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Duvernay Oil gives gas a chance Intermediate E&P bucks spending trend with 22% hike in gas program for 2007, but majors remain in wait-and-see stance Gary Park For Petroleum News
Duvernay Oil, an intermediate E&P company, is either on its own or leading the pack in pulling Western Canada out of its natural gas slump.
The Calgary-based company, which produced almost 21,000 barrels of oil equivalent per day in the first quarter (including 112 million cubic feet of gas, up 38 percent from a year earlier), has boosted its 2007 capital budget by C$80 million to C$450 million.
Not necessarily earth shaking and not enough to turn the tide, but any hike in spending on gas these days is an attention grabber.
But the big producers — EnCana, Canadian Natural Resources and Talisman Energy — have yet to show any interest in reviving their gas programs, despite reports that drilling costs are at a four-year level and analysts are predicting a bump in gas prices this year to US$9 per million British thermal units from the current level of about US$7.80.
The latest signal from the majors came from ConocoPhillips which cut its programs in the Western Canada Sedimentary basin to US$800 million from US$1.4 billion in 2006, part of an overall pullback of C$3 billion for the year.
Increase for land, work on gas properties Duvernay Chief Executive Officer Mike Rose said his firm’s 22 percent boost in spending is earmarked to bulk up on exploration land and accelerate work on existing gas properties covering 96,000 acres.
In conjunction with the expansion, Duvernay has entered into a bought-deal financing with a syndicate of nine underwriters offering 1.5 million common shares for gross proceeds of C$60.52 million.
Rose said this is a time for Duvernay to take advantage of developments in its gas areas along with the fact that it has a “significant number” of rigs under contract and access to other services.
He said his company shares a widely held view that gas prices will rebound in the fall and winter, which could also result in higher drilling and service costs.
Analyst: Nymex gas to top US$9 FirstEnergy Capital provided some supporting ammunition, predicting New York Mercantile Exchange gas prices will top US$9 per million Btu in the fourth quarter, partly because of the scaling back of activity in Canada.
However, Martin Pelletier, an analyst with Blackmont Capital, observes that few junior and intermediate companies are in the same strong financial position as Duvernay to raise funds or increase spending now with an eye on returns in the upcoming winter.
Although Duvernay’s decision supports a positive trend, the industry is a long way from being able to recapture the hectic gas activity pace of 18 months ago, he said.
Stephen Calderwood, an analyst with Raymond James, suggested Duvernay also has a “more flexible timeline” than major players such as EnCana.
New gas well permits dropping For now, the numbers paint a less than rosy picture, with new gas well permits in Alberta, British Columbia and Saskatchewan last month at a mere 509, compared with 1,163 a year earlier and 1,332 in April 2005, while gas well completions for the first four months were at 5,609, a drop of 7 percent from 2006, including a 23 percent slump in gas exploration wells to 1,252.
Overall well licenses for the three provinces totaled 8,043 for the January-April period, almost matching 2003 and 2005, but lagging last year’s count by 26 percent.
Saskatchewan was the only encouraging spot, posting increases in oil permits to 804 from 773 last year and a modest gain to 398 from 385 gas permits.
Alberta accounted for 6,356 of the permits, slumping from 9,166 at the same time last year, with only crude bitumen permits showing an increase at 571 vs. 545. Coalbed methane took a hammering, dropping to 423 from 891, while conventional gas exploration took a dive to 2,583 from 4,881. Conventional oil approvals declined to 678 from 785.
British Columbia also got caught in the backwash, seeing its well total drop to 269 from 424.
The leading operators were EnCana 1,341 permits, Husky Energy 381, Canadian Natural Resources 297, EOG Resources Canada 267 and Petro-Canada 194.
In the well-completion category, exploration fell 23 percent to 1,252 from 1,624, but development drilling dipped only 1.6 percent to 4,357 wells.
Wells spudded in the opening four months declined 23 percent to 6,015 from last year’s record pace, with April reflecting the usual spring thaw, tallying 181, off 35 percent.
The breakdown of completions was led by Alberta at 1,174, followed by Saskatchewan 650, Manitoba 93 and British Columbia, surprisingly behind Manitoba, at 19.
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