In the last three weeks, Oil and Gas 360® has reviewed a dozen Canadian E&Ps, looking at operations, financial performance and comments from top management during recent conference calls and management discussions. The four Canadian E&Ps covered this week range in market cap from $5 billion to $46.6 billion.
Canadian Natural Resources Ltd. (ticker: CNQ)
Comparative Financial and Operational Metrics for CNQ (approximate numbers): Canadian Natural Resources Ltd. enterprise value is $60.3 billion. Trailing twelve month (TTM) production is 654.6 MBOEPD, with 2013 proved reserves of 5,136 MMBOE. The company’s production is 14 % natural gas, 86% oil and liquids. TTM CapEx as of September 30, 2014 is $11.3 billion. TTM EBITDA as of September 30, 2014 is $9.5 billion. The company’s balance sheet at the end of 3Q 2014 reported debt of $13.7 billion. Net debt / TTM EBITDA = 1.4x
Canadian Natural Resources is among the largest independent producers of natural gas in Western Canada. Conventional and unconventional natural gas production is concentrated in five North American core regions: Northwest Alberta, Northeast British Columbia, the Foothills, the Northern Plains and the Southern Plains. The company also has offshore assets in the UK portion of the North Sea, and offshore Cote d’Ivoire and Gabon in Africa.
The company focuses on growing an already strong location inventory and optimizing existing production. Canadian Natural Resources views this as a low-risk approach to value creation as emphasis is placed on maximizing the value of already discovered resources versus trying to find the next major pool.
The company tries to ensure that they operate and own 100% of its assets. This allows it to start up or shut down drilling programs on short notice – facilitating an ever-vigilant weekly allocation of capital by the company’s Management Committee.
The company reported gas production in Q3 2014 of 1.6 million cubic feet per day, Q3 2014 crude production of 288,858 BOPD and 82,012 BOPD of production from its oil sands activities. The company generated cash flow from operations of $2.44 billion or $2.23 per share. Production averaged 797,000 BOEPD, representing a 13% increase over the third quarter of 2013.
Speaking on Sep. 6, 2014, during the company’s conference call, Steve W. Laut, President of Canadian Natural Resources, said:
“We’re one of the few companies in our peer group that has the assets to deliver free cash flow on a sustainable basis, a direct result of the strength of our assets, robustness of our business model and strategies, and our ability to effectively execute these strategies.”
“Free cash flow is set to increase dramatically as a result of our effective and strategic capital allocation choices. Canadian Natural has essentially four free cash flow allocation choices. Firstly, the development of our large resource base. Secondly, we can and have returned free cash flow to shareholders; that has grown significantly, at a 44% CAGR, since 2009. Thirdly, we can allocate some of the free cash flow to opportunistic acquisitions, if they’re available, add value and strengthen our asset portfolio, as we’ve done in 2014. And finally, we can allocate the free cash flow to strengthening the balance sheet, a balance sheet that is already very strong. The model’s highly effective; [it] starts with our balanced diversified base and is driven by effective capital allocation, effective and efficient operations, and strong management.”
“Canadian Natural is in a very enviable position and has a clear advantage compared to many of our peers when it comes to unlocking the value and free cash flow from our long-life, low-decline resources. … At over 4 billion BOEs, Canadian Natural has the largest proved reserve base amongst our Canadian and U.S. peer group.”
Baytex Energy Corp. (ticker: BTE)
Comparative Financial and Operational Metrics for BTE (approximate numbers): Baytex Energy Corp. enterprise value is $7.1 billion. Trailing twelve month (TTM) production is 42.1 MBOEPD, with 2013 proved reserves of 160 MMBOE. The company’s production is 11% natural gas, 89% oil and liquids. TTM CapEx as of September 30, 2014 is $641 million. TTM EBITDA as of September 30, 2014 is $847 million. The company’s balance sheet at the end of 3Q 2014 reported debt of $1.99 billion. Net debt / TTM EBITDA = 2.3x
Baytex Energy is based out of Calgary, Alberta. The company is engaged in the acquisition development and production of crude oil and natural gas in the Western Canadian Sedimentary Basin and the Eagle Ford basin in the U.S. The company’s oil and natural gas operations are organized into three core operating areas: Peace River Oil Sands, Lloydminster and the Eagle Ford. Operations in the Eagle Ford represent approximately one-third of the company’s production.
Baytex is committed to a growth and income business model and its three fundamental principles: delivering organic production growth, paying a meaningful dividend, and maintaining capital growth. .
The company produced 94,093 BOEPD in the third quarter of 2014, an increase of 41% over the second quarter and 56% over third quarter 2013. Baytex reported delivered funds from operations of $289 million, or $1.79 per basic share, during Q3 2014, an increase of approximately 80% over Q2 2014 and 49% over Q3 2013.
Speaking on Oct. 30, 2014, during the company’s quarterly conference call, James L. Bowzer, President and Chief Executive Officer of Baytex said:
“Back when we acquired the Eagle Ford assets, the acreage position included 22,200 net contiguous acres in the Sugarkane Field located in South Texas in the core of the play. Since that time, we have acquired additional acreage bring our total land position to approximately 23,000 net acres. At the time of acquisition, production was approximately 28,000 BOEPD and in the third quarter production averaged approximately 34,000 BOEPD. This represented 36% of our production during the quarter.
“Drilling results have exceeded our initial expectations with wells drilled during 2014 outperforming the type curves upon which our acquisition evaluation was based. You will recall that our evaluation earlier this year was based on 30-day initial production rates of 800 BOEPD to 1,000 BOEPD. Through the first eight months of 2014, over 100 gross wells have been drilled and placed on production for more than 30 days.”
For these wells, we are seeing an improvement up 20% in 30-day IP rates. This improved performance is being driven by a combination of factors, including drilling of longer lateral horizontals, tight spacing of fracs, and an increased amount of proppant per stage. These individual well economics provide some of the best capital efficiencies in North America.”
Talisman Energy Inc. (ticker: TLM)
Comparative Financial and Operational Metrics for TLM (approximate numbers): Talisman Energy Inc. enterprise value is $12.1 billion. Trailing twelve month (TTM) production is 311.3 MBOEPD, with 2013 proved reserves of 789 MMBOE. The company’s production is 81% natural gas, 19% oil and liquids. TTM CapEx as of September 30, 2014 is $2.1 billion. TTM EBITDA as of September 30, 2014 is $2.9 billion. The company’s balance sheet at the end of 3Q 2014 reported debt of $4.9 billion. Net debt / TTM EBITDA = 1.6x
Talisman Energy’s plays in the Americas include the Duvernay in Canada, the Edson, Marcellus and Eagle Ford in the U.S. and the Akacias and Nueva Esperanza plays in Colombia. It also operates in Vietnam, Singapore, Malaysia, Indonesia and Papua New Guinea.
The company is focused on its best assets in its two core regions (the Americas and Asia-Pacific), and on maintaining a disciplined capital spending program targeting near-term, high margin production. Its goal in 2014 and beyond is to deliver annual cash flow per share growth, while maintaining a strong balance sheet.
The two core regions are expected to produce over 90% of total production, with expected growth in production from ongoing operations of 2-6%. The company is targeting 14-19% liquids growth from the Americas and Asia-Pacific.
Talisman’s production in Q3 2014 averaged 353,000 BOEPD. In North America, the company’s liquids production was 41,000 BOEPD, up 11% from Q2 2014, and gas production averaged about 1.3 Bcf per day.
Speaking on Nov. 4, 2014, during the company’s conference call, Harold Kvisle, Chief Executive Officer, said:
“Our base plan on the Eagle Ford year-over-year is that once we’ve reached a production level we’d like to spend at least enough capital to sustain flat production and keep our facilities operating efficiently. Beyond that, when we see strong commodity price signals, we’d of course try to grow Eagle Ford production, and we’ve got many opportunities to do that.
“On Akacias, the two wells in question are wells that are further down tip in the structure. And as we go down the structure without encountering an oil/water contact, we’re demonstrating more oil in place. What that translates into, into proved reserves, of course, takes time and extend the production history to demonstrate, but clearly, the more billions of barrels of oil in place, the better. And we now look at Acacias as having something in the range of 2.5 billion to 3 billion barrels of oil in place.”
“Nueva Esperanza is a very interesting well in that it not only represents additional oil to the south of Akacias, but also indicates that some of the large structure south of there could be oil bearing. So Block 9 in Columbia not only contains the Akacias part of the field or part of the Block, but also these exploratory prospects mostly to the south and west of Akacias. And that is very interesting and exciting stuff and I’d say one of the most interesting developments currently unfolding within Talisman.”
Paramount Resources Ltd. (ticker: POU)
Comparative Financial and Operational Metrics for POU (approximate numbers): Paramount Resources Ltd. enterprise value is $6 billion. Trailing twelve month (TTM) production is 19.9 MBOEPD, with 2013 proved reserves of 88 MMBOE. The company’s production is 57% natural gas, 43% oil and liquids. TTM CapEx as of September 30, 2014 is $878 million. TTM EBITDA as of September 30, 2014 is $211 million. The company’s balance sheet at the end of 3Q 2014 reported debt of $1.03 billion. Net debt / TTM EBITDA = 4.8x
Paramount Resources explores for, develops, produces, and markets natural gas, crude oil, and natural gas liquids in Alberta, British Columbia, Saskatchewan and the Northwest Territories. The company also holds securities of public and private entities, including Trilogy Energy Corp. (ticker: TET), MEG Energy Corp. (ticker: MEG), and MGM Energy Corp. (ticker: MGX).
Paramount’s sales volumes reached approximately 40,000 BOEPD in early October 2014, the highest level since 2005. Paramount’s October 2014 average monthly sales volumes were approximately 34,000 BOEPD, 65% high than average second quarter 2014 volumes. The company reported funds flow from operations increased 23% to $36.4 million in the third quarter compared to $29.5 million in the previous quarter.
In the company’s management discussion and analysis for the three and nine months ended Sept. 30, 2014, the company reported:
“Exploration and development expenditures in the third quarter of 2014 were $227.1 million compared to $209.8 million in the same period of 2013. Exploration and development expenditures in the nine months ended September 30, 2014 were $602.8 million compared to $449.1 million in the same period in 2013. Current year drilling, completion and tie-in costs were focused on new wells at Musreau, Smoky and Resthaven in the Kaybob COU and at Karr-Gold Creek in the Grande Prairie COU. The Company also drilled and completed wells in the Southern COU, including at Willesden Green. Facilities and gathering expenditures focused on the new and expanded deep cut facilities at Musreau and Smoky and expansions to liquids handling facilities and gathering systems at Karr-Gold Creek.
“Third quarter condensate and oil sales volumes increased 2,459 BOPD or 110% to 4,690 BOPD in 2014 compared to 2,231 BOPD in the same period in 2013. The increase in condensate and oil sales volumes was primarily related to new well production from liquids-rich Montney formation wells at Musreau in the Kaybob COU and at Karr-Gold Creek in the Grande Prairie COU.
Other NGLs sales volumes increased 13% to 1,118 BOPD in the nine months ended September 30, 2014 compared to 991 BOPD in the same period in 2013 as a result of increased Other NGLs volumes being extracted at Musreau following the start-up of the Musreau Deep Cut Facility.
“Prior to the start-up of the Musreau Deep Cut Facility in mid-August 2014, Paramount’s production within the Kaybob COU was constrained by available owned and contracted natural gas processing capacity. Following the start-up of the new facility, Kaybob area production began to ramp-up and total company sales volumes increased to approximately 27,000 BOEPD in September. Third-party constraints that impacted production at Karr-Gold Creek in the Grande Prairie COU for most of the year were also alleviated in late-September with the completion of third-party pipeline expansion.”
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