Canadian Natural – Is This Still Canada’s Darling Oil Producer?
Canadian Natural Resources Limited (CNRL) continues to position itself as a major player in the energy industry and one of the best Canadian stocks on the market today. Despite some significant headwinds when it comes to energy right now, the company just continues to drive home outstanding results.
In this article, I’ll dive into why I still believe this energy giant is an outstanding opportunity today.
Production Growth and Turnaround Success
Canadian Natural’s production figures for Q2 2024 are impressive, especially considering this period typically experiences higher turnaround activity.
The company delivered an average production of 1.286 million barrels of oil equivalent per day (BOE/d), a significant 8% increase compared to the same quarter in 2023.
This performance includes 934,000 barrels of liquids per day and 2.1 billion cubic feet of natural gas per day. Why is this important? Because it highlights the fact the company is not overly reliant on a single commodity.
The increase in production is largely attributed to the strong performance of the Horizon oil sands operation, which saw a 16% increase in synthetic crude oil (SCO) production, and thermal in situ operations, which reported a 12% rise.
As I mentioned previously, considering the turnaround environment we’re in during the second quarter, the production increases were exceptional.
By optimizing its turnaround schedule, CNRL is targeting to increase its two-year average SCO capacity by an additional 14,000 barrels per day.
If there is one oil producer in the country that I trust when it comes to efficiency, it’s Canadian Natural.
The Billionth Barrel of Bitumen
In July 2024, Canadian Natural celebrated a major milestone, producing its one billionth barrel of bitumen from its Horizon oil sands since operations commenced in 2009.
This achievement underscores the longevity and productivity of the company’s oil sands assets, which have been enhanced by a significant reserve life index (RLI) of 44 years, based on 6.9 billion barrels of proved reserves.
In my opinion, this is some of the best reserves out of any producer on the planet, let alone Canada.
Canadian Natural Is Exceptional At Generating Shareholder Returns
Considering the price of oil is taking a beating, Canadian Natural’s financial performance in Q2 2024 was outstanding. The company reported adjusted net earnings of $1.9 billion and adjusted funds flow of $3.6 billion, driven by stronger realized prices and efficient operations.
In addition to this, CNRL continues to demonstrate its commitment to shareholder returns.
In Q2, it returned $1.9 billion to shareholders, comprising $1.1 billion in dividends and $0.8 billion in share buybacks, repurchasing and canceling approximately 14.8 million shares.
These returns are part of the company’s broader free cash flow allocation policy, where 100% of free cash flow in 2024 is being returned to shareholders as long as net debt stays below $10B.
2024 marks the 24th consecutive year of dividend increases, with a compound annual growth rate (CAGR) of 21% over this period.
The fact it can maintain this pace of dividend growth over 2 and a half decades should have income investors strongly considering Canadian Natural. Most companies can’t achieve this for 5 years, let alone 24.
The future Is Bright, Based Off Strong Capital Allocation
One thing I like about Canadian Natural is the company is not merely focused on maintaining production but actively pursuing growth opportunities across its asset base.
In the near term, CNRL completed the reliability enhancement project at Horizon and is working on the Scotford Upgrader debottlenecking project, which will add an additional 5,600 barrels per day net to the company by the third quarter of 2024.
These projects are focused on optimizing efficiency and increasing output without needing massive new capital outlays.
What does this mean? More returns to shareholders via stronger free cash flow generation.
Looking further ahead, the company has medium- and long-term projects that could significantly boost production capacity.
These include the Naphtha Recovery Unit Tailings Treatment (NRUTT) project, which targets an additional 6,300 barrels per day of SCO, and the In-Pit Extraction Process (IPEP) and Paraffinic Froth Treatment (PFT) projects, which have the potential to add 195,000 barrels per day of bitumen production.
Is Canadian Natural a Buy Today?
Based on its Q2 2024 performance, Canadian Natural Resources presents a compelling case for investors.
The company’s strong production growth, driven by efficient project execution and high-performing assets, ensures long-term value.
Its shareholder return policy—with consistent dividends and substantial buybacks—signals a strong commitment to maximizing shareholder value, and is a cherry on top in my opinion.
Canadian Natural’s focus on capital efficiency and incremental production growth via projects like Horizon’s reliability enhancement and the Scotford Upgrader debottlenecking showcases a prudent strategy that leverages existing assets to drive future growth.
This approach minimizes risk while allowing for sustainable long-term production increases.
For investors looking for a blend of production growth, capital efficiency, and reliable dividends, CNRL remains a solid choice.
The combination of a balanced asset portfolio, prudent capital allocation, and robust shareholder returns makes Canadian Natural a worthy addition to a long-term investment portfolio today.