Canadian Natural Resources Ltd.
May 17 2012
CNQ : TSX : C$29.33 Buy , Target C$47.00
- • Investor Day Highlights
1) the improvements seen at Horizon due to the 3rd Ore Preparation Plant (OPP);
2) an improved outlook for production growth in Primary Heavy Oil and North American Light Oil vs. what the company disclosed at last year’s event (albeit it included higher capex); and
3 )increased coking capacity in the US that is expected to come on line in 2013.
Seeing improvements at Horizon since the recent re-start: The 3rd OPP has increased availability from 72% in January to 98% in April (March was 96%). As a result, May month-to-date has averaged 116 MBbl/d, which is up from the 111.4 MBbl/d average for April. Of note, CNQ sees the ability to meet or exceed the top end of its 2012 guidance range of 85-95 MBbl/d. To meet low end, Horizon needs to achieve only ~80% reliability (97.9 MBbl/d based on a 123 MBbl/d stream day rate) for the rest of the year. To meet the high end: Horizon needs to achieve ~90% reliability (111.2 MBbl/d) for rest of year.
CNQ updated its 4+ year production growth outlook by area, and net/net there was a positive revision (with increased costs due in part to increased well count, but a part that shows up in thermal is unidentifiable to us): CNQ raised its production growth expectation for North American Light Oil to 11% CAGR (to about 85 MBOE/d by 2015) from the 7% (to ~65 MBOE/d by 2015) stated last year.
For Primary Heavy Oil, CNQ increased its expectations to where it sees the potential to reach ~150 MBbl/d by 2016 vs. the 130 MBbl/d to be reached by 2014 (and decline thereafter) stated at last year’s Investor Open House. For Pelican Lake, however, it appears CNQ sees ultimate potential to 60 MBbl/d vs. the 70 MBbl/d minimum discussed last year.
For 2013, it looks as if CNQ is guiding for about 715 MBOE/d, which is ahead of our ~700 MBOE/d estimate but in line with the Street’s 713 estimate. Gas prices are a swing factor in the 715 MBOE/d.
2013 will see 310 MBbl/d of incremental heavy oil refining capacity: Specifically, Marathon is adding at its Detroit refinery 80 MBbl/d of Heavy Oil Capacity (while displacing 70 MBbl/d of light capacity) and BP is adding at Whiting 230 MBbl/d of heavy oil capacity (displacing 230 MBbl/d of light capacity). Combined, this adds ~20% new heavy oil capacity to existing total Canadian heavy oil markets, per CNQ.
TARGET PRICE CALCULATION
Our $47 target price is based on 4.75x ex-oil sands 2013E DACF plus over $25/share of estimated risked oil sands value. Our target implies the stock could ultimately trade at 7.2x 2013 EV/DACF. The stock currently trades at 5 x