Morningstar | Lowering Our Fair Value Estimate for Canadian Natural Resources; Stock Looks Fairly Valued. See Updated Analyst Note from 07 Aug 2018
We are lowering our fair value estimate for Canadian Natural Resources to $34 (CAD 44) per share from $35 (CAD 45) to reflect our decrease in near-term price realization forecasts. Despite the decrease in fair value the stock looks fairly valued. We believe the market is putting too much emphasis on the company’s planned growth projects along with the recent Athabasca Oil Sands Project acquisition. Furthermore, we are maintaining our no-moat rating.Canadian Natural reported second-quarter production of 1.05 million barrels of oil equivalent per day, which was in line with our expectations. However, production was down 6% from first-quarter levels. Lower production was driven by planned turnaround activities at the company’s oil sands operations, including both mining and in situ maintenance activities, along with other planned production reductions aimed at maximizing price realizations.
Canadian Natural continues to progress its 32 mbbl/d Primrose and 40 mbbl/d Kirby North oil sands growth projects, with first oil expected in late 2019. The initial target for Kirby North was 2020. Outside of these projects, future growth looks uncertain for Canada’s largest producer.
The company returned capital to its shareholders during the second quarter through its best-in-class dividend, which yields 3%, and CAD 440 million in share buybacks. Subsequent to the quarter-end, Canadian Natural repurchased an additional CAD 34 million of its shares for cancelation. We expect the company to continue repurchasing its shares as opportunities arise that make economic sense to the company.
For a detailed look at Canadian crude and pipeline trends, please refer to our September Energy Observer, "Don't Overlook Oil Sands: Falling Costs and More Infrastructure Will Make Canadian Production Globally Competitive."
Canadian Natural Resources is an independent crude oil and natural gas exploration, development and production company. Co.'s exploration and production operations are focused in North America, largely in Western Canada; the U.K. portion of the North Sea; and CA'te d'Ivoire, Gabon, and South Africa in Offshore Africa. Co. had total proved reserves of 5.71 billion barrels of oil equivalent. Co.'s gross proved crude oil, bitumen (thermal oil), synthetic crude oil and natural gas liquids reserves totaled 4.70 billion barrels and its gross proved natural gas reserves totaled 6,106.00 billion cubic feet.
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