DBRS Places Ratings of Canadian Natural Resources Limited Under Review, Developing

DBRS has today placed the ratings of Canadian Natural Resources Limited (CNRL or the Company) Under Review with Developing Implications. This rating action reflects DBRS’s review of the Company’s credit quality following CNRL’s $3.125 billion debt-funded acquisition, which includes most of Devon Energy Corporation’s Canadian conventional assets (Transaction). DBRS expects CNRL’s ratings to remain unchanged upon completion of the Transaction, with a targeted closing date of April 1, 2014.

CNRL’s business risk profile is expected to remain largely neutral and reflective of an A (low)-rated entity following the Transaction. While DBRS acknowledges that the acquisition properties are forecast to add approximately 11% of gross production and 5% of proved reserves, natural gas (considered to be mostly liquids-rich) with relatively low netbacks is expected to account for the bulk of the Transaction’s production mix (estimated to be around 74%; the remaining portion comprises light crude oil and natural gas liquids with higher netbacks). In addition, CNRL could be exposed to abandonment liabilities that could be higher than expected; as well, some assets are mature with limited upside potentials.

CNRL’s debt buffer is expected to be adequate to support the Transaction without facing rating constraints. Pro forma the Transaction, CNRL’s primary credit metrics are expected to weaken but to remain within the BBB (high) rating category: (1) the percentage of debt in the capital structure to be approximately 35%, (2) debt-to-cash flow to remain under 2.0 times (x) and (3) EBIT-to-interest coverage to be within the 5.0x to 10x. CNRL’s financial risk profile restricts the ratings from further improvement.

As a result, the overall credit quality is expected to remain within the BBB (high) ‎rating category.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The applicable methodology is Rating Companies in the Oil and Gas Industry (July 2013), which can be found on our website under Methodologies.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.