When most Canadians think of the oilpatch, the names Suncor, Shell or Imperial Oil come to mind — the big guys, the companies that sell us our gasoline and announce multibillion-dollar oilsands projects.
But the beating heart of Alberta's energy sector is found among the smaller companies, the so-called juniors or intermediates. It's a riskier world, but also more fun — this where the cowboys operate. When times are good, you can make a bundle, but when times are bad, it can be pretty miserable.
Unless you like to play the markets, you won't recognize many of the names — Tourmaline, Bonterra, Crescent Point — but energy investors tend to follow their favourite executives from company to company, betting on their ability to make money when the sun is shining and survive when it's not.
Forty of these smaller companies went to New York last week for a round of speed dating with Wall Street investors, trying to convince U.S. portfolio managers that they are still a good bet. Here is a snapshot of the way three different companies are managing their way through the downturn.
Natural gas prices have not fallen as far as crude oil, but face similar pressures (SaskEnergy)
Penny pinching
Peyto Exploration and Development describes itself as both cheap and boring, which, in times like these, is the corporate version of a humblebrag.
The company produces natural gas in Alberta, which has been a challenging business for years. Natural gas prices haven't collapsed in the same way oil prices have, but they're considerably lower than a year ago and there are serious concerns about oversupply. The price in Alberta right now for a gigajoule of natural gas is less than $3.
Peyto says that it can live with that price because its costs are only 93 cents a gigajoule.
"There's not a thing that we're doing that's proprietary," said Darren Gee, the chief executive of Peyto. "[Other] producers get caught up chasing revenue and they don't focus so much on the cost piece."
While the rest of the sector is pulling back on drilling and spending, Gee said his company is pouring it on now — because costs are lower in a downturn.
"We try to be busy when nobody else is, and hold in the reins big time when the industry is really busy," he told CBC News.
"Because we've found that it's that old saying, that bumper sticker in Calgary that said 'Please God let there be another oil boom — I promise not to piss it all away this time.' The industry tends to erode all its good returns in the high parts of the cycle that it generates in the low parts of the cycle."
The Bakken oilfield stretches from Saskatchewan to South Dakota. Lightstream is trying to sell its Bakken assets. (Matthew Staver/Bloomberg)
Tear it down and start again
Lightstream Resources offers one of the cautionary tales of the oil price collapse. Simply put, it's got too much debt — $1.5 billion as of the end of last year. With the collapse in oil prices, it had to suspend its dividend and lay off nearly 40 per cent of its staff. The company is trying to sell its assets in the Bakken oilfield to generate the cash to keep its bankers happy.
Lightstream's shares traded at $9 in June, but now bob around the 90-cent mark, and there's speculation among investors that the company may not make it through the downturn.
John Wright, the chief executive of Lightstream, said it's not that bad. "This is a period of painful patience. We're covering all our costs, we're spending $110 million, we're still putting money in the bank at a $50 oil price."
What Lightstream is not doing is drilling any more wells with oil at these levels. For the rest of the year, it will wait on oil prices to recover, try to sell its Bakken assets, pay down its debt and plot its comeback.
Fancy math might save the day
There are a number of companies that dodged the worst of the oil price meltdown by having hedged much of their production before the market crashed.
Crescent Point Energy is one of those. More than half of its production this year was hedged or pre-sold. That hedging program along with the lower Canadian dollar means that Crescent Point is selling more than half its production at just under $90 a barrel.
As a result, the company isn't really dealing with a cash crunch at the moment and is increasing its oil production this year.
"We've been doing barbell hedges," said Scott Saxberg, chief executive of Crescent Point. "Combining hedges out in the future and bringing them forward to get an average $75-$76 pricing."
Crescent Point may be feeling good about its prospects for the year, but its share price is still suffering, down 40 per cent from the high reached last summer.
Saxberg expects a quicker recovery in oil prices than many in the market — he thinks OPEC will cut production in September and oil will bounce back to the $60 or even $70 range, but said he's covered for a year and half either way.
It is the job of energy executives to talk their way through these kinds of downturns. Despite their confidence, nothing is certain in the energy market these days — least of all the price of oil. Just a week ago, there was a fair amount of confidence that oil would trade around $50 US through this year, but now it's closer to $43. That's a 15 per cent discount.
No matter what path companies take through the crisis, the only thing that seems certain is that there's more pain to come.
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