Energy investors have been rocked by plunging oil prices over the past few months. Canadian Natural Resources Ltd (TSX: CNQ) (NYSE: CNQ), for example, is down 17% from its most recent high due to the bear market in crude oil. However, while investors are worried about the impact of falling oil prices, the management team of Canadian Natural Resources isn’t worried at all. That was quite clear on the company’s third-quarter conference call as the company gave three reasons why it’s not worried about oil prices.
Solid asset base
We continue the transformation to long-life, low-decline assets, increasing sustainable free cash flow to create value for our shareholders, and we maintain a strong financial position to weather commodity price cycles in order to deliver the plan. – Executive Vice President Douglas Proll
Canadian Natural Resources sees its transformation into a company consisting of long-life, low-decline assets, which are oil and gas properties that produce at a fairly steady rate for years, being the key to its ability to produce strong cash flow no matter what happens with energy prices. This is because these assets don’t require a lot of money to be spent to maintain current production levels leaving Canadian Natural Resources with plenty of cash left over for other uses.
Strong balance sheet
From a balance sheet perspective, we remain strong with debt-to-book capitalization ratio of 33% and a debt to EBITDA of 1.4 times, well within our targeted ranges. Liquidity at September 30 was $2.4 billion, and I believe that this, coupled with our strong balance sheet and cash flow generation capability, allows us to weather commodities’ price volatility like we see today. – CFO Corey Bieber
In addition to having a solid asset base Canadian Natural Resources has a pretty strong balance sheet. It has low levels of debt and plenty of liquidity. Combine that with its solid cash flows and the company has no reason to fret about oil prices because it has plenty of cash to spare.
Flexible capex program
Further, our capital expenditure program flexibility allows us to proactively respond to ever-changing market conditions. – CFO Corey Bieber
Not only do Canadian Natural Resources’ assets not deplete very fast, but the company also doesn’t have any major capital projects that it has committed to funding. Because of this the company isn’t forced to invest a lot of money at a time when oil prices are weak. It’s flexibility that many of its peers simply do not have because these companies are either committed to major projects or have weaker assets that need a constant capital infusion to keep production steady. Without these worries Canadian Natural Resources can sit back and wait until oil prices recover before it ramps up capital spending.
Investor takeaway
Canadian Natural Resources is much better prepared to weather the current storm in oil prices because of the makeup of the company. With a low-decline asset base and a strong balance sheet the company can better wait out oil prices because it doesn’t feel the pressure from declining production or high levels of debt. Further, without heavy capital commitments the company isn’t forced to spend money that requires higher oil prices to earn a decent return. Instead, Canadian Natural Resources can sit back and manage its cash flow, instead of fretting over oil prices.
