Tag Archives: Canadian Natural Resources Ltd.

CNRL sneaks to top Canadian natural gas spot with shopping spree

July 18, 2016 (Source: Globe & Mail) Canadian Natural Resources Ltd has quietly bought up about 12,000 natural gas wells across Alberta over the last two years, a Reuters analysis of regulatory data shows, becoming the country’s largest natural gas producer as rivals sold assets or held steady in a tough market.

The counter-cyclical shopping spree helped CNRL push its Alberta well count up 60 per cent between the end of 2013 and the end of 2015, building a dominant position in the province and overtaking Encana Corp to become Canada’s top producer.

The purchases – some for less than $1.00 per well – came as the company grappled with the biggest oil price slump in a generation, selling land to pay down debt. While CNRL has bought assets during previous downturns, it has never before acquired so many wells, so quickly. The expanded footprint not only increases production, but also gives the company a strategic advantage that will pay off for years to come if the natural gas market improves.

With an extensive network of wells and the gathering pipelines that connect them, it can turn a profit from wells that might lose money in the hands of a smaller producer.

“All these new wells have low production, but they were bought for pennies for the dollar,” said Ramond James analyst Chris Cox, noting the wells are in adjacent properties which offers cost synergies, and “if you are expecting pricing to improve then you get an additional uplift.”

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158 natural gas wells ordered shut down in Alberta

The Energy Resources Conservation Board (“ERCB”) of Alberta has ordered 158 natural gas wells which produce approximately 33 million cubic feet of gas per day, to be shut down pending a full investigation expected early next year. The board says continued production from the wells, about 100 kilometres northwest of Fort McMurray, could put future oil sands projects at risk.  The ERCB order, which is effective Oct. 31, affects wells licensed to Canadian Natural Resources Ltd (CNQ.TO), EnCana Corp (ECA.TO) and Paramount Energy Trust (PMT_u.TO).

According to the ERCB press release:

“Gas production from these wells may lead to a risk to bitumen recovery. The geological strata at issue contain natural gas that is in contact with potentially recoverable bitumen.”

The decision comes as a result of applications by Sunshine Oilsands Ltd and French oil major Total SA (TOTF.PA).

The ERCB has ordered similar shut-ins before stating the value of the oil sands to the province of Alberta is higher then the value of natural gas.  Back in 2004, the ERCB ordered 835 wells which were producing ~123 million cubic feet per day shut down after similar debates between natural gas producers and oil sands producers.

ERCB Press Release: ERCB Issues Interim Bitumen Conservation Decision

Natural gas prices… where are we going from here?

Natural gas prices look towards better days
Natural gas prices look towards better days

Natural gas prices have staged an impressive recovery, up nearly 30% this month to approximately $4.50 even though inventories remain near highs and industrial demand is down due to a deep recession. Some suggestions were that the main reason for the increase in prices this month was due to the United States Natural Gas Fund. However, some industry analysts believe this suggestion has been dramatically overstated. Though the fund may have contributed to appreciating prices, many point out that other factors have played their part and point out that total volume and open interest in natural gas futures are up sharply this month, and have broken through some key technical resistance points.

There seems to be some concensus in the market from analysts and industry players that prices will settle in between $6.00 to $8.00 by the end of the year. Back in mid March, a Bloomberg News survey of 20 analysts, natural gas prices will rise to US$7 per million British thermal units by January.

Just this week, Canadian Natural Resources Ltd. – the second-largest natural-gas producer in Canada – plans to drill 50% fewer gas wells this year than it did last year due to low prices for natural gas. In a recent interview, Steve Laut, Canadian Natural’s President and COO, stated the company drilled 280 natural gas wells in 2008. It has drilled 70 in the first quarter of 2009, and will only drill another 70 more this year. However, he added that the Company would ramp up drilling activity once prices stabilize about US$6 per million British thermal units and offered his own prediction that gas would settle between US$6-US$8 in early 2010.

At some point the decline in exploration, and the shutting in of existing production will start to impact the market. As stated here in the Horn River News an important lesson is that supply falls faster then demand when supplies are no longer being replenished at an appropriate rate. It is at this point that prices see strong appreciation, and acts as a catalyst for bringing production back on stream and ramping up drilling. Unfortunately, neither production being turned on or drilling activity happens over night.

Lastly, whether you believe we are seeing “green sprouts” or dandelions, the fact remains when the economy does start to turn to the positive industrial demand will begin to increase. If this increase – regardless of how big – occurs at the same time that supplies decline the price then will experience a significant potential spike. So the general consesus would seem to point towards $7.00 for natural gas.

It is for these very reasons that many industry players have been positioning themselves for the next energy cycle. As reported in Financial Post’s  article  The next big thing:

The resource play movement, however, is not only continuing, but changing the business. Outside the oil sands, of which all the good reserves are already owned, the biggest incremental supplies of the next cycle are expected to come from resource plays — oil and particularly shale gas –by using drilling advancements.

As the only natural gas play that has maintained or increased its level of activity, it would seem all roads are leading to the Horn River basin as the place industry players are positioning themselves for the next cycle.

Horn River leads another record breaking year for British Columbia’s Oil & Gas sector

British Columbia continues to see increased rig activity in Horn River basin

British Columbia continues to see increased rig activity in Horn River basin

British Columbia netted a record $2.4 billion in oil and gas land rights sales for the fiscal year 2008/09 – doubling last year’s old record of $1.2 billion. The renowned Horn River Basin and Montney shale formation areas in northeastern B.C. accounted for over  80 % of 08/09 sales with 190 land parcels totalling 247,227 hectares being sold which contributed over $1.9 billion collectively.

B.C. is the only significant jurisdiction in Canada and only one of two in North America that has seen oil and gas rig activity in January and February 2009 increase over the same period in 2008.

Blair Lekstrom, Energy, Mines and Petroleum Resources Minister stated today:

“The records shattered by the 2008-09 oil and gas land rights sales underscore the unprecedented growth of the B.C. energy sec. Investors recognize the oil and gas resource potential in B.C. evidenced by records like an incredible $33,649 per-hectare bid for a drilling licence. Projects such as the $187-million Sierra Yoyo Desan road upgrade and our royalty program incentives make B.C. a very attractive place to invest in oil and gas.”

Large Canadian firms EnCana Corp. (TSX:ECA), Nexen Inc. (TSX:NXY), Talisman Energy Inc. (TSX:TLM), Canadian Natural Resources Ltd. (TSX:CNQ), as well as Canadian juniors like Trivello Energy (TSX-V:TRV), Kodiak Energy (TSX-V:KDK), Result Energy (TSX-V:RTE) and others are all active in northeast B.C., as well as U.S. companies EOG Resources Inc. (NYSE:EOG) and Apache Corp. (NYSE:APA) and others.

The first sale for the 2009/10 fiscal  year is scheduled for April 22, offering 24 parcels (29,009 hectares).

In recent months the BC government has announced a $187 million investment into the infratructure of the Horn River basin; Encana announced the first $400 million of a multi-billion dollar gas plant near Fort Nelson and TransCanada a $340 million pipeline to carry Horn River gas to market.

The best years for the Horn River and Montney are ahead of us.

Talisman slashes Alberta drilling plans