Analysis of Q2 Results for Junior Oil and Gas Companies on the TSX Part Three - Income per Barrel of Oil Equivalent or Lack of Income

This is the third part of as series that look at the Q2 2009 results of 57 TSX listed companies with production in the Western Canadian Basin. In this post I will look at Net Income for the juniors.

First off, the definition of net income is a companies total earnings or revenues less expenses.

Here are the numbers:

• Only 3 of the 57 companies had positive net income


• True Energy Trust had -$99M in net income for the quarter, which is the worst offender


• Freehold Royalty Trust was at the other end with $6.7M in net income


• The average net income for the companies was -$4.6M


• Average net income per Barrel of oil equivalent per day (BOED) was -$2,023


• Average net income per Barrel of oil equivalent was -$21.99

• Worst Net Income per BOE (at -$136.58) and per BOED (at -$12,566 per BOED) was Canadian Phoenix

• The best Net Income per BOE (at $10.10) and per BOED (at $929) was Freehold Royalty Trust

Below is a list of the 57 companies:

Company	BOED	Net Income	Income per BOED	Net Income per BOE	Average Sell Price Per BOE	Expenses per BOE
Canadian Phoenix	882	$(11,083,000)	$(12,566)	$(136.58)	$53.27	$(189.85)
Fortress	1,279	$(14,605,000)	$(11,419)	$(124.12)	$37.35	$(161.47)
TRUE	9,767	$(99,715,000)	$(10,209)	$(110.97)	$39.85	$(150.82)
Fairwest	809	$(3,961,000)	$(4,896)	$(53.22)	$37.88	$(91.10)
Questerre	806	$(3,835,000)	$(4,758)	$(51.72)	$40.56	$(92.28)
Second Wave	987	$(4,138,000)	$(4,193)	$(45.57)	$42.30	$(87.87)
Action	972	$(3,766,000)	$(3,874)	$(42.11)	$39.29	$(81.40)
Buffalo	2,714	$(9,981,000)	$(3,678)	$(39.97)	$37.27	$(77.24)
One	671	$(2,394,000)	$(3,568)	$(38.78)	$31.27	$(70.05)
Insignia	773	$(2,245,000)	$(2,904)	$(31.57)	$28.18	$(59.75)
Result	617	$(1,766,000)	$(2,862)	$(31.11)	$19.02	$(50.13)
Monterey	2,329	$(5,485,000)	$(2,355)	$(25.60)	$26.42	$(52.02)
BlackPearl	5,170	$(10,889,000)	$(2,106)	$(22.89)	$47.07	$(69.96)
Canext	995	$(2,024,000)	$(2,034)	$(22.11)	$26.49	$(48.60)
Intl Sovereign	954	$(1,931,000)	$(2,024)	$(22.00)	$24.28	$(46.28)
Argosy	935	$(1,726,000)	$(1,846)	$(20.07)	$26.21	$(46.28)
Great Plains	1,301	$(2,373,000)	$(1,824)	$(19.83)	$43.35	$(63.18)
Bellamont	867	$(1,546,000)	$(1,783)	$(19.38)	$29.99	$(49.37)
Petro-Reef	847	$(1,492,000)	$(1,762)	$(19.15)	$26.85	$(46.00)
Sure	653	$(1,140,000)	$(1,746)	$(18.98)	$23.54	$(42.52)
Twoco	1,269	$(2,206,000)	$(1,738)	$(18.90)	$27.49	$(46.39)
Midnight	2,189	$(3,668,000)	$(1,676)	$(18.21)	$31.99	$(50.20)
Orleans	3,848	$(6,432,000)	$(1,672)	$(18.17)	$27.03	$(45.20)
Crocotta	2,006	$(3,193,000)	$(1,592)	$(17.30)	$34.82	$(52.12)
Seaview	2,066	$(3,273,000)	$(1,584)	$(17.22)	$39.26	$(56.48)
Cequence	1,548	$(2,444,000)	$(1,579)	$(17.16)	$47.00	$(64.16)
Vero	7,040	$(10,748,000)	$(1,527)	$(16.59)	$27.49	$(44.08)
Painted Pony	1,313	$(1,965,000)	$(1,497)	$(16.27)	$40.48	$(56.75)
Midway	980	$(1,432,000)	$(1,461)	$(15.88)	$28.67	$(44.55)
Redcliffe	791	$(1,147,000)	$(1,450)	$(15.76)	$30.04	$(45.80)
Arsenal	2,236	$(3,236,000)	$(1,447)	$(15.73)	$47.35	$(63.08)
Dejour	554	$(781,000)	$(1,410)	$(15.32)	$34.61	$(49.93)
Anderson	7,789	$(10,410,000)	$(1,337)	$(14.53)	$24.70	$(39.23)
ProspEx	3,089	$(3,899,000)	$(1,262)	$(13.72)	$27.32	$(41.04)
Triton	939	$(1,170,000)	$(1,246)	$(13.54)	$23.62	$(37.16)
Twin Butte	2,864	$(3,328,000)	$(1,162)	$(12.63)	$32.07	$(44.70)
Culane	1,480	$(1,532,000)	$(1,035)	$(11.25)	$31.81	$(43.06)
NuLoch	507	$(520,000)	$(1,026)	$(11.15)	$35.50	$(46.65)
Cinch	2,616	$(2,553,000)	$(976)	$(10.61)	$21.90	$(32.51)
Diaz	675	$(619,000)	$(917)	$(9.97)	$31.53	$(41.50)
Berens	4,180	$(3,782,000)	$(905)	$(9.83)	$28.61	$(38.44)
Wrangler West	1,117	$(1,009,000)	$(903)	$(9.82)	$32.16	$(41.98)
Arcan	1,523	$(1,314,000)	$(863)	$(9.38)	$52.01	$(61.39)
Open Range	2,245	$(1,927,000)	$(858)	$(9.33)	$28.03	$(37.36)
Yoho	2,682	$(1,818,000)	$(678)	$(7.37)	$23.12	$(30.49)
Ironhorse	1,223	$(653,000)	$(534)	$(5.80)	$20.85	$(26.65)
Rock	3,329	$(1,745,000)	$(524)	$(5.70)	$38.37	$(44.07)
Zapata	2,638	$(1,294,000)	$(491)	$(5.33)	$39.88	$(45.21)
Delphi	6,809	$(2,817,000)	$(414)	$(4.50)	$37.49	$(41.99)
Angle	7,472	$(2,248,000)	$(301)	$(3.27)	$25.60	$(28.87)
Storm	8,153	$(2,192,000)	$(269)	$(2.92)	$25.81	$(28.73)
Zargon	9,520	$(2,553,000)	$(268)	$(2.91)	$40.92	$(43.83)
Terra	5,412	$(1,117,000)	$(206)	$(2.24)	$24.47	$(26.71)
Stonefire	1,369	$(134,000)	$(98)	$(1.06)	$31.70	$(32.76)
West	4,092	$604,000	$148	$1.60	$54.08	$(52.48)
Bonterra	5,014	$4,544,000	$906	$9.85	$44.44	$(34.59)
Freehold	7,295	$6,776,000	$929	$10.10	$42.99	$(32.89)
Averages	2705	$(4,619,825)	$(2,023)	$(21.99)	$33.61	$(55.60)

Here is an example to highlight some serious problems happening to oil and gas companies in the western basin. The main key metric to look at is the Net Income per BOE or how much income a company makes from each barrel of oil equivalent that is produced. Canadian Phoenix Resources Corporation had the worst Net Income per BOE at -$136.58. This was determined by taking the net income for the quarter (-$11M) and dividing it by the total production for the quarter (882 BOED X 92 Days). The bigger issue is that based on the average sell price of $53.27 per BOE less the net income of -$136.58 this probably means that the expenses (all in) per BOE for Canadian Phoenix are $189.85. Hard to believe that a company would have potential expenses that are 3.5 times what they sell a product for, not much of a sustainable business model.

On the other end, Bonterra has a net income per BOE of $9.85 and an average sell price of $44.44 per BOE which would mean that the expenses (all in) per BOE are $34.59. Bonterra actually has positive income.

Bottom line, a lot of these juniors costs are too high and they are not getting a decent sales price on the product they sell. Based on the sheer amount of companies that have negative income, if prices don't increase and if cost don't go down drastically, then there will be a lot of companies facing some serious financial decisions as it relates to the future of their companies. When companies are offering products that cost on average 1.7 times more than what they sell them for, it doesn't take long for this to catch up to you.

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. Argentis Group assists oil and gas companies with operational audits to identify areas to reduce costs, increase revenues and increase the overall asset value of an oil and gas company.