Paying down debt while boosting its oil production weighting and generating plenty of cash flow has led to a credit rating upgrade for Calgary-based major Canadian Natural Resources Ltd.
On Thursday, Moody's raised its rating of Canadian Natural's debt to Baa1 from Baa2 with a stable outlook.
"The upgrade reflects Canadian Natural Resources' sizable debt reduction over the past 20 months, enhanced size and diversity through the successful ramp-up of Horizon Phase 1, and our expectation that the company will continue to generate material free cash flow at today's oil and gas prices." said Moody's analyst Terry Marshall.
"Our expectation is that CNQ will fund growth projects, including future phases of Horizon, largely with internally generated funds."
Horizon is the oilsands project Canadian Natural opened last year. After a production stumble in August, the mining and upgrading project is operating near its capacity of 110,000 barrels of synthetic crude per day.
The upgraded ratings apply to a total of about $7.5 billion of debt securities -- senior unsecured medium-term notes, senior unsecured regular bond/ debenture issues and senior unsecured shelf.
Twenty of 23 analysts surveyed by Bloomberg rate Canadian Natural a buy. The shares were trading at $37.49 at midday in Toronto on Thursday, down 43 cents, giving the company a market capitalization of over $40 billion.
Canadian Natural management refused comment on the Moody's ratings.
A recent analyst report on the company by Peters & Co. notes it is focusing its capital budget on higher-return oil projects over price-depressed natural gas drilling, although it has the flexibility to go either way.
The note from analyst Kam Sandhar suggests that a time-line on Horizon Phase 2 will likely be forthcoming with the 2011 capital budget, expected to be released Nov. 4 along with its third-quarter results.
Moody's pointed out that Canadian Natural is poised for significant production growth over the next five to eight years, adding the proportion of oil production relative to natural gas has increased steadily, to 67 per cent in the second quarter of 2010 from approximately 55 per cent in the first quarter of 2009, boosting cash flow.
Since the end of 2008, Moody's said, CNQ has reduced debt by about $3.7 billion despite volatile oil and weak natural gas prices.
