Canadian Based Intermediates Q2 2009 Numbers - Part 1: Costs Per BOE

I have now shifted focus to the Canadian based intermediate oil and gas companies with conventional production in the Canadian Western Basin. Intermediate companies are those with production between 10,000 barrels of oil equivalent a day (BOED) and 100,000 BOED.

In Part 1, I am looking at the costs or expenses per BOED, which are derived by taking average sales price per BOE and subtracting the net income per BOE. Sales per BOE is usually found in the quarterly report, or if it isn't listed you can determine it by taking total revenue for the quarter and dividing it by the total boe production for the quarter, in this case BOED rate times 92 days in the quarter.

Here are the highlights:

• There were 23 companies that are 65% weighted to natural gas and the average production was 30,664 BOED


• The average income for these companies is -$6.08M


• Net income per BOED was -$401.88


• Income per Barrel of Oil Equivalent (BOE) was -$4.37


• Average sales price per BOE was $38.06 and $6.34 per MCF


• Average expenses per BOE was $42.43


• Based on the average expenses per BOE, the expenses per MCF were $7.07

Here is a list of the 23 companies sorted on expenses per BOE:

Company	Daily Production	Net Income	Income / BOED	Income per BOE	Sales Price / BOE	Expenses per BOE	Expenses per MCF
CrescentPoint	41,318	$(67,262,000)	$(1,628)	$(17.69)	$60.06	$77.75	$12.96
Daylight	23,047	$(14,543,000)	$(631)	$(6.86)	$55.96	$62.82	$10.47
Advantage	31,044	$(37,810,000)	$(1,218)	$(13.24)	$40.59	$53.83	$8.97
Fairborne	15,308	$(17,333,000)	$(1,132)	$(12.31)	$41.31	$53.62	$8.94
Paramount Eng.	27,583	$(8,728,000)	$(316)	$(3.44)	$48.70	$52.14	$8.69
Galleon	16,076	$(22,012,000)	$(1,369)	$(14.88)	$34.43	$49.31	$8.22
Enterra	10,059	$(14,383,000)	$(1,430)	$(15.54)	$33.72	$49.26	$8.21
Celtic	10,909	$(5,459,000)	$(500)	$(5.44)	$39.78	$45.22	$7.54
NAL	23,049	$(9,407,000)	$(408)	$(4.44)	$39.40	$43.84	$7.31
Iteration	17,137	$(22,978,000)	$(1,341)	$(14.57)	$28.82	$43.39	$7.23
Pengrowth	82,171	$10,272,000	$125	$1.36	$44.74	$43.38	$7.23
Crew	13,466	$(12,267,000)	$(911)	$(9.90)	$32.10	$42.00	$7.00
Birchcliff	11,313	$(7,128,000)	$(630)	$(6.85)	$33.79	$40.64	$6.77
Trilogy	19,800	$(19,695,000)	$(995)	$(10.81)	$29.60	$40.41	$6.74
Baytex	40,387	$27,451,000	$680	$7.39	$44.78	$37.39	$6.23
NuVista	25,777	$(7,312,000)	$(284)	$(3.08)	$32.93	$36.01	$6.00
Enerplus	94,501	$(3,569,000)	$(38)	$(0.41)	$35.60	$36.01	$6.00
Bonavista	51,768	$661,000	$13	$0.14	$34.95	$34.81	$5.80
Paramount Res.	13,362	$(2,582,000)	$(193)	$(2.10)	$32.70	$34.80	$5.80
Progress	33,817	$(20,915,000)	$(618)	$(6.72)	$24.76	$31.48	$5.25
ARC	63,969	$66,100,000	$1,033	$11.23	$41.39	$30.16	$5.03
Peyto	17,982	$29,189,000	$1,623	$17.64	$37.49	$19.85	$3.31
Compton	21,440	$19,848,000	$926	$10.06	$27.74	$17.68	$2.95
Averages:	30,664	$(6,080,957)	$(401.88)	$(4.37)	$38.06	$42.43	$7.07

The expenses per MCF are derived by taking the BOE price and dividing by 6.

Of interest:

• The average loss per BOE and MCF was 11.5%


• The avearge expense for intermediates was 24% lower than the juniors


• Average expense for the juniors were $55.60 per BOE or $9.27 per MCF vs. $42.43 per BOE or $7.07 per MCF for intermediates


• Average net income pre BOE for the juniors was -$21.17 per BOE compared with -$4.37 per BOE for intermediates


• The sell price per BOE was 12% higher for Intermediates, $38.06 vs. $33.61

This potentially shows that companies with more production, on average, should have gains in efficiencies. If you look at the average sell price per barrel, I would bet that there are better hedging programs in place.

The one thing that does stand out is that the expenses per BOE and MCF, especially for gas weighted companies are still too high to allow these companies to turn a profit. Of the 23 companies, only 6 or 26% actually make money on each BOE produced. Expenses have to be looked at, especially gas, to determine where costs can be removed. Based on the AECO 2010 natural gas price of $5.20 for the next year , the costs will probably have do come down, over 25% in just for companies to break even. 25% cost reduction in oil and gas companies will be extermely tough to accomplish, every cost cutting measure will need to be looked at. The juniors are in a worse positions with respect to costs associated with natural gas. At $9.27 per MCF, the juniors will have to reduce their operating costs potentially by over 40% just to break even.

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.