Oil & Gas Analysis January 2013 Update

Capital expenditures & production guidance for 2013 are making their way gradually into OGA for companies in the coverage universe. The budget announcements are typically released between December and January.

For dividend paying companies, the annual average production & capex figures are instrumental for projecting a company’s ability of supporting its dividend. While guidance usually comes with a commodity price deck assumption, there are no guarantees these prices will materialize in 2013.

You will notice that for the stocks tracked by OGA, the realized price of oil & gas are largely based on the last reported figures in Q3. The realized price for each commodity varies from one company to another depending on hedges and the quality of the product (light/medium/heavy oil, heat content in natural gas etc.) This explains why forward strip prices are not used by default.

When comparing oil and gas stocks with peers, the best way to account for changes in commodity pricing is by using increments/decrements in price. For example, what happens if these companies realize $0.50 more per mcf in 2013?  This is a more accurate method for comparing the impact of an increase in the price of natural gas rather than just slapping $3.00/mcf for all.

Since all the columns can be reordered, investors can identify the impact of increasing/decreasing commodity price on CFPS, P/CFPS and D/CF metrics.

Pricing in an increase of $0.50/mcf in natural gas prices.

It’s very important to remember that when modelling revenue forecasts, you are dealing with ballpark numbers just like E&P companies as the only certainty in this exercise is the uncertainty of future commodity prices. However, these financial projections are extremely important for any investor when it comes to monitoring balance sheet health particularly for junior and intermediate dividend paying stocks.

production guidance indicator

For individual stock analysis there is a new indicator that shows up next to the production figure:

  • 2013AA: indicates the Annual Average production guidance for 2013
  • 2013A: Indicates the Actual production as of the last quarter/latest presentation/last news release.
  • 2013E: Indicates the year end Exit production guidance for 2013.

These codes are also accessible in peer comparison, all you need to do is hover your mouse over the production figures and a small tooltip will appear with the info inside for each stock.

production guidance tool tip

This feature provides you with a quick overview of the production being compared. Usually, exit rate guidance is not that far from the annual average guidance as the volumes are reached with flush production at the end of the year.  For example Bellatrix Exploration guided for 19,000-19,500 boed for its 2012 exit and is guiding for 20,000-21,000 boed in annual average production for 2013.

During this month as more and more companies release their budgets, those that are included in the coverage universe will be updated. Finally, for the non-dividend payers, the capex figure is now part of the stock analysis page (it was only available for the dividend payers). This allows you to compare the projected revenue with the planned capex and evaluate the prospects of fully funding growth from internally generated cash flow.

If you have any questions or concerns, please do not hesitate to contact us.

Speak Your Mind