On Sunday, OPEC (the Organization of the Petroleum Exporting Countries) announced to slash their production by 1.16 million barrels per day from next month until the end of this year. Russia also intends to cut its output by 500,000 barrels per day, bringing the combined production cut to 1.6 million barrels per day. The announcement of production cuts has boosted oil prices, benefiting oil-producing companies, including Canadian Natural Resources (TSX:CNQ).
Meanwhile, the company’s stock price rose over 6% yesterday amid the favourable announcement. Can the upward momentum continue? First, let’s look at the outlook of the energy sector.
Favourable market environment
Meanwhile, earlier in October, OPEC+ had slashed its output by two million barrels per day. So, with the recent announcement of production cuts, the overall output could come down by 3.7 million barrels per day, representing 3.7% of the global demand. The announcement of production cuts led oil prices to rise by over 6% on Monday, with Brent crude trading at around US$82/barrel.
Meanwhile, with the normalization of mobility in China amid the easing of pandemic-induced restrictions, oil demand has recovered this year. Amid the tightening supplies and rising demand, analysts are bullish on oil and are projecting Brent crude oil price to cross US$100/barrel this year. So, the market environment looks favourable for CNQ. Now, let’s look at its 2022 performance and growth prospects.
CNQ’s strong performance and growth prospects
Last month, CNQ posted a solid 2022 performance, with its adjusted net income from operations growing by 73.4%. A 4% increase in its annual production and higher realization price drove its financials. Supported by its strategic investments in natural gas assets helped the company to offset a marginal decline in its crude oil production to increase its output.
The company also generated $19.4 billion of cash flows from its operating activities. Supported by these solid cash flows, the company has returned $10.5 billion to its shareholders, with $4.9 billion in dividends and $5.6 billion in share repurchases. It has also lowered its debt level by around $3.4 billion.
Meanwhile, CNQ’s management expects to make a capital investment of $5.2 billion this year. Amid its growth initiatives, the company’s management expects its natural gas and crude oil production to come in the range of 2,170-2,242 million cubic feet per day and 969,000-1,001,000 barrels of oil per day, respectively. The midpoint of the company’s 2023 guidance represents a 4.5% production growth from 2022 levels. So, with energy prices projected to remain elevated, the increased production could boost CNQ’s financials in the coming quarters.
Dividend and valuation
CNQ has a solid track record of rewarding its shareholders. It has raised its dividends for the last 23 years at a CAGR (compound annual growth rate) of 21%. It currently pays a quarterly dividend of $0.90/share, with its yield for the next 12 months standing at 4.54%.
Despite yesterday’s surge in its stock price, CNQ trades 8% lower than its 52-week high. Its valuation also looks attractive, with its next 12-month price-to-earnings multiple at 10.1.
Investor takeaway
CNQ would be an excellent buy right now amid the favourable market conditions. Its operational efficiency, growth initiatives, healthy dividend yield, and attractive valuation make CNQ an ideal buy.
