Oilweek - March 2008

69 Canoils Corner | 73 Heavy ambitions
Wealth & Wisdom

Canoils Corner
Revealing what’s really going on in
Canadian E&P

It’s easy to understand why anyone outside the Canadian oil and gas industry might be a little mystified (and skeptical) when they hear the industry complaining about tougher royalty and tax regimes within Alberta. They have seen crude prices soaring to record heights and gas prices, despite their weakness, remaining at historically high levels. They understand that operating costs have been rising faster than inflation while the stronger Canadian dollar hasn’t helped the industry, but they seem still to harbour a nagging doubt that the industry isn’t telling the whole story.

Total Cash Netbacks for Canadian Producers

32.00

Cash netback per boe in C$

30.00

28.00

26.00

24.00

22.00

20.00

1st Qtr

2nd Qtr 3rd Qtr 2006

4th Qtr 1st Qtr

2nd Qtr 2007

3rd Qtr

Emerging Juniors

Junior Producers

E&P Trusts

Part of the problem the industry has in getting its message across is that its structure is extraordinarily complex. That makes it genuinely hard to unravel how the Canadian segment of a company is performing financially.

For example, a growing number of Canadian companies’ financial results are affected by their international operations, thereby obscuring the health of their Canadian exploration and production (E&P) operations.

Others have integrated operations in refining and marketing, and this sometimes masks underlying trends in the E&P segment, especially if one looks at just the bottom-line numbers.

But perhaps more serious for industry outsiders and investors alike is that the performance of the key component of Canada’s energy future—the oilsands—is being progressively buried within the accounts of major integrated companies. Royal Dutch/Shell’s takeover of Shell Canada, resulting in the former Canadian subsidiary’s results being rolled into the parent, is just one example of