SWOT Analysis - Canadian Natural Resources (CNQ)

Canadian Natural Resources (CNR) is a significant producer of natural gas in Canada, representing approximately 10% of western Canadian output. Its undeveloped land base represents the second largest portfolio in the Western Canadian Sedimentary Basin (WCSB) and it also has an exposure to virtually every play type found in the basin. Strong market position allows the company to take advantage of economies of the scale and reduce risk. However, increased cost pressures and environmental regulations may adversely impact the company’s future net earnings, cash flow, and capital projects.

Strengths

Leadership position in Canada - The company’s production is concentrated in five North American core regions: Northeast British Columbia, Northwest Alberta, the Foothills, the Northern Plains, and the Southern Plains. In addition, the company holds extensive leases in the Athabasca region that are estimated to contain approximately 16 billion barrels of original bitumen in place. It also dominates the infrastructure in its core areas allowing it to control its cost. Moreover, natural gas remains its largest single product offering, representing 45% of its production mix in 2008. Strong market position allows the company to take advantage of economies of the scale and reduce risk.

Strong oil reserves - The company has strong oil reserves. CNR’s crude oil and NGLs proved reserves, before royalties increased from 1,123 million barrels (mmbbl) in FY2004 to 1,543 mmbbl in FY 2007, at a CAGR of 11%. Further, the crude oil and NGLs proved reserves, after royalties, also increased from 1,066 mmbbl in FY2004 to 1,358 mmbbl in FY2007. The company’s strong oil reserves give it a significant competitive advantage, especially when a large proportion of global oil fields are reaching maturity.

Strategic land base - CNR has the second largest undeveloped land inventory in the WCSB, with undeveloped net acreage in excess of 12 million acres, excluding leases at the Horizon Project. The strength of the company’s land base is a result of continued land purchases, and strategic acquisitions including the incorporation of the ACC properties that were acquired in late 2006. The vast majority of the company’s land base is positioned to utilize existing owned and operated infrastructure and also strategically positions CNR. Further, it also maximizes the benefit of new play types developed by the company and industry. This strong concentrated land base affords significant opportunities to control operating costs, along with minimizing finding and on-stream costs.

Weaknesses

Poor performance of North Sea geographic segment - The revenues and the crude oil production from CNR’s North Sea geographic segment have been witnessing a decline over the years. The revenues from North Sea declined from C$1,656 million (approximately $1,490.4 million) in FY2005 to C$1,594 million (approximately $1,434.6 million) in FY2007, at a CAGR of 1.9%. Further, crude oil production before royalties from North Sea declined from 68,593 barrels per day (bbl/d) in FY2005 to 55,933 bbl/d in FY2007, at a CAGR of 9.7%. The decline in production was due to lower than anticipated production from the Lyell Field development and water injection problems experienced during the year at the Ninian Field.

Declining natural gas reserves - The company has witnessed a significant decline in its natural gas reserves in 2008 compared with FY2006. Natural gas remains its largest single product offering, representing 45% of its production mix in 2008. The natural gas reserves, before royalties, declined from 4,613 billion cubic feet (Bcf) in FY2006 to 4,435 Bcf in 2008, representing a decline of 3.9%. Further, its natural gas reserves, after royalties, declined from 3,798 Bcf in FY2006 to 3,666 Bcf in 2008, representing a decline of 3.5%.

Opportunities

Rising demand for oil and natural gas - The strong economic growth in the developing countries will drive global oil and natural gas demand. The overall global energy demand is expected to grow about 1.6% annually to 2030. With the growing transportation sector, the demand for liquid fuels is expected to rise at a rate of 1.4% per year. Driven by increasing demand for electricity, natural gas demand is expected to increase by 1.7% annually to 2030. The projected increase in demand for liquid fuels and natural gas in the coming years would help the company boost its sales and strengthen its financial base.

Horizon Oil Sands Project - The Horizon Oil Sands Project is located 70 kilometres north of Fort McMurray, where CNR owns and operates leases covering 115,000 acres through lease arrangements with the Province of Alberta.The Horizon Project includes a surface oil sands mining and bitumen extraction plant coupled with on-site bitumen upgrading and associated infrastructure to produce synthetic crude oil. Drilling on these leases indicates an estimated 16 billion barrels of bitumen in place, with approximately 6-8 billion recoverable barrels under existing mining technologies. The Horizon Project asset is substantial and is anticipated to provide significant free cash flow in the future to CNR.

Threats

Environmental regulations - CNR’s businesses are subject to numerous laws and regulations relating to the protection of the environment.The company’s associated risk management strategies focus on working with legislators and regulators to ensure that any new or revised regulations reflect a balanced approach to sustainable development. Further, specific measures in response to existing or new legislation include focus on the company’s energy efficiency, air emissions management, released water quality, reduced fresh water use, and minimization of the impact on the landscape.

Increasing cost pressures - Strong commodity prices in recent years have resulted in increased demand and costs for oilfield services. This has lead to inflationary production and capital cost pressures throughout the North American oil and gas industry, particularly related to natural gas drilling activity and oil sands developments. The strong commodity price environment has also impacted costs in international basins. Specifically, the high demand for offshore drilling rigs continues and securing rigs on commercially acceptable terms is an ongoing challenge.

Adverse weather conditions - Adverse weather conditions could pose a substantial threat to the company both in terms of curtailed activity and its potential effect on natural gas prices. Warmer than normal weather can impact the demand for natural gas, resulting in lower realized price for the company.

SWOT Analysis - Barrick Gold

Barrick Gold Corporation (Barrick) is one of the largest gold mining companies globally, having 27 operating mines and five development projects in Canada, the US, Australia, Chile, Peru, Argentina, and Tanzania. The company's strong project pipeline ensures a steady revenue growth and has boosted investor confidence. However, changes in local and national government legislations, taxations, controls, regulations, and political or economic developments across key countries may affect the company's business prospects.

Strengths

Strong market position - Barrick is the only company in the gold mining industry that possesses an ”A” rating balance sheet. The company has the largest reserves in the industry, with 124.6 million ounces of proven and probable gold reserves, 6.2 billion pounds of copper reserves, and 1.03 billion ounces of contained silver within gold reserves as atDecember 31, 2007.

Strong project pipeline - Barrick has been progressing a new generation of projects that advanced significantly in 2008: Buzwagi in Tanzania, Cortez Hills in Nevada; Pueblo Viejo in the Dominican Republic; Pascua-Lama, Chile/Argentina; Buzwagi, Tanzania; Donlin Creek, Alaska, the US; Reko Diq, Pakistan; Sedibelo, South Africa; Federova, Russia; and Kabanga, Tanzania. A strong project pipeline ensures a steady revenue growth and has boosted investor confidence.

Emphasis on exploration - Even at times when gold prices are low, the company was conscious of not diluting the emphasis on exploration. Barrick has a motivated, discovery focused team of over 150 geo-scientists exploring approximately 100 properties in 16 countries around the world. Reserve development and replacement of production is a major priority at all sites. The company consistently funds its exploration programs throughout all gold cycles, and has a proven track record of finding ounces at both greenfield and brownfield projects.

Weaknesses

Contingencies, claims, and litigations - The company has a number of lawsuits pending against it. In June 2003, Barrick's shareholders filed a complaint in the New York district court alleging that Barrick had violated the US security laws by providing misleading and false statements about its earnings and operating results in 2002. In September 2004, Dr. Gregg McKenzie filed a putative class action complaint against Barrick and JP Morgan in the Louisiana district court. This complaint alleged that the company violated the Commodity Exchange Act and US antitrust laws and sought damages and an injunction to terminate certain trading agreements Barrick entered into with J.P. Morgan. Another similar complaint was filed against Barrick during December 2004. In September 2004, a complaint was filed in the New Mexico district court against two of Barrick’s subsidiaries, Homestake and Home-stake California. The plaintiffs sought damages, alleging that they had been exposed to radioactive and other hazardous substances.

Decreasing production levels in old mines - The old mines of Barrick’s are facing decreasing production levels. Production is declining primarily as a result of lower-grade ore processed at Eskay Creek, Goldstrike Open Pit, and Pierina and the depletion of reserves at Holt-McDermott. Declining production levels in matured mines generate lower grade ores, thereby affecting production and ultimately reducing the revenue generated by the company.

Opportunities

New development projects - The company has entered into a joint venture with Xstrata for the Kabanga nickel sulphide project in Tanzania making it similar in size and grade to the world-class Voisey’s Bay mine in Labrador. Further, Barrick and NovaGold formed a limited liability company, jointly owned by Barrick and NovaGold on a 50/50 basis, which will oversee development of the Donlin Creek project in Alaska. These new development projects would add to Barrick’s resource reserves and enable the company to generate incremental revenues

Explorations in Russia and Central Asia - Barrick is exploring properties in Russia and Central Asia. Barrick's programs are complemented by strategic relationships with Celtic Resources and Highland Gold, which helped in developing assets in Russia and Central Asia. Barrick has an equity position in Celtic Resources and also has back-in rights for up to 50% in any assets purchased in Kazakhstan and also on certain other assets Acquisitions of Cortez property in the Nezhdaninskoye project. Barrick's investment in Highland Gold enables it to participate on an
exclusive basis for up to 50% on any purchase made by Highland Gold in Russia. These relationships would help Barrick to familiarize itself with the Russian and Asian regions and
to refine its development options in these prospective regions.

Threats

International political and economic issues - Changes in local and national government legislations, taxations, controls, regulations, and political or economic developments across key countries may affect the company's business prospects.The Pascua-Lama project straddles the border between Chile and Argentina, with some of the operations to be built on the Chile side, and other parts of the project on the Argentinean side. This can throw up cross-border issues, including permits and taxes. Furthermore, if recent history is any indication, obtaining permits to develop a large-scale gold mine in Argentina will not be an easy task. International political and economic issues could, therefore, be a hindrance in the smooth functioning of the company’s various operations.

Inherent risk in the mining operations - Barrick is subject to all the inherent risks associated with the gold exploration and mining business, which include critical issues like industrial accidents, environmental hazards, unusual and unexpected formations, cave-ins, flooding and pressures, and also the risk of inadequate insurance, or an inability to obtain insurance. These apart, there are also risks of obtaining necessary permits and licenses, decreasing grades or quantities of reserves, and changes in the credit rating, all of which can hinder the business operations.

Environmental laws and regulations - Barrick’s ongoing mining operations and exploration activities are subject to extensive laws and regulations governing exploration, development, production, occupational health, mine safety, toxic substances, waste disposal, protection and remediation of the environment, protection of endangered and protected species, and other related matters. Compliance with these laws and regulations imposes substantial costs and it is expected that these costs would continue to increase in the future because of increased demand for remediation services and shortages of equipment, supplies, labor, and other factors.