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Dear Subscribers

THE GOOD NEWS FOR CANADIAN ENERGY KEEPS ON COMING

Following our most recent update last week we saw AECO Station 2 gas prices break the C$2/Gj barrier and the good news for Canadian energy companies keeps on coming.  We captured some interesting nuggets of information from investor day presentations.

Highlights
  • Upstream - ConocoPhillips stated that the Montney is competitive with the best unconventional plays in the US and they plan to invest C$6.7 billion.  Positive look through for Montney valuations.
  • Midstream – TC Energy confirmed C$17 billion of investment to add 5.6 Bcf/d of market access for western Canada.  Addressing egress constraints, the biggest hurdle facing Canadian energy companies.
  • Downstream - Coal to gas conversion across the US added 7 Bcf/d of gas demand during 2018 and LNG terminals add a further 7 Bcf/d with more on the way. 
Cartoon by Malcolm Mayes, Edmonton Journal
ConocoPhillips (CP) held their investor day last week which gave us some insight into what one of the bigger Montney players thinks about the future.  We have watched CP ever since they acquired undeveloped land not too far away from us during 2018 at a price of C$4,700/acre.   They got our attention early in the presentation when they said that the Montney is competitive with the best unconventional plays in the Lower 48 (US).  We have been preaching that for some time so it’s nice to hear a big US major saying it also.    Another nice confirmation came through when they said they expect condensate to continue to trade at parity with WTI over the next ten years.  

In their analysis of the call the Bank of Montreal pointed out that CP will be investing C$6.7Bn over the next 10 years to deliver 170,000 boe/d of production growth which seems to show a disconnect with current public market valuations when, by way of example, nearby Tourmaline has an enterprise value of C$5.2 Bn and produces 315-320,000 boe/d which includes 120,000 boe/d from the Montney.   Canadian energy companies are overdue some fundamental valuation catch-up perhaps?
ConocoPhillips acreage position in British Columbia where they plan to invest C$6.7 billion to grow their production by 170,000 boe/d.  Insert A from ConocoPhillips Analyst & Investor Presentation, November 2019.
 
Shifting down-stream a little TC Energy also had an investor day last week and we harvested some more juicy nuggets of information.  They gave us an update on their $17Bn (yes that was C$17 billion!) of capital investments to provide an additional 5.6 Bcf/d of market access for the Western Canadian Sedimentary Basin of which the Montney is the biggest part.    The NGTL system gets C$10Bn for an additional 3.5 Bcf/d capacity by 2023, the Coastal GasLink feeding one of the LNG projects at Kitimat gets C$6.6 Bn to add 2.1 Bcf/d and the Mainline gets C$0.4Bn to add 0.5 Bcf/d.  When you consider that the Montney is currently producing maybe 7-8 Bcf/d these are mind boggling numbers both in terms of molecules per day and $ which back up the projections we discussed in our 18 July ASX release discussing developments in takeaway capacity.
To view the ASX announcment click here
TC Energy proposes to invest C$17 billion to add an additional 5.6 Bcf/d of market access for western Canadian producers.  From TC Energy Investor Day Presentation, November 2019.
 
The North American gas market is reasonably elastic and well reticulated, but it is volatile which is what encourages consumers to put in place fixed price contracts to protect against the spikes.  We have previously noted the impact of the switch from coal to gas and renewables for power generation in Alberta, but the same thing is happening in the US but on a much larger scale.  US gas demand for power generation has risen from 72.7 Bcf/d in 2014 to 81.2 Bcf/d in 2018 with most of that surge, 7 Bcf/d, happening during 2018.  In addition, LNG terminals in the US have added another 7 Bcf/d of demand over the last three years and there are more terminals on the way. 

Canada is well placed to produce cheaper and greener LNG closer to prime Asian markets and is has been painful to watch the slow progress being made.  Canada lost out to Australia in the last LNG demand window and Canadian producers are currently being strangled through lack of access to markets as a result of Federal Government inaction and vested interests content to maintain the price discount status quo so we rejoice in all these signs of recovery.

To translate that into something real there is a building site larger than 600 city blocks at Kitimat where more than 1,000 workers are currently building the LNG Canada facility which will have the least CO2 emissions of any LNG project in the world.  So not only is it delivering a benefit by replacing coal-fired generation it is also delivering a benefit as compared to any other LNG project globally.
LNG Canada construction site at Kitimat, British Columbia.  From LNG Canada website.
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Alan Stein Glenn Whiddon Micheal Dobovich
Managing Director Chairman In-country Manager
E: astein@calimaenergy.com E: glenn@lagral.com E:mdobovich@calimaenergy.com
T: +61 8 6500 3270 T:+61 0410 612 920  
   
     
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