Mergers, cost cuts help natural gas firms survive

CALGARY — With natural gas prices reaching depths not seen since 2002, hard-hit producers in Western Canada are coping by pulling the few levers that are within their grasp.

CALGARY — With natural gas prices reaching depths not seen since 2002, hard-hit producers in Western Canada are coping by pulling the few levers that are within their grasp.

“There’s not much that can be done about the natural gas price. It’s beyond everybody’s control. So people have to look at what they can do in the short and medium term to try to get through it,” Gary Leach, head of the Small Explorers and Producers Association of Canada, said Tuesday.

The Alberta spot natural gas price closed at $2.30 per 1,000 cubic feet on Monday. Most producers say they need gas in the $6 to $8 range to eke out a profit.

The vast majority of SEPAC members are focused on natural gas, which means there generally isn’t much wiggle room when prices crater.

A few have the option of investing more of their capital in developing oil, which has seen much more robust pricing in the US$70-per-barrel range.

“If companies don’t have those kinds of opportunities, they are, and have been for some time now, trying to reduce expenses to live within their cash flow,” Leach said. “For a lot of companies, particularly smaller juniors, though, that means the likelihood of production declines.”

Another option for companies could be to “grow your way out of the problem” through mergers and acquisitions.

This past week a number of deals were announced. On Friday, Junior Delphi Energy Corp. (TSX:DEE) agreed to buy Fairmount Energy Inc. (FMT) for $14.5 million, allowing Delphi to tap into lower-cost natural gas fields in Alberta.

And Monday, Daylight Resources Trust (TSX:DAY) added more oil to its portfolio by acquiring Highpine Oil & Gas Ltd. for $530 million.

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