Canadian Service Firms Buoyed by Oil, Gas Outlook
By Ian McKinnon
CALGARY, Alberta (Reuters) - Canadian energy service firms expect their heady drilling boom to continue, despite softening gas prices, with increasing U.S. interest contributing to the good times, observers said on Thursday.
Gas prices have fallen by half from record first-quarter highs but there is little gloom among service firms, which provide the staff and equipment needed to find, produce and transport oil and natural gas.
"We don't need C$7 gas (per thousand cubic feet) to have a healthy industry," said Michael Kelly, a vice-president at Calgary-based Trican Well Service Ltd. , one of the country's largest service stocks.
"We can have a very healthy industry with C$5 gas, C$4 gas or even C$3 gas. We think there will be strong demand for our services for the next couple of years."
Spot gas prices in Alberta currently hover around C$5 ($3.29) per thousand cubic feet.
The Canadian sector, which has several dozen publicly traded players, including leaders Precision Drilling Corp.
and Ensign Resource Service Group Inc. , has enjoyed a solid performance this year.
Trican, for example, has gained 38 percent on the Toronto Stock Exchange, while the service group has risen 12 per cent overall. By comparison, the broader TSE 300 composite index has fallen nearly 11 percent.
However, the service group remains 23 percent below the peak it reached in the fall of 1997, when the last boom was curtailed by an 18-month slump in oil prices.
But Kelly said the industry dynamics have since changed because of North America's growing use of natural gas, the most environmentally friendly fossil fuel, as a feedstock for power plants struggling to meet increased electrical demand.
"It's a positive environment. The demand for natural gas is continuing to drive our industry," he said. "According to some estimates that I've heard from analysts, between 55 and 70 percent of the industry's cash flow will come from natural gas this year," a reversal from previous years when oil was king.
Most recent drilling statistics show 341 rigs in the field in western Canada, up 28 percent from a year ago.
In addition, the traditional spring lull, caused by thawing ground limiting the movement of heavy equipment, was less pronounced than usual because of favorable weather.
Jason Konzuk, an analyst with Calgary brokerage FirstEnergy Capital Corp., expects improved second-quarter performance because of high activity and increased rental rates.
"I expect almost everyone will post a profit," he said. "It's unusual because most firms post a loss in the second quarter."
Konzuk predicted the TSE's service group will gain 35 percent and set a new high within the next 12 months as bigger profits attract investor interest.
U.S. President George W. Bush's proposed energy plan, which calls for increased oil and gas imports from Canada, is also raising the profile of the service sector.
Daniela Trnka, helping to organize a two-day investment symposium on service companies, which concludes Friday in Calgary, received several calls from U.S.-based fund managers piqued by Bush's ambitious policy. A record 300 delegates, analysts and money managers are attending the event.
"The public attention has certainly caught the attention of analysts," she said.
($1=$1.52 Canadian) |
