Peyto Exploration & Development is slashing 2019 capital spending by approximately $100 million compared to its original plan, blaming “the natural gas price crisis currently affecting the entire Alberta natural gas market and Canadian natural gas producers.”
Pipeline egress challenges and inadequate seasonal access to storage reservoirs have driven “unprecedented volatility over the past year and a half in the Alberta natural gas price (AECO),” the company said on Thursday.
In November, Peyto announced a 2019 capital program of $250 million to $300 million. That is now reduced to $150 million to $200 million.
“Natural gas prices in Alberta have taken another step backwards. The current forward strip for AECO gas price even worse than a year ago and dramatically worse than two years ago when C$2.50/GJ looked like the low point. A lack of winter so far in Western Canada is partly the culprit, but there is more to the story,” Peyto CEO Darren Gee wrote earlier this month in his January report to investors.
“This is in contrast to the NYMEX price in the U.S. where, other than a winter spike to US$4.40/MMBTU in December, the future strip also hovers around that US$2.50 to US$3.00 mark.”
So far in January AECO pricing has continued the trend set in 2018, month-to-date averaging $1.69/GJ compared to NYMEX at US$3.13/MMBTU, according to the Daily Oil Bulletin.
Peyto’s decision to conserve capital could be considered as a leading indicator for the broader industry ahead, GMP FirstEnergy analyst Robert Fitzmartyn wrote in a research note on Friday morning.
The company said it plans to ramp up capital investment in 2020 and 2021 to approximately $270 million and $320 million, respectively.
Gee said that depressed activity in Canada compared to in the U.S. is a result of being “handicapped” by the actions of the federal and provincial governments despite “their rhetoric that we can protect the environment and our economy at the same time.”
“We can both solve global climate problems and benefit domestically from growth in Canadian oil and gas production by selling our more responsibly developed hydrocarbons to the rest of the world,” he wrote.
“The federal and provincial governments…have increased regulation and consultation to the point of stagnating the industry that could help achieve that goal. And instead paved the way for our most direct competitor to do it rather than us.”