What Canada Has That The U.S. Doesn't - Oil Stocks

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Investors are trained by analysts and management to talk about oil prices when looking at energy stocks.

But that's a misnomer; a mistake even and especially in the United States, where the hydrocarbon geology is deeper and gassier than Canada. And natural gas is worth a lot less than oil.

Investors sadly pay almost no attention to the realized price per barrel that companies receive - the integrated natgas/oil price - just to what the price of oil is doing on the day of the quarterly report comes out, or what the average price of oil during that quarter.

I worked with one of my researchers, studying 37 small-to-mid-tier energy producers in the United States - the names on all the brokerage analyst reports - and discovered some facts most energy investors may not believe:

1. 65.9% of production was natural gas or low-priced NGLs (Natural Gas Liquids)

2. Therefore only 34.1% of production was oil

3. That ratio put the average realized price per barrel of the 37 in December 2016 - when WTI was $50 and natgas was $3 - at just $28.37/barrel.

4. We back-tested this to Q3 2014 - top of the Market - and found that with WTI at an average $97.37/b, and natgas at $3.95/mmbtu, the 37 companies realized an average price of just $46.30/b.

5. All-in costs (production + maintenance capex + taxes) were $54.57-so even at $100 oil these producers were losing $8.27 on every barrel!

There is obviously some big variances between companies, but overall it tells three stories:

1. helps investors understand why "oil" stocks don't make money (because investors are not looking at realized pricing per barrel).

2. How low natgas prices can really drag down "oil stocks" cash flow

3. Help investors focus in on the best bang for their oil buck, which could be Canada, where a lot more companies have 90% + oil weightings

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