Oil and gas junior companies: What's their end game?
Aroway Energy CEO Chris Cooper discusses junior oil and gas companies, the Keystone XL pipeline and the future of Canadian oil and gas, in an interview with OilPrice.com.
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Chris Cooper: Management teams that have built and sold companies in the past have a responsible, methodical approach to how they run their businesses. More often than not, these teams do not try to re-invent themselves by drilling wells and formations that they have not done in the past. They continue to focus on what they know best, whether it be drilling in the Peace River Arch, chasing Leduc wells, or focusing on cardium wells. They often do not stray from their formulas and that is why they are good teams.
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James Stafford: More Canadian oil is now being marketed by rail. Can you put the rail versus pipeline transport comparisons into perspective for us from a Canadian operating perspective?
Chris Cooper: A lot of companies, including Aroway, are capitalizing on the benefits of moving their oil via rail as opposed to pipeline. I think it will increase our netback, our profit per barrel, by several dollars immediately.
For instance, before we purchased our West Hazel Property in Skaskatchewan, the owners would truck to Talisman or another big operator that was pipeline-connected. Then, once the oil got to the pipeline-connected operator, they had to pay a certain amount of money to get it in the pipeline for diluents to meet pipeline specifications. Then they had to pay for the pipeline tariff and then they got the price the pipeline operator provided wherever they were on the pipeline.
So for example, the last month we got $53 to $54 a barrel, after the blend-in tariff for our West Hazel production, which is probably the lowest you’re going to see for a long time. Our netback on that oil was still greater than $20 a barrel. But for that $53.32 a barrel we sold, if transported by rail, we remove the pipeline tariff, we remove the blend for the diluents and we get $9 more added to the netback value. (Related Article: Can Leak Detection End the Pipeline Impasse? Interview with Adrian Banica)
So what we’ll end up doing is trucking our oil from the field to a company called Altex Energy, which is partly owned by Shell Canada. Shell owns all the railway cars and all these railway cars get filled up with heavy crude and shipped down to their Port Arthur facility on the Gulf Coast. At Port Arthur what typically happens to our crude--because it’s somewhere between 11 and 13 degree oil—is it goes straight into bunker fuel for ships.
So the refinery doesn’t have to touch it in some cases and that’s where we get a pretty substantial bump. Then you’re not subject to pipeline apportion and issues. It just opens up whole new markets for you.
At the end of the day we will get somewhere around $66 or $63 a barrel this month and then we’re going to bump that up by another $9 next month by taking all the crude we have in West Hazel by rail. So our netback will be $35 to $40--and that’s just the West Hazel crude.
James Stafford: What is the market like for assets right now, from a junior’s perspective? What’s the ideal prospect?
Chris Cooper: Asset sales are heating up. We are finding that there are a lot of assets being marketed through companies like Sayer and NRG Divestments. There are also several larger brokerage firms representing companies for “strategic alternatives.”
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