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Dave Forest

Dave Forest

Dave is Managing Geologist of the Pierce Points Daily E-Letter.

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Does This $1.5 Billion Shale Purchase Signal A Change?

The shine has come off the North American natural gas export story lately.

A year ago, most observers in this market were buzzing about the possibilities for sending cheap natgas abroad, in the form of liquefied natural gas (LNG). With projections running high about the amount of gas that could be sold from places like the U.S. Gulf Coast and the west coast of Canada.

But LNG prices in key consuming nations like Japan and Korea have since fallen back to their lowest since the Fukushima incident. And LNG developers in Canada particularly have said they are starting to get cold feet over high tax rates for projects here.

Amid such an environment however, we got a very interesting M&A deal in the Canadian natural gas space this week. Showing that interest continues to run high here--with or without hopes of big LNG developments.

Related: Petronas Threatens To Scrap Canadian LNG Terminal Over Tax Rates

The purchase came from Kuwait Petroleum Corp (KUFPEC). Who agreed to buy a 30% interest in an emerging Canadian shale gas play for a hefty price tag of $1.5 billion.

The acreage in question is located within the Duvernay play of western Alberta. With the interest being sold to KUFPEC by current holder Chevron--a major that has recently been selling off projects globally in an effort to raise cash.

One of the interesting things about the deal is the fact that the Duvernay is a liquids-rich gas play. Showing that North American gas still has an appeal for big producers, even at current prices below $4 per mcf.

The liquids of course help production economics. With recent wells in the Duvernay testing hundreds or even thousands of barrels per day, alongside straight-up gas output.

Related: U.S. And Australia Chasing Qatar for LNG Supremacy

But even prices for natural gas liquids have been in decline in North America the past 18 months. Showing that, ultimately, big players around the world just want to get into the phenomenal growth story of shale here--high commodity prices or not.

Canada is likely the best place for incoming producers to get exposure to the space today. With prices for projects in popular U.S. plays like the Marcellus, Eagle Ford and Permian running high (in Q3 alone, Permian Basin M&A totalled $11.2 billion--accounting for one-third of the total dollar value of global oil and gas deals for the period).

Look for increased drilling in plays like the Duvernay to benefit the Canadian services sector, and support good valuations for lands here. We'll see if more M&A emerges in this space.

Here's to getting in where you can,

Dave Forest

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