Cost cuts prop up poor results in Q1
Energy companies see cash costs fall by an average of 24 per cent
Lower oil and gas prices hurt cash flow but helped Canadian oil and gas companies significantly cut their expenses, surprising analysts and making admittedly poor first-quarter results better than expected.
Reports from National Bank Financial and Peters & Co. this week as first-quarter reporting season wound down noted cost savings among exploration and production companies that went beyond the reduced price they paid to meet their own energy requirements.
“Overall, cash costs per barrel of oil equivalent decreased 10 per cent year-over-year, with several companies showing significant year- over-year improvement,” said Peters.
“The decrease in cash costs per boe for several Canadian companies was one of the most significant take-aways from Q1 reporting as the changes were a direct result of the decrease in commodity prices — general and administration reductions, lower service costs, lower fuel costs.”
The Calgary investment bank said there were striking differences between companies focused on Canadian and American assets, with cash costs per boe for the former down 13 per cent, but up one per cent for the latter in the first three months of 2015 versus the same period last year.
National Bank, meanwhile, said cash costs including operating expenses, transportation, royalties, administration and interest fell by an average of about 24 per cent ($7.14 per boe) among Canadian oil and gas companies it covers in the first quarter compared to the 2014 annual average.
“The main energy input costs were down about 41 per cent on average in the quarter, relative to full year 2014, which indicates that a significant portion of the cost reductions were due to lower commodity prices and therefore may not be fully sustainable when commodity prices recover,” it cautioned.
Large producers, led by Canadian Natural Resources Ltd., posted average output per share growth of four per cent. Intermediate companies grew production by seven per cent and juniors eked out a one per cent rise, it noted.
National Bank said it calculates the 54 companies in its coverage list will have an average cash cost per boe of about $45 Cdn this year, based on its revised forecast of an average 2015 West Texas Intermediate oil price of $56.50 US per barrel and a 2015 AECO price of $2.60 per thousand cubic feet.
“We continue to believe the industry will require oil prices over $70 US per barrel to be sustainable on a full-cycle basis,” it concludes.
A significant portion of the cost reductions were due to lower commodity prices and therefore may not be fully sustainable when commodity prices recover.