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number cruncher

Mr. Bowman is a portfolio manager at Hamilton-based Wickham Investment Counsel Inc., an adviser to high-net-worth clients.

What are we looking for?

A barrel of crude has tumbled to its lowest level in more than two years. My colleague Rob Belanger and I thought we would take a look at some industry-specific comparisons of some of Canada's largest oil companies.

The screen

We started with companies larger than $1-billion in market capitalization that are listed on the S&P/TSX composite index.

The EV/EBITDA (enterprise value divided by earnings before interest, taxes, depreciation and amortization) is one of the most commonly used valuation metrics. We are looking for a low number.

The recycle ratio is the profit per barrel divided by the total cost of discovering and extracting that barrel. It measures the efficiency of a company in turning a barrel of reserves into a barrel of production. We are looking for a high number, and our companies had to score better than 1.5.

The BOE (barrel of oil equivalent) production growth shows the percentage increase in the number of barrels a day over the past year. All of our companies had to have positive growth and we sorted them from the largest to the smallest.

We are also showing the cost per BOE.

Production netback is revenues minus production costs per BOE. Revenues are net of royalties and realized hedging gains or losses. Costs include field operating expenses, transportation costs and lease operating expenses, and we want a high number.

The reserve replacement ratio is the percentage of oil and gas reserves consumed by production that were replaced through acquisitions, improved recovery, new discoveries and net purchases, and again a high number is preferred.

The price to cash flow, or P/CF, evaluates the price of a company's stock relative to how much cash flow the firm is generating. We are looking for a low number.

What did we find?

Birchcliff Energy Ltd. is an intermediate oil and gas company with operations concentrated in the Peace River Arch in Alberta. Birchcliff scores better than the average in six of the seven categories.

Even though Canadian Natural Resources Ltd. has the highest cost per BOE at $34.36, the company beat the averages in four categories, along with Whitecap Resources Inc., Crescent Point Energy Corp. and Bonterra Energy Corp.

Investors should contact an investment professional or conduct further research before buying any of the companies listed here.

Canada’s largest oil companies