Encana recently unveiled an interesting titbit about its Duvernay JV agreement with PetroChina. The company had 14 interested suitors to choose from. We are talking about eligible parties that were willing to inject billions of dollars in the Duvernay. Recall that in December, Encana announced a JV partnership with Petrochina for $2.18 billion for 49.9% interest in 444,000 net acres in the Duvernay play.
Encana’s acreage lies in the liquids-rich fairway with a drilling inventory estimated at up to 1600 wells. We are talking deep expensive wells of $15M a piece to drill and complete. These wells yield up to 300 bbls/MMcfd of liquids 50-60 API oil – i.e. condensate which fetches a premium to the price of light oil.
What is the best way to get exposed to this money besides buying Encana? It would naturally be through investing in drilling companies and fracking companies. They are guaranteed to get a piece of the action. Let’s face it, no intermediate/junior producer will be able to afford these expensive wells so the best way to capture a piece of these billions is through oilfield services stocks.
Within a couple of years, I expect the oil and gas landscape to look very different. And I believe I am not the only one given the billions of dollars currently looking for a piece of the Canadian oil patch. The natural gas market should be supported with new LNG export facilities coming on line. On the oil side, new pipelines will change the pricing dynamics particularly for Alberta’s bitumen/heavy oil. Injecting billions of dollars in Canada’s shale plays by foreigners will certainly show up in the bottom line of the oilfield services sector.
Would you pick a drilling or fracking company? Which one?
Have a Great Weekend!