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Morningstar | Canadian Natural Agrees to Purchase Devon's Canadian Assets

Canadian Natural Resources is an independent energy company engaged in upstream operations coupled with the ownership of midstream pipeline assets. The company focuses on the acquisition, development, production, marketing, and sale of crude oil, natural gas, and natural gas liquids. Canadian Natural operates in western Canada, the U.K. sector of the North Sea, and offshore Africa.Canadian Natural's ownership of midstream pipeline assets allows it to control the transport of a significant portion of its own production and lowers its transportation expenses and overall cost structure. Thus, its cost structure compares favorably with peers. Even with a low cost structure, though, Canadian Natural faces an uphill struggle coping with lower oil prices. Depressed realized prices due to lack of market access have forced capital spending cuts, stalling the growth potential of its oil sands assets. Proposed expansion projects still require high levels of capital spending, and growth is at a standstill. We don't expect production from any major growth projects before Kirby North comes on line in early 2020. With growth at a standstill, Canadian Natural has shifted its focus to returning capital to shareholders in the form of dividends. Its yield around 4% is at the head of the class among oil sands producers. The stook continues to trade in 4-star territory, and we think that the market is overlooking the company’s ability to generate cash flow amid low Canadian commodity prices. However, we caution investors that we don’t expect the stock price to fully appreciate until there is more clarity surrounding pipeline expansions and expanded market access.