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Canada CBM leader on wobbly perch Rumor has Trident Exploration, largest pure coalbed methane company, up for sale; EnCana, Nexen, Husky possible purchasers Gary Park For Petroleum News
The two-pronged dive in natural gas prices and rise in drilling costs over the last year, combined with a rising debt, could be about to topple a leader in Canada’s coalbed methane sector.
Downtown Calgary is abuzz with rumors that Trident Exploration, a unit of Texas-based Trident Resources, is up for sale and could quickly disappear into the EnCana fold.
But the largest pure coalbed methane company in Canada has been floundering lately, weighed down by a US$700 million debt, sideswiped by the slump in gas prices and caught up in internal ructions that culminated in the departure of founding Chief Executive Officer Jon Baker, who remains CEO of the parent company.
A pioneer in Alberta’s coalbed methane sector, Trident currently produces 95 million cubic feet per day, one-third from the emerging Manville formation in Alberta; has 865,000 acres of exploration holdings, of which 75 percent is awaiting development of more than 3,000 wells; and is the dominant landholder in the Corbett area, 100 miles northwest of Edmonton.
Minority shareholders working on restructuring debt While minority shareholders have been spearheading a bid to restructure debt and possibly replace the executive team, Trident has reportedly negotiated emergency financing of US$270 million at premium rates from one of its bankers, Credit Suisse Securities.
In a new report, Michael Wang, an analyst at John S. Herold, estimated Trident’s worth at US$900 million — US$300 million for proved reserves of 101 billion cubic feet and US$600 million for non-proved reserves.
Much of the company’s financial woes have been linked to hopes that an initial public offering, since dashed, would generate the cash needed to tackle expansion of coalbed methane production in the Mannville and Horseshoe Canyon plays.
Horseshoe Canyon is well-established as the main source of coalbed methane, having the advantage of dry coal seams, while Mannville, which could contain half of Canada’s estimated 600 trillion cubic feet of coalbed methane potential, produces substantial quantities of saline water along with the gas, making the extraction process more challenging.
EnCana, Canada’s largest coalbed methane producer at about 195 million cubic feet per day last year and targeting 270 million this year, is seen as an eager suitor, given that it spent C$160 million in 2005 for Mannville exploration lands.
The big independent has budgeted US$485 million for coalbed methane operating in 2007, including 915 wells.
Nexen, Husky possible suitors Other logical suitors could include Nexen, a joint venture partner in a C$400 million project to launch the first commercial production from the Mannville formation, and Husky Energy, which struck a joint venture with Trident in 2004 to drill 120 coalbed methane wells over two years.
Nexen Chief Executive Officer Charlie Fischer said in December his company is poised to exercise its right to serve notice on any wells that Trident is unable to finance after the struggle Trident had to arrange its US$270 million loan.
For others, coalbed methane is a source of some concern. Bob Merkley, president of the Petroleum Services Association of Canada, cautioned that “some of the small, specialized companies (in the service sector) that have developed around CBM will have trouble” in 2007 unless gas prices rebound.
Speaking to the Canadian Society of Petroleum Geologists in November, Mike Finn, Trident’s chief geologist, suggested smaller coalbed methane producers in Alberta should think about teaming up to assemble large land blocks and head off any moves by regulators to enforce more efficient removal of resources.
The high costs of shallow gas operations and the low returns have dramatically slowed the pace of coalbed methane drilling in southern Alberta over the past year, barely four years after Canada’s first commercial coalbed methane production.
Coalbed methane well permits crashed 23 percent in 2006 to 2,392 from a 2005 record of 3,106, ending for now industry hopes of reaching the 5,000 level in the near future and undermining optimistic forecasts that coalbed methane cold grow from 2 percent of Canada’s overall gas production to 27 percent as soon as 2014, according to one forecast by Ziff Energy Group.
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