Wednesday, April 11, 2012

Canadian Nat Gas Producers Facing Lending Squeeze

Every day we here at CVI look at natural gas companies.  Every day we say not yet.  We are happy to continue to sit on our portfolio loaded with oil producers.

More pain is likely coming for the gassy names.  Stock prices will likely go lower.  A few more months and we might start selectively buying some that have staying power to ride out the storm.

Here is the Calgary Herald on borrowing base reductions these companies are going to be facing:

CALGARY — The gassiest producers in the oilpatch could face banks turning down the taps on lending as institutions apply their own dismal natural gas pricing forecasts to borrowing bases, analysts said following the spring revision’s claim of its first victim, Compton Petroleum Corp.
Calgary-based Compton, an intermediate whose production is 83 per cent natural gas, must repay $30 million in outstanding debt resulting from a credit drawdown by May 7, the company announced Monday. Compton’s syndicate of lenders revised lower the firm’s maxed-out credit facility of $140 million to $110 million, which the company blamed largely on a lower gas price outlook from the banks.
As lenders assess annual third-party reserve reports from producers, they’re applying their own price outlook on natural gas in the ground. The risk is they assume reduced ability to generate cash flow from production, in turn scaling down the available debt backed by those assets.
Banks typically do reviews twice a year, in the spring and fall, and 2012 has ushered in the lowest gas prices in a decade. Alberta’s AECO hub spot price dipped below $2 per gigajoule in late February — less than half a high last June of $4.15 per gigajoule — and has stayed there since the beginning of March on a glut in North American gas supply.
“This discussion is probably going on all over town,” said research analyst Gordon Currie of Salman Partners Inc. “In my view, anybody that’s at 50 per cent gas-weighted or more is in some jeopardy here,” he said, speculating that producers at risk could include Progress Energy Resources Corp., ARC Resources Ltd., Bonavista Energy Corp. and NuVista Energy Ltd.

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