The tide is not going to be turning anytime soon. Couple of posts back, Yasch admired the “combative spirit” displayed by Darren Gee in his latest Presidents report. He reminded me of King Canute seated on his throne at oceans edge commanding the tide to go back. A pathetic response to reality.
Daren Gee is an engineer - and herein I think lies the problem. The only response in his play book is to cut costs and wait for the market to turn - cut costs and wait for the turn. Nothing more. We see it in every report. He ignores the fact , obvious to all other producers, that there is a limit to the amount one can nickel and dime the expense line - the only solution left then is to improve the revenue line.
Over 50% of dry gas production is a by product of shale oil production. While that volume continues to grow - so will dry gas - regardless of price. Right now 21% of PEY revenue comes from NGL. Compare that to Bonavista (also exclusively Deep Basin) which is now approaching 40%. Compare that to Montney where Encana is looking at 50% plus - successfully employing same multi stack approach in the shallow basin that PEY pioneered in the Deep Basin. But enhancing the revenue mix is not the only solution to low prices caused by oversupply.
As destructive as it may be, the alternative is to join the party. Produce more gas to sell at lower prices. But to do that, one needs to be able to ship it. Here again, while Daren Gee was fiddling with the expense line, our competitors got well ahead of us in the queue. Dawn is locked up and by now obtaining firm commitments on remaining options must be problematic. As far as I know PEY has only secured space until end first quarter 2018. When those hedges run out - expect cash flow to run down dramatically.
Darren Gee has done too little too late to face the reality. Command as he will the tide will not turn. The only solution that remains now is to merge with a Montney producer like CKE. A quick fix that will improve the production mix and shore up the balance sheet. But he is probably too late for that as well - even if he had the gearbox to make the move.