For background why I am posting this information, you should read the previous post. I am posting this information, not so much to compare company with company, but to hold as a baseline in preparation for future numbers.
When the fourth quarter (calendar) earnings come out this month, it might be (and then again it might not be) enlightening to compare those numbers with past numbers.
The profit margins below were taken from Yahoo!Financial on January 16, 2011. (Market cap in billions in parentheses.) All figures rounded.
CLR ($11): 29
BEXP ($3): 23
WLL ($7): 19
QEP ($7): 15
OAS ($3): -35
KOG ($1): 6
NOG ($1): 23
DNR ($8): 16
NFX ($10): 34
EOG ($26): 9
HES ($27): 7
COP ($100): 6
CVX ($187): 9
XOM ($393): 8
OXY ($79): 22
Comments:
Oasis is a "new" company, and is two to three years behind "profit margin" statistics compared to the rest. KOG might be one to two years behind the "profit margin" statistics compared to the rest. Their efforts were delayed by bureaucratic issues associated with Fort Berthold Indian Reservation where most of their holdings are.
DNR is focused on enhanced oil recovery, and most of their holdings are outside of North Dakota.
NFX (Newfield) is one I have overlooked during the entire boom. Shame on me. I will be posting more on Newfield later. For those who are interested, and don't want to wait, you can go to their website. I suggest looking at their history first, and then their current presentation. I don't know to what extent NFX will be affected by the events in the Gulf of Mexico. NFX is a relative newcomer to North Dakota. [NFX has nothing to do with the movie rental business; that would be NFLX. Make a one-letter mistake buying/selling shares on-line and you might be in for a surprise. Just saying.]
For the size of OXY (compare with COP), I was impressed with OXY's profit margins. Maybe that's why OXY commands the market cap that it does.
It's hard to say how CLR, BEXP, and WLL will do with the next report. BEXP's expenses, I would think, have remained fairly stable, but CLR's expenses, due to increased number of rigs, may affect their profit margins going forward. If CLR's profit margins actually increase, that should speak volumes to a non-business-educated layman like me.
Showing posts with label ProfitMargins. Show all posts
Showing posts with label ProfitMargins. Show all posts
Sunday, January 16, 2011
The Importance of Profit Margins in the Bakken
Once in awhile it helps to step back and look at the big picture. The current boom in the North Dakota Bakken began in the 2006 - 2007 time frame.
It is now 2011.
Even the least productive Bakken wells drilled in 2008 and before have now paid for themselves (with some exceptions, I suppose -- more on that later).
Despite the horrendous decline early on, production tends to level off after a time, although continuing to decline at a slower rate. Most experts have opined that Bakken wells could produce for 20 to 30 years.
In addition, even the less productive wells hold the lease simply by continuing to produce. At some point more wells will be drilled in the same spacing unit and/or the original well will be re-fracked.
When I view corporate presentations, I often skip over the bar graphs showing past production and future production. I guess over the years, I have become numb to bar graphs, having seen so many. In addition, these bar graphs don't tell me anything I didn't already know.
What those bar graphs don't show is that a fair amount of that production no longer costs "anything" to produce.
So, what should an investor in the Bakken pay attention to among the larger, more established companies going forward (CLR, BEXP, WLL, OAS, KOG, NOG)? Profit margins.
As more and more of their wells get paid off but continue to produce, all things being equal, profit margins should increase.
Two things, of course, won't remain equal. One is the price of oil and the other is the rate of change in drilling.
CLR says they would like to double the number of rigs over the next 3 - 5 years. Significant increases in rigs will lower the profit margins. Most other Bakken companies plan to increase the number of their rigs but not to the same extent. BEXP said they would bring in one more rig in 2011. KOG will bring in a third rig. NOG has a unique business plan and it's profit margins should be more closely tied to the price of oil.
But wouldn't all companies benefit equally with increase in oil prices, or conversely, suffer equally with decline in prices? No. At the end of the day, it's how well these companies hedge their bets when drawing up contracts for future delivery. Did the Bakken companies see $90 oil a year ago when drawing up contracts for oil to be delivered six months later? For more on hedging see the FAQ tab above; when you get there, search "collars."
Oh, one other thing is not equal. Fracking. The smaller companies are at a disadvantage when it comes to scheduling fracturing or completing the well. But again, that discussion will have to wait another day.
For now, I need to go back and start looking at some profit margin statistics to be ready to compare them with the new numbers that will come out during earnings season. Here those numbers are.
It is now 2011.
Even the least productive Bakken wells drilled in 2008 and before have now paid for themselves (with some exceptions, I suppose -- more on that later).
Despite the horrendous decline early on, production tends to level off after a time, although continuing to decline at a slower rate. Most experts have opined that Bakken wells could produce for 20 to 30 years.
In addition, even the less productive wells hold the lease simply by continuing to produce. At some point more wells will be drilled in the same spacing unit and/or the original well will be re-fracked.
When I view corporate presentations, I often skip over the bar graphs showing past production and future production. I guess over the years, I have become numb to bar graphs, having seen so many. In addition, these bar graphs don't tell me anything I didn't already know.
What those bar graphs don't show is that a fair amount of that production no longer costs "anything" to produce.
So, what should an investor in the Bakken pay attention to among the larger, more established companies going forward (CLR, BEXP, WLL, OAS, KOG, NOG)? Profit margins.
As more and more of their wells get paid off but continue to produce, all things being equal, profit margins should increase.
Two things, of course, won't remain equal. One is the price of oil and the other is the rate of change in drilling.
CLR says they would like to double the number of rigs over the next 3 - 5 years. Significant increases in rigs will lower the profit margins. Most other Bakken companies plan to increase the number of their rigs but not to the same extent. BEXP said they would bring in one more rig in 2011. KOG will bring in a third rig. NOG has a unique business plan and it's profit margins should be more closely tied to the price of oil.
But wouldn't all companies benefit equally with increase in oil prices, or conversely, suffer equally with decline in prices? No. At the end of the day, it's how well these companies hedge their bets when drawing up contracts for future delivery. Did the Bakken companies see $90 oil a year ago when drawing up contracts for oil to be delivered six months later? For more on hedging see the FAQ tab above; when you get there, search "collars."
Oh, one other thing is not equal. Fracking. The smaller companies are at a disadvantage when it comes to scheduling fracturing or completing the well. But again, that discussion will have to wait another day.
For now, I need to go back and start looking at some profit margin statistics to be ready to compare them with the new numbers that will come out during earnings season. Here those numbers are.
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