EnCana turns off taps

Big producers shutting in gas production

By Dan Healing And Shaun Polczer, Calgary HeraldJune 16, 2009
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EnCana chief executive Randy Eresman says natural gas prices are "below what is economic for any producer."
Photograph by: Ted Rhodes, Calgary Herald, Calgary HeraldMillions of cubic feet of daily natural gas production are being shut in and a major player is considering selling all of its conventional gas assets due to low prices, an industry investor symposium heard Monday.

Randy Eresman, president and chief executive of EnCana Corp., North America's largest natural gas producer, said at the high-profile event sponsored by the Canadian Association of Petroleum Producers that the company is looking at shutting in about 400 million cubic feet per day, half in Canada and half in the United States.

"At these (gas prices), on a full cycle basis, they're below what is economic for any producer. We are shutting in some of our gas and have shut in some of our gas," he said.

"In some cases, we've chosen not to bring on new wells that we've completed and, in other cases where we're getting below the lifting costs, you more or less have to. It doesn't make sense to lose money."

He added the wells won't be put back on production until it makes economic sense, without being specific about what prices are required.

Sue Riddell Rose, president and chief executive of Paramount Energy Trust, said the company has voluntarily reduced gas production for the first time since it was created six years ago.

"We have 15 (million cubic feet per day) shut in and we're close to another seven or eight," she said, noting Alberta gas prices have been flat.

"We're just looking at relative value," said Riddell Rose. "If we continue to produce at what we believe the price will be for the summer, even if you look at the current strip, there's value in shutting that in and bring it on for the winter."

Assuming the shut-in persists through October, the trust's average production would fall to approximately 160 mmcf per day.

The decision to make cuts in Canada follows the lead of big American producers such as Chesapeake Energy that have shut in hundreds of millions of cubic feet per day of production south of border where prices are still more robust.

Alberta spot prices continue to languish after falling below $2.90 per gigajoule earlier this month. On Monday, the intra-Alberta AECO benchmark closed at $2.94, up 18 cents on the day. So far in June they've averaged $2.77.

That compares with American futures, which closed at $4.18 US per million British thermal units (nearly equivalent to a gigajoule) in New York on Monday, up about 32 cents on the day.

TalismanEnergy boss John Manzoni said his company would consider selling off its North American conventional gas--if it can get a good price --while it refocuses attention on shale and tight unconventional gas plays.

Although he stressed Talisman is "not in a forced sale mode," decisions regarding the conventional portfolio could be made before the end of the year.

"That's the heart of the company," he said. "We need to consider whether we're going to sell it, joint venture some of it, whether we're going to hold some of it. But right now we don't have to do anything."

But other big producers said they can ride out the downturn without resorting to shut-ins or asset sales.

Steve Laut, Canadian Natural Resources' chief executive, said the company has no plans to turn off the taps.

"We're the low-cost producer, so we think we can withstand quite a low price before we have to shut-in production, so we're not there yet. . . . It pays to be the low-cost producer."

Despite the gloom, at least one producer was able to keep a sense of humour.

More than a few heads were nodding after Scott Saxberg, head of oil-weighted Crescent Point Energy Trust, described natural gas as a throwaway side product.

"Did I mention we're 90 per cent oil-weighted?" he said to chuckles, adding, "The other 10 per cent is a waste product, natural gas."

Thecommodity-price-driven slowdown in the oilpatch is paying off for some producers in at least one way.

Michael Culbert, president and chief executive of gas-weighted Progress Energy Resources Corp., said the company has been buying land in Crown sales in B. C. and Alberta.

"I'd say the land prices are probably about a third of what we would have paid a year earlier, on both sides," said Culbert.


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