2022 Top Operators Report: Building Back Better

Editor’s note: The last five years have been a hard ride for Canadian oil and gas producers.

Wild price volatility, a pandemic-induced price crash, ongoing market access issues, oil production curtailment, the rise of the ESG movement, and finally a geopolitical crisis are just some of the challenges industry faced.

The end result of this period of instability is a reinvigorated industry ready to take on the world as the commodity cycle turns once again.

The 2022 Top Operators Report examines the 2017-2021 timeframe, identifying key trends that shaped the present energy landscape and what lies ahead for the 62 Canadian headquartered public operators tracked this year.

To sort through these challenges we are once again leveraging the experience of professional services firm KPMG in Canada to provide insight into the last five years of change and what strategies operators could pursue to thrive in the inevitable turbulence ahead.

Data analysts from Evaluate Energy are providing context to the stream of information coming from corporate financial reporting and other relevant documents. Analysts from geoLOGIC systems ltd. offer context into trends in activity and technology to manage costs.

We’re also tapping into a broad swath of the insights and opinions from industry leaders gleaned from Daily Oil Bulletin coverage.

To download the 2022 Top Operators Report, click here.


Managing corporate finances and operations to maintain balance sheet health the last five years has been a bit like sailing through choppy seas, said Chris Wilson, managing director and senior analyst at Evaluate Energy.

“When you analyze the data, companies with scale, cost competitive operations, and a strategic advantage successfully navigated the lows of the commodity cycle and through the wild price fluctuations,” said Wilson. “These operators increased production and market share, maintained or grew topline revenues, and generated positive returns. The exception to this is 2020, when oil prices collapsed during the early stages of the pandemic.”

“Many of these same companies were able to access debt and equity markets to finance growth through acquisitions at the cycle bottom,” added Wilson. “They also had the sophistication to put together deals in a challenging market where valuations could shift quickly.”

Canada’s large integrated operators saw their production increase by one-third from 2017-2021, with much of it frontloaded through two large acquisitions made in 2017. A third large acquisition in 2020 accounts for the remainder of growth. Canadian Natural Resources Limited and Cenovus Energy Inc. saw the biggest jumps in production, with CNRL growing oil production almost 40 per cent in the last five years and Cenovus seeing a 75 per cent increase.

As a group, integrated operators are now benefitting from that production growth as energy prices have climbed. Top line revenues net of royalties were up 61 per cent in 2021 compared to 2017. Net incomes increased 39 per cent in the same time period, with operating cash flows up 70 per cent and free cash flow up 134 per cent. But the benefit hasn’t been shared equally. CNRL has outperformed with sales revenue net of royalties up 73 per cent and net income up over 200 per cent in 2021 compared with 2017. Operating cash flows have doubled and free cash flow is up almost 250 per cent.

But it hasn’t just been higher production and prices driving returns for integrated operators. While Suncor Energy Inc.’s upstream output was down slightly year-over-year in the first quarter of 2022, downstream demand for gasoline is recovering, said former president and chief executive officer Mark Little. 

“As many are aware, the majority of the Canadian population had significant lockdown restrictions until the end of February. As a result, Canada’s gasoline demand in the quarter lagged versus 2019, while diesel is ahead,” he said. “As I look at March and April gasoline demand, it continues to improve towards higher and normalized levels.”

Canada’s 10 largest gas-weighted producers (excluding CNRL) also grew production through the bottom of the commodity cycle, again driven almost entirely by M&A activity. On a boe/d basis, production climbed around 70 per cent from 2017 to 2021, with natural gas production up 57 per cent and liquids production up 137 per cent.

Senior gas producers who made countercyclical acquisitions reaped the rewards as well as both gas and liquids prices climbed throughout 2021. However, unlike the integrated operators, most acquisitions took place in the 2020-2021 time frame. 

ARC Resources Ltd.’s takeover of Seven Generations Energy resulted in an 87 per cent increase in production, a 352 per cent increase in revenues, and a 243 per cent increase in net income. ARC reported a $547 million loss in 2020, shifting to a $787 million profit in 2021.

“Much of this improvement came due to liquids production climbing from 38,000 to 110,000 bbls/d,” said Wilson. “Seven Generation’s Kakwa assets came with extremely high condensate production and with oilsands production rising in 2021, ARC was able to capture this premium market for diluent.”

Paramount Resources Ltd. is another gas-weighted operator with significant liquids production that prospered in 2021. Paramount saw its liquids production climb 34 per cent year-over-year to reach over 36,000 bbls/d.

Since 2016 Paramount has been active in the market both divesting and acquiring assets, striking three large deals. As a result it has cleaned up its balance sheet while creating four core areas that are driving current value with another longer-term exploration opportunity underway.

In 2016, Paramount divested 30,000 boe/d of Montney production, along with 155 net sections of land, to Seven Generations Energy for approximately $1.9 billion in cash, shares, and the assumption of some of Paramount’s debt. The divestiture was aimed at “de-levering” the company and to give it a new platform to grow with its remaining assets and a good balance sheet, said Jim Riddell, president and chief operating officer.

The company then merged with spin-off Trilogy Energy in an all-share deal that brought Trilogy’s Kaybob assets under Paramount control. It then acquired Apache Canada’s Montney assets at Wapiti and Kaybob Deep Basin assets.

The series of deals has positioned Paramount with significant opportunities within its near-term development project inventory to take production to nearly 150,000 boe/d, said Riddell.

The company aims for asset-level potential plateau production that can be sustained for 15 to 20 years based on management estimates of full field development location count. It expects potential plateau production of around 25,000 boe/d for about 15 years at Kaybob North Duvernay/Smoky Duvernay, about 30,000 boe/d for about 20 years at Wapiti and about 50,000 boe/d for about 15 years at Karr.

Prior to a recent acquisition at Willesden Green Duvernay, the company saw potential plateau production in the play at about 20,000 boe/d for about 15 years.

The Karr asset is furthest along the development curve, said Riddell, with production at 40,000 boe/d last year.

“We’ve definitely been able to, through optimization of the drill result, reduce the amount of wells and capital that we need to sustain that 40,000 boe/d,” he added.

“The cost structure to achieve those wells, as you’ve seen over the last couple of years, has been dramatically reduced. This asset has turned out to be even better than we had ever dreamed.”

Paramount has been working on how to debottleneck the facility capacity so it can increase its total plateau rate from 40,000 to 50,000-54,000 boe/d.

Wapiti is also advancing towards its production plateau, he added. “We see the 2023 production growth to 26,000 to 29,000 boe/d and 58 per cent liquids being in our sights.”

Riddell said the Duvernay is a large part of Paramount’s future, with a significant acreage position in the Kaybob and Willesden Green areas. But first it must get costs down.

“We are looking forward to a better relationship between cost and well result because of a longer well, but also, we think that’s a very big opportunity to reduce the cost in those longer laterals, particularly in the Duvernay.”

The top 10 non-integrated oil-weighted producers (>65 per cent liquids) have seen less production growth the last five years, with a 12 per cent increase in 2021 compared to 2017. However, a few operators have been active in the market, including Whitecap Resources Inc. and Tamarack Valley Energy Ltd., who reported oil production increases of 50 per cent and 78 per cent, respectively, in 2021 over the previous year. 

The top 10 oil-weighted operators enjoyed net revenues 58 per cent higher in 2021 than in 2017, driven almost entirely by higher pricing. After four years of net losses, including an almost $10.5 billion combined loss in 2020, the group of operators reported combined net earnings of over $8 billion in 2021.

After a series of acquisitions in 2021 and into this year, the Clearwater heavy oil play has emerged as a future growth driver for Tamarack Valley, says president and CEO Brian Schmidt.

In the midst of the pandemic, the company closed three separate acquisitions to further consolidate its position in the Clearwater oil play in 2021. In 2022 it added to its position with the acquisition of Crestwynd Exploration and Rolling Hills Energy along with signing a second land deal with the Peavine Metis community to further its Clearwater operations. And those deals, along with Charlie Lake acquisitions, have changed the company’s go-forward course.

“At Tamarack Valley we took the time through COVID to actually really take a look at strategy. We knew we had some dry powder to pick things up,” Schmidt said. “The two areas we focused on were Charlie Lake and the Clearwater.”

In all, Schmidt said Tamarack executed on about $700 million in acquisitions last year. “The acquisition of Rolling Hills completes the consolidation of our core operating area in the South Clearwater and maximizes returns from this area.”

Support from capital markets through cycle lows has enabled operators to gain production and market share through acquisitions, said Wilson. The structure of deals, however, shifted over the last five years driven by the type of assets for sale.

In 2017, there were 19 deals over $100 million with a total value of around $39.6 billion. Large oilsands assets sale dominated and smaller conventional asset sales accounted for 16 of the deals, with only three significant corporate takeovers. Cash made up 78 per cent of the total value of the deals, with shares making up 21 per cent and debt only one per cent.

“Capital markets were willing to back these large cash-based asset acquisitions,” said Wilson. “Almost $23 billion in financings were completed in 2017, including $17.2 billion in debt and $5.6 billion in equity. In 2018 and 2019 this funding dried up and shares became a bigger part of deal value.”

In 2018 there were 20 deals over $100 million with a total value of $12.75 billion. Nine of these deals were corporate takeovers. Cash made up 56 per cent of deal value, shares 31 per cent and debt 13 per cent.

Deal making slowed in 2019 with only eight deals over $100 million worth $6.57 million. CNRL’s takeover of Devon Canada’s assets accounted for over half the deal value, and was a cash deal.

Corporate acquisitions dominated in 2020 as the pandemic destroyed petroleum demand and prices, leaving those with unsustainable debt loads exposed, said Wilson. Eight of the 10 deals valued at over $100 million were corporate takeovers. Cash accounted for only nine per cent of deal value with shares making up 37 per cent. Debt accounted for 54 per cent of the total deal value of $13.5 billion.

There were 30 deals in 2021 valued at over $100 million, with a total value of $15.1 billion. Thirteen deals were corporate takeovers. Half of deal value was cash, with 31 per cent shares and 19 per cent debt.

“When you look at the last five years nearly 100 deals valued at over $100 million have transacted with a total value of $88.9 billion. A quarter of this value has been in shares, with 16 per cent debt. The remaining 59 per cent, or $53 billion, has been cash,” said Wilson. “Going forward, as higher oil prices translate into free cash flow windfalls and companies pay down debt, we expect to see the cash value of deals climb.”

To download the 2022 Top Operators Report, click here.

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