Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Dow Stock Market Dow Trend Forecast Current State - 22nd Apr 21
Gold Rebounds Amid Positive Economic Reports - 22nd Apr 21
China's record first quarter fuels strong expansion in 2021 - 22nd Apr 21
Gold Price Next Key Level - 22nd Apr 21
Here's What to Look For When Hiring a Real Estate Agent - 22nd Apr 21
Ethereum EIP 1559 and Raven Coin - 21st Apr 21
Gold, USDX: The Board is Set, the Pieces are Moving - 21st Apr 21
World Economies Need to Find a Lot More COPPER! - 21st Apr 21
DogeCoin CRASH! Time to Start Mining BOODGIE Coin! Crypto Mania 2021 - 21st Apr 21
Pausing Stocks and Gold Fireworks - 21st Apr 21
Precious Metals and Miners Start of New Longer-Term Bullish Trend - P2 - 21st Apr 21
Looking For A Mortgage Broker? Here Is How To Hire One - 21st Apr 21
Amazon AMZN Stock PRIMEDAY SALE! Trend Analysis - 20th Apr 21
Stock Market Sentiment Speaks: You May Not Believe My 2021 Targets - 20th Apr 21
Stock Market Phase Two Projection - 20th Apr 21
Are Precious Metals & Miners Starting A New Longer-Term Bullish Trend? - 20th Apr 21
Inflation: First the Gain, Then the Pain… - 20th Apr 21
8 Stock Market Indicators in 1: Here's the Message of the Panic/Euphoria Model - 19th Apr 21
Gold - You Can Win a Battle, but Still Lose the War - 19th Apr 21
Will Interest Rates Rally Further Push Gold Price Down? - 19th Apr 21
Gold Fireworks Doubt the Official Inflation Story - 19th Apr 21
YuanPay Team Discuss The Process Of Crypto Diversification - 19th Apr 21
Central Banks May Ramp Up Gold Buying - 18th Apr 21
How to Get Rid of Driveway Weeds With Just WATER! 6 Months later NO Weeds, Ultimate Killer! - 18th Apr 21
State of the European Markets - DAX, FTSE, CAC, AEX, SMI, IBEX 35, S&P/MIB, Euro Stoxx 50, RTS - 18th Apr 21
Einvestment Fund: What You Need To Know About Investments - 18th Apr 21
Google Alphabet (GOOG) AI Deep Mind Stock Trend Analysis - 17th Apr 21
Stocks and Bonds Inflationary Slingshot - 17th Apr 21
Best Smartphone Selfie Stick Tripod Review by ATUMTEK Works with Samsung Galaxy and Iphone - 17th Apr 21
How to Give Budgie's First Bath | Easy Budgie Bathing and Water Training with Lettuce - 17th Apr 21
Record-breaking Decrease in New Passenger Vehicle Sale in Europe - 17th Apr 21
US Stocks Climb A “Wall Of Worry” To New Highs - 16th Apr 21
Gold’s Singular Role - 16th Apr 21
See what Anatomy of a Bursting Market Bubble looks like - 16th Apr 21
Many Stock Market Sectors Are Primed For Another Breakout Rally – Are You? - 16th Apr 21
What Skyrocketing US Home Prices Say About Inflation - 16th Apr 21
Still a Bullish Fever in Stocks? - 16th Apr 21
Trying to Buy Coinbase Stock on IPO Day - Institutional Investors Freeze out Retail Investors - 15th Apr 21
Stocks or Gold – Which Is in the Catbird Seat? - 15th Apr 21
Time For A Stock Market Melt-Up - 15th Apr 21
Stocks Bull Market Progression Now Shows Base Metal Strength - 15th Apr 21
AI Tech Stocks Buy Ratings, Levels and Valuations - 14th Apr 21
Easy 10% to 15% Overclock for 5600x, 5900x, 5950x Using AMD Ryzen Master Precision Boost Overdrive - 14th Apr 21
The Current Cannabis Sector Rally Is Pointing To Another Breakout - 14th Apr 21
U.S. Dollar Junk Bond Market The Easiest Money in History - 14th Apr 21
The SPY Is Nearing Resistance @ $410… What Is Next? - 14th Apr 21
The Curious Stock Market Staircase Rally - 14th Apr 21
Stocks are Heating Up - 14th Apr 21
Two Methods in Calculating For R&D Tax Credits - 14th Apr 21
Stock Market Minor Correction Due - 13th Apr 21
How to Feed Budgies Cucumbers - Best Vegetables Feeding for the First Time, Parakeet Care UK - 13th Apr 21
Biggest Inflation Threat in 40 Years Looms over Markets - 13th Apr 21
How to Get Rich with the Pareto Distribution - Tesco Example - 13th Apr 21
Litecoin and Bitcoin-Which Is Better? - 13th Apr 21
The Major Advantages Of Getting Your PhD Online - 12th Apr 21
Covid-19 Pandemic Current State for UK, US, Europe, Brazil Vaccinations vs Lockdown's Third Wave - 12th Apr 21
Why These Stock Market Indicators Should Grab Your Full Attention - 12th Apr 21
Rising Debt Means a Weaker US Dollar - 12th Apr 21
Another Gold Stocks Upleg - 12th Apr 21
AMD The ZEN Tech Stock - 12th Apr 21
Overclockers UK Build Quality - Why Glue Fan to CPU Heat sink Instead of Using Supplied Clips? - 12th Apr 21 -
What are the Key Capabilities You Should Look for in Fleet Management Software? - 12th Apr 21
What Is Bitcoin Gold? - 12th Apr 21
UK Covd-19 FREE Lateral Flow Self Testing Kits How Use for the First Time at Home - 10th Apr 21
NVIDIA Stock ARMED and Dangeorus! - 10th Apr 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

The “Richest” Natural Gas Stocks Now Made Public

Commodities / Natural Gas Jun 15, 2010 - 06:34 PM GMT

By: Keith_Schaefer

Commodities

Best Financial Markets Analysis ArticleA group of natural gas producers in North America are discovering the secret sauce to profits, and as a result many of them are outperforming their peers.

It’s called “wet gas” or “liquid rich gas” or “natural gas liquids” or “NGL”, but any way you spell it, you get better cash flow than just regular “dry” gas.  (Dry gas is methane.)


The market is now catching on to how much these NGLs improve cash flow, and they have been the first and biggest movers so far in the Canadian gas stocks.  Institutional investors are realizing they can buy big leverage to rising gas prices and still get good cash flow from current low prices, because of the added NGL content.

“At a natural gas price of $ 4.50 per million cubic feet (mmcf), I think it is fair to say that 40 barrels of liquids per mmcf improves revenue to $ 7/mmcf plus” an executive at one junior producer told me in a recent interview.

“And at 20 barrels per million, it’s almost $6 gas equivalent.  On operating income that’s an improvement of 40% for 20 bbl/MMcf and close to a double for 40 bbl/MMcf.”

All these economics depends on the reservoir(s), and can vary play to play, but in my talks with several management teams operating in Western Canada, the answer was the same.  Revenue increases 50% to 100%, and profit increases 75%-100% or more with NGL credits.

Peters & Co., an oil and gas boutique brokerage firm in Calgary, Canada, said in a May 31 2010 report that the average half cycle (read: operating cash) cost of producing gas over 27 plays in western Canada was $5/mmcf.  But every 10 barrels of liquids for every million cubic feet of gas (bbl/mmcf) lowered that cost by 40 cents/mmcf.

Several producers are getting 25-40 bbl/mmcf in western Canada, which means they are lowering their cash cost by $1.60 per mmcf produced.  The most prolific liquid rich gas producer in Canada that I could find had one play that was over 50% NGLs, with well over 120 bbl/mmcf.   It was a recent addition to the OGIB subscriber portfolio.

For many gas producers at these gas prices – across the entire US as well as Canada – that liquid rich content is the difference between no net cash flow, and profits.

“Liquids can be two-thirds of the value of a well,” the junior producer told me.  “It’s fair to say that the value created from the liquids rich wells can be as good as or better than Cardium oil wells.”  Energy analysts in Canada often have Cardium oil wells ranked #2 or #3 in profitability of all the oil plays in Canada, behind the Bakken.

So what are these liquids that are worth so much they greatly increase cash flow for gas producers?  The industry names them C2, C3, C4 and C5.  C1 is regular dry gas, or methane.  The “liquid rich” gases are:

  • C2  Ethane
  • C3  Propane
  • C4  Butane
  • C5  Condensate

C5, or condensate is worth the most of the four liquids.  It is close to gasoline in quality and often gets a premium over the world oil price. In Canada, it is mostly sold to heavy oil operators where it’s used as a diluents; diluting the heavy oil.

Propane is sold as winter heating fuel, and has very seasonal pricing.  Butane is sold to Edmonton refineries and is used for blending.  Its price is a percentage of oil and follows oil.

The prices of C2-C4 can vary a lot, but as a general rule of thumb producers will get roughly 60%-65% of the oil price for their basket of NGLs.  When natural gas is 1/16th the price of oil, that’s big money for these cash strapped gas producers.  A producer of just dry gas is likely having very low cash flow with these natural gas prices – in the US and Canada.

And the more condensate you have the more negotiating leverage you have with the gas plant to get better pricing on the C3-C4 which has weaker pricing. (The dance that producers have with pricing with gas plant operators and midstream gas carriers is a story unto itself.)

Not all plays have NGLs.  Most in Alberta and British Columbia are in what’s geologically called The Deep Basin.  If you drew a line from Calgary to Grande Prairie Alberta, most NGL plays would be just east of that line.  There are NGL plays up in the Peace River Arch area of north east British Columbia as well.

And the NGLs come from a certain group of organic matter, which was cooked at a certain temperature – not too hot, not too cold.

These NGL plays were recently made even more profitable as the Alberta government extended its new 5% royalty on these plays out for another year, and allowed the new lower royalties on drilling any deeper than 2000 metres – it used to 2500 metres.

While most NGLs are just below 2500 metres, this new announcement opens up the whole geological window for NGLs to lower royalties.  That’s another spice for the secret sauce.

About Oil & Gas Investments Bulletin

Keith Schaefer, Editor and Publisher of Oil & Gas Investments Bulletin, writes on oil and natural gas markets - and stocks - in a simple, easy to read manner. He uses research reports and trade magazines, interviews industry experts and executives to identify trends in the oil and gas industry - and writes about them in a public blog. He then finds investments that make money based on that information. Company information is shared only with Oil & Gas Investments subscribers in the Bulletin - they see what he’s buying, when he buys it, and why.

The Oil & Gas Investments Bulletin subscription service finds, researches and profiles growing oil and gas companies.  The Oil and Gas Investments Bulletin is a completely independent service, written to build subscriber loyalty. Companies do not pay in any way to be profiled. For more information about the Bulletin or to subscribe, please visit: www.oilandgas-investments.com.

Legal Disclaimer: Under no circumstances should any Oil and Gas Investments Bulletin material be construed as an offering of securities or investment advice. Readers should consult with his/her professional investment advisor regarding investments in securities referred to herein. It is our opinion that junior public oil and gas companies should be evaluated as speculative investments. The companies on which we focus are typically smaller, early stage, oil and gas producers. Such companies by nature carry a high level of risk. Keith Schaefer is not a registered investment dealer or advisor. No statement or expression of opinion, or any other matter herein, directly or indirectly, is an offer to buy or sell the securities mentioned, or the giving of investment advice. Oil and Gas Investments is a commercial enterprise whose revenue is solely derived from subscription fees. It has been designed to serve as a research portal for subscribers, who must rely on themselves or their investment advisors in determining the suitability of any investment decisions they wish to make. Keith Schaefer does not receive fees directly or indirectly in connection with any comments or opinions expressed in his reports. He bases his investment decisions based on his research, and will state in each instance the shares held by him in each company. The copyright in all material on this site is held or used by permission by us. The contents of this site are provided for informational purposes only and may not, in any form or by any means, be copied or reproduced, summarized, distributed, modified, transmitted, revised or commercially exploited without our prior written permission.

© 2010, Oil & Gas Investments Bulletin

Contact Us:
Email: nichola@oilandgas-investments.com
Customer Service: 1-877-844-8606
www.oilandgas-investments.com

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules