Why Junior Oil and Gas Companies are F'ed

If you were to look at companies financial information side by side, you would be surprised at what the results may be.

First off, the numbers for the companies listed here are from the Q1 2009 Iradesso report, if you don't get this report, you should. It benchmarks some publicly listed companies that have the majority of their production in the the Western Canadian Basin. You can subscribe to it here.

Included in the comparison are Operating Costs (Op Costs), General and Administrative Costs (G&A) and Depreciation, Depletion and Amortization (DD&A). Royalties per BOE were not included in the Irradesso report so they have been excluded from this information. The total costs for a barrel of oil equivalent (BOE) for oil is simply the operating costs plus the G&A costs and the DD&A costs. The costs per mcf of gas are the same costs divided by 6 (6 mcf per BOE for oil is the conversion factor).

The last column in the example, Approximate Loss/Profit / BOE, is based on revenue for the daily production for gas at $4.00/mcf converted to a BOE and oil at $68/BOE, then taking out the costs for gas and oil by company and finally dividing this amount by the actual production for the day.

The oil and gas company is listed down the left-hand side.

As you can see with the Junior oil and gas company's listed here, the average cost (excluding royalties) is $7.65/mcf. Based on this, you can see that at the AECO spot price for gas (as of July 15th) at $3.04, for every MCF of gas that a company produces, they loose $4.61 on average. Oil is a better picture, with costs of $45.92 (excluding royalties) and revenues per BOE for western Canadian select at $56.35 Cdn, then there is profit of $10.43.

Basically the bottom line on this information is that of the sample group that I have listed, the vast majority are not making any money on their production. I still am trying to figure out how some of these companies are staying in business. My belief is that we will be seeing more of companies looking at "strategic alternatives", which I take as "Putting ourselves up for sale".

There is a larger excel spreadsheet that this came from that I would be more than happy to forward if you would like a copy. Just contact me at chris@argentis-group.com.

The next post will be on the intermediate producers, with production between 10,000 and 100,000 BOED.

These opinions are mine and may not reflect your view. If you would like to contact me, then please feel free to do so at info@argentis-group.com.