It’s the law of evolution in the oilpatch as well as the jungle: If you’re already big, it’s hard to get much bigger.
But if you’re a small critter compared to the bruisers, you’ve got growth potential.
The law of evolution, coupled with high oil and gas prices, is driving investors to the new kids in the ’patch – junior firms.
Calgary-based firms such as Centurion Energy International Inc., Niko Resources Ltd. and First Calgary Petroleums Ltd. have more than doubled their share prices in the last few years.
Other juniors drawing attention at last week’s Canadian Association of Petroleum Producers’ (CAPP) investment symposium include Inter-Oil Corp., Bow Valley Energy Ltd., Antrim Energy Inc., Rider Resources Ltd., Resolute Energy Inc. and Fairborne Energy Ltd. That’s by no means a comprehensive list.
Many of the small- to intermediate-sized players are hunting for oil and gas in foreign lands, because declining reserves in the Western Canadian Sedimentary Basin make ‘elephants,’ or big discoveries, rare.
Niko Resources, for example, has a 10-per-cent stake in India’s largest natural gas discovery – the huge D6 block off India’s east coast – that would initially flow at up to 500 million cubic feet a day.
Niko’s Indian partner, Reliance Industries Ltd., has filed a multibillion-dollar plan to develop the D6 find. The first phase would cost about $500 million.
Niko’s shares, which traded in June of 2000 for less than $10, have climbed 23 per cent since the start of the year.
Investors are impressed by companies that have both real growth as well as the potential for growth in their reserves.
And as long as commodity prices stay high enough to pay for drilling new wells, Niko and many other little guys have plenty of room to get bigger.
Great Expectations
There’s always an exception to the bigger-gets-harder evolutionary rule, and EnCana Corp. is it.
Canada’s largest oil and gas company, in its presentation at CAPP’s seminar, raised its estimated natural gas potential this year by 70 per cent to 16 trillion cubic feet and crude oil by 40 per cent to 850 million barrels. The company also expects 2004 sales to increase by 15 per cent, up from its previous forecast of 10 per cent.
A word of caution: Estimates of resource potential aren’t the same as proven reserves. They’re petroleum reservoir engineers’ best guesstimates.
Still, EnCana is enjoying success at using innovative drilling and production techniques to squeeze more gas from North American fields with known reserves, like in the U.S. Rockies. The company plans to spend at least $1.32 billion US – or nearly one-quarter of its 2004 budget – on its Wyoming and Colorado gas operations.
But not all the risks in energy development are below ground. Environmental groups south of the border are raising red flags about some of the methods industry uses to extract so-called “tight” gas from the U.S. Rockies.
Mark Smith, legislative representative for the National Wildlife Federation, says his group has “serious concerns” about some practices, such as hydraulic fracturing, that are used to open up the underground rock formations to produce unconventional gas.
Lawsuits by ‘green’ groups in the litigious U.S. are as common as pickup trucks on the prairies.
EnCana will need to be proactive in showing landowners, shareholders and investors that it can get bigger while still safeguarding the environment.
Oilpatch Jobs on Tap
The B.C. government is forecasting a jump in natural gas production that it hopes will translate into jobs for B.C. oilfield service companies – rather than those in Alberta.
The B.C. Ministry of Energy and Mines is predicting an eight-per-cent increase in gas production for the 2004-2005 drilling season.
Energy Minister Richard Neufeld says B.C.’s growing oil and gas service sector can compete with Alberta firms that service the booming northeast B.C. oilfields.
Five members of Premier Gordon Campbell’s cabinet, along with five B.C. mayors and 40 businesses in the province, attended an oil industry convention in Calgary earlier this month to drill that message home.
“B.C. has skilled service-industry contractors and sub-contractors onsite to do the surveying and drilling,” Neufeld says. “It makes economic sense to hire B.C. skills and labour when you’re working in B.C.”
The Petroleum Services Association of Canada forecasts that drilling activity in B.C. will increase by 27 per cent in 2004.
The provincial government expects 1,328 gas and oil wells to be drilled this year, up from 1,281 wells the previous year and 821 the year before that.
There’s no question the Campbell government’s strategy to increase oil and gas activity in the province is working. The industry is expected to invest $3.5 billion in northeastern B.C. this year.
The challenge now is to turn that investment into more jobs that stay in B.C.
Thumbs Up on Safety
Edmonton-based Katch Kan Limited has landed contracts with Nabors Drilling International Limited and Nabors Canada LP to supply their drilling fleets with equipment to protect rig crews.
Katch Kan’s tong handle guards protect the rig crew’s hands during normal operation of the tongs, used to handle finger-crushing drill pipe on the rig floor.
Katch Kan is a supplier of environment, health and safety equipment systems for the upstream petroleum industry.
“Hand injuries account for more than 30 per cent of rig floor-related injuries,” notes Quinn Holtby, the company’s president and CEO.
Nabors International, which operates in more than 20 countries, says it has adopted Katch Kan’s guards as an equipment standard.
Nabors Canada is planning to install the product on its entire 81-rig fleet. Hands on rig floors everywhere should salute the move.
Deh Cho No-Go
The cost of building the Mackenzie Valley natural gas pipeline is going up.
But the pricetag for the Arctic gas project will get even higher unless the industry and government accommodate the interests of key aboriginals.
Imperial Oil Limited, which is leading a gas producers’ consortium to build the massive project, says the costs will be higher than the most recent $5-billion estimate, although how much higher is anyone’s guess.
But the 4,500-member aboriginal group Deh Cho, which has never agreed to the project crossing their territory, is threatening to block the development unless it gets a seat on a multi-agency government environmental review panel. Providing them a voice on the panel would go a long way to gaining their trust.
