Graham / Orbit Oil and Gas
Background Notes.
Third Quarter Report
Natural gas marketing
Orbit recently announced the expansion of its portfolio of natural gas contracts and transportation arrangements which allows the Company to sell gas into markets with higher net back gas prices. Orbit has agreed to a sale of 5 Mmcf/d at a 100% Load Factor to Eastern Canadian customers via TransCanada Pipelines Ltd. The gas will
be priced based on the weighted average cost of gas acquired by consumers in Ontario, and based on today's market we expect to net a price greater than $2.00 per Mcf for the winter period. The initial term of the contract is one year, commencing November 1, 1996, with Orbit having the option to extend for a further two years.
In addition, Orbit has contracted for new TransCanada Pipeline capacity of 10 Mmcf/d on the most recent TCPL pipeline expansion project. This expansion project was the subject of a National Energy Board hearing and a final decision on the project is expected prior to year end. It is anticipated that this capacity will be available to Orbit before the commitment date of November 1, 1997. The Company will use the capacity to transport and sell gas to the north eastern U.S. market, where Orbit has a gas sales arrangement with a major U.S.
marketing company to purchase the gas at north eastern U.S. market prices.
This new capacity will increase Orbit's sales directly to this prime U.S. market to approximately 25 Mmcf/d, which represents 75% of current production. These additional contracts will increase the benefit to Orbit from higher gas prices in the consuming regions of North America and allows the Company to continue to use financial
markets to hedge prices in order to obtain as much price certainty as possible, in a volatile commodity market.
This gas contract mix and Orbit's policy of selling production forward resulted in Orbit's gas price averaging $1.81 per Mcf for the first nine months of 1996 compared with an average price of $1.36 during the
first nine months of 1995. During the period, Orbit's gas price included $0.05 per Mcf of marketing fee revenue compared to $0.11 per Mcf during the same period of 1995.
Much of Orbit's 1996 gas production was sold forward early in the year in order to ensure stable prices. However, the run up in prices in mid November will ensure an increase in gas prices for Orbit during
the fourth quarter and next year. Orbit continues to sell at least a portion of its gas forward and currently has sold approximately 34% of its 1997 production forward at an average price of $1.90 per mcf.
Orbit also sells a portion of its crude oil forward and the Company's average oil prices were moderately higher for the period at $23.32 per barrel and NGLs prices increased to average $19.46 per barrel as
compared to $22.81 and $16.84 per barrel respectively, received in 1995. Orbit has sold 80% of its anticipated oil production forward to December, 1997 at prices which will net the Company approximately $23.00 per barrel.
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Orbit Reports Approval of New Transportation Arrangement and High Natural Gas Prices for Third Quarter
Monday, December 2, 1996.
Orbit Oil & Gas Ltd. today announced that the recent National Energy Board approval of the TransCanada Pipelines Ltd. 1997/98 facilities expansion project, will result in Orbit obtaining an additional 10
million cubic feet per day of pipeline transportation capacity to the lucrative N.E. U.S. market as per Orbit's previous announcement of October 31, 1996.
Orbit currently delivers approximately 15 million cubic feet of gas per day to this market and partially as a result of the competitive advantage of controlling pipeline capacity, Orbit's net gas price for the third quarter of 1996 averaged $1.90 per mcf. This was the highest third quarter gas price reported in Alberta according to a recent
industry survey of oil and gas production companies as recorded in the December issue of Doig's Digest.
These excellent netback prices are expected to continue, resulting from the strength of Orbit's contract and transportation portfolio and the recent upswing in both the NYMEX and spot gas prices in B.C. and
Alberta.
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Graham's Comments
Kerm - I notice that Orbits 3rd quarter results are out and I have a few questions for you.
I am puzzled by the following:
"This gas contract mix and Orbit's policy of selling production forward resulted in Orbit's gas price averaging $1.81 per mcf for the first nine months of 1996 compared with an average price of $1.36 during the first nine months of 1995. During the period, Orbit's gas price included $0.05 per mcf of marketing fee revenue compared to $0.11 per mcf during the same period of 1995.
Much of Orbit's 1996 gas production was sold forward early in the year in order to ensure stable prices. However, the run up in prices in mid-November will ensure an increase in gas prices for Orbit during the fourth quarter and next year. Orbit continues to sell at least a portion of its gas forward and currently has sold approximately 34% of its 1997 production forward at an average price of $1.90 per mcf."
It would seem to me that with gas prices up so much that they should have been able to average forward sales much higher than the average for the first 9 months seeing as how this was sold forward well before the increases. What are your thoughts on this and the results in general.
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Graham, $1.90 was highest price any company realized for the third quarter, not to shabby. It increased the average for the year to $1.81, the highest I've seen thus far. The fourth quarter will average probably over $2.00 which will increase the annual average to around $1.90 to $1.95 (my guess). Each quarter has improved over the previous quarter.
The new contract starting November 1997 will also impact their average price since 75% of production will be channeled to NE U.S., meaning top prices. They certainly have the expertise in marketing their production.
I don't know if I've answered your question. Hopefully a different perspective did the trick. If not, come back at me.
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