Analysis: Lowest cost oil producers in North America
April 16, 2020, 6 a.m. |
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 fromEvaluate 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 10,000boe/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.Tomorrow, we’ll look at the highest cost oil producers of the group.
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 thatparticular company.
Looking at costs perboealone 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 perboeand 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 wasPetroshaleInc. (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/boefrom 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/boefor an 83% oil portfolio.
The lowest overall cost perboerecorded among the entire group wasNiobrara-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-$3belowthe 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.
About Evaluate Energy
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.