[Premium] High Oil Prices Boost Some, Not All, Small Gas Players
Today's high oil prices have rescued some of the small to medium cap producers, less able to survive the lean times than the diversified and well-resourced and financed international oil companies.
But location is also important, as reserves in countries with predictable fiscal terms also provide some useful comfort for gas, which has enough other problems to wrestle with.
Addressing the '121' oil and gas investment conference in Hong Kong May 2, New Zealand-focused onshore-focused TAG Oil boasted a breakeven price of $34/b Brent crude, including all the general and administration costs. The fact that gas prices are trending higher in New Zealand also helped, said CEO Toby Pierce. Its licences are also all onshore, and therefore unaffected by the government's plan to stop issuing new offshore licences, which showed how even OECD countries have the capacity to shock investors. TAG is planning to step out into the Surat Basin, a 'Permian' oil play in Australia, but not to change its policy of high working interests and operatorship of all assets, to maintain operational and financial flexibility.
Other companies for whom the location of reserves is critical for different reasons are Real Energy and Calima Energy. For the former, having production close to Santos' gas processing facilities and pipelines is an important part of its Australian Cooper Basin projects, where it has drilled two wells – Tamarama 1 & 2 – and expects to drill a third later this month. Being close also to Australia's east coast is also beneficial to the project's economics, as gas prices there have been high, around A$8-12/GJ. If the second two wells match the first in production terms, the company could drill six more to produce 20 terajoules/day (about 20mn ft³/d) of gas and move later to full field development of 100 TJ/d.
Calima Energy, by contrast, has assets in the Montney Basin, in western Canada, a siltstone rather than shale province, which it believes are profitable even at today's low prices. It acquired acreage very cheaply early on – paying a fraction of the market value today – and it is expecting strong production based on seismic analysis and actual results from the analagous and adjacent Saguaro Resources acreage which is "doing very well," according to Calima's CEO Alan Stein. "We got in early at a competitive price," he said. About a quarter of the output in energy terms is liquids: that drives the project, and future sales of acreage will provide more revenue. Being where it is, the gas needs a higher price to be profitable, as there is not enough demand nearby. The AECO hub has even seen negative prices in recent years.
However, taking the gas further afield would create value for it, he told NGW. At the moment it is a by-product of condensates. Taking it to the northeast coast for liquefaction, or to the west coast, could also work, theoretically. A few companies have shelved their British Columbia liquefaction plans lately, but Shell's LNG Canada has just awarded an EPC contract and could take a final investment decision this year. Chevron is also working on a project that could take off too, he said. There are also several liquefaction projects planned for northeast Canada, but again, no FID has been taken. "The dynamics of the gas market are constrained by infrastructure," he said.
Other companies rely heavily on hiring relevant expertise: Renaissance is focused on Mexican oil and gas, and has assembled a four-strong team of Mitchell Energy that "cracked the code" of the Barnett shale gas, triggering what was to become the shale revolution. Its eye is on the shale oil production in the Tampico-Misantla basin, for which it announced March 5 a C$11+mn (US$8.6mn) private placement.