Feeling gassed

Veritas Investment Research

Natural gas prices have traded below US$2.00/Mcf for over a month, with current levels representing multi-decade lows on an inflation-adjusted basis. Producer profitability has been tested. However, the Veritas team point out that not all nat gas plays are built the same and breakevens vary across basins (see chart), with the Canadians having a wider margin of safety. The team see many US producers likely capitulating in the face of lacklustre returns across their portfolios. Longer-term, favourable economics, liquids-rich nature and a stronger USD could position Canadian producers as attractive M&A targets. Favoured plays are Tourmaline Oil and ARC Resources given their strong operations, broad hedge books and appealing liquids-rich growth prospects.

- 05 April, 2024