Progress blinks first in natural-gas meltdown

A gas producer, Progress, is cutting back production of natural gas. That's because the Asian price for gas is about $12 and its about $3 in North America. They were obviously making enough money at the lower price, until now. So now blowing out the gas at a discount isn't worth it as the glut is really hitting.

Progress blinks first in natural-gas meltdown

Progress blinks first in natural-gas meltdown

By Rebecca Penty, Postmedia News February 10, 2012

CALGARY - Bargain-basement natural-gas prices not seen in a decade and storage nearly brimming this winter prompted many in Alberta's oilpatch to wonder who would start turning off the valves on production.

Progress Energy Resources Corp. ended the guesswork this week, as the only Canadian producer to have said it will take the plunge and shut in wells across Alberta and British Columbia.

Other players are expected to soon follow suit, with analysts eyeing news from Canada's top gas producer Encana Corp. in financial reporting next week.

In the first major move in the sector since recent lows in gas pricing, intermediate gasweighted Progress said after markets closed on Tuesday it plans to shut in 10 per cent of its gas production by April, about 25 million cubic feet of gas per day, with an aim to bring it back online later in the year. Progress also said it would reduce its 2012 capital spending by $100 million from last October's estimate, to $365 million.

"The decision to slow down capital expenditures and shut in production was prompted by the abnormally warm winter in North America and the resulting supply and demand imbalance," chief executive Michael Culbert said in a release.

Industry observers have been calling for Canadian producers to turn down gas supply to lift low prices, which closed below $2 per gigajoule at Alberta trading hub AECO twice last week. Gas-weighted companies started wondering who would move first in Canada, following commitments last month by No. 2 U.S. gas producer Chesapeake Energy Corp., and later other players, that they would curb U.S. gas output.

"We need that kind of response from industry," said Gary Leach, executive director of the Small Explorers and Producers Association of Canada. "We're swamped with gas in North America."
Producers have grappled with the issue of cutting gas output through shut-ins, in an industry where investors have come to expect growth.

"The very last resort is to shut in these volumes," said analyst Matt Donohue of UBS Securities Canada Inc.
Producers have taken other steps to reduce gas exposure, including a shift to drilling for more liquids-rich gas and oil, which fetch higher prices, and reductions in capital spending.

The economics of well shut-ins aren't always simple, since some producers have profitable hedges on production, as in the case of Encana. Operational questions can also be complicated, since geology can impact whether a shut-in well co-operates, when a producer wants to resume gas flow.

Some six per cent of Canada's marketable gas output of about 13 billion cubic feet per day will soon be voluntarily shut in over low gas prices, analysts predicted this week, with a report by Raymond James putting the figure at 750 million cubic feet per day and a note by FirstEnergy Capital Corp. forecasting losses of 800 mmcf/d.

While Progress is the first to acknowledge shut-in plans, some of Canada's most uneconomic gas wells may already have been turned off. Producers must notify the market only when their actions are considered material. There is also a lag in publicly available well data of nearly two months and in the case of wells on land where resources are not owned by the Crown, freeholders wait about the same amount of time for royalty payments, to indicate any changes.

"It's suicide for both the producer and the royalty owner to sell gas for $2 an mcf (thousand cubic feet)," said David Speirs, a director of Alberta's Freehold Owners Association, who hasn't yet heard of any shut-ins.

Devon Energy Corp.'s Canadian division confirmed it turned off the gas flow last year from some of its wells in Alberta, a province that accounts for more than 90 per cent of the firm's Canadian production. Devon hasn't moved to shut in its wells in northeastern British Columbia, spokeswoman Nadine Barber said, calling volumes shut-in to date an "immaterial" amount of gas.

"It would represent less than one per cent of our companywide production of gas." Gas represents about 43 per cent of Oklahoma City-based Devon's production of 661,000 barrels of oil equivalent per day.

Smaller producers in Canada have been watching for a larger company such as Encana to announce production cuts, analysts say. Encana hasn't shut in any of its gas wells over low prices, said spokesman Alan Boras, noting further commentary might come from executives in next week's earnings discussion.

"I believe most gas-weighted juniors won't be much different than Progress where they will shut volumes in during April, as the winter season is still around, and a cold snap would propel prices higher," said analyst Tim Murray of Desjardins Securities.
If they were making money its gouging, if not then raise it slightly and if these companies
want to cap it then we need to take a different approach. If you don't develop your holding
within a specific period you lose it. And government needs to redefine that period it can be
left inactive. Of course we don't have a government with the guts to call these people to
task so that is not likely to happen. We also know that public hearings are littlemore than
window dressing. Actually they are a joke. We need an national energy policy whether
Alberta likes it or not.
I'm not into over-regulation, but some seems required to make the industry more efficient. But Alberta won't do anything to offend the energy biz. Letting them have leases that last too long without development does turn into a subsidy, and energy biz gets plenty of that. I suppose they need subsidies to keep prices low.
#4  Top Rated Post
All the more reason for a pipeline to the West Coast. Keep the price in Canada where it is and flog the excess off shore for whatever the market will bare.
Quote: Originally Posted by taxslaveView Post

All the more reason for a pipeline to the West Coast. Keep the price in Canada where it is and flog the excess off shore for whatever the market will bare.

Prices for Cdn oil are $10 less than in Asia/Africa/Europe, so why do we have any subsidies for the energy biz? It distorts the industry. I'm having trouble understanding why we keep prices low with tax dollars.

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