AL - off the top, sincerely not "picking on one of your companies." Just was trying to look at some possible comparisons. Also, truly am bumbling when it comes to the technicial nitty-gritty re: this o&g stuff.
Anyways, back to URC.
Totally agree that the market is forward-looking and it's the projection, and realization (hopefully surpassing too) of those projections that the market seems to trade around. Also of the opinion that the perception of many things also sway stock prices. Perception in turn is reflected in overall sector multiples. The old pendulum thing I guess......
As far as URC is concerned cashflow consists of gross revenues less royalties/taxes which then results in "net revenues". From that some expenses are deducted - in URC's case that includes Production & operating, general & admin., and interest on long term debt. Income tax is also deducted.
I took a shortcut but that's basically the route taken to come up with the number shown on URC's Cash Flow Statement. The short cut? Normally net earnings or net loss is calculated and then things that don't affect cash like depletion and depreciation as well as a provision for abandonment and restoration obligations are added back to the net earnings. Both paths arrive at the same destination, cashflow.
You made me look at the 3Q release again and that is good. The % figure I quoted before re: Rev./CF was Gross Revenue. From what I've seen in the recent flurry of qtrlys. is that some cos. report "net" revenues (ie. royalties & o&g taxes already deducted) and other cos. - such as URC - report the gross revenue and also show the Royalty and production taxes that are paid. Once again the apple and oranges thing and something to be aware of......
The number I posted before was "low" if you use the net instead - should be 38% if net revenue number used for the 9 month period. I previously stated the figure as 27.31%. Not enough data is given by the company to determine the 3month number.
The $CF/BOE numbers don't change.
How to improve the CF per every barrel produced?
Diffferent ways it would seem. As you state, Upton's actual operating costs on a per barrel basis appear very good. One way is to reduce operating costs - URC already seems at a relatively low level.
Things like interest on long term debt are another thing that - if pared - will spin the savings to cashflow. URC has paid over $1.4mil dollars in interest as to Sept. 30. As you indicate, it does take spending to find and produce oil and the fine line seems to be between "not enough?" and "too much" debt and how that is leveraged to turn ideas into cashflowing production.
The word "efficiency" re: cashflow conversion probably isn't the right word to be using. Efficiency probably can be better measured by how much it actually costs a company to find and produce a barrel compared to the prices obtained for that produced barrel.
Another way to increase cashflow is to cut back on general & admin costs. URC reported just over $2mil in g&a for the 9 month period. A qtrly report arrived in today's mail for a situation that had revenues (gross) of just under $15mil for the same 9 month period. Production averaged just under 2100 boepd. The g&a in that situation shows as $758,901. Another example taken at random - Startech SEH. They had 9month revenues (net not gross) of between $50 & $51mil. Their general. & admin.?.... $8,000 shy of $2mil.
AL, I haven't looked any further however if I still held shares (have held in the past) that may be one angle to look at a bit closer. There may in fact be great reasons why things are showing like they do however it's (imo) an angle to keep a possible eye on. Maybe some of the examples used above aren't representative either. That's also something to look at.
Bottomline, I really don't know all the answers however do know that the indicated operating expenses URC shows do look good. Somewhere between revenue and cashflow there would appear to be some questions.
It's also recognized that operating (generalization) in some areas of Sask. offer challenges. Royalties can be comparatively high, water in oil can be high and decline rates on new horizontals can also be high. Does this apply to this situation? I don't know but maybe answers there can be obtained.
More detailed info. is req'd. - things like reserve growth, etc. also need to be looked at with a broader view than just the 3 month and 9 month period I have focussed on. IF such a review truly does indicate that the company, relative to peers, is more efficient (cost of finding & producing) and reserves are being added at costs much cheaper than those costs then the result should be a premium valuation multiple. Key measurement would seem to be how much growth is occuring based on barrels of oil per common share over time. That's something that hasn't been looked at.
The cashflow tangent is one such valuation measure however not the only one that does need to be considered.
Apologies for too many words and also apologies for possibly taking too much of a tunnel-vision approach to only one way to look at the picture. A quarter or two, or maybe even a few more and then some, of financial hic-cups don't necessarily mean a bad thing. To me they are just possibly some questions that should be asked and answered.
Thanks AL for all the efforts you have provided re: this o&g stuff and motivating a bumbler (me) to defend ponders. happy hunting. |
