Key Takeaways from Fairholme Capital's 4Q14 13F (Part 5 of 16)
(Continued from Part 4)
Canadian Natural Resources
Bruce Berkowitz’s Fairholme Capital established a new position in Canadian Natural Resources (CNQ) through the purchase of 503,600 shares. CNQ represented 0.21% of the fund’s US long portfolio. CNQ represents Fairholme’s sole exposure to the energy sector after the fund disposed of Chesapeake Energy (CHK) and BP Plc (BP) in 4Q14.
Overview of Canadian Natural Resources
Canadian Natural Resources (CNQ) has total proved reserves of ~5.5 billion barrels of oil equivalent (or boe) and per-day production of roughly 790,400 boe. CNQ is one of the largest North American crude oil, natural gas liquids (or NGL) and natural gas, exploration, and production companies.
From a geographic standpoint, Canadian Natural Resources’s operations are focused in Western Canada, the North Sea, and offshore Africa. Nearly all of its natural gas and NGL production is within the Canadian provinces of Alberta, British Columbia, and Saskatchewan.
The company focuses on maintaining large project inventories and diversified production of natural gas, crude oil (light, medium, and heavy), and natural gas liquids.
Increased production levels, netbacks boost earnings growth
Despite crude oil pricing challenges, CNQ reported an 11% YoY (or year-over-year) increase in revenues to $4.4 billion in the fourth quarter of 2014. The revenue growth was primarily driven by an increase in crude oil and NGL sales volumes during the same period. Net earnings for 4Q14 increased to $1.2 billion compared to $413 million in 4Q13 due to higher netbacks, realized risk management gains, and favorable exchange rate movements.
Crude oil and NGL production increased 20% YoY to 572,000 barrels per day in 4Q14. Natural gas production increased by 45% over the same period to 1,733 million cubic feet per day due to acquisitions and the Montney natural gas drilling program.
On March 5, 2015, the company declared a quarterly cash dividend of $0.23 per share, payable on April 1, 2015.
Reduces planned capex amid weak commodity prices
Canadian Natural Resources announced that it would trim its targeted capex (or capital expenditure) of $8.6 billion for 2015 by $2.4 billion, reflecting changes in the pricing environment for energy commodities. At its targeted level, management expects a 7% production growth from the midpoint of its 2014 production guidance levels.
CNQ is a component of the iShares North American Natural Resources ETF (IGE) with a weight of 1.88%. IGE’s top three holdings are Exxon Mobil (XOM), Chevron Corporation (CVX), and Schlumberger (SLB), with weights of 7.56%, 7.41%, and 6.09%, respectively.
Continue to Part 6
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