Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Inflation and the Crazy Crypto Markets - 23rd Oct 21
Easy PC Upgrades with Motherboard Combos - Overclockers UK Unboxing - MB, Memory and Ryzen 5600x CPU - 23rd Oct 21
Gold Mining Stocks Q3 2021 - 23rd Oct 21
Gold calmly continues cobbling its Handle, Miners lay in wait - 23rd Oct 21
US Economy Has Been in an Economic Depression Since 2008 - 22nd Oct 21
Extreme Ratios Point to Gold and Silver Price Readjustments - 22nd Oct 21
Bitcoin $100K or Ethereum $10K—which happens first? - 22nd Oct 21
This Isn’t Sci-Fi: How AI Is About To Disrupt This $11 Trillion Industry - 22nd Oct 21
Ravencoin RVN About to EXPLODE to NEW HIGHS! Last Chance to Buy Before it goes to the MOON! - 21st Oct 21
Stock Market Animal Spirits Returning - 21st Oct 21
Inflation Advances, and So Does Gold — Except That It Doesn’t - 21st Oct 21
Why A.I. Is About To Trigger The Next Great Medical Breakthrough - 21st Oct 21
Gold Price Slowly Going Nowhere - 20th Oct 21
Shocking Numbers Show Government Crowding Out Real Economy - 20th Oct 21
Crude Oil Is in the Fast Lane, But Where Is It Going? - 20th Oct 21
3 Tech Stocks That Could Change The World - 20th Oct 21
Best AI Tech Stocks ETF and Investment Trusts - 19th Oct 21
Gold Mining Stocks: Will Investors Dump the Laggards? - 19th Oct 21
The Most Exciting Medical Breakthrough Of The Decade? - 19th Oct 21
Prices Rising as New Dangers Point to Hard Assets - 19th Oct 21
It’s not just Copper; GYX indicated cyclical the whole time - 19th Oct 21
Chinese Tech Stocks CCP Paranoia, VIES - Variable Interest Entities - 19th Oct 21
Inflation Peaked Again, Right? - 19th Oct 21
Gold Stocks Bouncing Hard - 19th Oct 21
Stock Market New Intermediate Bottom Forming? - 19th Oct 21
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21
China / US Stock Markets Divergence - 10th Oct 21
Can US Save Taiwan From China? Taiwan Strait Naval Battle - PLA vs 7th Fleet War Game Simulation - 10th Oct 21
Gold Price Outlook: The Inflation Chasm Between Europe and the US - 10th Oct 21
US Real Estate ETFs React To Rising Housing Market Mortgage Interest Rates - 10th Oct 21
US China War over Taiwan Simulation 2021, Invasion Forecast - Who Will Win? - 9th Oct 21
When Will the Fed Taper? - 9th Oct 21
Dancing with Ghouls and Ghosts at Alton Towers Scarefest 2021 - 9th Oct 21
Stock Market FOMO Going into Crash Season - 8th Oct 21
Scan Computers - Custom Build PC 6 Months Later, Reliability, Issues, Quality of Tech Support Review - 8th Oct 21
Gold and Silver: Your Financial Main Battle Tanks - 8th Oct 21
How to handle the “Twin Crises” Evergrande and Debt Ceiling Threatening Stocks - 8th Oct 21
Why a Peak in US Home Prices May Be Approaching - 8th Oct 21
Alton Towers Scarefest is BACK! Post Pandemic Frights Begin, What it's Like to Enter Scarefest 2021 - 8th Oct 21
AJ Bell vs II Interactive Investor - Which Platform is Best for Buying US FAANG Stocks UK Investing - 7th Oct 21
Gold: Evergrande Investors' Savior - 7th Oct 21
Here's What Really Sets Interest Rates (Not Central Banks) - 7th Oct 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

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