Natural gas sector ‘solid’ after years of strife
By COLLIN GALLANT on July 22, 2022.
cgallant@medicinehatnews.com@CollinGallant The natural gas sector is “solid” again after years of low prices, cost cutting and struggles and string of bankruptcies, says the head of a junior gas producer with major operations in southeast Alberta. That said, it may not be enough to spur new drilling in the region for dry shallow gas, but will lead to needed capital work and recompletions as exploration companies seek to better their balance sheets. Phil Hodge is the president of Pinecliff Energy, which announced at the end of June that it had extinguished all long-term debt owed by the company. That coincided with a new dividend to shareholders – the first for the firm in 10 years – after prices spiked 400 per cent this winter over prices just two years ago. “The tough years that we had were pretty significant – we did anything we could to have any sort of positive cash flow,” said Hodge, referring to the rise from gas under $2 per gigajoule in 2019, to $8 this winter. “The pricing has been much stronger, but we got our balance in better order because we had to, not out of any great foresight… but we made a real concerted effort to pay off our debt.” Along with pricing woe, the ability to borrow or raise capital was also hampered by the sector’s outlook and concerns about environmental and sustainability issues. In Pinecliff’s case, money was owed to insiders and the Alberta Investment Management Corporation (AIMCo), not banks. Those debts, totalling $50 million at January 1, are now repaid in full. Across the oilpatch, energy companies are using new revenue to buyback stock, pay dividends, fund maintenance and limited capital exploration work, or get low-production wells closed and off their list of liabilities, said Hodge. “Reasonably priced debt is not a bad thing… we were pretty determined and this puts us in a much better place for long-term sustainability,” said Hodge, who said liquid rich areas are the likely target for new wells across the industry. “At these prices the economics are there to start drilling in some areas. We only drill four or five wells a year, because our decline is so low. “We continue to look at our holes for recompletions, and old bores. That continues.” Separately, IPC Alberta continues with a “gas optimization” program at its Suffield drilling block. The city’s energy division has worked to shut down and permanently abandon almost 80 per cent of its 2,500 wells since 2019, and may have missed high prices this winter, but avoided operating the wells at a loss for more than a year. Division managing director Brad Maynes told a committee meeting earlier this month that forward pricing forecasts into 2023 had fallen from the $8 to $5 range per gigajoule, and the now-closed wells would only be “marginally economic” at $5. “We always predicted there would be peaks and valleys,” said Maynes, adding that starting and stopping the abandonment process would lead to higher costs. According to city financial statements at April 30, a budget-forecasted average natural gas price of $4 was expected to average $6.36 for the whole year, including gas it purchases for resale to utility customers. Where a $23-million loss on oil and gas activity was predicted it the budget, a $3 million gain is now expected. Pinecliff’s stock price was about 20-cents before the pandemic, and as low as 9-cents in early 2020, but now sits at about $1.50 two years later. In Pinecliff’s most recent statements it posted a quarterly record $66 million in sales – double the same quarter in 2021. That produced $32.33 million in cashflow that allowed the company to double its planned debt repayment during the quarter. The remaining $22 million was paid ahead of schedule in the second quarter. 22-21
