Overall, 2013 was a difficult year for Canadian oil and gas companies, according to a new analysis by CanOils of the last 5 years' annual results for 99 TSX-listed companies (note 1). Capital expenditures reached record highs for recent periods, but so did the average well costs and the amount of capital spending financed by long term debt. Many companies followed up a net loss in 2012 with further - and often increasing - losses in 2013.
Combined Total Earnings and Impairments (Cdn$ Million)
Source: The CanOils Database. All figures are combined totals of all the reported figures for the group.
Although earnings have generally been falling and the current profitability position is not very encouraging, it should not be too worrying for shareholders and potential investors in the short term. 27 companies in the group declared dividends this year, with an average payout representing 70.6% of these companies' combined net income. This stands in stark contrast to 5 years ago, when only 8 out of the group declared dividends and the payout ratio was only 30.6%. The total distribution has more than doubled from Cdn$3,437.6 billion in 2009 to Cdn$7,777.5 billion in 2013.
Dividends and Payout Ratios (Cdn$ Million)
Source: The CanOils Database. Total dividend distribution is the combined total of all dividends declared by the group each year. The dividend payout ratio is estimated using the total dividend distribution amount and the reported net income of only those companies that declared dividends.
Bucking the Trend
The senior peer group (companies producing more than 100,000 boe/day) performed better than most in 2013, protected from rising costs by their larger economies of scale and from the low gas price by their generally high oil weighting; only 2 of the 10 companies in the senior peer group, Encana Corp. (TSX:ECA) and Talisman Energy Inc. (TSX:TLM), produce more gas than oil.
There are also some smaller companies bucking the trend and achieving growth. Tourmaline Oil Corp. (TSX:TOU) has performed especially well recently; the company’s EBITDA has increased for four consecutive years. Birchcliff Energy Ltd. (TSX:BIR), Bellatrix Exploration Ltd. (TSX:BXE) and ARC Resources Ltd. (TSX:ARX) also showed a profit in the past two years and achieved growth in terms of both net income (396%, 158% and 73% respectively) and EBITDA (61%, 55% and 16% respectively) since 2012.
Spending Focused on Drilling
In 2013, total upstream capital expenditures increased 8.4% and 77.2% from year 2012 and 2009 respectively, reaching a 5-year high of Cdn$56.8 billion. Among the total expenditures, only Cdn$3.0 billion and Cdn$3.2 billion were spent on property and corporate acquisitions, constituting 11.0% of the total expenditures. Most companies chose to focus on exploration and development activity through drilling.
It is getting more and more expensive to execute this kind of strategy. In 2013, 8,789 (net) wells were drilled, which is about 3.1% less than last year. However, the overall average capital expenditure has increased significantly, showing that well costs are undoubtedly on the rise. This has been the trend for the last three years.
Capital Expenditures (Cdn$ Million)
Source: The CanOils Database. All figures are combined totals of all the reported figures for the group, apart from cost per well which has been estimated using the combined totals (see note 2) For a free pdf detailing the 25 Most Active Canadian Oil & Gas Companies in 2013, click here.
The continuing downward trend of company net income means a lot of companies do not have sufficient resources internally to fund growth, causing a need to raise more funds from external sources. By the end of 2013, almost 27% of the group’s long-term capital was financed by long-term debt, the highest level of leverage in the past five years. However, this seems safe for now; the group’s combined long-term debt was only 4.7 times bigger than current cash in hand and combined cash coverage of interest expenses was 5.1 times.
Actual production volumes fell in 2013; the average results for the group showed 2013 production was 4,775 thousand barrels of oil equivalent per day, 9.15% lower than last year’s daily average. Oil production decreased for the first time in 5 years from 2,410 thousand barrels per day (mbbl/d) in 2012 to 2,173 mbbl/d in 2013, even though the WTI annual average price reached a high of Cdn$101.42/bbl this year. Despite the natural gas price showing a recovery in recent months, natural gas production continued to decrease in 2013; the average daily production was 7,249 million cubic feet, which is in fact the lowest daily average for the past five years.
Production, Prices and Netbacks
Source: The CanOils Database. All production and netback figures are estimated averages of the combined reported individual amounts for the group
The number of these 99 companies whose production is gas-weighted has dropped from 49 in 2011 to only 33 in 2013, showing a definite movement towards oil production across the board as the gas price remains low. The companies that have remained gas-focused will be looking to the west coast in British Columbia for encouragement; numerous LNG export terminals applications are being filed to try and start taking advantage of higher gas prices in Asia by 2020, which could have a positive impact on domestic Canadian prices for operators. As a further point of encouragement, the Henry Hub benchmark price in the US hit a 5-year high of over US$6 at the start of 2014.
All data for this report is sourced from the CanOils database, an Evaluate Energy service that provides efficient data solutions for Canadian oil and gas company analysis. CanOils holds historical financial and operating data for 300+ oil and gas companies listed on the TSX and TSX-V back to 2002, and also has extensive M&A deals, financing deals, key personnel and Oil Sands databases. For more information about any of our data offerings and to see the power of the CanOils database for oil and gas company analysis and how we can help you, please refer to our brochure or request a demonstration of our product.
- The 99 companies included in this report, “the group”, are the 99 TSX-listed oil & gas companies who had reported their annual 2013 (December year-end) results on and before 10th April 2014.
- The Alberta Gas Reference Price is a monthly weighted average of an intra-Alberta consumer price and an ex-Alberta border price, reduced by allowances for transporting and marketing gas.