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Rating Action:

Moody's affirms Canadian Natural's Baa2 rating; outlook stable

20 Mar 2020

Toronto, March 20, 2020 -- Moody's Investors Service (Moody's) affirmed Canadian Natural Resources Limited's (CNRL) Baa2 senior unsecured rating and Prime-2 commercial paper rating. The outlook remains stable.

"The affirmation and stable outlook reflects CNRL's good liquidity profile despite significant debt maturities in 2020 and 2021," said Paresh Chari Moody's analyst. "CNRL's durable and resilient asset base will allow the company to weather a prolonged downturn in oil prices with free cash flow even at weak levels."

Affirmations:

..Issuer: Canadian Natural Resources Limited

....Senior Unsecured Commercial Paper, Affirmed P-2

....Senior Unsecured Medium-Term Note Program, Affirmed (P)Baa2

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa2

....Senior Unsecured Shelf, Affirmed (P)Baa2

Outlook Actions:

..Issuer: Canadian Natural Resources Limited

....Outlook, Remains Stable

RATINGS RATIONALE

CNRL's low cost and high margin oil sands upgrading assets are able to generate significant cash flow even at low oil prices, and the company's low decline rate leads to a low maintenance capital spend to hold production steady. The sizeable dividend could also be reduced to provide even further resilience during this oil price downturn. CNRL's liquidity will remain good despite C$1.9 billion and C$1.5 billion in debt maturities in 2020 and 2021, respectively.

The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented. The E&P sector has been one of the sectors most significantly affected by the shock given its sensitivity to consumer demand and oil. We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. Today's action reflects the limited impact on CNRL's credit quality of the breadth and severity of the oil demand and supply shocks, and the company's resilience to a period of low oil prices.

Canadian Natural Resources Limited (CNRL, Baa2) is supported by: 1) its significant size and scale in western Canada, with production of around 1.1 million boe/d and 2018 proved reserves of over 8.6 billion boe; 2) its long-lived and low decline oil sands assets; 3) a low operating cost base, and finding and development costs that allow the company to withstand commodity downturns; 4) ability to generate free cash flow at low oil prices; and 5) the roughly 40% of production that is light synthetic crude oil and 5% international products that help mitigate regional heavy oil and natural gas price weakness and volatility. CNRL is constrained by: 1) its significant concentration in western Canada that exposes almost all of its production to regional prices and to the material pipeline constraints for its heavy oil and natural gas production; 2) low retained cash flow to debt metrics in 2020 and 2021; and 3) a history of opportunistic debt funded acquisitions that have curtailed debt reduction.

CNRL has good liquidity. CNRL had C$139 million of cash at December 31, 2019, about C$4.5 billion available under its revolvers (C$2.4 billion matures June 2022 and C$2.4 billion June 2023) and modest free cash flow through 2020. CNRL's US$2.5 billion US market commercial paper program (P-2), with C$329 million outstanding at December 31, 2019, is backstopped by the revolvers reducing availability. CNRL has about C$1.9 billion in debt maturities through 2020, which we expect will be funded under the revolvers. CNRL has another C$1.5 billion in debt maturities through 2021. CNRL will be well in compliance with its sole financial covenant. Liquidity management has at times been weak, but is now good, where we expect it to remain.

The stable outlook reflects our expectation that CNRL will maintain good liquidity and that credit metrics will remain in-line for the rating.

The ratings could be upgraded if retained cash flow to debt approaches 50% and LFCR is maintained above 2x.

The ratings could be downgraded if retained cash flow to debt remains below 25% or if LFCR is likely to decline towards 1x.

CNRL is one of North America's largest independent exploration and production companies with about 1.1 million boe/d of production (net of royalties).

The principal methodology used in these ratings was Independent Exploration and Production Industry published in May 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Paresh Chari
Vice President - Senior Analyst
Corporate Finance Group
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Donald S. Carter, CFA
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY550,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

​
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