Skip to main content

The Globe and Mail

Oil patch investors might want to shift some assets south

Photos.com/Getty Images

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.

The screen

Story continues below advertisement

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?

Story continues below advertisement

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.

Report an error
About the Author
Portfolio Manager

Michael Bowman is a portfolio manager at Hamilton-based Wickham Investment Counsel Inc., an adviser to high net worth clients. Mr. Bowman has 30 years experience as an investment adviser and financial planner serving both individual and corporate accounts. More

Comments

The Globe invites you to share your views. Please stay on topic and be respectful to everyone. For more information on our commenting policies and how our community-based moderation works, please read our Community Guidelines and our Terms and Conditions.

We’ve made some technical updates to our commenting software. If you are experiencing any issues posting comments, simply log out and log back in.

Discussion loading… ✨