The Horn River basin remains the most active basin in Canada, and shows no signs of slowdown as it becomes the the key focus of the energy sector’s future plans.
The oil and gas sector has been devastated by the economic downturn that has resulted in demand destruction and lower oil and natural gas prices. However, there seems to be increasing optimism of a turn-around in the energy sector as companies look beyond the market turmoil and make plans for the next cycle.
For the most part the consensus is one shared and published here in the Horn River News. The future for the oil and gas sector is with oil sands in Alberta, and shale gas in British Columbia. More and more companies, small and large cap, will increasingly highlight their oil sands and or shale gas assets as their key assets for future growth and shareholder value. However, since most of the best land positions in the oil sands are already spoken for, there is likely to be increasing consolidation in shale gas as new entries purchase land positions and majors expand existing inventories. Preparations for the next cycle are well underway. Khaush Rakhit, president of Canadian Discovery Ltd. stated this week in the National Post;
“The likelihood is that the juniors will probably [continue to] scramble after the conventional [resources], and it will be the senior to super-majors that will start probably muscling in and taking over a large portion of the unconventional, as you are seeing in the oil sands.”
Juniors lucky enough to be early entries into the shale gas basins in Horn River and Montney will likely be acquired at some point which increases their value by having strong resource potential while also being a likely acquisition target. The point here is that consolidation is also part of the recovery process.
Consumption of oil and natural gas has declined but the resulting well shut-ins and reduced production has yet to take full effect. The key point to understand here is that once wells are shut in and production is reduced, inventories will fall faster then demand and production will not be able to replenish fast enough to keep pace. The question is at what point will this occur and what will be the impact. When it occurs is likely the quarter before the economic turn around. Regardless of how strong – or weak – the economic turn around will be, demand will start to grow turning the demand trend line up while the supply line continues to trend down. This chain of events will be very difficult to nearly impossible to manage. Its simply not within anyone’s control. At this point there is concerning potential for a price spike as the rising demand line crosses past the declining supply line.
Service companies have also been hit hard in the oil and gas sector where consolidation has been slower because of many companies being bogged down with now expensive debt. Todd Garman, oil field services analyst with investment bank Peters & Co. of Calgary recently stated in the Globe and Mail, “They [service companies] need to focus on paying down debt, so they are not consolidators.” Services companies follow the energy action, and according to Mr. Garman, that activity will focus on shale-gas regions around the continent.
The great news is that the Horn River has massive amounts of shale gas and this is being recognized by industry players and governments alike. The billions of investment dollars going into British Columbia’s Horn River basin is already starting to take effect and show local early economic benefits including much needed jobs for the region. Just as important these investments will reduce operating costs, increase load capacity, and expand market opportunities with pipelines carrying Horn River gas south (USA bound), and west (Asia bound).
As stated many times here before, the Horn River basin will be the key region to the future of the energy sector’s development as well as the energy needs of Canada, the United States and Asia.
