Light sweet crude touched $100 (U.S.) a barrel this week so my colleague Rob Belanger and I decided to take a hard look at the oil sector.
We started with companies listed in North America with a market capitalization greater that $1.5-billion.
The reserve replacement ratio is the percentage of the company’s oil and gas reserves consumed by production during the year that was replaced through acquisition, improved recovery, new discoveries or net purchases and each company had to have a positive number.
We have sorted our companies by the recycle ratio, which is the profit per barrel of oil divided by the total cost of discovering and extracting that barrel. The companies had to have a recycle ratio greater than one, and a high ratio means greater profitability.
Return on equity (ROE) measures a corporation’s profitability by revealing how much profit a company generates with the money shareholders have invested. The ROE had to be positive, and a high number is favoured.
Production growth per share refers to the number of barrels of oil produced per year divided by the total number of shares. This ratio is used to determine the profitability of a company, and more profitable companies have higher numbers. All our companies had to have a positive growth rate.
The reserve life indicates the average remaining lifespan of the company’s assets and all had to be over seven years.
What did we find?
Based in Denver, Kodiak Oil & Gas Corp. has properties in North Dakota, Montana, Wyoming and Colorado. The company has the highest reserve replacement ratio and also the highest production growth per share.
Rosetta Resources Inc., with the highest recycle ratio on our screen, is a leading producer in the Eagle Ford Shale region in south Texas. USA Today is forecasting that this year Texas oil production will rank higher than that of Kuwait, Mexico and Iran.
The best ROE belongs to Oasis Petroleum Inc. Oasis has operations in the Bakken field in Montana, and also falls just behind Kodiak Oil & Gas in the reserve replacement ratio, and in the production growth per share.
The company with the longest reserve life is Crescent Point Energy Corp., followed by Canadian Natural Resources Ltd.
Investors are urged to conduct further research, or contact an investment professional before making any investment decision.
Oil company profitability screen
Source: Bloomberg and Wickham Investment Counsel Inc.