Boasting a large, diversified asset base with significant opportunities, Canadian Natural Resources Ltd. (TSX:CNQ) has a bright future. Up almost 200% in the last five years, CNQ’s stock price has certainly reflected this.
But what should we expect for TSX stock CNQ in 2025?
CNQ is backed by top-tier assets
To start off, I think it would be useful to remind ourselves of the type of energy stock that CNQ is.
It’s an oil and gas producer. It has an unmatched asset base. Cash flows are strong and predictable. And CNQ’s dividend has increased every year for the last 24 years. So how does CNQ achieve this?
CNQ’s assets represent a diversified portfolio of high-quality natural gas, crude oil, and upgrading assets. They are long-life assets, with low decline rates, and a reserve life index of 44 years. This means that there’s not a lot of capital investment required for exploration, so it’s relatively low-cost and low-risk. In short, this ensures a reliable and predictable cash flow profile.
TMX pipeline commissioning
The second quarter commissioning of the TMX pipeline has been a very positive development for Canadian Natural, CNQ stock, and the entire oil and gas industry. It’s opening up the Canadian oil and gas industry to global markets, diversifying the market for Canadian crude oil. This is resulting in higher demand, and ultimately, higher realized prices.
Production and cash flows ramping up
In the company’s latest quarter, production increased 8%, and adjusted funds flow increased 32% to $3.6 billion. In the first six months of the year, adjusted funds flow increased 9.4% to $6.8 billion. This was driven by continued strong oil prices, as well as strong operational execution.
Due to the low capital intensity of CNQ’s assets, free cash flow came in at $2 billion in the quarter. It is the company’s stated intention to return 100% of free cash flow to its shareholders in the form of dividends and share buybacks. The company’s dividend has grown at a compound annual growth rate of 21% during the last 24 years.
All of this will likely drive up CNQ’s stock price.
Future opportunities for CNQ
Looking ahead to 2025, I think we can expect good things.
Production is expected to increase in the second half of 2024, paving the way for a strong 2025. This sets the company up for significant free cash flow generation. With the company returning all of this to shareholders, I would expect increasingly positive momentum for the dividend.
Also, natural gas production has been curtailed due to low natural gas prices. The company expects that this production will likely be brought back online when natural gas prices show more strength, likely in late 2024 or early 2025.
Finally, the company has significant growth opportunities in its asset base. In fact, near and medium-term projects are expected to add approximately 12,000 barrels of oil equivalent per day (boe/d) of additional production to the company.
The bottom line
CNQ stock is one of the best energy stocks on the TSX. The company is looking forward to a strong year ahead. This will likely result in increasing shareholder value creation via dividend growth and share buybacks. In my view, CNQ stock is a buy.
