Energy Transition

CNQ’s Oil Sands Brilliance and North American Puzzle: Can Efficiency Overcome Volatile Markets?

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  • Mixed Q3 2023 Performance: Earnings per share (EPS) on a non-GAAP basis was $1.89, surpassing consensus by $0.14, GAAP EPS was $1.55, missing the estimate by $0.18.
  • Oil Sands Segment Performance: Realized Synthetic Crude Oil (SCO) sales price decreased by 10% in Q3 2023 compared to the same period in 2022 but increased by 14% from Q2 2023.
  • North America Segment Importance: Success relies on efficient resource extraction, transportation, cost management, and adaptability to market conditions.

Mixed Financial Performance

Canadian Natural Resources Limited Inc. (CNQ) has delivered a mixed financial performance in the latest quarter, with better-than-expected revenue but a variance in earnings per share (EPS) relative to consensus estimates. The company reported an EPS of $1.89 on a non-GAAP basis, surpassing the consensus estimate by $0.14, while GAAP EPS was $1.55, missing the estimate by $0.18. However, CNQ exceeded revenue expectations with $7.20 billion, surpassing market expectations by $286.65 million.


Upholding Shareholder Value

CNQ demonstrated its commitment to shareholder returns by increasing the base quarterly dividend by 11% to $1.00 per common share, marking the 24th consecutive year of dividend increases. CNQ’s business model, characterized by strong net earnings, substantial free cash flow, and a diversified portfolio, contributes to its financial resilience and commitment to shareholder returns. CNQ aims to further reduce its net debt to $10 billion by Q1/24, leading to a 100% return of free cash flow to shareholders. CNQ’s disciplined approach to capital allocation, commitment to shareholder returns, and robust resource strategy position the company for long-term success. The company follows a clear capital allocation policy, with a target of distributing 50% of free cash flow to shareholders through dividends and buybacks.

Segment Performance

The company achieved record quarterly production, with an average production of 1,394,000 barrels of oil equivalent per day (BOE/d), the highest in its history. This diverse product mix resulted in strong shareholder returns, including dividends and significant share repurchases. The oil sands mining and upgrading segment showcased impressive performance, with synthetic crude oil (SCO) sales volumes of 492,926 barrels per day (bbl/d) in Q3 2023, compared to 350,041 bbl/d in Q2 2023 and 489,146 bbl/d in Q3 2022. While the realized SCO sales price decreased by 10% in Q3 2023 compared to the same period in 2022, it increased by 14% from Q2 2023. Managing production efficiencies against volatile oil prices and optimizing technological advancements and operational efficiencies will be crucial for the segment’s future growth. The North America segment, particularly its crude oil and natural gas liquids (NGLs) sales volumes and netbacks, also plays a crucial role in CNQ’s performance. The company’s success in this area relies on its ability to efficiently extract and transport these resources, manage costs, and respond to market conditions. CNQ’s adaptability to changing market dynamics and strategic decisions in portfolio management will significantly influence its future stock performance.

The exploration and production segments, with their natural gas pricing and sales volumes, are critical drivers for CNQ. The natural gas market’s volatility and global energy trends necessitate CNQ’s ability to navigate fluctuations, optimize costs, and capitalize on growth opportunities. CNQ’s responsiveness to changing global energy trends and its strategic decisions in the backdrop of geopolitical events will determine its stock’s trajectory.

Key Metrics Q3 2023 Q2 2023 Q3 2022
Net Earnings ($ millions) 2,344 1,463 2,814
Earnings per Share (Diluted) $2.13 $1.32 $2.49
Average Production (BOE/d) 1,393,614 1,194,326 1,338,940


Sustainability Commitment and Monitoring Key Factors

CNQ’s ongoing investments in technology development, focus on emissions reduction, and commitment to sustainability enhance its potential for value creation and shareholder returns in the evolving energy landscape. The company is strategically positioned within the industry’s transformative Pathways Alliance, which emphasizes emissions reduction through innovative R&D and carbon capture projects However, there are certain factors to monitor closely, including CNQ’s ability to address and mitigate the potential adverse impacts of harsh winter weather, optimize its oil sands mining operations, and effectively manage its extensive reserve base and growth opportunities. The company’s success in these areas, along with its winter weather preparedness and innovation and expansion focus, will be key in determining its stock’s future trajectory.

Company ESG Risk Rating Industry Group Rank Global Rank Exposure to ESG Risks Management of ESG Material Risk
Canadian Natural Resources Limited. 30.2 (High Risk) 24 out of 307 10866 out of 15582 Medium Strong


Overall, based on the company’s financial performance, strategic initiatives, and market conditions, we assign a “Hold” rating for Canadian Natural Resources Limited Inc. stock. It is crucial to closely monitor progress in key drivers and assess the company’s ability to navigate external factors to make informed investment decisions. Investors are advised to conduct thorough due diligence, considering both optimistic and pessimistic scenarios, to make informed decisions aligned with their risk tolerance and investment objectives.

Disclosure: We don’t hold any position in the stock and this is not a recommendation of any kind as investing carries risk.

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