In a remarkable interview with The Energy Report, Jason Sawatzky reveals the hottest new thing happening in the North America oil exploration and production space: the rush by major oil and gas firms to build LNG export facilities on Canada's West Coast. The AltaCorp Capital analyst points out that major oil and gas firms are not the only way to play west coast LNG development, and investors should look very closely at Canadian oilfield services. The capital flowing into west coast LNG is pumping up growth in the oilfield services industry too, with plenty of black gold to spread around.
Source: Peter Byrne of The Energy Report(10/10/13) In a remarkable interview with The Energy Report, Jason Sawatzky reveals the hottest new thing happening in the North America oil exploration and production space: the rush by major oil and gas firms to build LNG export facilities on Canada's West Coast. The AltaCorp Capital analyst points out that major oil and gas firms are not the only way to play west coast LNG development, and investors should look very closely at Canadian oilfield services. The capital flowing into west coast LNG is pumping up growth in the oilfield services industry too, with plenty of black gold to spread around. The Energy Report: Jason, how will the rush to export West Coast liquefied natural gas (LNG) affect the Canadian oilfield services space? Jason Sawatzky: There is no other oilfield services market in the world right now that has growth in front of it like Canada does, thanks to the development of west coast LNG. Planning for Canadian LNG projects is now in motion. There are three projects that have received export approvals. Three more have applied for gas export licenses, and two more have not yet applied. These projects are going to require enormous amounts of spending on export terminals, pipelines, drilling, fracking, field development and also accommodations. Activity should begin in early 2014 and ramp up over the next five years. TER: Who is backing the three approved projects? JW: The three LNG projects that are advancing the fastest (in our opinion) are the Royal Dutch Shell Plc (RDS.A:NYSE; RDS.B:NYSE)/ PetroChina Co. Ltd. (PTR:NYSE; 857:HKSE) project; the Apache Corp. (APA:NYSE)/ Chevron Corp. (CVX:NYSE) project and the Petronas (PETRONAS) Progress project. The combined capital cost to buildout all three of these projects is in the range of $30-35 billion ($30-35B). That is why we expect to see significant amounts of capital spent in Western Canada, which will positively impact Canadian service companies. TER: Are these companies leveraging this mammoth investment with debt or is the government participating in any way? JS: The companies are putting their own cash into developing reserves and building out the LNG-related facilities in Western Canada. TER: The companies must be expecting a really big return. JS: Yes, absolutely. The way LNG development plays out in Canada should be very similar to what happened in Australia with LNG. There are significant natural gas reserves in Canada, and the foreign markets, particularly in Asia, are looking to tap into it. TER: Please define what you mean by "oilfield services." JS: Oilfield services include everything from drilling to fracking to servicing the well after the well has been fracked. There are also ancillary services like providing various rental products and production testing services, etc. A number of different technical skills are required to drill the well, bring it into production and maintain it over time. TER: What firms are best positioned to provide these services? JS: With respect to LNG development, we would highlight Essential Energy Services (ESN:TSX) and Canyon Services Group Inc. (FRC:TSX). First, Essential provides coiled tubing services used for completions, workovers and well cleanout operations. In general, the advantage of using coiled tubing over, say, regular jointed tubing in a service rig or a snubbing unit is the increased speed at which the coiled tubing string can be run in and out of the well. Also, coiled tubing operations can be performed on a live well, meaning that operators do not have to kill the well, as they have to do with service rigs, which can lead to formation damage. With respect to LNG development in Western Canada, we think that deep coil is going to play an integral part in servicing the deep, long-reach wells in the Duvernay, the Montney and the Horn River plays. Looking forward, Essential is currently rolling out ultra-deep, generation 3 and 4 coiled tubing rigs. Theses rigs will be ideal for servicing the long-reach, LNG-type wells.