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Number Cruncher

Oil patch investors might want to shift some assets south Add to ...

What are we looking for?

The International Energy Agency recently predicted that the United States will overtake Saudi Arabia and Russia to become the world’s top oil producer by 2017. The IEA also forecasts that the U.S. will be self-sufficient in energy by 2035, a previously unthinkable situation. My colleague Rob Belanger and I thought we would have a look at U.S. oil producers.

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The screen

We ranked these companies by the price to barrel of oil equivalent (BOE). This is the current share price as a multiple of the company’s combined oil and gas reserves per share. A low number indicates the company may be undervalued relative to its peers. Other criteria include:

Recycle ratio, which measures the efficiency of turning a barrel of reserves into a barrel of production. The more profitable companies have higher ratios.

Reserve replacement ratio, which indicates the percentage of the oil and gas reserves consumed by production during the year that were replaced through acquisition, improved recovery, new discoveries and net purchases. Once again, the higher the ratio, the better.

Reserve production ratio, which shows the life in years of the company’s existing oil reserves – assuming it continues to pump oil at the same rate without adding any reserves.

Finding and development BOE, or the average cost over three years of adding one BOE to the company’s reserves through exploration and development. The lower figure, the better.

Finally, we want a low price-to-cash-flow ratio.

What did we find?

No one company scored well in every category. BreitBurn Energy concentrates most of its activity in the Los Angeles basin, and looks interesting. The same can be said for ConocoPhillips, the fifth-largest refiner in the world.

Conclusion

One thing is for certain. Since Canada exports virtually all of its oil to the U.S., this potential surge in American production could seriously affect Canada’s future. Longer term, oil patch investors just might want to shift some assets south of the border.

 

Close-up on U.S. oil companies

Company Ticker P/CF Recycle Ratio
Berry Petroleum A BRY-N 3.77 1.88
BreitBurn Energy BBEP-Q 7.57 1.80
Clayton Williams CWEI-Q 1.85 2.06
Resolute Energy REN-N 5.06 4.51
ConocoPhillips COP-N 4.66 3.37
Apache Corp. APA-N 3.17 2.02
Hess Corp. HES-N 3.21 1.54
Marathon Oil MRO-N 5.65 2.53
Denbury Resources DNR-N 4.39 9.11
Whiting Petroleum WLL-N 3.81 1.87

Wickham Investment Counsel Inc.; Bloomberg

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