Q: Hi,
CNQ has stated that once they reduce debt to 10 billion they will then return 100% of free cash flow to shareholders. How do they arrive at this number of 10 billion. Why not 5 billion? Or even better, why not reduce debt to zero then return 100% of FCF to shareholders?
CNQ has stated that once they reduce debt to 10 billion they will then return 100% of free cash flow to shareholders. How do they arrive at this number of 10 billion. Why not 5 billion? Or even better, why not reduce debt to zero then return 100% of FCF to shareholders?
5i Research Answer:
We can't speak for the company, but debt can still enhance total growth, provide capital flexibility and interest costs are tax-deductible. At $10B in debt, CNQ's cash flow would cover all debt in about six months. Its valuation likely wouldn't improve much if it dropped debt to $0 as investors already consider as having a solid balance sheet already.