Canadian Natural Rises as Profit Beats Targets on Cost Cuts

  • Adjusted profit surprises analysts at 10 cents a share
  • Budget for 2016 comes in lower than expected with cost savings

Canadian Natural Resources Ltd. rose to the highest in more than four months after deep cost cuts helped the company top analysts’ third-quarter profit estimates and announce a lower 2016 budget than expected.

The country’s largest heavy oil producer gained as much as 8 percent to C$34.51 in Toronto, the highest since June 26. Canadian Natural reported adjusted earnings of 10 cents a share, compared with the average 9-cent loss estimated by 16 analysts surveyed by Bloomberg. The third-quarter net loss was C$111 million ($84.3 million), or 10 cents a share, compared with profit of C$1.04 billion, or 94 cents, a year earlier, the Calgary-based company said in a Thursday statement.

The beat on results and the company’s announcement of a lower preliminary 2016 budget than forecast “will garner a positive reaction from investors,” Nick Lupick, an analyst at AltaCorp Capital Inc. in Calgary, wrote in a note. “CNQ’s financial beat stemmed from Management’s focus on cost reductions being more effective than anticipated with the vast majority of the outperformance coming from lower than expected operating and transportation costs.”

Focused Expansion

Canadian Natural is among energy companies shelving projects and negotiating lower rates from suppliers to withstand an oil price slump that has dragged on for 16 months. Even amid the rout, Canadian Natural has stayed focused on expanding its Horizon oil-sands project to a target of 250,000 barrels a day of output in 2018. The company has been considering selling or spinning off so-called royalty lands that generate revenue from drilling by other producers, and it has also been buying properties.

Canadian Natural expects 2016 cash flows to cover next year’s capital spending of between C$4.5 billion and C$5 billion, which includes about C$2.1 billion for the Horizon expansion, according to the statement. To date, the company has reduced its targeted capital spending by about C$3.2 billion in 2015 from the original budget. Analysts had expected next year’s spending plan would amount to about C$5.6 billion, according to the average of 12 estimates compiled by Bloomberg.

“We continue to make significant progress in reducing costs,” Steve Laut, president of Canadian Natural, said in the statement. “At the same time, our average production has increased 11% despite a very significant drop in capital program spending.”

Asset Purchases

The company was among buyers of western Canadian properties being sold this year by Houston-based ConocoPhillips. Canadian Natural agreed to purchase four asset packages located in northeast British Columbia, northwest Alberta, southern Alberta and southwest Saskatchewan, Julie Woo, a Canadian Natural spokeswoman, said last month in an e-mail. She declined to give a price.

Canadian Natural’s production averaged the equivalent of 848,701 barrels of oil a day in the third quarter, up from about 797,000 barrels a day a year earlier. West Texas Intermediate crude, the U.S. benchmark, fell 52 percent from a year earlier to average about $46.50 a barrel in the quarter. WTI closed at a six-year low on Aug. 24 at $38.24.

Canadian Natural shares have 21 buy, five hold and one sell recommendations from analysts. Shares were up 5.6 percent to C$33.74 at 11:23 a.m. in Toronto.

(Canadian Natural has scheduled a conference call Thursday to discuss the results at 11 a.m. New York time, accessible at EVTS)

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