O & G Outsider CEO(s)

[CorpRaider]

Wouldn't a "true" outsider CEO seek to diversify out of the cyclical, commodity industry like WEB did with textiles?  I believe XOM, KMI and CHK, given its shareholder base, will at least attempt to exercise discipline and focus on returns on capital.

[Pelagic]

Wouldn't a "true" outsider CEO seek to diversify out of the cyclical, commodity industry like WEB did with textiles?  I believe XOM, KMI and CHK, given its shareholder base, will at least attempt to exercise discipline and focus on returns on capital.

 

That's what the original O&G outsider CEO, John Rockefeller, did. He created the integrated oil company as we know it today with focus on all aspects of the value chain in an attempt to reduce cyclicality. I guess the question now is are there any CEOs at the majors today that would be termed outsiders due to originality or are they more or less building on the blueprint Rockefeller gave them.

 

While historically state run or quasi state run oil companies are poor allocators of capital essentially serving as piggy banks for their countries, you have to wonder what a true outsider CEO could do with the resources of Saudi Aramco or Gazprom.

[mg0516]

Pulse Seismic fits the bill.

[Sunrider]

How about Jeremiah from Manitok? I remember dimly some comments about him rather repurchasing shares when the oil price was high rather than overpay for other firms' land or flowing barrels.

C.

[kevin4u2]

I think most of their low-cost ness is being able to find and develop assets cheaply.  If you ignore their F&D and look at their G&A, it's very low.  Peyto's G&A as a percentage of revenue is around 4%, their peers are around 4-11%.  I think it might be difficult for them to create value by driving down their G&A because it's so low.  To create value, they have to go drill new wells.  Unfortunately, those opportunities will depend on what other people do.  If their competitors oversupply the market and bid too much on land / oil services / etc., then it will be difficult for Peyto to create value.  They'll probably keep finding high-IRR opportunities going forward, but there's a small chance that they won't due to macro conditions outside their control.

 

Peyto’s low cost is their really operating costs and secondly their F&D costs.  G&A is also low relative to competitors.

 

2a- I think the late Ken Peak is a cut above Don Gray (and Derren Gee).  The stuff in the Peyto letters about 50+ year lives on their wells is a little... misleading.  The longer life only makes a small impact on the NPV of a well due to the time value of money.  As well, assuming a 50 year life on your wells may turn out to be overly optimistic.

One of the problems is that horizontal drilling + hydraulic fracturing on low-permeability reservoirs is a new phenomenon.  We have virtually no historical data on how long the well life will be and what the decline curves will be.

 

This is misleading.  A well with a 50 year life is much more predictable and thus should deserve less of a discount factor all else kept equal.  There are many deep basis wells that have long life production.  There are also lots of wells that have been on production for 50 years, so it might not be so optimistic. 

 

Decline curves are only one method that has to be used in conjunction with the volume of the reservoir to determine the actual reserves.  Peyto's reserves are much easier to predict because they are not sour and don't water out. 

 

2b- The metrics that Don Gray used to present in the investor presentations don't fully capture what's important about the business. 

 

I would love for you to tell this to Don’s face...  Anyway, which metrics were not important?  I am curious. 

 

In general, I think that every single Canadian oil and gas company has overly-optimistic reserves, including Peyto.  That skews some of Peyto's metrics.  But they don't really explain the reserve estimation shenanigans that go on in Canada.

 

I would have to disagree here too.  Call Darren and ask him about the reserves. 

 

Secondly, every year Peyto provides the following in their annual reserve report news release.  Please tell me ONE other company that provides this level of disclosure to their shareholders? 

 

Our guiding principle at Peyto is “to tell you the business facts that we would want to know if our positions were reversed.” Therefore, each year Peyto analyzes the reserve evaluation in order to answer the most important questions for shareholders:

 

1. Base Reserves - How did the “base reserves” that were on production at the time of the last reserve report perform during the year, and how did any change in commodity price forecast affect their value?

 

2. Value Creation - How much value did the 2014 capital investments create, both in current producing reserves and in undeveloped potential?

 

3. Growth and Income - Are the projected cash flows capable of funding the growing number of undeveloped opportunities and a sustainable dividend stream to shareholders without sacrificing Peyto’s financial flexibility?

 

4. Risk Assessment – What are the risks associated with the assessment of Peyto’s reserves and the risk of recovering future cashflows from the forecast production streams?

 

Last year the base reserves were within 1.3% of previous estimates.  Please explain why you seem to think that Peyto’s reserves are overly optimistic?

 

At the end of the day, they're good operators who have joined the party of selling overpriced shares in secondary offerings.

 

They are not just good operators, they are laser focused capital allocators.  What did they do to capital spending in 2008 after terrible efficiencies in 2007?  They slashed capital spending, production fell for several years, and when capital efficiencies improved in 2009 they began to increase capex again. 

[rogermunibond]

Standard Oil wasn't a E&P company.  JDR bought up refineries, marketing, distribution, retail etc.  If you had oil to sell, he was the only buyer.  And he was the only seller to the consumer both retail and commercial.

[matts]

 

I just wanted to add that I emailed Darren Gee a couple straight-forward questions about his capital allocation policies on August 20th and still have not heard back. I know he's busy and there are other factors that affect his ability to communicate, but I'm still disappointed he did not reply to a shareholder's simple question (nothing that would even come close to REG FD).

 

 

[ItsAValueTrap]

This is misleading.  A well with a 50 year life is much more predictable and thus should deserve less of a discount factor all else kept equal.

 

Wells that generate most of their hydrocarbons within a few years are the most predictable.  Most fractured wells fall in that category, as their decline rates are often 30-70% in the first year.

 

  There are many deep basis wells that have long life production.  There are also lots of wells that have been on production for 50 years, so it might not be so optimistic. 

 

Decline curves are only one method that has to be used in conjunction with the volume of the reservoir to determine the actual reserves.  Peyto's reserves are much easier to predict because they are not sour and don't water out. 

 

By decline curve I assume you mean "decline curve analysis"??

 

In any case, look at the literature on predicting the decline curves on shale wells.  The engineers don't know exactly what the decline curves will be.  There's a lot of uncertainty.