HOME PAGE SUBSCRIPTIONS, Print Editions, Newsletter PRODUCTS READ THE PETROLEUM NEWS ARCHIVE! ADVERTISING INFORMATION EVENTS PAY HERE

Providing coverage of Alaska and northern Canada's oil and gas industry
October 2006

Vol. 11, No. 41 Week of October 08, 2006

Natural gas price slump threatens cash flows, pay-outs

Gary Park

For Petroleum News

The fallout from the lowest natural gas prices in recent years and bulging storage facilities has surfaced in the latest Canadian takeover.

Shiningbank Energy Income Fund landed Rider Resources for C$496 million, hooking 8,800 barrels of oil equivalent per day at C$56,000 per flowing barrel and adding 24.8 million boe of proved plus probable reserves at C$19.93 per boe.

That came only two months after Shiningbank forked over an average C$90,000 per boe when it bought Find Energy and other acquisitors have seen prices climb above C$100,000.

And compounding that trend, Shiningbank has shed 42 percent of its market value this year and is rated one of the trust sector’s worst performers by FirstEnergy Capital.

Unless there is a sudden, weather-induced turn-around in gas demand and a sharp depletion of storage levels, the outlook for gas-weighted trusts is shaky for the rest of 2006 and well into 2007, even though U.S. gas drilling patterns have yet to reflect the drop in commodity prices.

Prices may reduce cash distributions

CIBC World Markets has warned that the slump in gas prices could force at least three Canadian trusts — Advantage Energy Income Fund, Trilogy Energy Trust and True Energy Trust — to trim their cash distributions by 10, 15 and 25 percent respectively.

Analyst Mark Bridges said another half-dozen names are “on the bubble if things don’t get any better.”

In addition, he has trimmed his forecast of distribution increases for Bonterra Energy Income Trust, Focus Energy Trust, Peyto Energy Trust, Vermillion Energy Trust and Zargon Energy Trust.

Overall, CIBC is predicting an average 4 percent drop in 2007 based on its own assumptions that commodity prices will slip by 12 percent for oil and gas, with cash flows declining by an average 14 percent.

Calgary-based investment dealer Peters & Co. made a similarly gloomy forecast, suggesting the energy industry could take a C$12.6 billion hit in 2007 cash flows which could translate into a C$2 billion to C$2.5 billion reduction in capital spending on the conventional side.

Analysts say the gas supply glut is already forcing producers to take the axe to their drilling plans, although CIBC noted it would need only a 3 percent drop in U.S. gas output over the winter to wipe out the entire storage surplus.






Petroleum News - Phone: 1-907 522-9469
[email protected] --- https://www.petroleumnews.com ---
S U B S C R I B E

Copyright Petroleum Newspapers of Alaska, LLC (Petroleum News)(PNA)Š1999-2019 All rights reserved. The content of this article and website may not be copied, replaced, distributed, published, displayed or transferred in any form or by any means except with the prior written permission of Petroleum Newspapers of Alaska, LLC (Petroleum News)(PNA). Copyright infringement is a violation of federal law.