Trinidad Rallies as C$55 Billion Seen for LNG
Trinidad Drilling Ltd. (TDG), the builder of Western Canada’s biggest energy drilling rig, is forecast to rally another 21 percent as producers spend C$55 billion ($52 billion) on developing natural gas to ship to Asia.
The Calgary-based company is the second-best Canadian energy stock this year on higher drilling demand, including a contract to build and operate a rig that will reach 8,000 meters (4.97 miles), or about 1.5 times deeper than an average machine, at twice the cost to construct.
Trinidad and Western Energy Services Corp. (WRG) are the best placed to win contracts for drilling that will secure reserves to feed liquefied natural gas projects, and are already providing supplies for an LNG plant proposed by Kuala Lumpur-based Petroliam Nasional Bhd or Petronas, the most active developer, according to Andrew Bradford of Raymond James Ltd. Producers proposing 5.9 billion cubic feet a day of exports will spend C$55 billion on wells by 2021, estimates from National Bank Financial show.
“The probability of these projects actually going ahead has increased substantially, with companies like Petronas committing capital,” Dan Cheng, who helps manage C$430 million at Matco Financial Inc. in Calgary, including shares of Western Energy Services, said in an Aug. 28 interview. “The time to invest is now as opposed to when the terminal is built.”
Together, Trinidad and Western Energy Services have contracts for more than half of the 24 drilling rigs currently contracted by Petronas in Canada, Michael Culbert, chief executive officer of the Progress Energy Canada Ltd. unit of Petronas, said in an e-mail yesterday. Trinidad operates seven rigs and Western Energy Services runs six, he said.
Trinidad gained 39 percent this year, second after Enerplus Corp. among top-performing stocks on Canada’s S&P/TSX Energy Index. Western Energy Services rose 19 percent over the same period.
Trinidad is forecast to rise to C$11.60 over the next 12 months, up 21 percent from today’s close, according to the average price target of 15 analyst estimates compiled by Bloomberg. The shares rose 8 cents to C$9.56 today. Western Energy Services has an average one-year price estimate of C$10.42 from nine analysts, a 24 percent increase from today’s close. It fell 1.8 percent to C$8.39 today.
“I would still have an upward bias on share price movement today” for Trinidad and Western Energy Services, Bradford, based in Calgary, said in an Aug. 30 phone interview about the two top companies he anticipates will benefit from drilling demand for LNG projects.
Western Energy Services benefits most from drilling for Canadian LNG projects, Greg Colman, an analyst at National Bank Financial, said in a July 9 report in which he estimated producers will spend C$55 billion on gas wells for LNG by 2021, or an annual rise of as much as 32 percent in total exploration and production expenditures in Western Canada. He didn’t return phone and e-mail messages seeking additional comment.
Exxon Mobil Corp. (XOM), Royal Dutch Shell Plc (RDSA), Chevron Corp. (CVX) and BG Group Plc (BG/) are among energy producers which along with Petronas are proposing to capture rising gas demand in Asia by developing LNG export projects in Canada.
Stephen Doolan, a spokesman for Shell, declined to comment in an e-mail yesterday. Lloyd Avram of Chevron didn’t immediately return a message seeking comment.
BG, which doesn’t have land holdings in Western Canada, is considering a “range of options” to secure gas for its proposed Canadian LNG project, including “third-party suppliers and open-market purchases from market hubs,” David Byford, a spokesman, said in an e-mail yesterday.
Pius Rolheiser, a spokesman for the Imperial Oil Ltd. unit of Exxon, said in an e-mail that it’s premature to discuss specific drilling plans for a potential LNG project and that the combined land position of roughly 665,000 acres (269,116 hectares) held by Imperial and Exxon in Canada’s Horn River, Montney and Duvernay areas would support a terminal. Imperial is partnering with Irving, Texas-based Exxon on Canadian LNG.
Consumption of gas is the fastest-growing in the world among fossil fuels and is expected to rise 64 percent globally by 2040 from 2010, according to a July 25 forecast from the U.S. Energy Information Administration in Washington.
Energy companies chill gas to -160 degrees Celsius (-256 Fahrenheit) to create a colorless liquid 1/600th of its original volume for long-distance shipment aboard tankers.
Proponents of Canadian LNG may need 100 drilling rigs starting later this year to prove there are enough gas supplies to feed export terminals, up from about 80 rigs currently operating in the Montney formation linked to LNG in British Columbia, John Stephenson, who helps oversee C$2.7 billion at First Asset Investment Management Inc. in Toronto including Trinidad shares, said in an Aug. 22 phone interview.
Trinidad’s recent gain has been partly due to a July contract to build a 3,000 horsepower rig, Canada’s largest land-based oil and gas drilling rig, and operate it for five years in the Liard Basin of northeastern British Columbia to drill for gas supplies for a LNG terminal, Lisa Ciulka, a Trinidad spokeswoman, said in an Aug. 28 phone interview.
The company is budgeting a year to build the rig at its manufacturing facilities in Nisku, Alberta, and as many as four months to drill the first well for the client, whose name Trinidad hasn’t disclosed, Ciulka said.
Trinidad also added to gains yesterday, rising 4.4 percent to C$9.48 after announcing a partnership with Halliburton Co. (HAL) to provide and operate drilling rigs for Halliburton’s international markets, focusing initially on Saudi Arabia and Mexico.
Mike Heier, Trinidad’s founder and chairman, named the company after his mother in honor of her Trinidadian heritage. The company doesn’t operate in Trinidad and Tobago.
Western Energy Services has risen as producers looking to build LNG export terminals spend more, Chief Executive Officer Dale Tremblay said in an Aug. 30 phone interview. Customers including Petronas are seeking deeper, long-reaching rigs such as the ones that make up one of the Calgary company’s fleets, he said.
The gain to drilling stocks from LNG depends on the construction of Canadian projects which may face regulatory hurdles and challenges locking in contracts to supply customers, according to Colman at National Bank, who assumes four will get built.
And while gains for Canadian drillers have largely been from speculation around LNG demand, the sector remains most exposed to conventional drilling, which makes up 65 percent of capital spending from producers and poses the greatest threat of reduced activity, Bradford said.
The rig count dedicated to LNG will probably rise slowly as projects come online later in the decade and may not affect the total number of operating rigs in Western Canada, as machines in other parts of the region are redeployed to LNG-focused areas, he said. Drillers with a track record in basins being developed for LNG are most likely to secure a higher share of the business, he said.
“There are a lot of big drilling contractors that are all vying for a position and they’re not all going to win,” Bradford said.
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