As local headlines continue to highlight the exodus of foreign investment from the Canadian energy sector, the resilience of local E&P companies is yet again being tested. One of the most refreshing parts of our day to day at 360 is that we get the opportunity to engage with enthusiastic new teams on a daily basis that continue to recognize opportunities in what may appear to be the most dire of market conditions.
A trend we have been seeing with increasing prevalence in recent months is the entry of oil and gas companies with full life cycle asset development AND retirement on the front page of their prospectus. Fundamentally, this shift in thinking still encompasses delivering investors a satisfactory annual rate of return, however, the main driver in accomplishing this is through the optimization of operating expenses to yield maximal free cash flow. There is currently a focus shift away from the historic value creation models that aimed to exit in the short to medium term at a multiple of X towards a longer-term focus on the full life cycle of the asset. From our experience, this is proving to be both attainable and attractive to an emergent industry investment criterion: value extraction.
I liken foundation of this structure to personal financial planning for retirement:
Step 1. Determine your retirement contribution needs
Step 2. Start saving
Look familiar? There are a fair number of further similarities that can be made but I think the parallel is clear. With respect to oil and gas assets specifically, of paramount importance is the relationship between the asset economic reserve life and the associated true end of life closure costs. While 360 is anything but an expert in reserve evaluations, our team has a comprehensive understanding of costs related to closure and, more importantly, how to build and execute a cost efficient asset retirement plan.
360 exists to make growth simple. Contact us today to help you plan for your retirement.
The Full Circle is a content initiative by 360 to inform, inspire, and spark conversation around a wide variety of technical and business-related topics. We endeavour to use this forum not only to inform our clients and industry about relevant topics, but also to hold ourselves accountable, grow professionally and personally, and constantly challenge the way we do things internally. There will be a wide range of topics posted over the next while, so we encourage dialogue and look forward to speaking with those who would like to converse further –info@360elm.com.
