An unusually warm North American winter has pushed natural gas prices to rock-bottom low prices, sending shares of Canadian natural gas producers into a tailspin.
Their downward spiral has been revving up for some time, but it really took hold at the start of the new year. Since January 1, Celtic Exploration is down 21 per cent, Progress Energy Resources Corp. is off 19 per cent and Paramount Resources has slumped 16 per cent.
Faced with such a dismal outlook, the producers are starting to revamp their capital spending plans to preserve cash. This week, Progress announced that its year-end proved and probable resources had grown 28 per cent, but the firm still had to slash its 2012 capital spending program by $100-million.
“The decision to slow down capital expenditures and shut-in production was prompted by the abnormally warm winter in North America and the resulting supply and demand imbalance,” chief executive officer Michael Culbert said in a statement.
Tourmaline Oil Corp., Mike Rose’s new baby, has done the same. Management recently slashed 2012 capital spending to $400-million, down from the originally planned $490-million.
Although Tourmaline hasn’t fallen as much as its peers during this calendar year, the stock is down almost 30 per cent since its October high of $34.80. That even this stock has fallen is a little surprising, considering that it first went public when natural gas prices were already depressed, and investors didn’t seem to mind.
Reflecting on the IPO, CEO Mike Rose said: “ We are a gas intermediate [company]but investors will look at you if you are not over-leveraged. So you keep your debt down, your cost structure is good, and there are investors who believe gas will recover somewhat in price in the future.” Now it appears investors will only hold on for so long.
To understand just how much low natural gas prices hurt this firms, consider that Celtic recently said its 2012 average production is expected to be weighted 23 per cent oil and 77 per cent gas. However, operating income in 2012 is expected to be weighted 55 per cent oil and 45 per cent gas.