A couple days of mild downside is my guess. Don't get me wrong-Progress itself will be down 30% or more (the only good news here is that it's the arbitrage funds getting killed Monday, not retail or the regular Canadian institutions).
But the junior gas stocks I follow (under 20,000 boepd–stocks like Bellatrix (BXE-TSX), Angle Energy (NGL-TSX) etc have been rising because the market sees a year-over-year storage surplus eroding quickly, and is hopeful on better fundamental natural gas prices this fall and winter. They haven’t been going up on takeover speculation by anybody-another intermediate or a major or a foreign company.
Certainly, stocks that are considered take out targets by The Street for their gas-Painted Pony (PPY-TSX), Peyto (PEY-TSX), maybe Tourmaline (TOU-TSX) and the recently announced deal of Celtic (CLT-TSX)-could have a bit more of a dip.
These are the stocks that hold enough liquid rich natural gas in Canada that they could have been bought out by foreign companies looking to cash in on Canada's short shipping lines to Far East LNG customers like Japan and China.
However, there won't be anybody looking to buy them out now-at least for awhile. The Harper government in Canada was deliberately vague about why the deal was canned, and rumours focus on two points:
- they didn't want to give the same tax breaks Progress was getting to a foreign NOC
- now they can nix the Nexen acquisition by the Chinese NOC and it appears fair
I certainly don't know. But I do know that natural gas is being discovered everywhere these days in huge quantities-offshore Tanzania and Mozambique, offshore Australia, onshore Australia-unlike oil, shale gas does not have a monopoly on new big global supplies.
There is a race-worth tens of billions in infrastructure spending (read: jobs for pipelines and Liquid Natural Gas (LNG) processing facilities) and more tens of billions of dollars in sales of natural gas to the Far East. And the Canadian industry does not have the capital or frankly, the leadership in industry or government to make this happen.
There are no federal politicians sticking their neck out saying LNG or bust to Canada's west coast. All the big LNG proposals in Canada are spearheaded by foreign companies-Shell (RDS-NYSE) and Apache (APA-NYSE), for example.
Petronas would have been the third-and maybe still could be, if the federal government can tell the market why the deal was cancelled and what they can do to have it approved.
The Canadian government, led by Stephen Harper, should hurry up however. Canada has fallen behind in this race incredibly quickly. Earlier in 2012 there were three proposals to get LNG to Japan by December 2015. Six weeks later the participants said 2017. Now they're saying 2019 or 2020. Five years went by in just six months.
There are two strikes already with Canadian LNG potential:
1. Japan wants to de-link natural gas prices from oil (which are now accepted to be roughly 13% of Brent) and Cheniere's (CQP-NYSE) willingness to do that. I think that is a big reason that the Canadian proposals have had a hard time getting firm contracts and moving back their timelines. Forget the fact that the US hasn't even allowed LNG exports yet. The market sees the potential for lower gas prices going to Asia than Canada might be willing to sell for.
2. Potential Regulatory and public opposition to an LNG trade on the west coast. The provincial BC government has issued permits for LNG exports-but environmental groups, native groups, and now the provincial BC government are taking a very hard line on the Enbridge oil pipeline to the west coast.
As the process moves forward, it would be difficult for them not to give the same scrutiny to LNG tanker traffic on the west coast. Even the province of BC, which has been very vocal in favor of LNG, will have to do lots of studies and talk the talk on LNG tanker traffic being safe in narrow BC coastal waterways.
And now, add Resource Nationalism as #3. Canada has put itself in a Catch-22-Canada needs foreign capital to capture the booming Asian LNG market, but it won't approve foreign capital so Canada can't capture the Asian LNG market.
The feds canned the deal even after Petronas publicly increased their bid in the face of a mystery second bidder that was allegedly behind the scenes ready to compete (rumored to be Shell). I hope the Canadian feds can show the market a clear plan for what they want to see in a foreign takeover of a Canadian natural gas producer-otherwise this could be the third strike for Canadian LNG exports.
PS-this issue won't affect my favorite junior gas producer. That's because it has a silver bullet-from both a geological and market perspective-that makes it THE junior gas play to own in 2013. My full report should be ready late next week. The good news is, its' share price will likely go down in sympathy when the fundamentals remain incredibly strong.
Keith Schaefer
Oil & Gas Investments Bulletin
