BOE Intel Q4 2023 Earnings Season Report Card – Part 2

Having gone over production and financial metrics in Part 1 of our Q4 2023 Earnings Season Report Card, it’s time for per-barrel metrics. Overall, operating and transportation costs were down this quarter, a further easing of inflationary pressures in the oil patch. Average realized prices were down as well, however, leading to a broader decline in netbacks for most Canadian E&Ps. Many producers were able to regain some ground through their hedging programs though, which helped spur the improved operating cash flows we detailed in Part 1. For more detail on specific observations we’ve made on each of these metrics, read on below.

Realized Pricing ($/BOE)

Realized pricing outcomes deteriorated in Q4 2023, largely on account of worsened global oil pricing (which has since recovered). Natural gas pricing, on the other hand, was largely flat with slight changes for most producers in Q4. The average company in our dataset saw a $5.15/BOE decrease in average realized pricing. Of the 30 companies in our dataset with Q4 pricing data available, 22 saw overall realized pricing metrics drop. Among the companies that recorded improvements in realized pricing in Q4, a larger liquids portion of production (compared to Q3) was a common factor. Logan Energy increased its average realized per-BOE price by $6.20, an improvement of 17.6%. This was largely a result of an increase in the liquids percentage of Logan’s production, as the company significantly boosted its oil, condensate, and NGL production in Q4. Crew Energy, similarly, saw a noteworthy 11.2% boost in its realized pricing. As mentioned in Part 1, Crew has steadily delivered on its ambitions to grow condensate production; this has resulted in the company hitting a multi-year high liquids percentage in Q4 2023. Similarly (and also covered in Part 1), Peyto’s liquids share increased substantially followings its acquisition of Repsol last year. As a counter example, Vermilion boosted its realized pricing by 9.1% despite a reduced liquids percentage in Q4 2023; this boost was a result of a significant improvement in its realized natural gas pricing from $6.32/mcf in Q3 2023 to $8.48/mcf in Q4 2023.

Operating Costs

In aggregate, producers’ operating costs decreased in Q4. The average producer in our dataset reduced its operating costs by $0.65/BOE, a 5.7% reduction. Logan Energy, which appears in the top 5 in each section of this article except for hedging, led all producers with a 25.2% reduction. In discussing its 2023 results in its March 2024 corporate presentation, the company referenced operating leverage and improved scale as drivers for improved operational costs. In addition, the company brought on a water disposal well in Pouce Coupe at the end of Q3 which “provided cost savings on water trucking and disposal throughout the fourth quarter“. Journey reduced its operating costs by $3.79/BOE, citing lower aggregate Q4 costs that were “primarily associated with significantly lower field power costs” on account of a warm start to the winter. Saturn has improved its operating cost structure for two quarters in a row now. In the company’s Q4 2023 MD&A, the company attributes this improvement to the integration of acquired low-cost assets as well as fixed costs being spread across larger production volumes.

Transportation Costs

Transportation costs were down slightly in Q4, with the average company’s metric dropping by $0.13/BOE compared to the previous quarter. MEG and Rubellite led the companies in our dataset, with each attaining a cost reduction of over 15%. In MEG’s case, it appears that it may be a normalization of costs after inflationary pressures led to increased pipeline tolls for the transport of oil to the US Gulf Coast earlier in 2023. With a staged filling having begun on the TMX, keep an eye out for developments in MEG’s transportation cost metrics through 2024. Rubellite referenced advantageous developments in fuel pricing/surcharges in Q4 2023, as well as trucking rate decreases. Tamarack Valley, another oil-weighted producer that rounded out the top 3 with a 13.8% cost decline, may be realizing the benefits of the start-up of the Secure-Pembina Nipisi pipeline.

Netback

Few will be surprised to see that companies which benefitted from improved realized pricing saw improved netbacks as well. Interestingly, many of the companies that saw netback increases in Q4 have one thing in common: a high NGL/condensate share of production. The average company in our overall dataset, however, saw a $3.63/BOE netback decline compared to Q3. Of the 32 companies for which we have Q4 netback data available, only 8 saw netback improvement to close out the year. We’ve already gone over the drivers behind Logan, Vermilion, and Crew’s strong quarters: improved realized pricing and reduced costs. Paramount, on the other hand, appears to have benefitted from hedging gains that outstripped a slight reduction in its average realized pricing (see below for a bit more detail). Ovintiv, which is a little different from most companies we track on account of its sizeable US exposure, benefitted from improved realized pricing as well as a noteworthy decline in its operating costs south of the border (US operating costs fell from US$6.66/BOE in Q3 to US$5.85 in Q4/BOE). Birchcliff also saw a slight netback improvement in the fourth quarter, likely stemming from an improvement in its overall average realized price compared to Q3.

Hedging Gains/Losses

Hedging outcomes are inextricably tied with changing commodity price dynamics, with decreasing commodity prices generally leading to improved hedging outcomes. Having said that, companies’ hedging outcomes can vary significantly despite being exposed to the same commodity price dynamics.  The interesting thing that becomes clear in examining the top 10 companies, however, is that there doesn’t seem to be a shared characteristic among them. Clearwater oil pure-play company Rubellite led all producers with an $8.51/BOE gain, while gas-weighted Paramount had the second best showing. According to its Q4 2023 MD&A, Paramount “terminated and closed out all 15,000 Bbl/d of its NYMEX WTI swaps (CAD $109.68/Bbl, January 2024 to December 2024) for aggregate cash proceeds of $45.4 million” this quarter. Hedging is a complicated aspect of the industry, but clearly there are clearly some companies that are having better luck than others (for now, at least).

Looking for more financial and production data? Check out BOE Intel. We have data and analytical tools that provide you with important information on over 40 public E&Ps operating in the Canadian oil patch.