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A Canadian based senior independent energy company engaged in the acquisition, exploration, development, production, marketing and sale of crude oil, NGLs, natural gas and bitumen production.
I'm from Calgary AB and although they have good management their cost overruns are going to be enormous. CNRL is continuously overbidding and over paying to secure labour and materials in the oil sands. They currently have the largest oil sands project going on, Horizon a 10 billion dollar project that can't be managed. Cost on smaller projects are being over run by 30-50%, Shell, Suncor...etc. Plus there is uncertainty politically with Oil revenue royalties and green house emission caps. Last is currency exchange, CNRL sells oil in US currency but reports in CAN, if the dollar continues to outpace the appreciation of WTI earning will be missed.
Just to add this, currently CNRL flies employees from all across Canada, allot of employees are flown in from Newfoundland. For those of you that don't know how far that is its about 7000KM or 4350 Miles. Just recently CNRL decided that their employees at some point will be required to live in Fort McMurray. Housing prices in Fort McMurray are first of all atrocious, 700K for single family homes (check out www.mls.ca). I've heard ridiculous stories about walk-in closets being rented out for $300. The reason is because there is just no available housing.Because of this current employees are jumping ship, I have to friends working for Opti Canada who have snapped up employees from CNRL. The jist of it is CNRL will not be able to deliver what they are promising.
As a CNRL employee (exploitations engineer), allow me to offer you insight to your concerns;At a recent company meeting in Edmonton, Mr. Markin talked about some employees jumping ship. Many of these people left because of attractive stock offers from other companies as bonuses for signing a work contract. However, many of these same people are coming to the startling realization that the stock options they relinquished at CNR could have made them more money and that the stock they've now aquired, doesn't appear as promising as CNR's...Everyone in the company is becomming aware of this, and that means this previously mentioned trend will die, especially as Horizon continues on track and on budget.Cost overruns? Yeah, welcome to life in Alberta. Where everything costs more than it should, but CNR, like other companies, can't afford to NOT finish their projects. The fact is, the skyrocketing energy costs are justifying these unexpected hikes in everything from labor to equipment. And being acquainted with management personal, I know they know when to draw the line. If it's too costly to drill, we don't drill! This company runs on strong principles that have been tried and tested (refer to the company's 383,000% growth [Canadian business magazine - May 2007] since Allan P. Markin and Murray Edwards aquired CNRL in 1989), it doesn't run on an ego, or spur of the moment decisions.Onward CNRL, onward.
I have no doubts CNRL is a fine company to work for, the argument here though on this site is your view of whether the stock will be a bull or a bear. The fact that cost overruns are common doesn't give me an investor comfort. The idea that there is a big struggle for workers, the size of the project as we all know its hard enough to finish all projects on time and on budget, now let's think what will happen with a 10 billion dollar project, a 10% overrun is 1 billion. 1 billion of investor money that is yet to produce a return. As an employee you get options as compensation, regular investors have to buy the shares, the situation is different. No doubt the % increase from 1989 to now is phenominal. But like Cramer says "we don't care where a stock came from, we care where its going". For CNRL to double in stock value, they have to double production, or the price of oil has to double, or the CAN dollar has to fall in half or any combination of those, which in my eyes is not worth the risk and hence my argument that there are better places to put your money.CRNL great company, not a great investment.
We have the benefit of hindsight, given this remark is a year and a half old. We know this person was correct, but now we also that oil got to $140 /barrel. Now that oil prices have retreated, CNQ is limiting oil sands ops. Given all we know, with a PE under 6 at the current time, CNQ is a well-managed company that has far more up than down in its future. It's winter. It's cold. Heat is not a discretionary expense.
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