Alberta’s junior sector faces strong headwinds
Takeovers, exploration risk, credit crunches – it's all in a day's work for smaller firms
In the Canadian oil and gas industry, it’s the big players, the Imperial Oils and the Suncors, that make the big deals, spend the big money and create the big headlines on the energy scene. Yet the vast majority of the companies that make up this busy sector don’t deal in production that’s hundreds of thousands of barrels per day or profits that total hundreds of millions or even billions of dollars a year.
Of course, I’m talking about Canada’s juniors, who happen to be the focus of this issue of Alberta Oil. The juniors bear names like Gran Tierra Energy Inc. and Angle Energy Inc. These are small operations that casual investors likely have never heard of. But these firms make an outsized contribution to the oil patch. It’s not something you can measure in the size of their profits or production. It’s the risks, new plays and technologies they are willing to gamble on – while the big guys wait to see how the gambles turn out – that mark their impact.
Whether it’s entering risky jurisdictions like Colombia or Kurdistan in search of big petroleum prizes, exploring emerging plays like the Duvernay or the Horn River basin or utilizing novel extraction technologies such as enhanced oil recovery, the juniors are often at the vanguard of what is happening in this industry. The sector also serves as a good barometer for how healthy the industry is in Canada. Lots of juniors pitching their stories to the investment community, buying up land and searching out new frontiers – whether they be geological or technical – usually means the industry is doing well.
And the industry has been doing well as the economy recovered throughout 2010 and much of 2011 – a recovery that is now being threatened as the financial woes of Greece and the United States send markets into a tizzy. Still, spending and drilling activity have been up in Western Canada as explorers look to free up liquids-rich natural gas and take advantage of high oil prices. The dark clouds that are gathering around the global economy could scupper the industry’s growth plans – just as it did during the recession of 2008-2009 – as investors grow more cautious and capital becomes harder to raise.
But the Canadian junior sector seems to weather the cyclical nature of the business. It’s a scrappy and nimble bunch. And it has to be, because these companies have to seize new opportunities quickly before bigger players move in. They must also adjust business strategies when market conditions change. It’s not an easy way to make a living, but this dynamic group of companies mostly manage to make it happen and keep the industry moving forward in the process.
More posts by Darren Campbell
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- Amid a struggle to ship crude oil to the West Coast, three crazy ideas emerge
- Field upgrading is making it possible to pipe bitumen without thinning agents
- It’s Bleak Out Here: What juniors must do to earn investor trust