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Financings, rigs indicate better days
Gary Park For Petroleum News
Canadian-based exploration and production companies have raised C$8 billion in debt and equity capital in the past four months — a telling sign for one analyst that the industry is crawling out of the ditch.
Jeff Fetterley, with CIBC World Markets, told a petroleum services group that rebuilding activity in the Western Canada Sedimentary basin and the financings are evidence of a bottoming-out in the downturn, with a modest rebound likely for the balance of 2009 and into 2010.
CIBC data showed that from July 20 to Oct. 20, the average amount raised from 39 issues was C$88.6 million, compared with 14 issues averaging C$45.9 million over the same period last year and 27 issues averaging C$82 million in 2007.
Roman Dubczak, head of equity capital markets for CIBC, said it is accurate to describe the latest business as a surge, although, on a relative basis, it is catch-up from 2008 and early 2009
Debt, M&A first Fetterley said the bulk of new capital will be allocated over the near term to debt reduction, debt retirements and merger and acquisition opportunities, although CIBC is ultimately confident the E&P sector is gearing up for increased spending in 2010.
He predicted the natural gas supply and demand balance will improve over the next few months as shrinking production and improving economic conditions usher in some gains in gas prices.
Fetterley said gas markets now support a price of about C$6 per thousand cubic feet at the AECO hub in 2010, moving closer to C$7 through the year.
Based on that forecast and CIBC’s expected average West Texas Intermediate price of US$80 per barrel through next year, capital spending should rise by about C$10 billion to C$38.6 billion, while the average active rig count is projected at 294 from a total fleet of 831 for an average utilization rate of 35.5 percent, compared with this year’s expected average 204 at a rate of 23.9 percent.
CIBC is counting on a 43.9 percent utilization rate in a fleet of 486 rigs, compared with this year’s 38.6 percent.
Well completions are predicted to total 13,400, up from this year’s 9,900, while 11,900 wells will be drilled, an increase of 3,600 from 2009, CIBC said.
Third-quarter rig count up Bolstering the overall mood, CIBC reports that the rig count over the third quarter rose to 231 on September 30 from 156 and continued that rise to 270 drilling rigs in the first week of November.
Fetterley said CIBC believes the rig count will improve from a third-quarter average of less than 200 to 250 in the current quarter and slightly above 300 in the first quarter of 2010.
Chris Theal, managing director of oil and gas research at Macquarie Capital Markets Canada, said recent equity financing success should flow to more drilling and production, which should, in turn, support share prices and access to capital down the road.
He also expects there will be some impact on mergers and acquisitions and “some consolidation at the smaller end of the market.”
Gary Leach, executive director of the Small Explorers and Producers Association of Canada, said some early strengthening of gas prices and an easing of the global economic uncertainty is creating a feeling in the junior- and mid-cap sector, which counts heavily on external financing, that the worst may be over.
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