Outlook at Canadian Natural Resources Reflects a Successful Exploration Program

Outlook at Canadian Natural Resources Reflects a Successful Exploration Program

Although the shares of many energy companies have fallen from favor since the announcement of the National Energy Program, Canadian Natural Resources Ltd. of Calgary continues to get enthusiastic reviews from analysts in the brokerage community.

Explaining some of the interest in Canadian Natural Resources (and contrary to its name) is the fact that the firm is essentially a U.S. oil and gas exploration and development company, but based in Canada.

While a U.S. focus has sparked interest in many domestic companies because of the higher prices received by energy producers in the United States, there are two other reasons for the recent buy recommendations on Canadian Natural Resources.

The company has had an extremely successful exploration program and a staggering rise in the undiscounted value of its assets, from $34.4-million to $1.52-billion. Over the next two years, it is expected that these figures will be translated into a cash flow explosion.

A recent investment report written by Peter Hill of Jones Heward and Co. Ltd. of Montreal said cash flow would rise to $3 a share this year, and jump to $5.10. These figures are up from only 39 cents a share. "The data projected are based on current production plans and a conservative escalation in petroleum prices," Mr. Hill said, noting that any significant energy discovery that could be hooked up quickly, or higher prices, would increase cash flow well above these estimates.

Walter Zamora of Midland Doherty Ltd. of Toronto is also projecting excellent cash flow growth, from $3 in to $6 next year.

Giving further strength to the company's share price is a belief that Canadian Natural Resources will continue to add significant amounts of oil and natural gas to its reserve figures, and thus raise the appraised value of its shares.

Mr. Hill said the company's net worth was about $36 a share, a figure he expects will rise to $40 at the year-end. High asset value gives the shares the potential for further capital gains, even though they are trading near the top of their range, he said.

Philippe Hervieu of Nesbitt Thomson Bongard Inc. of Montreal said Canadian Natural Resources should continue to have good asset growth because it is exposed to almost every play of interest in the United States and success in only half of them should produce excellent results. Mr. Zamora, for his part, called the potential for adding more reserves "phenomenal." While oil and gas is the main focus of its attention, Canadian Natural Resources also has a stable of mining interests that give it some diversification.

It has a 70 per cent working interest in a silver mine in Arizona that opened, a joint venture agreement covering a placer gold deposit in Alaska and a prospective gold-silver property in Oregon.

The company has also acquired Canadian Mine Services of Brampton, Ont., a mining contractor, for an exchange of shares. Mr. Hill called the purchase "constructive" and said its contribution to profit will offset the negative impact of share dilution by a wide margin.

Mr. Hill estimated profit of 35 cents a share and $1.50 a share this year. Mr. Hervieu was slightly more optimistic, giving 50 cents for last year and $1.75. The company reported profit of 24 cents a share.

Although most of its energy projects are in the United States, Canadian Natural Resources is probably more than 75 per cent Canadian-owned, so it is eligible for the biggest grants under Ottawa's program to stimulate oil exploration in frontier areas.