Inflation in the oilpatch appears to be pretty sticky these days. A quick glance at median operating costs and transportation costs across a broad spectrum of producers in Canada shows that fact very well. Q2 results are basically all in by now, and we are not seeing any reprieve on these two metrics as of yet, although Q2 was a challenging quarter on production for many given wildfire impacts in May.
Figure 1 – Industry median operating costs
Figure 2 – Industry median transportation costs
As we were going through some of the many charts offered by BOE Intel, one company stood out in particular for the way it has managed its cost structure. Crew Energy is one of the very few (and maybe only) that we could find that has a lower cost structure today than it did in Q1 2018. The basis for this analysis is shown in Figure 3, a BOE Intel chart that stacks op costs, transportation, royalties, and G&A.
Figure 3 – Crew Energy cost structure
The usual caveats would apply here of course as Crew did have some heavy oil production that it sold a couple years ago which would help lower operating costs. However, Crew has managed to lower its cost structure while simultaneously seeing higher operating netbacks (after hedging), which is something that can be hard to do when selling oil production. Of course, hitting the right part of the commodity window helps as well.
Figure 4- Crew operating netback after hedging
All of this has resulted in an enormous reduction in net debt over the last couple of years, with net debt peaking in Q4 2021 at $406 MM and falling all the way down to $60.7 MM in the most recent Q2 report. A net debt reduction of 85%.
Figure 5 – Crew net debt
It may end up being the low point of the year for net debt, as the company has its highest growth capex quarter planned for Q3. Crew has guided to $115-$125 MM of net capex in Q3, out of a total 2023 budget of $190-$210 MM. The company also is pointing towards offsetting completion activities, natural production declines and planned 3rd party pipeline and processing maintenance in Q3 resulting in Q3 volume guidance of 26,000-28,000 BOE/d. Annual 2023 guidance of 30,000-32,000 BOE/d remains intact, while the company plans to exit 2023 at 33,000-34,000 BOE/d as the effects of the growth capex begin to show. See more company guidance from Crew’s Q2 report here.