ABSTRACT

As a result of a series of developments experienced by the Canadian oil patch over the last decade, the 1990's will be much more competitive and bottom-line driven, a significant shift away from past, self-sufficient attitudes.

The past environment was characterized by unpredictable Canadian energy policies; global commoditization of oil accompanied by wild price swings; natural gas deregulation and price deflation, but with the prospect of expanded access to the United States market; a bearish stock market; and a corporate free-for-all where all but the largest producers are potential take-over or restructuring candidates. All of the above created an impetus for a renewed focus on shareholder value and corporate profitability and on rigorous benchmarking.

Companies finally realize that they are not operating in a competitive vacuum and their performance is closely scrutinized by the marketplace. To survive or to attract new capital for growth, management has to prove to their boards and ultimate owners that their operation 1) generates a positive economic return, and 2) outperforms its peers. To do that, management requires carefully selected, meaningful, and consistent performance indicators that can measure performance and can relate it to that of other comparable producers.

Two such powerful performance evaluation criteria are the finding and development costs and the operating netbacks. The first of these focuses on longer term economics, i.e., the cost of adding new reserves and replacing the depleting reserve inventories. The second indicator highlights the short term, cash-flow generating ability from current production.

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