Natural gas could be the single most important energy source of the next decade.
For investors who want both profitability and longevity, the natural gas sector is the very first place to look.
The math is simple:
Big banks are fleeing oil.
The coal industry is in terminal decline.
And renewable energy is years or even decades away from meeting global demand.
So while the multi-trillion-dollar ESG trend is cutting off financing for oil and coal, the global energy transition to renewables is helpless without a bridge fuel.
A fuel that is abundant, cleaner than oil or coal, and cheap to produce.
That fuel is natural gas.
Big money is banking on this bridge.
And the trend has already begun, with some players racing to one of the most profitable natural gas frontiers in the world… Colombia.
A combination of skyrocketing demand and falling supply have left the Latin American nation desperate for the world’s most sought after transition fuel, making it a great case study for the coming global natural gas resurgence.
In fact, while prices for natural gas in the U.S. have spent most of the year below $2 per thousand cubic feet, prices in Colombia have climbed as high as $7/mcf.
That’s a 250% premium on a resource that costs roughly $0.60 to produce and transport to the market. [seems low as the proposed pipeline tariff is $.70]
Colombia truly is a producer’s paradise…
With one of the most successful management teams in the Colombian E&P space, working in one of the best natural gas frontiers on the planet, NGX is likely to be the first of many natural gas success stories in the coming years.
Natural gas is the near-term future of energy, and Colombia’s government is fully behind it.
Colombia: The Big Margin Bonanza
Colombia’s natural gas prices are some of the highest in the world. Imagine gas contracts at $5/mcf and above, or spot prices that reach to $7/mcf.
And then imagine near-zero volatility.
Three charts tell the whole story:
Colombia’s natural gas supply is about to be cut in half at a time when demand is set to rise over 50% …
Existing producers can’t keep up …
And prices are strong: Take a look at the prices (after transportation) that Canacol (CNE-TSX), one of the biggest producers in Colombia, has been getting for its gas, consistently:
Now, consider that amid the skyrocketing demand, declining supply and high natural gas prices, Colombia’s proven reserves are dwindling … Proved gas reserves are almost half what they were in 2009.
That means it desperately needs another major discovery.
And that play is in major decline.
Nothing more poignantly illustrates Colombia’s natural gas conundrum than this. Chuchupa has produced nearly half of the country’s gas–for 35 years.
3 Blocks–All of Them Potential Kingmakers for Colombia
NGX Energy owns 3 key natural gas assets that could end up generating many times in cumulative cash flows compared to its current market valuation…
#1 Maria Conchita
Maria Conchita is a 32,518-acre block located in the Guajira Basin in Colombia’s Caribbean coast.
This is the block right next to giant Chuchupa to the north.
NGX has completed 3-D seismic testing on Maria Conchita and successfully re-entered its first well hitting substantial gas projected to yield 14 – 20 MMcf/d with 2 additional re-entry wells and 3 new wells planned in the near-future.
The SN-9 block is NGX’s flagship exploratory 311,353-acre block, in which NGX has a 72% interest.
And again, it’s the closelogy. This block is adjacent and upstructure to Canacol Energy, Colombia’s largest independent gas producer, which has booked natural gas reserves of 624 Bcf and production of 200 MMcf/d.
The news flow on this one should also be fast-paced, with NGX about to start drilling and seismic already indicating gas.
It will be drilling up to four conventional exploration wells here in the initial phase to depths of 4,500 – 6,000 feet and at a budgeted cost of $4.5-6 million per well for completion.
But the full drill will be 36 wells and NGX is hoping to hit up to 1 trillion cubic feet based on management’s best-case estimates.
NGX (TSX.V:GASX; OTCMKTS:PENYF) is anticipating potential production from this block at 180 MMscfd based on management estimates. That means it’s another potential Canacol–but with a tiny market cap company, so the upside potential is huge if it reaches its target.
Tiburon is NGX’s blue sky exploratory project with huge potential capacity of up to 2Tcf of natural gas (based on management estimates) thanks to its location sitting in the same basin as Chuchupa and surrounded by massive offshore discoveries Orca and Perla.
NGX is estimating Tiburón’s peak production potential at 400 MMscfd–for 10 years. That’s twice the production of Canacol, Colombia’s largest independent gas producer.
It’s a huge undertaking, which means NGX will be looking for a multinational partner to help develop this one after shooting 2D seismic.
Getting It Across the Finish Line
When you’re sitting on a huge natural gas play in a country that desperately needs new reserves, with soaring demand, declining supply and solid prices, one thing that can trip you up as a junior E&P company is management.
In this case, we’re looking at a management team that’s made shareholders a ton of money before.
Even better: They’ve done it before in Colombia.
NGX’s board has some serious pedigree. They come as former executives of the region’s largest oil and gas company, PDVSA (Petróleos de Venezuela).
They know oil and gas on a supermajor level, and they know politics, and Latin America, too.
They not only know Colombia, but they built up a major Colombian oil and gas play–Pacific Rubiales–14,000 bpd to 330,000 bpd in only four years.
In 2006, Rubiales–led by the same people–acquired a massive land package in Colombia, in La Creciente. It was the second largest natural gas field in the entire country.
NGX executive chairman Ronald Pantin held various senior executive positions at PDVSA and was CEO and Executive Director of Pacific Rubiales from 2007 until 2016.
Federico Restrepo-Solano is the Director & President of NGX, and partner and corporate director at Qvartz Capital Partners private equity fund. He’s got more than 25 years of experience mining, oil and infrastructure, including as Senior VP of Corporate Affairs at Frontera Energy, President of Colombia’s national federation of coal producers, Fenalcarbón. Importantly, he’s also served as a representative for Colombia before the Inter-American Committee on Ports, in Washington DC.
Serafino Iacono, NGX CEO, has over three decades of experience in capital markets and public companies and has raised more than $4 billion for numerous natural resource projects internationally. He serves as an Executive Chairman at Gran Colombia Gold Corp and former Co-Chairman and Executive Director of Pacific Rubiales, among a long line of other high-profile executive roles.
These guys are the Who’s Who of major energy plays in Latin America. They’ve done this in Colombia before. They’re likely to do it again–only this time the play could be even bigger. It’s less remote. It’s surrounded by huge producers. It’s got a lot more infrastructure in place. And the macro picture for Colombian natural gas is a producer’s dream.
If it all comes together, they are positioned to become the kingmakers of Colombia’s natural gas industry.
The Clock Is Ticking in Natural Gas Ground Zero
This is an exploration story.
That means it’s higher risk and higher reward.
But it’s hard to find a story with higher potential reward than this, and management with a track record that strikes confidence.
NGX stock has already climbed over 300%… but could go much higher if there is good news once the drill bit starts hitting the ground.
Colombia is desperate for new natural gas, and it’s great to work with a government faced with soaring demand and declining supply.
This is Colombia’s official transition fuel, which means that so much is at stake.
Colombia only has proven natural gas reserves of 3.1 Tcf (as of 2019). But Colombia’s National Hydrocarbons Agency (ANH) president Armando Zamora estimates the real potential in the ground to be “eight times higher”.
NGX (TSX.V:GASX; OTCMKTS:PENYF) is on the ground floor of this potential, sitting on three highly prospective blocks, where even a single discovery will likely provide this tiny market-cap company with major cash flow. And where a single discovery has the potential to establish NGX as one of the most important companies on the Colombian oil and gas scene.
Other companies to watch during the energy transition:
Exxon (NYSE:XOM) is an oil giant looking to keep its ommitment to reduce its emissions. It claims to have about one-fifth of the world’s total carbon capture capacity. The company captures about 7 million tons per year of carbon. This has been in place since 1970, and the company claims to have captured more CO2 than any other company — more than 40 percent of cumulative CO2 captured.
In addition to its carbon capture ambitions, Exxon is also betting big on natural gas. In fact, it’s a pioneer in the liquefied natural gas industry. Using technology and expertise, Exxon has become one of the most important players in the business. With ventures in Qatar, the world’s largest natural gas producer, and emerging hotspots such as Papua New Guinea, Exxon is making all the right moves to stay ahead of the coming natural gas boom.
Total (NYSE:TOT) is one of the few oil majors truly diving head first into the new energy reality It is not only aware of the needs that are not being met by a significant portion of the world’s growing population, it is also hyper-aware of the looming climate crisis if changes are not made. In its push to create a better world for all, it has committed to contributing to each of the United Nations’ Sustainable Development Goals. From workplace safety and diversity to societal progression and reducing its carbon footprint, Total is checking all of the boxes that the next generation of investors hold close to their hearts. And that should pay off for the giant.
While Total’s share price slipped in March along with the wider market, Total’s pivot towards greener pastures has helped it outperform some of its peers. Though it still maintains a major presence in the global oil and gas industry, it has made significant strides in the renewable realm, as well.
BP (NYSE:BP) is another European energy giant slowly pivoting towards greener energy alternatives. BP, which has been criticized in the past as being slow and late to the environmental cause, could now leapfrog its peers. We are still a long way from Beyond Petroleum. But chief executive Bernard Looney believes that we are only 30 years from a net zero BP. He has promised that in September the company will lay out a more detailed plan that shows the path to that destination. But he has shown already that there is more to his commitment to net-zero than there was to Beyond Petroleum 20 years ago.
“Renewables and natural gas together account for the great majority of the growth in primary energy. In our evolving transition scenario, 85% of new energy is lower carbon,” Spencer Dale, BP group chief economist, said, commenting on the outlook to 2040.
TC Energy Corporation (NYSE:TRP, TSX:TRP) is a major oil and energy company based in Calgary, Canada. The company owns and operates energy infrastructure throughout North America. TC Energy is one of the continent’s largest providers of gas storage and owns and has interests in approximately 11,800 megawatts of power generations. It’s also one of the continent’s most important pipeline operators.
With TC Energy’s massive influence throughout North America, it is no wonder that the company is among one of Canada’s highest valued energy companies. Investors can feel comfortable with the company due to its huge and diverse portfolio, and continuing eye for success.
Though Canadian oil has had a particularly rough go at it this year, Canadian Natural Resources (NYSE:CNQ, TSX:CNQ), kept its dividend intact after swinging to a loss for the first half of the year, while Canada’s producers are scaling back production by around 1 million bpd amid low oil prices and demand. Though Canadian Natural Resources kept its dividend, it withdrew its production guidance for 2020, however. It also said it would curtail some production at high-cost conventional projects in North America and oil sands operations and carry out planned turnaround activities at oil sands projects in the second half of 2020.
While the Canadian energy giant has seen its stock price slump this year, it could provide a potentially opportunity for investors as oil prices rebound. It is already up over 170% from its March lows, and it could still have some more room to run.
Suncor Energy (TSX:SU) has adopted a number of high-tech solutions for finding, pumping, storing, and delivering its resources. Not only is it big in the oil sector, however, it is a leader in renewable energy. Recently, the company invested $300 million in a wind farm located in Alberta.
When the rebound in crude prices finally materializes, giants like Suncor are sure to do well out of it. While many of the oil majors have given up on oil sands production – those who focus on technological advancements in the area have a great long-term outlook. And that upside is further amplified by the fact that it is currently looking particularly under-valued compared to its peers.
Enbridge, Inc (TSX:ENB), based in Canada’s oil sands capital Alberta, is an energy delivery company focusing on transportation, distribution, and generation of energy. Operating in the United States and Canada, Enbridge owns and operates the largest natural gas distribution network in Canada and the longest crude oil transportation system in the world. Founded in 1949, investors can feel confident in Enbridge’s experience and market know-how.
Though not strictly dealing in commodities, Enbridge’s diversified assets and connections to a variety of industries position the company as solidified player in many Canadian investors’ portfolio.
Cenovus Energy (TSX:CVE) is most known for its oil business, but it is also actively investing in renewable energy. More importantly, however, is that it has set truly ambitious sustainability goals for itself, aiming to cut emissions by a massive 30% in just 10 years.
This is one of the most actively traded stocks on the TSX. The potential is certainly here for this oil company, so for investors who are bullish on the return of the oil markets, this is a perfect pick in the Canadian market.
Source: OilPrice │ Photo: OilPrice