OGA January Update: Rolling Out 2013 Guidance

Capital expenditures & production guidance for 2013 are making their way gradually into OGA for companies in the coverage universe. The budget announcements are typically released between December and January.

For dividend paying companies, the annual average production & capex figures are instrumental for projecting a company’s ability of supporting its dividend. While guidance usually comes with a commodity price deck assumption, there are no guarantees these prices will materialize in 2013.

You will notice that for the stocks tracked by OGA, the realized price of oil & gas are largely based on the last reported figures in Q3. The realized price for each commodity varies from one company to another depending on hedges and the quality of the product (light/medium/heavy oil, heat content in natural gas etc.) This explains why forward strip prices are not used by default not forgetting the fact that many times these prices remain pie in the sky as in the case of natural gas currently trading below $3/mcf.

When comparing oil and gas stocks with peers, the best way to account for changes in commodity pricing is by using increments/decrements in price. For example, what happens if these companies realize $0.50 more per mcf in 2013?  This is a more accurate method for comparing the impact of an increase in the price of natural gas rather than just slapping $3.00/mcf for all.

Since all the columns can be reordered, investors can identify the impact of increasing/decreasing commodity price on CFPS, P/CFPS and D/CF metrics.

Pricing in an increase of $0.50/mcf in natural gas prices.

It’s very important to remember that when modelling revenue forecasts, you are dealing with ballpark numbers just like E&P companies as the only certainty in this exercise is the uncertainty of future commodity prices. However, these financial projections are extremely important for any investor when it comes to monitoring balance sheet health particularly for junior and intermediate dividend paying stocks where risk is higher compared to senior producer (you can see it through the average yield of each group).

production guidance indicator

For individual stock analysis there is a new indicator that shows up next to the production figure:

  • 2013AA: indicates the Annual Average production guidance for 2013
  • 2013A: Indicates the Actual production as of the last quarter/latest presentation/last news release.
  • 2013E: Indicates the year end Exit production guidance for 2013.

These codes are also accessible in peer comparison, all you need to do is hover your mouse over the production figures and a small tooltip will appear with the info inside for each stock.

production guidance tool tip

This feature provides you with a quick overview of the production being compared. Usually, exit rate guidance is not that far from the annual average guidance as the exit volumes are reached with flush production at the end of the year.  For example Bellatrix Exploration guided for 19,000-19,500 boed for its 2012 exit and is guiding for 20,000-21,000 boed in annual average production for 2013.

During this month as more and more companies release their budgets, those that are included in the coverage universe will be updated. Finally, for the non-dividend payers, the capex figure is now part of the stock analysis page (it was only available for the dividend payers). This allows you to compare the projected revenue with the planned capex and evaluate the prospects of funding growth from internally generated cash flow.

If you have any questions or requests for new features, please do not hesitate to contact me or leave me a comment.

This post covers the Oil & Gas Analysis software at oilandgas-analysis.com that you can register on for free. 

10 comments to OGA January Update: Rolling Out 2013 Guidance

  • Andy

    Hi Mitch,

    Firstly congratulation with the new branching out/webpage. Will be a wonderful tool for investors. I have checked in from time to time and i have enjoyed following you trade in and out in the oil sector! I was wondering what will happen with this blog when things start to pick up with OGA? Have you stopped with you monthly update for good?

    Anyways wish you all the best in whatever course you take!
    Andy

    • Mich

      Thank you Andy,

      No change of plans for this site, will keep a weekly quality post coming. As for the monthly updates, the thesis for investing in HYX,MQL etc has not changed. The sector is simply out of favor and we need to get through the next government induced market malaise.

      I also do not foresee adding any new positions in H1 of 2013 (besides my MMT and NZ positions). The plan might change as we go along, we’ll see.

      Appreciate your feedback Andy, keep it coming.

      Cheers,

  • [...] 9. OGA January Update: Rolling Out 2013 Guidance @ Beating The Index. [...]

  • W.C.

    Hey Mich,

    Looks like TAO’s drilling of the East Coast will likely be delayed (again) with Apache bailing on their JV with them. Likely to see both TAO and NZ move lower Monday on the news.

    Question is: Is this a good buying opportunity for TAO/NZ????

    • Mich

      That’s a tough on, is Apache bailing because phase 1 was not completed before the deadline or because they know something that we don’t?

      I’d sit on the sidelines and watch the action. Some punters might bail out which will pressure both NZ and TAO.

  • W.C.

    Yes, I was thinking to myself maybe they didn’t like what they saw on the siesmic? However, perhaps it’s more financially motivated as I heard they might be more inclined to shift funds from exploration (regardless of the potential) and concentrate on development instead???

    Regardless, unless NZ or TAO drops BIG TIME (where I might be tempted to nibble)I’ll likely wait on the sidelines too and watch my small position in NZ likely go under water on the news. :(

    • Mich

      It looks like TAO took the brunt of the hit at -40%. NZ so far is down 10% which is an acceptable hit. NZ should recover in time as there is no change in the list of upcoming catalysts.

    • Mich

      Heard the same thing RE Apache focusing on development instead of exploration. The EC shale will be tested sooner or later, I am just surprised TAO has not provided more info!

  • W.C.

    Well I guess I wasn’t as strong as I planned to be as when TAO bottomed out I bought a small position as it was simply too tempting.

    I might have to be patient now but as you stated eventually the EC shale will be drilled/tested and I figure todays fire sale on TAO was as good as anytime to buy some since in a couple more months production should ramp up significantly.

    I was also thinking perhaps TAO will use this to it’s advantage in one respect by using their buyback program to gobble up a bunch of shares at way cheaper prices.

    I guess we’ll see what happen???!!!

    • Mich

      WC, I think you’ll do fine if your outlook is over the medium term. Remember that TAO is gearing up its infrastructure in order to handle 5-6,000 boepd of production. The time estimate was for around March if I remember correctly.

      Like you said, management must be grinning at the possibility of buying back shares so cheaper than what they probably budgeted :)

      The story takes time but will eventually unfold. Notice NZ held up better, there might be something the market is expecting.

      Let’s see!

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