Up and Coming Natural Gas Companies Progress Energy (PRQ) Tourmaline Oil Corp (tse:TOU) Paramount Resources (POU) Intermediate

                  Over the last two years these rapidly growing companies (five billion dollar Tourmaline Oil Corp is only 4 years old !) weathered the steep decline in natural gas prices, which is quite impressive to say the least;  2012 first half revenues at Tourmaline (+32% --> $204 million), Paramount Resources (-6.2% --> $101 million) and Progress Energy (-12% --> $103 million) all stable despite the huge drop in natural gas price realized: Tourmaline -46.2% Paramount -43.2% Progress -33.5%.  What's more, these companies were able to attract the investment (Progress received $1.1 billion from Petronas) necessary to maintain capex spending (-3% Paramount, -22% Tourmaline) at a time when Canada's biggest player, Encana divested $2.2 billion in assets and lowered its 2011 investment plan by -37%. 

Yes, the federal government's ruling against the takeover of Progress Energy by Petronas complicates things for investors;  for many intermediate gas producers cash flow lags capital, making outside cash (investment) essential for asset development to continue, but I wouldn't be too concerned.  Cash flow will experience a natural rise over the coming quarters because natural gas prices are on the way up !  +73% in just the last six months. 
Also to consider:  These companies may be takeover targets but that doesn't mean they're not pursuing their own takeovers;   Paramount Resources:  7.032 /12.928 million boe in 2P reserves that the company added to its stockpile in 2011 came from acquisitions (Prospex Resources Ltd on May 31, 2011).

Tread with caution:  If the takeover is by a foreign company and the deal is deemed not to be in Canada's interest then it won't receive government approval, meaning that any boost in share price related to the takeover would be lost the next trading day, setting the investor up for a big loss; Exxon bids for Celtic Exploration --> stock gains +45% on the day.

 

 

                Paramount Resources

Between January and December 2011 Paramount Resources increased its proved reserves base by 10.090 million barrels of oil equivalent (+39.45%). Total proved plus probable reserves up 32.25% or +12.928 million boe.

Tourmaline Oil Corp

 

Alberta Deep Basin -- 4 drilling rigs (3 horizontal 1 vertical).  During the half there were five new gas wells drilled.  In September 2012 the Musreau gas plant capacity doubled, from 25 --> 50 mmcf/d.
Sunrise-Dawson, BC -- 60 mmcf/d production;  new 50 mmcf/d gas plant opened during 1Q2013 will increase production to :  Gas - 130 mmcf/d  Oil - 5000 bpd.
Spirit River, Alberta -- production @3200 bpd light oil, 14 mmcf/d natural gas.
Positives:  Last quarter (2q2012) : Total Debt down -5.1% to $421.576 million.  Produced 51,022 boe/d (+81% vs 2011) at a total cost of $8.64/boe (-16% vs 2011).  Oil liquids production - 6560 bpd (+119%) which is expected to go up to 9,000 -> 10,000 bpd by 2012 year end.
Negatives:  Pays no dividend.  2012 first half capex (-22%) and earnings (-78%) down.

Progress Energy Resources Corp

Progress Energy leads all companies in terms of land acreage in the Montney region (~800,000 net acres, 625,000 of which is in the North Montney Footholds of NE British Columbia).  Lower natural gas prices forced the company to delay completion of selected wells (announced February 2012).  In the Deep Basin light oil region of NW Alberta the company has 4.5 net wells (6 gross);  The region is also known as the Dunvegan oil play (1800 boe/d production 75% liquids).  The $116 million in capex (1Q2012) came from drilling and completions (74.6% or $86.508m), equipping and facilities (15.7% or $18.176m), land acquisitions (5.8% or $6.724m).  Progress Energy pays a quarterly dividend of 10 cents (unchanged).  Total debt is at $421.576 million which is down -5.1%.

Petronas bid blocked by the government but Progress Energy stock (prq) only gives up a fraction of its gains :  Progress Energy reaped a lot of rewards due to takeover talk, on June 28, 2012 the stock gained 73.6% (11.55 --> 20.05) after Malaysia's state owned oil company Petronas bid $5.5 billion or $20.45 a share for the company.  About a month later, on word of there being a bidding war for the company between Petronas and a mystery bidder, the stock climbed another 13.8% to $22.85 (Petronas responded by increasing its bid by $500 million).  In the ensuing months, the price remained relatively steady at above $20;  While the federal government was contemplating the deal the stock lost $0.93 or 4.1% of its value.  In October, the government put a stop to the deal and on the following trading day Progress Energy Resources loses over 9% of its value, finishing near $19 a share which is encouraging given that prior to Petronas' bids the company was valued at over $11 a share. 

There are two reasons for this 1)  Petronas is state owned, making it subject to extra scrutiny (publicly traded Exxon Mobil didn't face any obstacles when it acquired Celtic Exploration last week).  That means other bidders may succeed and there will be other bidders given the global appetite for natural gas.  Other companies have shown interest in Progress Energy including a mystery bidder on July 26.  2)  2011/2012 net proved plus probable researves up by 67.163 million boe (+30.9%) (though crude oil was down marginally), revenue down only -12% even though natural gas prices plummeted (realized price -33.5% --> $2.56).  Natural gas prices are already higher and the company's financial statements will benefit from that.

Other interesting stocks..

Alimentation Couche Tard Inc (PINK:ANCUF) +64% last 12 months - Convenience store/gas bar operator in Quebec. Company is growing fast (over last year reached the same market capitalization as Canada's largest supermarket operator, Loblaw Companies).  This must be a good investment !  Metro Inc, Canada's #3 supermarket operator, paid over $23.6 million just to maintain its share in Couche Tard at 10.6%.

Galaxy Resources (ASX:GXY) -  Australia-based resource company with assets containing lithium and potash.  Recently acquired Canada's Lithium One and its vast reserves at Argentina's Sal de Vida project - annual production will be 25th tons lithium, 107th tons potash.
Pembina Pipeline (NYSE:PBA) - Thanks in part to the April 2012 acquisition of Provident Energy ($3 billion) the company has a market value three times greater than it did last year.  Has extensive oil transportation infrastructure from pipelines to trucking.

Oil and Gas Reserves

			Progress Energy		Paramount Resources	Tourmaline Corp
			Gross	Net	Gross	Gross	Net
Jan 2012	N.Gas bcf	Proved	996.79	887.378	162.0	782.457	700.071
		2P	1718.179	1521.726	244.1	1415.942	1264.505
	Crude oil Mbbls	Proved	4.371	3.773	4.874	6.254	4.734
		2P	6.064	5.154	6.573	10.931	8.254
	Gas liq Mboe	Proved	18.432	15.401	3.799	12.186	9.348
		2P	30.963	25.714	5760	22.876	17.515
	Total Mboe	Proved	188.934	167.070	35.667	148.849	130.761
		2P	323.391	284.489	53.015	269.797	236.520
Jan 2011	N.Gas bcf	Proved	821.289	707.429	112.0	487.093	438.407
		2P	1365.581	1178.303	181.8	829.365	746.357
	Crude oil Mbbls	Proved	4.761	4.082	6.906	3.870	3.004
		2P	6.242	5.316	9.782	6.479	5.000
	Gas liq Mboe	Proved	12.103	9.566	incl	7.962	6.207
		2P	19.573	15.626	incl	13.474	10.470
	Total Mboe	Proved	153.746	131.553	25.576	93.015	82.279
		2P	253.412	217.326	40.087	158.181	139.863

Key Metrics: Progressive Energy, Tourmaline Oil Corp, Paramount Resources

USD mil		Financials				Production				Real.Price $
000 bpd mmcf/d		Revenue	Profit	Capex	Assets	Gas	Oil	liq	total boe	Gas	Oil	Gas.liq
Progress Energy	1Q2012	103.014	(6.81)	116.003	2,655.748	239,376	2374	4496	46,766	2.56	92.94	66.21
	1Q2011	117.115	1.60	140.191	2,458.390	233,488	2033	3408	44,356	3.85	82.89	67.85
	chg %	(12.04)%	(93.3)%	(58.6)%	8.0%	75.9%	119.3%	8.0%	80.5%	(33.5)%	12.1	(2.4)%
Tourmaline Corp	2Q2012	100.461	1.012	53.831		266,771	6560	incl	51,022	2.23	77.75	incl
	2Q2011	86.433	15.192	130.075		151,634	2991	incl	28,263	4.38	95.54	incl
	chg %	16.2	(93.3)%	(58.6)%		75.9%	119.3%		80.5%	(49.1)%	(18.6)%
	1H2012	204.599	3988	270.255	2,862.502	256,631	6112	incl	48,884	2.38	84.11	incl
	1H2011	154.980	17,919	347.627	2,030.285	138,576	2703	incl	25,799	4.42	89.96	incl
	chg %	32.0%	(77.7)%	(22.3)%	40.99%	85.19%	126.1%		89.5%	(46.2)%	(6.5)%%
Paramount Resources	2Q2012	46.5	nil	66.4	1,777.300	106,200	1808	1973	21,474	2.09	78.65	69.63
	2Q2011	61.1	12.2	54.5	1,714.500	77,700	2110	1504	16,572	4.36	94.58	81.95
	chg %	(23.9)%	growth	21.8%	3.7%	36.7%	(14.3)%	31.2%	29.6%	(52.1)%	(16.8)%%	(15.0)%
	1H2012	101.20	124.50	208.60		97,400	2097	1813	20,144	2.40	73.71	84.66
	1H2011	107.90	0.30	214.60		68,300	2231	1237	14,844	4.26	79.47	87.65
	chg %	(6.2)%	growth	(2.8)%		42.6%	6.0%	46.6	35.7%	(43.7)%	(7.2)%%	(3.4)%