Maple Leafs: Challenged by gas imbalance

Canada’s junior- and intermediate-sized conventional oil and gas producers are tilting too much towards natural gas, given the fact that gas is severely underperforming in the current market, said research firm Bryan Mills Iradesso.

In its first-quarter report covering 63 juniors (which produce less than 10,000 barrels of oil equivalent per day) and 23 intermediates (producing 10,000-100,000 boe per day), the firm said the median intermediate’s production is weighted 67 percent to gas and the median junior is at 76 percent.

“Given that oil sells for much higher prices … this weighting is a challenge to the industry,” the survey showed.

In both categories, it said companies have increased their gas weighting by about 5 percentage points since the same quarter of 2008.

Bryan Mills Iradesso said that only six of the junior companies had positive earnings in the opening quarter and seven reported negative cash flow, while 10 of the intermediates had positive earnings.

It said that was a sign that the costs of Canadian oil and gas production, when taking into account finding, development and acquisition costs that are written down over time, “are generally too high for the revenue currently being brought in.”

The report said the median cash flow netbacks for the quarter were C$11.85 per boe for juniors and C$20.43 for intermediates, compared with C$28.33 and C$30.06, respectively, a year earlier.

It noted that the discrepancy between juniors and intermediates was related to hedging programs in place for most of the intermediates.

With low cash flow netbacks, the median junior was trading at a reasonable enterprise value of 8.3 times first-quarter cash flow, while the median intermediate was 7.3 times cash flow.

—Gary Park