Back to our small series on how to read the operational profile of an oil and gas company.
Last week we covered Production and Reserves. Today we will cover Land, Sesimic, Drilling locations and Operating Netback.
Undeveloped Land: 270000 net acres
For oil exploration, a large amount of undeveloped land has the potential to increase a companies’ supply of resources. More resources provide the opportunity to grow revenue, reserves and the reserve life index ensuring stability for the business.
General rule: gross acres * Working Interest = net acres
3D Seismic: 313 square miles
The introduction of 3-D technology was a turning point for the oil and gas industry because it increased the number of productive wells. The 3-D seismic data is used by expert geologists to determine the likelihood of oil or gas in a given area. The compiled data is used to create 3-D images of possible hydrocarbon zones. Geologists provide estimates on how much oil or gas might be in the reservoir. These estimates determine if it is economically advantageous to drill the well.
Total Development Drilling Locations: 385 gross, 268.9 net
A program for drilling for oil or natural gas only in areas where known reserves exist. Investors or companies undertaking a development drilling program are more likely to find oil or gas, and thus make a profit, than those conducting an exploratory drilling program, which is risky and may result in a loss.
Same formula applies: x gross * y WI = z net
Operating Netback: $50.23 per Boe
Operating netback is revenue less operating costs and royalties. A company bases this number on the average expected WTI price (ex: 70$ per barrel) and takes into account currency fluctuations (ex: 0.95 US$/Cdn). The lighter the oil the higher the operating netback since light oil sells higher than heavy oil. Sometimes the difference can be up to 50%. Needless to say a light oil company will fare better if oil prices suffer a significant loss.
In every company presentation, you will come across this summary in one form or another. Now you should be able to process this information easily and use it in your research. Of course don’t forget to account other factors before your final decision such as debt, hedges, royalties and political stability (if investing overseas).