Why Montney gas producers may offer best upside

Straddling British Columbia and Alberta, the Montney is among the world's largest shale plays - roughly the size of Greece.

Natural gas costs are expected to remain pressurized in North America, but explorers and producers operating within the Montney region of Bc and Alberta are well positioned they are driving upside for shareholders, says William Lee, analyst at Scotia Capital Inc.

“Despite the challenges for natural gas producers, we continue to believe that the Montney offers the best lean gas economics in North America,” he said in a note to clients this week.

Based on Alberta pricing, gas prices are hovering just above $2.50 per thousand cubic foot, down from $4.10 at the begining of November.

Mr. Lee said weaker costs are partly the result of ongoing shale gas production development in the northeastern United States, but thinks summer weather and also the potential from companies switching to gas from coal may reduce storage levels, that are nearing their peak.

He expects the Montney to break even at roughly $2.50/mcf, using the top areas of the play breaking even nearer to $2.

He said Advantage Oil & Gas Ltd., Arc Resources Ltd. and Tourmaline Oil Corp. are the best bets for investors wanting exposure to the region and ranks the 3 stocks sector outperform

“[They] stand out across a range of metrics, including well performance, capital efficiencies, break-even costs, growth profiles, and balance sheet strength,” he said.

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