Author Topic: Canadian E&P  (Read 353 times)


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Canadian E&P
« on: August 01, 2020, 07:37:37 AM »
It is well past time to put the hate away, and look at lot closer at some of the E&P companies in both the WCSB and Newfoundland.
Canada is not the US, and your wallet will thank you for recognizing that.

An oil field is the same as a mine deposit. A SINGLE asset depleted over time, at an NPV as high as possible.
Very simple business model – sell the product as high as possible, force the cost as low as possible, do it as soon as possible, and discount at 10%/year NPV(10).

Why NPV (10)? Because financials legally require an independent reservoir re-assessment every year (Reserve Report), the required discount rate is 10%/year, and the IV of that reservoir is the value of the proven plus probable divided by fully diluted share count. Per the value investment thesis - buy when share price is < NPV(10)/FD sharecount, sell on mean reversion.

Could care less, re maintenance capex – it’s a depleting SINGLE asset, there’s nothing to maintain.
Could care less, re discount rate – 10% is industry standard. Unless you are a reservoir engineer (and better than industry) you know squat to opine otherwise.

The difference between share price and RR value/share, is purely ‘sentiment’.
Could care less as to cause, we care only about direction, and rate of change. Pretty simple metrics.

Canadian Q2 E&P reporting has evidenced that despite the worst quarter in memory, a great many companies have a break-even at/below the current WTI price, and many DO NOT need new and ongoing financing to continue operations.
•   Alberta and the Feds are slowly moving to net neutral carbon emission. Demonstrate it, and the price discount on ‘dirty oil’ declines. Higher revenue, higher NPV(10)
•   WCSB field consolidation is starting to occur. Oerators jointly producing the reservoir, to extract economies of scale. Lower costs, higher NPV(10)
•   WCSB egress is slowly improving. Lower differentials, higher volumes, higher revenue, higher NPV(10).
•   Sentiment is changing. One additional quarter of similar (or better) Q2 reporting, and it’s hard to justify why a new investment $ into NA E&P DOES NOT go to Canada versus the US or Mexico.

Rising NPV(10), and improving sentiment as milestones, continue to be met.
Little to do with what one might think of oil, or its distant future prospects. Very different story to the US.

Ideally, this post will serve as a marker. Please add your posts, and lets all see if it pans out.

« Last Edit: August 09, 2020, 07:32:32 AM by SharperDingaan »