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Gas sector in full swing
Head scratching over 107-year contracts shippers have signed with TransCanada
Gary Park Petroleum News
Those pondering the long-term security of investing in Canada’s natural gas industry are trying to solve two unexpected developments.
First, the shipping giant TransCanada has disclosed that the average contract term in its latest bidding open season was 107 years - a four-fold increase over similar contracts signed in the first three months of 2018.
Second, ConocoPhillips, after shedding the bulk of its oil sands stakes last year, has since unloaded land in the Texas Permian basin for US$250 million, almost half of which has been spent on acquiring 35,000 acres of land in the Montney gas and liquids play in northern British Columbia and Alberta.
That coincided with a forecast by the ARC Energy Research Institute that C$30 billion will be invested in conventional and tight oil and gas formations in Canada this year, compared with only C$12 billion in the oil sands.
Gas contracts TransCanada’s unheard-of gas contracts are cloaked in secrecy short of the company informing its clients that the successful open-season bids covered shipments of 260 million cubic feet per day on the Nova Gas Transmission system to an export point at Empress, Alberta, for eventual delivery to Canada’s largest consuming markets in Ontario and Quebec.
Access to Empress has been expanded over the last year following accusations by Alberta shippers that TransCanada was to blame for volatile Alberta benchmark prices in the second half of 2017.
A company spokesman told the Financial Post that the 107-year contracts are the “longest contracts presently on the (Nova) system.”
He said the signed contracts demonstrate the “high value shippers placed on having firm transportation access to the Nova system.”
For outside observers the deals are a source of mystery at a time when so many LNG export ventures have stalled and none have entered the construction phase.
Jeremy McCrea, an analyst with Raymond James, said he did not understanding how a business could be run on such a long-time horizon.
Gas producers have been left to speculate on who among their peers or utility companies have struck the deals.
But they did point out that shippers needing pipeline capacity will often bid for terms longer than 30 years, noting that bids are tied to volumes, not prices, because Canada’s National Energy Board regulates the tolls to move gas.
Some believe producers may be inclined to resort to “irrational” shipping terms to overcome the difficulties they sometimes experience in trying to secure space on pipelines.
Montney, Duvernay moves ConocoPhillips’ move into the Montney contrasts with sales of Canadian assets over recent years by BP, Total and Shell, while Imperial Oil and its parent company ExxonMobil have put for sale signs on their Horn River gas properties in northeastern British Columbia, hoping to conclude deals by late May for 228,000 acres, eight producing wells and a gas processing facility.
Analysts believe that ConocoPhillips has simply seized on a “buy low” opportunity at a time when Permian assets are fetching strong prices, but the Houston-based company was offering no clues.
Calgary-based Crescent Point Energy also confirmed it is assembling a land portfolio in the Duvernay formation of northern Alberta, spending C$112 million to buy 335,000 acres with deposits of light oil, natural gas and liquids such as butane, propane and pentane.
Thomas Matthews, an analyst with AltaCorp Capital, said the holding “has the potential to rival any of the large oil plays in Western Canada,” suggesting that companies need the big stakes if they are to meaningfully raise production.
Other gas-processing deals announced in April involve Encana and Keyera and Birchcliff Energy with AltaGas, freeing producers to drill more wells targeting high-value gas liquids and associated gas in the Montney and Duvernay.
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