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Updated on Friday, February 24, 2017
Brighter outlook for natural gas producers
Natural gas prices have simply stunk during the past five years but recovering is now apparent and natural gas prices are looking much more promising.
Oversupplies of natural gas inventories have dropped below the five year average and global changes are occurring. Natural gas demand is rising. Relying on domestic demand will no longer be the single governing factor. The next decade looks very favorable. Global markets are here and demand is about to burst open.
During the past decade, significant discoveries of shale gas were made. In the US, these discoveries developed quicker than the demand was able to sustain. Natural gas prices plummeted to record lows in the past several years.
There has been a significant turnaround in the natural gas markets in the past six months, as US stockpiles have waned and are now replenished at a much slower pace than a year ago. As a result, natural gas prices bottomed last winter and by mid-summer began to recover.
Former Obama administration tightened environmental laws on carbon emissions. This spurred the conversion from dirty fuels like coal to clean burning natural gas. In particular, most US coal fired electric generating plants have been phased out and others will be replaced in the coming years with more efficient and lesser carbon emitting gas fired plants. Natural gas demand on the continent may increase quickly.
Here in Canada, we rely mostly on exporting our natural gas supplies. Exports to our southern neighbor have all but vanished. At one time, US imported most of our natural gas supplies. Today we are looking at exporting natural gas in the liquid form (LNG). Our single obstacle is the lack of infrastructure but it is in the developmental stages and is being quickly constructed. Two LNG projects are under construction in British Columbia and one is being built on the east coast near Stain John, New Brunswick. Several other smaller LNG plants are being planned for Nova Scotia.
Interest in developing natural gas reserves in the provinces of Ontario, Quebec, New Brunswick, Nova Scotia and Price Edward Island is starting to heat up. Even the left leaning provincial Liberal government has eased restrictions on natural gas development in the eastern townships of Quebec. Natural gas companies are optimistic that fracking will soon be approved.
Alberta and British Columbia, the most prominent natural gas producers, have taken the lead. The Montney, Horn River Basin and lesser known discoveries have attained unprecedented development levels. According to COADC, rig utilization in British Columbia has been the highest in Canada during the past five years.
A study, commissioned by B.C. provincial government and released three years ago, estimates that the British Columbia has 2,933 trillion cubic feet of recoverable natural gas in the Horn River Basin and the Montney region. British Columbia’s natural gas reserves have surged to the highest level in Canada and if the study is accurate – one of the largest global natural gas reserves.
These new natural gas reserve estimates have tripled the previous evaluation in British Columbia. Alberta's shale reserves in the Montney have also risen in comparison to a decade ago.
British Columbia's provincial government claims that there is enough natural gas to be capable of developing a viable LNG export operations for 150 years and still being capable of meeting all domestic needs.
The start of 2017 has brought elevated optimism. According to COADC data, rig utilization in British Columbia and Alberta is climbing to record high levels of past decade. Interest is picking up pace in Horn River and the Montney region is continuing to be strong. Producers are preparing for big exports into the Pacific Rim.
T. Boone Pickens predicts that America’s transportation sector could be the next beneficiary if the industry follows through with a conversion to natural gas. The oil tycoon has spent much time in convincing the transportation industry of the merits to change fuels. Pickens believes that conversion to natural will occur despite a slow start. Truckers are now realizing the benefits of lower fuel costs and lower maintenance.
Low oil prices and political uncertainty has had implications on the natural gas industry. If oil prices had been higher, natural gas demand would have grown at a much faster pace. These factors stalled development of all natural gas reserves. Most oil and gas companies tightened their budgets in response to low energy prices and global uncertainty.
Natural gas drilling throughout North America slowed to a standstill from 2015 to 2016. Despite the short term doom, many natural gas producers knew that the oversupplies of natural gas would drop once US economy recovered and domestic demand picked up .
The return of colder weather this winter has brought further depletion of US working gas stockpiles; presently, stockpiles have fallen below the five year average. Slower development of US shale natural gas reserves has helped curb oversupplies. Should oil prices recover, rig availability may further hamper natural gas development in northeastern US and keep supplies of natural gas tight in that region.
Canadian natural gas stalwarts like Canadian Natural Resources, Devon Energy Corporation, EnCana and Penn West Exploration have witnessed budget restraints due to low energy prices. Stalwarts, such as EnCana, have laid-off significant numbers of their workers and proceeded in the same direction as Devon Energy and Penn West, the three have liquidated some of their most promising natural gas assets.
Other companies, who were more optimistic, budgeted accordingly and took advantage of the situation. Natural gas properties were attained at bargain prices. Canadian Natural Resources Limited is one that has taken over the lead. During the past two years, this company has drilled over 12,000 natural gas wells in western Canada.
While size of a company may help sustain it through the tough times, some smaller companies have made significant strides. Painted Pony Petroleum, who prior to the oil price downturn sold their valued oil properties, and turned their resources to acquire vast properties in northeastern British Columbia. This company has shown that sound management is the key to being successful.
Energy investors should be aware of the developments occurring globally. Political changes throughout the world may hasten change. Should crude oil prices stay low, rising natural gas prices may stall in the range of $3.00 to $3.50/MMBtu. Should oil prices rise, natural gas prices may spike at $5/MMBtu or even high should demand rise.
There is growing optimism amongst natural gas producers. Asian rim markets are looking very good and may be the key to a rise in natural gas exports. China has shown a strong interest in converting from coal to natural gas. The Chinese government has realized that it can no longer set aside the problems created by carbon emissions and pollution.
Vigilant natural gas producers have realized that China alone could change the direction of natural gas demand and supply. Natural gas industry is truly entering a new and golden era.
By Jim Klemchuk
Interesting natural gas facts:
Canada’s first offshore natural gas well was drilled on Lake Erie during the winter months in 1913. Modern commercial offshore production began in the 1960’s and approximately 2,000 wells have been drilled in the lake's Canadian waters. Oil well development is now prohibited in the Great Lakes area.
Natural gas sources have been found in all provinces and territories of Canada. The largest reserves are in British Columbia, Alberta and Saskatchewan. Some studies suggest that the North West Territories and the province of Quebec may be sitting on huge untapped shale gas reserves as well.
Natural gas has become extremely popular as a major source of energy. Natural gas is an attractive fuel because it is clean burning and efficient. Natural gas is the gas component of coal and oil formation.
Natural gas contains valuable organic elements that are very important raw materials in the chemical industry. Natural gas is used for manufacturing a very large variety of plastics, chemicals and dyes. It is also a very clean, efficient and inexpensive fuel for internal combustion engines.
Natural gas contains valuable organic elements that are very important raw materials in manufacturing agricultural fertilizers and medicinal drugs.
‘Shouts & Toots’ from the Oil Patch
AltaGas Ltd. ( ALS:TSX) announced on February 24th that its audited Consolidated Financial Statements and accompanying notes for the year ended December 31, 2016, as well as the related Management's Discussion and Analysis, are now available online at: http://altagas.ca/invest/financials. All documents have been filed with the Canadian securities regulatory authorities and are posted under AltaGas' SEDAR profile at www.sedar.com.
Summary year-end disclosure was provided today in the fourth quarter and year-end news release. There was also a conference call held. The webcast replay is now available at http://altagas.ca/invest/events-and-presentations.
AltaGas is a Calgary based company in energy infrastructure business with a focus on natural gas, power and regulated utilities. Company has a market cap of $5.2 billion and approximately 167 million shares outstanding.
Altura Energy Inc. ( ATU:TSXV) announced on February 24th the results of the independent evaluation of the Company's oil and natural gas reserves, effective December 31, 2016, as prepared by McDaniel and Associates Consultants Ltd.
Altura's activity in 2016 included drilling 7 (6.5 net) horizontal wells, including 3 (3.0 net) in the Eyehill area, 2 (1.5 net) in the Wildmere area, one (1.0 net) in the Leduc-Woodbend area, and one (1.0 net) in the Provost area. Company reported that its proved developed producing reserves increased by 153 percent from 434 mboe to 1,099 mboe. Total proved ("1P") reserves increased by 151 percent from 725 mboe to 1,821 mboe. Total proved and probable ("2P") reserves increased by 135 percent from 1,362 mboe to 3,195 mboe.
Altura's audit of its 2016 annual financial statements is not yet complete and accordingly all financial amounts referred to in this news release are unaudited and represent management's estimates. Readers are advised that these financial estimates are subject to audit and may be subject to change as a result.
Altura Energy Inc. is a Calgary based oil and gas company active in the exploration and development of oil and natural gas in east central Alberta. Company has a market cap of $
Husky Energy Inc. (HSE:TSX) announced on February 24th its fourth quarter results. Funds from operations (previously described as cash flow from operations) was $670 million, compared to $640 million in the fourth quarter of 2015, and included a pre-tax FIFO gain of $39 million. This did not take into account $23 million in cash received as pre-payment for future gas volumes at Liwan.
Company reported that net earnings were approximately $186 million, compared to a loss of $69 million in the fourth quarter of 2015, and included one-time items associated with the Western Canada asset sales and a net impairment reversal of $202 million. Excluding one-time items, adjusted net earnings were a loss of $6 million.
Upstream production was 327,000 boe/day, compared to 357,000 boe/day in the fourth quarter of 2015. This reflected the asset dispositions in Western Canada, natural declines and planned turnarounds, partially offset by growing thermal production and increased volumes from the Liwan Gas Project.
Net thermal production was 120,000 barrels per day at the end of December, 2016. This included Lloyd thermal projects, the Tucker Thermal Project and the Sunrise Energy Project. Net production from these projects over the fourth quarter averaged 115,300 bbls/day, an increase of 46 percent over the same period in 2015.
Copies of the AIF, audited consolidated financial statements and related Management's Discussion and Analysis may be accessed at www.sedar.com. Copies of the Annual Report on Form 40-F may be accessed at www.sec.gov. Both the Canadian and U.S. disclosure documents may also be accessed on Husky's website at www.huskyenergy.com
Husky Energy is one of Canada's largest integrated energy companies. It is headquartered in Calgary, Alberta. Company has a market cap of $16 billion and approximately 1.0 billion shares outstanding.
Enerplus Corporation ( ERF:TSX) announced on February 24th its fourth quarter results. Company reported that it generated fourth quarter 2016 adjusted funds flow of $107.7 million, an increase of 34% from the previous quarter as a result of stronger commodity prices in the fourth quarter. The Company generated full year 2016 adjusted funds flow of $305.6 million, down 38% from the comparable 2015 period due to lower average commodity prices and lower hedging gains in 2016.
Company reported fourth quarter 2016 net income of $840.3 million, or $3.43 per diluted share. Net income was impacted by a gain on the sale of the Company's non-operated North Dakota properties of $339.4 million, and a non-cash deferred tax recovery of $567.8 million primarily as a result of the reversal of a portion of the valuation allowance on the Company's deferred tax asset. For the year ended December 31, 2016, Enerplus reported net income of $397.4 million, or $1.72 per diluted share,
Electronic copies of company's 2016 year-end MD&A and Financial Statements, along with other public information including investor presentations, are available on our website at www.enerplus.com. For further information, please contact Investor Relations at 1-800-319-6462 or email email@example.com.
Enerplus Corporation is a Calgary based oil and gas company with operations in Canada and US. Company has a market cap of $2.8 billion and approximately 240 million shares outstanding.
Newalta Corporation ( NAL:TSX) announced on February 23rd results for the three and twelve months ended December 31, 2016. The consolidated financial statements and MD&A, which contain additional notes and disclosures, are available on SEDAR at www.sedar.com or company's website at www.newalta.com under Investor Relations/Financial Reports.
Management will hold a conference call on February 24, 2017 at 11:00 a.m. (ET) to discuss Newalta's performance for the quarter. To participate in the teleconference, please call 647-427-7450 or toll free 1-888-231-8191. To access the simultaneous webcast, please visit www.newalta.com. For those unable to listen to the live call, a taped broadcast will be available at www.newalta.com and, until midnight on Friday, March 3, 2017 by dialing 855-859-2056 and using the pass code 60570847.
Newalta is a leading provider of innovative engineered environmental solutions that enable customers to reduce disposal, enhance recycling and recover valuable resources from oil and gas exploration and production waste streams. Company is based in Calgary. Newalta has a market cap of $216 million and approximately 88 million shares outstanding.
Pembina Pipeline Corporation ( PPL:TSX) announced on February 24th its fourth quarter results. Company reported it generated earnings of $466 million in 2016, a 15 percent increase over the prior year; adjusted EBITDA was $1,189 million during 2016, 21 percent higher than 2015; cash flow from operating activities was $1,077 million for 2016 compared to $801 million for 2015, an increase of 34 percent on an annual basis.
Pembina's $2.4 billion Phase III Expansion is over 60 percent complete and construction continues on the largest section of the project between Fox Creek, Alberta and Namao, Alberta. The project continues to track under budget and on-schedule for a mid-2017 in-service date. Overall construction of the Company's third fractionator at Redwater is 90 percent complete. The project, which continues to trend on-budget, is expected to be completed early in the third quarter of 2017.
A live webcast of the conference call can be accessed on Pembina's website at pembina.com under Investor Centre, Presentation & Events.
Pembina Pipeline Corporation is a Calgary based transportation and midstream service provider that has been serving North America's energy industry for over 60 years. Company has a market cap of $17 billion and approximately 397 million shares outstanding.
Questerre Energy Corporation ( QEC:TSX) announced on February 24th its fourth quarter 2016 results and preliminary financial and operating results for the year ended December 31, 2016. Annual Information Form and other documents available at www.sedar.com.
Company also reported on the status of its credit facility review that was conducted in the fourth quarter of 2016. The lender has advised that the primary credit facility will be renewed at $23 million from $25 million. The facility will include a $22.9 million revolving operating demand facility.
Questerre Energy Corp is a Calgary based company engaged in the acquisition, exploration and development of oil and gas projects. Company holds assets in Alberta, Saskatchewan, Manitoba, Quebec Canada and in Utah in the United States. Questerre Energy has a market cap of $273 million and approximately 337 million shares outstanding.
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“Don’t grumble because you don’t have what you want. Be thankful you don’t have what you deserve.”
Quotes are directly taken from a book entitled, ‘Phrase A Day Inspirations’, written by Bernie Shimko.
Did you know?
From the 1850's to the 1930's, most of Canada’s crude oil and natural gas wells were drilled with a primitive device called a cable-tool rig. The heavy, chisel-like bit was suspended on a cable and dropped repeatedly into the bottom of the well hole. This procedure was very slow and involved much time and effort. Often, it would take almost a month of work to advance several hundred feet.
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$ / liter
WCS / WTI
Price Spread -$14.10
February 24, 2017
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