Time to get gassy?
Why Canaccord Financial sees better days ahead for some Alberta natural gas producers
When he was younger, Max Fawcett wanted to make a mint in the markets. Now as the managing editor of Alberta Venture he gets to write about them. Close enough, right? He can be reached at firstname.lastname@example.org
by Max Fawcett
That’s what Canaccord Financial’s Russell Dratwa seems to think. In his latest weekly market commentary, Dratwa suggests that Chevron’s decision to take a leadership role in the push to build out LNG export capacity in Kitimat is good news for the province’s long-suffering natural gas producers. Earlier in the year, of course, the company bought out the interests that EOG resources and Encana had in the Kitimat LNG project, making it a 50 per cent owner along with Apache. That means it controls 50 per cent of the proposed Pacific Trail Pipeline, and 50 per cent of the land that the two companies had accumulated in the region.
A final decision from the company is still as long as two years away, but the fact that it’s gone on what Dratwa describes as a “hiring spree” and opened a government relations office in Vancouver suggests that the company is leaning towards pulling the trigger. That’s good news for a mega-project – indeed, a mega-industry – that’s been cast in doubt of late. “While the West Coast Canada projects struggle with higher infrastructure costs, namely pipelines to tap Montney and Liard Basin gas reserves, the Gulf Coast project are burdened with the sheer distance they are away from their customers and the dramatically higher shipper costs that result,” Dratwa writes.
One company in particular that stands to benefit from Chevron’s decisiveness is Painted Pony Petroleum (CVE:PPY). “Canaccord Genuity highlights PPY is one of the best positioned intermediate players to benefit from future LNG-related consolidation of gas resources given its strong position within the north east B.C. Montney play which is geographically and geologically favorable for LNG export. PPY controls 190 net sections of land with one trillion cubic feet of booked reserves and three trillion cubic feet of contingent resources with only 50 per cent of its land base assessed. PPY [also] benefits from its highly contiguous acreage strategically placed along existing pipeline routes.” Canaccord has a $15 price target on its shares, a nearly 100 per cent premium on today’s prices. “PPY is one of Canaccord Genuity Oil & Gas Analyst Anthony Petrucci’s favorite names in the Junior E&P space, as he believes it offers enormous resource potential with a path to value realization,” Dratwa writes. “Furthermore, in his view, strong production figures through the back half of the year have the potential to be a material catalyst for the stock.”
And while Canaccord singles out Painted Pony as one of its favourites, it says that the entire sector might be due for a bounce due to seasonal and technical trends. “Our analysis suggests that gas stocks as a group retreat during the seasonal widening/bottoming in AECO, and in most time periods, regain as much or more of the lost performance during the narrowing period in AECO (typically in August, September and early October),” Dratwa writes. “In each of the time periods studied in 2009, 2010, and 2012, the stocks posted positive performance on average from late August through October. Given that the average gas weighted stock included in our analysis is down by seven per cent since July 10, we see the potential for a rebound.”