2nd Qtr 3rd Qtr
2006
4th Qtr 1st Qtr
2nd Qtr
2007
3rd Qtr
E&P Trusts Junior Producers ( 18 Companies) Emerging Juniors ( 42 Companies)
Source: www.canoils.com
how this important segment is becoming less transparent to all
but the privileged few.
Having highlighted some of the problems, it is clear that we
need to dig a little to uncover the Canadian performance of companies active in the sector. Using the comprehensive coverage
of the Canoils database, we have carefully selected groups of
companies that have operations exclusively or heavily weighted
in Canada so that we can reveal what’s happening purely in
Canadian E&P.
We created three groups: E&P Trusts with operations focused
mainly in the E&P sector in Canada; a group of 18 Canadian junior
producers, producing up to 50,000 barrels of oil equivalent per
day in Canada; and a group of 42 Canadian domestic emerging
juniors, producing between 1 and 5,000 barrels of oil equivalent
per day in Canada.
Using these groupings, we can begin to get a clearer picture of
what is actually going on in Canadian E&P.
The hard numbers suggest that the industry has had good
reason to be concerned with the Canadian part of their financial
performance. Cash netbacks—the margin a company makes
between its cash flow and its cash costs—has deteriorated quite
noticeably for all three groups in recent quarters. (By the way,
the overall level of netback is lower for the more junior companies because of their heavier dependence on gas production and
doesn’t necessarily reflect differences in cost or efficiency.)
Perhaps unsurprisingly, cash netbacks for companies that are
more heavily weighted to crude production have been hit less hard,
if at all, than those more heavily weighted towards gas production.
Yet total earnings and total cash flow have been holding up
quite well over the same period for all groups of companies
because production has been increasing. These companies have
been running harder to stand still. Because unit margins are being
squeezed, these Canadian companies have to produce more to
sustain the same level of cash flow. This has meant many companies have had to resort to the markets to increase their debt.
Hopefully this Canoils analysis has highlighted some of the
hard-to-quantify commercial realities facing companies operating
in the Canadian E&P sector.
— Richard Krijgsman, president, Canoils Database Limited
Oilweek has teamed up with Canoils, Canada’s independent provider
of E&P company information and analysis, to provide hard numbers on
key trends affecting Canadian exploration and production companies.
