RE:RE:Line of sight to $500MM annual cashflow? (oil prone only)Even though they are related commodities and the back end of it in terms of land, delineation, drilling, completing etc is similar, oil and natural gas are two different kettle of fish. The business model of one is entirely different from the other especially for Canadian companies. Applying the same approach to both doesn't make sense, sorry.
Natural gas is a very tough business esp. for Canadian producers and has only become tougher in recent years. To paraphrase Mike Rose, you have to be good at everything.
This is why:
First, the infrastructure to export it (LNG) and to import it for buyers is not in place, is expensive and time consuming to build. And as usual, Canada is far behind.
Second, even though natural gas is a very good fuel, able to meet many needs, it also has a lot of competition - hydro-electric power, solar, wind, nuclear and coal that
Third, at the moment, the producers are not the ones benefiting from the higher prices realized by exporting natural gas. Its the trading companies that do (Total is the 2nd largest exporter of US LNG more I believe than what they actually produce in the Eagle Ford).
Fourth, it is a by product of oil production and when oil plays like the Permian are found and developed, there is a lot of natural gas produced regardless of price.
Fifth, the productivity improvements in natural gas are impressive whereas oil productivity is stagnant . US Natural gas is way more productive than oil. Antero a liquids rich Appalachian producer has a $600-650MM capex budget on 560,000 boepd budget for 2024. Pioneer Resources otoh - a 50% oil producer - has a production target that is 36% higher than Antero - 740,000 boepd - with a capex budget that is 577% higher - $4.4B!!!
The reality is, Canadian companies have a competitive advantage in oil. And a competitive disadvantage in natural gas. In oil, we are competing with the Permian which is struggling to increase production and is spending a heck of a lot of capex - US$32 per barrel of oil? - to do so. Whereas in gas we are competing with associated gas - on an activity based basis, no significant capex or cash costs - and high productivity operations like Antero (34% liquids, $3 per boe capex costs).
What Kelt is doing in oil prone given the competition is very fine. Only they could be doing more of it. Ideal of course would be doing a better job marketing and hedging natural gas but that's not an easy thing to do when you're as small as Kelt is.
Later I'll have another post on natural gas profit model and how it relates to Oak (and Pouce Coupe West).
This is all amateur opiinions, a narrative if you will. The map is never the same as the territory.