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Disciplined capital allocation and efficient operations have been the primary catalyst for strong results. The year has been very good for Vero Energy shareholders as prices have increased 49% since the beginning of the year to its current trading range at $6.63 per share.
By Dave Brown – Exclusive to Gas Investing News
Calgary based, growth oriented Vero Energy Inc. (TSX:VRO) reported a 26 percent increase in production of natural gas to 8,335 barrels of oil equivalent per day during the third quarter. The $12 million cash flow from operations resulted in a 197 percent increase from the third quarter of last year. Disciplined capital allocation and efficient operations have been the primary catalyst for strong results. The year has been very good for Vero Energy shareholders as prices have increased 49 percent since the beginning of the year to its current trading range at $6.63 per share.
Cautionary Outlook
Despite a continued low natural gas price environment, as well as extremely wet weather, Vero managed to deliver on its production targets. The company estimates that on average approximately 600 barrels of oil equivalent per day was lost in the quarter due to weather delays. These disruptions have resulted in delays impacting the beginning of the fourth quarter. The company currently has 4 wells in various stages of completion and 3 drilling rigs operating.
Major Integrated Producer and Marketer Reporting Lower Profits
Calgary based Husky Energy Inc. (TSX:HSE), the major integrated gas and oil producer, reported slightly lower third quarter profits, but announced an increase for its expected 2010 capital expenditures by about one third to the $4 billion range. In its financial report, Husky reported that its net profits fell to $257 million or 30 cents a share in the third quarter ended Sept. 30, down from $266 million or 31 cents last year. Chief Executive Officer, Asim Ghosh offered conservative guidance, “We will continue disciplined, step-wise development of our assets as we focus on near-term production growth while advancing our rich and diverse portfolio of mid to long-term value generating assets.”
International News
British company Melrose Resources (LON:MRS) has started commercial production of natural gas from two Black Sea fields off the cost of Bulgaria. A company statement indicated the combined field reserves total 74 billion cubic feet, while the production rate is expected at 45 million cubic feet per day. Most of the gas will be sold to the state-owned gas utility company, and the balance to a local industrial user.
Melrose has had a prospecting and exploration license in the area since December 2007 and expects the fields to double its cash generation over the next few years. The government estimates Black Sea shelf gas could secure 20 percent of Bulgaria’s natural gas demand for six years, a relief for the country which is almost completely dependent on Russian supplies.
Polish gas giant, PGNiG (WAR:PGN) has announced plans to spend between 25 to 50 million euros per year on shale gas exploration in Poland. The announcement was made by Radoslaw Dudzinski, PGNiG’s deputy chairman, at the 5th Petrobiznes Congress in Warsaw, Wednesday. In his talk as part of the congress’s panel on energy diversification, Mr. Dudzinski added that the total sum to be spent by PGNiG amounts to approximately 178 to 204 million euros on shale gas exploration in Poland. The plan may surprise many investors and analysts as just last month the Chief Executive Officer of Schlumberger (NYSE:SLB) said that shale gas could be much harder to recover in Europe, compared with the United States, because of concerns about environmental damage and other issues.
Investors will be keenly observing the impact of this week’s mid term elections, which could rearrange President Obama’s domestic agenda, leaving the White House looking for ways to cooperate with House Republicans. The administration needs to build bridges to House Republicans and many Texas and Pennsylvania Republicans favor policies to boost natural gas usage, and the producers currently struggling with low natural-gas prices would benefit.
Spot Prices
Regional variations in prices were demonstrated throughout the week. The spot price at the Henry Hub posted a net decline on the week of 2 cents, falling to $3.35 per million British thermal units on Wednesday, November 3. The Henry Hub spot price is $1.16 lower than its level at the same time last year and has been trading below $4 per million British thermal units since the end of September.
At the New York Mercantile Exchange (NYMEX), the December 2010 futures contract rose $0.073 to $3.836 per million British thermal. According to the Energy Information Administration (EIA) working natural gas in storage increased to 3,821 billion cubic feet as of Friday.
While temperatures during the report week were slightly warmer than normal, they were colder than the previous week, leading to increased week over week demand. Average temperatures dropped to the 30s and 40s in most areas in the United States north of 40 degrees latitude. Some forecasters expect the eastern United States to be warmer than normal this winter as a strong La Nina event in the tropical Pacific dominates the upcoming heating season.