Q4 2019: Lowest Cost Oil Producers in North America

North Dakota’s Bakken formation, the Permian Basin and the Eagle Ford shale are home to some of North America’s lowest cost oil producers according to latest data from Evaluate Energy.

This analysis was conducted using Q4 2019 operating and transportation expenses per barrel (“production costs”) for 28 publicly listed, oil-focused producers from Canada and the United States. Production tax costs in the U.S. are excluded, as are royalty expenses in Canada.

  • All 28 companies produced over 10,000 boe/d in Q4 2019.
  • The companies only produced in North America and oilsands producers were excluded.
  • To avoid gas production skewing the results, only companies with portfolios made up of over 70% oil were included.

Low cost production is just one key indicator that investors and industry observers will be looking for in order to identify oil producing companies more likely to make it through the current downturn.

Evaluate Energy data allows a comprehensive review of liquidity and company health. Alongside these production cost metrics, our data includes debt and interest measures, credit availability figures, hedging portfolios and earnings guidance. For more on Evaluate Energy, click here.

The most recent production cost data, along with our key conclusions, are presented below.

Click here for analysis on the highest cost producers from the same data set.

Source: Evaluate Energy

Overall portfolios must be considered

The trend line on the chart, calculated using the production costs of all companies in the group, shows that as oil weighting increases, so does the average cost per barrel to produce for each company.

So even if one company was producing at $2 higher than another in the group, that might not mean that it is a “higher cost operator” than the other company. It could just be a larger figure because oil makes up a higher proportion of the portfolio for that particular company.

Looking at costs per boe alone can therefore be misleading and before deciding if a company is a producer with high production costs, the production costs metrics must be considered relative to the company’s overall portfolio, i.e. if a company has a production cost per barrel of $9, is this good for a company with a portfolio made up of 75% oil?

Based on the combined metrics of costs per boe and each company’s oil weighting, we have identified the lowest cost producers based on Q4 2019 data.

Low cost producers

The lowest cost Canadian-headquartered producer in the group was Petroshale Inc. (PSH). The company’s portfolio is made up of 88% oil and its combined operating and transportation expenses per barrel came in at C$6.65/boe from its North Dakota Bakken and Three Forks assets in Q4 2019. This is furthest away from the trend line on the low-cost side of the chart than any other producer in the 28-company group.

Penn Virginia Corporation (PVAC) and Earthstone Energy Inc. (ESTE) lie furthest away from the trend line among the U.S.-domiciled contingent, relative to their portfolio make-up based on Q4 data. Penn Virginia operates in the Eagle Ford and its operating and transportation expenses were $5.98/boe, while Earthstone’s Permian and Eagle Ford production came in at $5.07/boe. Parsley Energy (PE) is another Permian producer with relatively low costs at just $4.60/boe for an 83% oil portfolio.

The lowest overall cost per boe recorded among the entire group was Niobrara-producer Highpoint Oil Corporation (HPT) with expenses coming to just $3.70, but only six companies in the group produced a greater level of gas relative to their portfolio that Highpoint and higher gas content results in lower production cost figures, in pure dollar terms.

Costs aren’t everything – bigger picture required

Of course, producing at low costs is not the only factor that will keep companies healthy during this period of low prices. It is a key indicator for sure, but it is only one piece of the puzzle.

Whiting Petroleum is part of this analysis group and recorded operating and transportation costs of $7.28/boe, between $2-$3 below the trend line for a company of its oil weighting (82%). Relatively low costs alone did not save the company from filing for Chapter 11 bankruptcy, which was announced at the start of April, due to its debt position.

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Evaluate Energy data allows detailed analysis of oil and gas company health, liquidity and performance to help determine the immediate and long-term outlook for oil and gas producers around the world. For more information on Evaluate Energy, click here.

Analysis: Hedging data illustrates risks taken by North American oil producers

A handful of North American oil companies were happy to take on significantly more risk in 2019 in their pricing strategy per barrel – and would have suffered greatly in the price drop of early 2020.

The latest hedging data from Evaluate Energy illustrates that producers were using more three-way collars by the end of 2019 than in years prior, relative to other derivative arrangements such as standard two-way collars or fixed swaps.

Source: Evaluate Energy Hedging Database

This meant that while these North American producers would be protected during more stable pricing periods, a period of steep pricing cuts would leave them exposed to a far greater extent.

Importantly, however, the data shows that the move to three-way collars was not an industry-wide trend, with only a small number of producers taking on this extra risk.

“According to data available in Q4 2019 company reports, North American producers headed into Q2 2020 with over 100,000 bbl/d of oil hedged under three-way collars,” said Isabelle Li, Senior Analyst at Evaluate Energy.

“While this is more than double the volume hedged under three-way collars at the same time two years ago for the equivalent period, the surge in volumes is mainly caused by a small group of companies that were already using three-way collars before. These companies were therefore already happy with higher risk involved compared to swaps or standard collars, and over the years they increased their usage of this derivative. Standard collars were often replaced by three-way collars by these few producers.”

Source: Evaluate Energy Hedging Database

Evaluate Energy data shows that only seven more companies hedged using three-way collars heading into Q2 2020 than did heading into Q2 2018; a total of 28 companies from the 116 that hedged oil for the upcoming second quarter.

2019 represented a greater level of oil pricing stability at higher rates than upstream companies had seen in recent years.

“In times of oil price stability, a three-way collar represents an attractive, cheaper option for oil producers,” added Li. “Unlike more expensive standard collar arrangements, which operate between a ceiling price and a floor price, a three-way collar brings in an extra short-put component to the equation, introducing a ‘sub-floor’ price. The increased risk in a three-way collar is that if the commodity price benchmark in question falls below this ‘sub-floor’ after already passing the floor price, the producer is no longer protected by the floor as with a standard collar.”

“While volumes increased under three-way collar arrangements at the end of 2019 for Q2 2020 and beyond and prices indeed stabilized over time, our data shows that most companies decided that the cost reductions through entering three-way collars was not worth the risk. This will have saved many oil hedgers further turmoil in the recent price plunge in early 2020.”

For more on Evaluate Energy’s hedging database, click here.


RELATED: Hedged – But Suddenly Unprotected?


Hedged – but Suddenly Unprotected?

Evaluate Energy hedging data shows that North American oil producers had hedged over 100,000 barrels of oil per day heading in Q2 2020 under contracts that no longer protect these companies against a low price, with WTI and Brent both hitting 18-year lows last month.

The contracts in question were all in place at year-end 2019 and are all three-way collars. The oil price has now fallen so far that three-way collars cannot offer the protection that, for example, a standard collar or fixed swap derivatives would provide.

This, alongside continuing external pressures related to OPEC, COVID-19 and storage capacities, mean that Q1 results releases cannot come soon enough for investors. These results will hold vital data on the updated hedging positions for all upstream oil and gas hedgers around the world, allowing investors to see how their stocks are handling risk management in such uncertain times. Evaluate Energy will have all this new hedging data as it becomes available.

For more on our hedging data, click here.

“In times of oil price stability, a three-way collar represents an attractive, cheaper option for oil producers,” explains Isabelle Li, Senior Oil & Gas Analyst at Evaluate Energy. “Unlike more expensive standard collar arrangements, which operate between a ceiling price and a floor price, a three-way collar brings in an extra short-put component to the equation, introducing a ‘sub-floor’ price.”

“With a standard collar, a fall in prices below the floor would mean the producer is protected by this floor,” Li continued. “The increased risk in a three-way collar is that if the commodity price index in question falls below this ‘sub-floor’ after already passing the floor price, the producer is no longer protected by the floor.”

Looking at Evaluate Energy data on global hedging positions as of December 31, 2019, we can see that across the WTI, Brent and Argus indexes, over 100,000 bbl/d of oil was hedged for Q2 2020 under three-way collars by 29 North American companies, with the lowest sub-floor prices for any contract against each index was US$40.00, US$45.00 and US$52.85, respectively.

“Similar volumes were hedged for future quarters, with 98,000 bbl/d and 96,000 bbl/d hedged under three-way collars in Q3 2020 and Q4 2020, respectively,” said Li. “Three-way collars represented between 30-32% of all hedged oil volumes by North American producers in each quarter according to year-end 2019 data, all with sub-floors above the current oil price.”

Source: Evaluate Energy Hedging Database

Evaluate Energy hedging data can help you identify the companies are most exposed under these positions. Our data includes hedged volumes under all contract types and the pricing levels involved, including fixed swaps, collars, differentials and more.

Our data looks at each company on a contract-by-contract basis, allowing the full dissection of the total +330,000 bbl/d of oil hedged by 116 North American oil producers in Q2 2020, along with contracts already in place for 2021. This position, which was taken from data available in company results for Q4 2019 will change dramatically once we start to receive Q1 2020 results in a few weeks. Evaluate Energy’s hedging product will be tracking all these changes.

For more on our data, click here.

For a demonstration of the service, sign up here.


RELATEDHedging data illustrates risks taken by North American oil producers

Major Hedging Profile Changes Expected in Upstream Q1 Results Season

The sudden, dramatic fall in oil prices has forced many oil producers to adjust every aspect of their 2020 plans. Capital spending has been slashed while some acquisition or divestment plans have been put on hold.

Hedging strategies are also under the microscope – understandably so, as some producers will be far better protected than others.

Despite having released full details of year-end hedging positions just a few short weeks ago in annual results notices, a number of producers this week sought to reassure their stakeholders. They did so by announcing a new, updated version of their portfolio because oil prices have fallen so far, so quickly.

The details from three such companies can be found in the following announcements:

Towards the end of this month, companies will begin to release Q1 2020 results, and hedging positions for the industry at large will be made public. From this data, Evaluate Energy’s hedging database will be able to provide users, on a contract-by-contract basis, with a full picture of:

  • How far the world’s upstream producers have had to alter their hedging strategies since the end of last year.
  • How well companies are protected should the oil price stay low
  • How well some companies have managed to negotiate new positions to lock in revenue for the rest of 2020 and beyond.

For more on the data available in Evaluate Energy’s hedging database, click here.

For a free, no-obligation demonstration of the product, click here.


Capex Budget Cuts Continue with European Majors

Equinor, OMV and Eni joined the ranks of the world’s major producers this week to announce a cut in their capital spending budgets for 2020, in the wake of the oil price crash and the COVID-19 pandemic.

These European producers, according to Evaluate Energy guidance data, are joining a host of North American majors that have enacted similar budget cut plans for the coming year.

  • Norway’s Equinor is cutting over $3 billion from its 2020 plans. $2.4 billion of this is related to capex, representing a 20% cut from original plans, while $700 million is also being cut from planned operating expenses.
  • Austria’s OMV is now planning a €500 million reduction (20%) in capital spending and a further reduction of €200 million in opex cuts. The company also announced postponements of around €1.5 billion in new projects to 2022.
  • Italy’s Eni is cutting €2 billion (25%) off its 2020 capex plans and is set to reduce opex by €400 million. The company is also planning to cut €2.5-€3 billion off its 2021 plans.

Below these have been combined with some selected budget cuts announced this month by major U.S. upstream players.

Source: Company press releases, Evaluate Energy Guidance.

Evaluate Energy’s guidance tool is vital for keeping up to date with every North American budget cut or guidance announcement, find out more here.

These cuts are all, of course, in the wake of the oil price crash destroying margins worldwide and demand for oil taking a similar nosedive in the wake of COVID-19, what with latest figures suggesting that a quarter of the world’s population is now on lockdown and/or working from home. IEA is expecting global oil demand is expected to fall year-on-year, which would be the first time this had happened since 2009.

Clearly the upstream industry is facing major challenges and identifying the companies most likely to ride out the storm is vital for investors.

Evaluate Energy’s hedging database works hand in hand with our robust financial and operating database and our guidance product to help you pinpoint those companies that are best protected against this recent onslaught of outside market pressures.

NOTE (April 1, 2020): After this article was posted, BP also announced budget adjustments in response to the COVID-19 crisis. For more on BP’s 25% reduction in spending plans for next year, BP’s full press release can be seen here.

Canada’s Largest Hedgers for Q2 2020 Look to Ride Out Low Price Environment

Latest hedging data from CanOils shows that among Canada’s largest oil producing companies, it is actually a number of gas-heavy companies that have protected their oil production against the falling oil price the best heading into Q2 2020.

This analysis was conducted using hedging contract data available in annual reports of 33 Canadian-listed companies.

  • Of the group, we looked at those that produced at an average of over 10,000 bbl/d of oil in 2019 and the proportion of these companies’ oil volumes that were hedged for the Q2 2020 period.
  • As we were mainly analyzing the impact of falling oil prices due to market share war between Russia and Saudi Arabia, and not widening differentials between WTI and Canadian crude due to Canadian market dynamics and capacity constraints, we deliberately limited our analysis to include only fixed swap , collar and three-way collar contracts for oil.
  • All other contract types are available in the CanOils hedging module but have been excluded here.

Comparing volumes that were hedged under fixed swaps, collars and three-way collars as of December 31, 2019 for the second quarter of 2020 by these companies, it was three gas-weighted producers in Ovintiv Inc. , ARC Resources Ltd. and NuVista Energy Ltd. that enter Q2 2020 with the largest portion of their oil production portfolio hedged under a swap, collar or three-way collar contract.

Top 5 Oil Hedgers for Q2 2020 based on volumes hedged as of Dec 31, 2019

Source: CanOils

Using CanOils data, it is also possible to study the other extreme of the spectrum. By analyzing CanOils debt levels and credit facility utilization data in combination with hedging strategies, it is possible to identify the companies that may be in a more challenging position through these uncertain times.

For more on CanOils Hedging, please click here.

For a more global look on the companies best protected against this recent crash in prices, visit Evaluate Energy, where the hedging product includes U.S. and international operators alongside these Canadian producers.

This article was originally published on JWN Energy, where you can find a sample of the CanOils hedging data, showing Athabasca Oil Corp.’s 2020 positions, on a contract-by-contract basis.

U.S. Deals Dominate Global M&A in 2019

Data available in the latest upstream M&A report from Evaluate Energy shows that 2019 was another year dominated by deals for assets in the United States.

While 2019 was also a big year for deals in Latin America, Africa and Europe, 49% of the world’s $176 billion total of new upstream deals agreed revolved around deals for U.S. assets.

Evaluate Energy’s report can be downloaded at this link .

The U.S. total value of $85.9 billion (excluding $8.8 billion of Occidental Petroleum’s Anadarko purchase that was related to African assets) was the highest deal total for the country since the price downturn in 2014.

Source: Evaluate Energy, 2019 Global Upstream M&A Review

Keeping up recent trends, the Permian Basin was a key factor in this year’s total, with six individual +$1 billion deals taking place including Occidental’s Anadarko deal. There were also major deals in Alaska, the Haynesville shale and the Gulf of Mexico.

For more on these major U.S. deals to be agreed in the upstream sector last year, download Evaluate Energy’s report at this link .

Also included in the report:

  • Analysis on how far a stable oil price impacted deal activity
  • A focus on Latin American deals, including Total’s $5.1 billion deal in Suriname and major licensing activity in Brazil
  • Details on European maturing assets worldwide being sold off to private companies
  • A comparison of global Q4 2019 activity to every quarter since the start of 2013

EIA: Oil company finding costs reached a 10-year low in 2018

The U.S. Energy Information Administration (EIA) has used Evaluate Energy data to show that the finding costs for 116 global exploration and production companies hit a 10-year low in 2018, while finding and lifting costs combined were similar to costs recorded in 2017.

This was just one conclusion in the EIA’s oil and gas annual financial review, which is all built using data available through an Evaluate Energy subscription.

Among it’s other key findings:

  • Brent crude oil daily average prices were $71.69 per barrel in 2018, which was 35% higher than 2017 levels
  • The 116 companies analyzed in this study increased their combined liquids and natural gas production 2% from 2017 to 2018
  • Proved reserves additions in 2018 approached their highest levels in the 2009–18 period
  • The companies reduced debt in 2018 by more than $60 billion, the most for any year in the 2009–18 period
  • Refiners’ earnings per barrel declined slightly from 2017 to 2018

The EIA’s annual review is available to download at this link.

For more on the benefits and features of an Evaluate Energy subscription and to find out how to conduct similar analysis yourself using our tools, click here to sign up for a demonstration.

Brazil leads in Latin America with over $12 billion in M&A deals

A new report from Sproule, the Daily Oil Bulletin and Evaluate Energy shows how, among Latin American nations, Brazil has secure by far the highest level of M&A investment in upstream oil and gas.

The full report, which looks at the past five years of deal activity and the key drivers in Brazil, Argentina, Colombia and Mexico, is available to download here.

Led chiefly by investment from Norway’s Equinor ASA, over the past five years Brazil has received $12.4 billion in asset and corporate deals or farm-in agreements. Only 9% of 2019 Latin American deals up to and including April 30, 2019 involved assets outside of Brazil.

Source: Latin America: Assessing the impact of oil prices and the political climate on upstream M&A activity – Download here.

Brazil has also enjoyed a great deal of success in bidding rounds.

This new report analyzes:

  • The companies involved in Brazil’s bidding rounds since 2014;
  • How much was spent to win the blocks on offer; and
  • How Brazil’s success in attracting outside investment to new exploration acreage has grown over time.

Download the full M&A report from Sproule, the Daily Oil Bulletin and Evaluate Energy at this link.

Latin America: 5 key takeaways from Sproule, DOB and EE M&A activity report

A new report from Sproule, the Daily Oil Bulletin and Evaluate Energy shows how politics and fluctuating oil prices continue to dominate headlines and influence appetite for investment in Latin America’s upstream oil and gas industry.

The full report is available to download at this link.

Five key takeaways

1. Government changes impact M&A appetite across the region

  • Mexico’s change in government led to the suspension of licensing bid rounds and delayed farm-out arrangements;
  • Brazil’s change in government has had less of an impact domestically, so far, on oil and gas development. The country continues to pursue offshore opportunities and create an onshore sector; and
  • Argentina’s presidential elections are scheduled for October. The current administration made energy self-sufficiency a strategic goal and a new government may revert to a prior regulated domestic market structure.

2. Upstream M&A deal values dropped 64% in 2018 compared to 2017. 2019 also began slowly until a $1.3 billion deal was agreed in Brazil in April.

Source: Latin America: Assessing the impact of oil prices and the political climate on upstream M&A activity

3. Brazil remains the clear leader in terms of the value of M&A deals, while Colombia has seen the largest number of deals agreed.

4. Equinor (formerly Statoil) is the key driver behind deal activity in Brazil since 2014. The company has invested $5.3 billion in Brazilian asset acquisition since the latter half of 2016.

5. Canadian companies dominate in Colombia. Of the 73 M&A deals in Colombia between 2014-2018, more than 50% involved an acquiring company headquartered in Canada at the time of the deal.

Download the full M&A report from Sproule, the Daily Oil Bulletin and Evaluate Energy at this link.