For Jason Sawatzky, the word is "oilfield services." They are not glamorous, but they are necessary, and Canada's explorers and producers need oilfield services as they prepare to fill pipelines with natural gas to be liquefied and exported. AltaCorp Capital's director of institutional equity research tells The Energy Report that Canada is pushing hard to approve liquefied natural gas plants, and Canada's proximity to Asian markets gives it an edge. A whole portfolio of companies is poised to support and profit from the business opportunities that will come with that industry.
Jason Sawatzky is director of institutional equity research at AltaCorp Capital Inc., where he focuses on oilfield services. Prior to joining AltaCorp, Sawatzky was an associate analyst covering oilfield services at Stifel Nicolaus. Prior thereto, he worked at Cormark Securities, covering oilfield services and E&P companies for four years. Sawatzky holds a bachelor of commerce degree in finance from the University of Alberta, and a bachelor of arts degree in sociology/psychology from the University of Calgary.
The Energy Report: Jason, what is your outlook for oilfield services industry in Canada for the second half of 2014?
Jason Sawatzky: We are very bullish on Canadian oilfield services heading into H2/14 and 2015. The only thing that may throw a monkey wrench into the positive view in the short term would be the recent pullback in natural gas prices. We have seen the oilfield services index pull back a bit over the past couple of months. If we see natural gas prices pull back even more, we could see a similar pullback in the oilfield services index and in share prices. Other than that possibility, we remain bullish on the sector.
TER: Do you think there's more to the pullback in natural gas prices than seasonal fluctuation?
JS: We've recently had some large injections into the gas storage levels down in the U.S. That's been the reason for the more recent pullback in gas prices. But we are heading into the winter season, and typically gas prices strengthen as we head into winter, as heating-degree days tend to increase and gas usage increases. Even though we've seen a pullback, we expect gas prices shouldn't pull back much more from where they're at today.
TER: How strong is foreign market demand for Canadian liquefied natural gas (LNG)? Eight or nine Canadian LNG targets are proposed. Can demand support all of them?
JS: We believe one to three projects will eventually go ahead. The Canadian market would have a hard time handling eight to nine projects just from a labor and infrastructure perspective.
TER: Are any of the projects in progress right now?
JS: Not really. A lot of the developers have applied for initial approvals. Many projects are waiting on the British Columbia (B.C.) government's LNG tax package, which is expected in the fall. Companies will decide whether they'll go ahead after that. Petronas (PETRONAS)/Progress Energy Canada Ltd. has started delineation drilling. It's operating between 25 and 30 rigs right now, and that's the predevelopment phase of delineation drilling in preparation for eventual approval—if that happens.
TER: There are a lot of LNG projects in the U.S. that have a head start. Can the Canadian projects compete?
JS: U.S. LNG projects do have a head start, as the U.S. already has infrastructure in place for imports on the LNG side. They're now converting these plants to export. That said, we believe the Canadian projects will definitely be able to compete in building out LNG plants and infrastructure. Just considering Canada's proximity to Asian markets, it can compete. It's all about proximity to the Asian markets.