CIBC ReportEQUITY RESEARCH
October 8, 2024 Earnings Update
CANADIAN NATURAL RESOURCES LTD.
Acquisitions Of Chevron’s Canadian Assets Drive Longer-term
Value
Our Conclusion
Canadian Natural has further consolidated its interest in the Athabasca Oil
Sands Project (AOSP) by acquiring Chevron’s 20% working interest stake.
Canadian Natural will also acquire Chevron’s 70% operated working interest
in the Duvernay and other assets for total consideration of US$6.5 billion
cash. The acquisitions will add 122.5 MBoe/d production with a targeted
close in Q4/24. We view these acquisitions as a net positive as the
acquisitions present additional growth opportunities and cost synergies with
low execution risk. The cost synergies associated with the asset
consolidation, cash flow and NAV accretion has driven an increase to our
price target to $59.00 (from $57.50).
Key Points
• Consolidating exposure in the oil sands fairway. Canadian Natural
has now boosted its ownership of AOSP to 90% (from 70% previously)
as the company has already streamlined operations from the asset.
Further, the addition of working interest on the Pierre River undeveloped
lease could have longer-term positive implications for the development of
Horizon.
• Duvernay transactions include deep inventory and cost synergies.
Canadian Natural expects cost efficiencies of ~15% or $40 million per
year, with extensive infrastructure enabling future growth. Canadian
Natural identified greater than 340 net locations, supporting production
growth to 70 MBoe/d by 2027. There are further opportunities to develop
proximal acreage that Canadian Natural already owned.
• Balance sheet remains strong despite acquisitions fully funded by
current liquidity. Including the acquisitions, we expect Canadian
Natural to exit 2024 with net debt of $17 billion, implying a D/CF of 1.2x.
At US$70 WTI, we expect Canadian Natural to reach net debt of $15
billion in Q1/26.
• Change of free cash flow allocation policy. The Board approved an
increase to the quarterly dividend by 7% to $0.5625/sh in January 2025.
Post closing the acquisitions, Canadian Natural will allocate 60% of free
cash flow to shareholders and 40% to the balance sheet until net debt
reaches $15 billion. The free cash flow allocated to shareholders will
increase to 75% when net debt is between $12 billion-$15 billion and
100% when net debt is at or below $12 billion.
• Valuation. Valuation. Canadian Natural Resources trades at a P/RNAV
ratio of 94%, a 2025E EV/DACF of 7.1x and a 2025E FCF yield of 10%
vs. the large-cap group at 107%, 6.7x and 9%, respectively.