian Natural offers a balanced mix of natural gas, light crude oil, heavy crude oil, bitumen and SCO. The company also owns midstream assets consisting of two crude oil pipeline systems and CHP plants that enable heavy crude oil to be transported in international markets.
Candian Natural generates almost 89% of its total sales from sales of crude oil and NGL and the remaining 11% from natural gas.
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Sales growth and market presence
With more than four decades of experience, Canadian Natural has built expertise in operating mature, low-risk pools and owning extensive infrastructure.
The company’s Oil Sands Mining and Upgrading segment accounts for 36% of its production, followed by in-situ thermal facilities (15%), North American E&P facilities, crude oil and NGL production (22%), international production ( 4%) and the balance 23% are conventional and unconventional assets. Canadian oil sands mining and modernization projects offer long life, no decline, and no cost or risk of replacing reserves.
Candian Natural Resources has increased its sales growth to ~ 24% CAGR over the past three years. The company should benefit from the tremendous development opportunities within its in situ oil sands asset portfolio. Canadian Natural’s asset base has low sustainable capital and low reservoir risk, which allows it to effectively manage commodity price cycles without affecting short-term production levels.
The company reported a net loss for fiscal 2020 due to lower crude oil and NGL netbacks in the Exploration and Production segments and lower realized SCO prices in the Oil Sands Mining and Upgrading segment. Total production of crude oil and NGL in the fourth quarter increased 4% year over year, and the selling price averaged $ 40.56 a barrel, down 18% year over year.
Total annual production increased 6% due to Jackfish’s first full year of operation, increases in Kirby North production, and high utilization rates and operational improvements in Canadian Natural’s Oil Sands Mining and Upgrading segment.
Canadian Natural is a Canadian dividend aristocrat and has been paying dividends regularly since 2001. Fiscal 2020 dividends rose 13% year over year to $ 1.70 per share. The company recently hiked dividends by 11%, making it the 21st straight year that they have grown.
Canadian Natural has had a dividend growth rate of 20% CAGR since its inception and an average dividend growth of 21% CAGR over 10 years. It has an average annual return greater than 4% but currently has a high payout ratio. Canadian Natural Resources kept its dividend despite the low oil price.
Canadian Natural’s assets are characterized by long life, low decline, and low maintenance requirements, which greatly reduce capital outflows and continue to generate significant free cash flow. During the year, cash flow was strong at over $ 5.3 billion and free cash flow after the capital program and dividends was ~ $ 690 million. A strong balance sheet continues to support the investment grade credit rating.
The company announced its capital budget for 2021, targeting ~ $ 3.2 billion, and has a production target of 1,190,000 BOE / day – 1,260,000 BOE / day for 2021. The capital budget encourages targeted annual production growth and robust free cash flow generation. Free cash flow is targeted to $ 4.9 billion to $ 5.4 billion in 2021 after investments and dividend increases. Canadian Natural’s transition to a long-lived, low-declining asset base will continue to support sustained free cash flow.
Canadian Natural is in a very strong position even in the downside scenarios. The company has great development opportunities within its in situ oil sands asset portfolio in addition to operating the Primrose, Wolf Lake, Kirby South, Kirby North and Jackfish projects.
Canadian Natural competes with companies such as Suncor, Imperial Oil, Husky Energy Inc., and Cenovus Energy Inc. Suncor Energy is the largest oil producer in Canada and one of the largest independent energy companies in the world, while Imperial Oil is an integrated energy company, while Husky Energy is one in Canada integrated oil and gas company engaged in the exploration, production, refining and marketing of oil and gas and other petroleum products. Canadian Natural is able to keep its cost base low due to economies of scale and minimal cost of capital requirements.
Global crude oil prices declined in the first half of 2020 due to lower global demand as a result of the COVID-19 pandemic and related economic conditions. With the economic recovery and production cuts, prices began to improve from the fourth quarter of 2020.
Canadian Natural is one of the largest oil producers in Canada with solid fundamentals and low cost production. The company is well positioned to weather the recession with its integrated assets, capital flexibility, a large portfolio of diverse projects and a strong focus on efficient operations.
Canadian Natural is on a strong uptrend due to its significant free cash flow from high quality assets. However, there is a transition away from traditional oil and the strategy for CNQ is not clear.
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