Westport Innovations – Update

English: Revenue stamp (2pi) for financing the...

English: Revenue stamp (2pi) for financing the construction of Hejaz Railway in the Ottoman Empire. Listed as No. 17a in W. McDonald’s Revenues of Ottoman Empire and Republic of Turkey. See also Ottoman Turkish Empire Revenue Stamps of the Hejaz Railway by Steve Jaques, Troy, 2009, pp.22 (Photo credit: Wikipedia)

Westport* (WPT : TSX : $39.13)
Westport* (WPRT : NASDAQ : US$39.04)

August 7

Shares of Westport Innovations jumped after the company reported their Q2/12 results. For the quarter, the
company reported consolidated revenues of $106.1 million compared with $44.9 million for the same period last year, an
increase of 136.3%.

Earnings were reported at a net loss of $6.1 million ($0.11 loss per share) compared with a net loss of $18.1
million ($0.38 loss per share) for the same period last year.

Breaking down its segments, WPT reported Westport Light-Duty (LD) revenue, which where up 182.2% to $30.7 million, Cummins Westport (CWI) revenue jumped 78.5% to $57.0 million with 1972 engines shipped, and Westport Heavy-Duty (HD) revenue was up 111.3% to $4.3 million with 75 systems shipped.

Service and other revenue was reported at $14.1 million.

CEO David Demers commented, “Key segments of the transport market have begun the inevitable shift from petroleum based fuel to engines powered by cleaner burning, low cost methane (natural gas), and Westport has a substantial presence in each market.” Demers also noted, “We are seeing strong growth in all segments and in all of our global markets, and despite challenging macroeconomic conditions, we expect this to accelerate as new infrastructure comes on stream over the next two years and as we launch new products, opening up significant new
addressable markets.”

Westport Innovations – Update

US truck - California 2007

US truck – California 2007 (Photo credit: Wikipedia)

June 6 2012

Westport* (WPRT : NASDAQ : US$27.02),

 

The AMP  WOULD NOT INVEST on the basis of the Cat deal – five years hence. Still the Motley Fool choice is a long term prospect for the nat gas vehicle play. Other opportunities exist for the here and now of the market recovery we predict.

Shares of Westport Innovations were up sharply after the company announced that it had signed a deal with Caterpillar (CAT) to co-develop natural gas technology for off-road equipment, including mining trucks and locomotives.

Caterpillar will fund the development program. When the products go to market, Westport expects to participate in the supply of key components. Development programs will start immediately for both new and existing engines, combustion technology and fuel systems. Commercial production is expected to begin in about five years. While the agreements initially focus on engines used in mining trucks and locomotives, the companies will also develop natural gas technology for Caterpillar’s off-road engines, which are used in a variety of electric power, industrial, machine, marine and petroleum applications worldwide.

Usage of LNG within trucking fleets, while still in its infancy, is growing. At current diesel prices, LNG provides a 22% fuel savings, which amounts of well over $20,000 per year for an average truck driver. Those types of savings have already seen several trucking companies make the switch to LNG or CNG. Vedder Transport, a milk hauler in B.C. already operates a fleet of 50 trucks all powered by LNG. There are some drawbacks to running an LNG rig, such as fuel evaporation and the special coolers needed at filling stations to keep the gas at -162 degrees Celsius. These limitations make it mostly suitable for long-haul trucks with large gas tanks. U.S. truckers spent more than $135 billion on fuel last year, according to American Trucking Association.

LNG trucks are also significantly more expensive than regular diesel rigs. Factoring in fuel savings and the extra initial purchase price, it is estimated that it would take between 3-5 years of usage to pay off the initial purchase price premium. An average highway truck engine has a 10 year life span. Truck makers are also gearing up for the coming wave of LNG rigs.

Paccar (PCAR, which manufactures trucks under the Peterbilt and Kenworth badge, expects the gas-powered-truck market share in North America to expand to about 20% in the next several years, up from about 6% now.

 

U.S.

 

 

CITI Energy Sector Review

Age of the bedrock underlying North America, f...

Age of the bedrock underlying North America, from red (oldest) to blue, green, yellow (newest). (Photo credit: Wikipedia)

Athabasca Oil* (ATH : TSX : $10.11)

 

Husky Energy* (HSE : TSX : $22.68)

 

Cenovus Energy* (CVE : TSX : $31.01)

 

Baytex Energy* (BTE : TSX : $42.84)

 

Crescent Point Energy* (CPG : TSX : $38.67)

 

Pinecrest Energy* (PRY : TSX-V : $1.94)

 

Suncor Energy* (SU : TSX : $27.49)

 

 

 

CitiGroup issued a  report on the changing dynamics within the North American energy sector. The report titled “North America, The New Middle East” makes the point that technical innovation that has unlocked new sources of energy, demographics and technology will be responsible for making North America virtually energy independent in the coming decade.

The U.S. has become a net petroleum product exporting country and has edged out Russia as the world’s largest refined petroleum exporter. In the report the CitiGroup noted, “A simple explanation would point to lower demand and a struggling economy, which requires less imported energy. But, that would only get you half the answer. U.S. demand has fallen by some 2 million barrels per day since its peak in 2005. The more exciting part of the answer is on the supply side as the U.S. has become the fastest growing oil and natural gas producing area of the world and is now the most important marginal source for oil and gas globally.

 Add to this steadily growing Canadian production and a comeback in Mexican production and you get to a higher growth rate than all of OPEC can sustain.”

The report cites five incremental sources of liquids growth that could make North America the single largest source of new supply in the next decade. They include:

1) oil sands production in Canada;

 2) deepwater in the U.S. and Mexico;

3) oil from shale and tight sands;

 

4) natural gas liquids (NGLs) associated with the production of natural gas; and

5) biofuels.

Putting these together, North America as a whole could add over 11 million barrels per day of liquids going from over 15 million barrels per day in 2010 to almost 27 million barrels per day by 2020-22. The ramifications for such growth within North America and around the world are profound from an economic and geo-political perspective, however the most important impact will be the reindustrialization of America based on dramatically lower cost feedstock than is available anywhere in the world, with the possible exception of Qatar. CitiGroup noted, “The economic consequences from this supply and demand revolution are potentially extraordinary.

We estimate that the cumulative impact of new production, reduced consumption and associated activity may increase real GDP by 2.0 to 3.3%, or $370-$624 billion respectively. $274 billion of this comes directly from the output of new hydrocarbon production alone, while the rest is generated by multiplier effects as the surge in economic activity drives higher wealth, spending, consumption and investment effects that ripple through the economy. This potential reindustrialization of the U.S. economy is both profound and timely, occurring as the U.S. struggles to shake off the lingering effects of the 2008 financial crisis.”

The report does note that risks to the thesis include environmentalism and political interference, especially in Mexico.

 

 

ARC Financial Funds – Bullish On Nat Gas

Natural gas regulator

Natural gas regulator (Photo credit: Wikipedia)

 

May 26 2012

Over the past four weeks, the price of West Texas Intermediate, the North American benchmark oil price, has declined 15 per cent. But in a remarkable plot twist, natural gas (at Henry hub) has gained 42 per cent. The latter has donned a set of bull horns it hasn’t worn in more than a year, while oil is now clad in brown fur.

We’ll be watching this developing scene with interest – it’s a complicated plot. But North American investors should know something interesting about this play: Both actors can’t dress up as bears.

Pundits have been quick to blame oil’s bearish retreat on economic woes, starting with the never-ending debt situation in Europe. But the plotlines connecting Athens and Madrid to oil centres like Riyadh, Houston and Edmonton are thin. Europe’s economy and its oil (CL-FT90.720.060.07%) consumption have not been correlated for years, so why should oil prices be falling on the euro zone’s troubles?

But there is a tangled thread lurking in the script: If westerners are unemployed, they can’t buy as much stuff from China, which means the Chinese economy loses momentum, which means fewer people in Beijing are able to afford a gas-guzzling car – which, ultimately, means global oil prices turn bearish.

Europe, in fact, is far less important here than China, because half of all new oil consumption emanates from the Asian giant. Yet the sketchy numbers that track China’s economy have been slowing recently and it’s noteworthy that global oil demand has not expanded much in the past year. Overall growth on 89.5 million barrels a day is now tracking less than 1 million barrels a day. Except for 2009, the year of the financial crisis, it has been many years since world oil consumption grew by less than 1 million barrels a day.

This tepid global appetite, combined with momentum on the supply side, is contributing to oil’s newly bearish character.

At the same time, natural gas (NG-FT2.55-0.10-3.66%) has surprised the audience. A 35-per-cent jump in demand from power generators, combined with stagnant production from U.S. gas fields, is helping to burn off the staggering 800 billion cubic feet of surplus storage that accumulated over the past warm winter. Eager market participants are not waiting for that to process to run its course, however. Benchmark U.S. prices have already risen, from $1.90 to $2.70 per thousand cubic feet in one month. Other positive leading indicators, such as declining rig counts, contribute further to natural gas’s newly bullish role.

The most intriguing part of this play is that a bearish oil price performance reinforces a bullish price trend for natural gas. That’s because natural gas is produced from oil wells too.

Indeed, one of the principal reasons for the steep drop in natural gas prices in recent years has been “associated gas,” or gas that bubbles up when pumping oil. As the number of oil rigs has risen in North America – from 200 to 1,600 in three years – there has been a surge in associated gas production. It was up 2 billion cubic feet per day in 2011. An additional 3 Bcf/d is expected in 2012. Right now, the U.S. produces 9.0 Bcf/d in associated gas, which represents 12 per cent of North American production. Without associated gas, overall continental natural gas production would decline – triggering higher prices.

So it’s important to realize that weaker oil prices, if sustained, will tend to dampen the zeal for aggressive oil drilling, thus reducing natural gas production.

The plot is indeed complicated, but all you need to know is that there is only one bear suit possible: If you are bearish on oil, you have to be bullish on gas.

Shale Gas Changing Americas’s Future

Liquefied natural gas (LNG) tanker, section vi...

Liquefied natural gas (LNG) tanker, section view from front. (Photo credit: Wikipedia)

 

By Vaclav Smil

Before the end of 2005, the U.S. price of natural gas rose above $15 per thousand cubic feet (mcf), nearly 12 times the record low reached in 1995. Production was down by about 8% compared to 2001, news reports speculated about supply shortages, and gas companies were gearing for expanded imports of liquefied natural gas (LNG) from overseas. Six years later, by the second week of April 2012, the market price of U.S. natural gas fell to less than $2 per mcf (to levels not seen since January 2002), nationwide gas extraction in 2011 was nearly 12% above the 2009 level, and record production was expected in 2012, when all storage sites would be filled to capacity. No wonder that gas companies are now planning to export LNG, and that new drilling projects have been shelved in the anticipation of gas glut.

This amazingly abrupt change of gas fortunes has been due to the rising production of shale gas. Shale gas is released by horizontal drilling followed by hydraulic fracturing of the porous rock using proprietary high-pressure mixtures of water and chemicals (the practice now widely known as fracking). Rising consumption of natural gas will eventually make it not only more important than crude oil but the single-most important fossil fuel.

Too good to last? Critics say so. They point to a substantial downward revision (roughly a two-thirds reduction) of shale gas reserves in the Marcellus formation that underlies the Appalachian states from West Virginia to New York. They claim that the industry is nothing but a variation of a Ponzi scheme, for example, Rolling Stonemagazine. They note that the gas flow from new wells declines exponentially in a matter of months. Their most often repeated argument is that fracking is a huge environmental disaster that will contaminate aquifers wherever it takes place.

Here is my advice. Do not get carried away either by bonanza claims (implying only sinking natural gas prices and seeing Marcellus as the Saudi Arabia of natural gas) or by the negativism of anti-fracking activists (recently joined by Hollywood celebrities). Low prices will slow the development of shale gas. Reserve estimates of any mineral resource are always uncertain during an early stage of development (in 2011, the U.S. Geological Survey boosted its estimate of technically recoverable Marcellus gas more than 40-fold compared with its 2002 figure), and even conservative assessments point to a combination of already available reserves and the most likely additional resources that would suffice (at the current rate of consumption) to supply America for at least the next 50 years.

As for Rolling Stone’s accusation that Chesapeake Energy is running a Ponzi scheme, that company has responded in detail. Although many questions remain about the company’s actions, even if the worst suspicions are proven they do not invalidate long-term viability of shale gas extraction. Exponential decline of gas flow from fracked wells is a well-known phenomenon, taken into account by such pioneers of shale gas development as Terry Engelder at Penn State when they made their estimates of potential recovery. And if there is any water contamination, it is a problem that has well-known technical solutions.

Global LNG trade rose roughly eightfold between 1980 and 2010, and it now accounts for 30% of the worldwide natural gas trade.

All of these have been fascinating, often controversial, and newsworthy developments, and while I would not dismiss them as altogether ephemeral, I see them largely as expected ups and downs along a long trajectory of national and global energy transitions. These transitions are slow but inexorable shifts in the amounts and proportions of different primary sources of heat, light and motion, and while they may be slowed down or accelerated (and temporarily even seemingly derailed), there is no doubt about their long-term persistence and eventual outcomes.

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By the end of the 19th century, traditional biomass fuels (wood, charcoal and straw, which together dominated energy use for millennia) were reduced to a small fraction of overall energy supply as coal became the principal fuel. The shift away from coal to hydrocarbons (crude oil and natural gas) began slowly before 1900 in the United States and Russia, and it accelerated only after the Second World War. By 1970, crude oil supplied 46% of the world’s energy and its shares were 43% in the United States and 50% in Europe. There is no mystery about what will come next: Rising consumption of natural gas will eventually make it not only more important than crude oil but the single most important fossil fuel.

Seen from this perspective, U.S. shale gas production must be viewed as only one, albeit a major, component of gas’s global rise. In 1970, natural gas supplied 18% of global commercial energy and that share rose to about 24% by 2010 (with the EU share going from less than 8% to 26%), while the worldwide crude oil share fell from 46% to 34% (and in the EU from 50% to 38%). Natural gas’s rise has been slowed recently by China’s extraordinarily high coal extraction rates, but these cannot be repeated in the future (the country is already a large importer of coal). Natural gas will thus continue its conquest of global and national energy supplies, with five factors behind the rise — discoveries of new large fields, diffusion of shale gas production, expansion of LNG exports, high prices of crude oil, and unrivalled efficiency of gas converters.

Do not get carried away either by bonanza claims or the negativism of anti-fracking activists.

New giant gas fields have been discovered in such previously unpromising places as the Mediterranean off Israel’s shores and deep Atlantic waters offshore near Brazil. There are extensive deposits of gas-bearing shales in Europe (particularly in Poland) and enormous resources in Asia. Recent reductions in the cost of gas liquefaction coupled with increased sizes of LNG tankers (they now rival the size of ships carrying crude oil) made LNG into a trade equivalent of oil: It can now be transported to consumers on any continent, bought without restrictive long-term contracts, and delivered at increasingly affordable prices. The totals speak for themselves: Global LNG trade rose roughly eightfold between 1980 and 2010, and it now accounts for 30% of the worldwide natural gas trade.

Little has to be said about high oil prices (the price spread between liquid and gaseous hydrocarbons has reached an unprecedented level), but the conversion efficiencies achievable by furnaces and turbines burning natural gas are not sufficiently appreciated. New, super-efficient household gas furnaces convert up to 97% of the fuel into heat; combined-cycle generation (using the waste heat from a gas turbine to raise steam and generate more electricity in an associated steam turbine) now produces electricity with 60% efficiency (and 70% will be possible in the future).

Modern (that is, overwhelmingly fossil-fuelled) civilization needs highly concentrated sources of energy that can be conveniently delivered to the megacities where most of humanity will soon live. No other fuel can fit this need as efficiently and with such a relatively low environmental impact as natural gas (its combustion releases less carbon dioxide per unit of useful energy than coal or oil). The conclusion is obvious: The world should speed up its unfolding transition from coal and crude oil to natural gas by using the fuel not only for heating, electricity generation, and as feedstock for industrial syntheses but also as a transportation fuel. Spending toward that goal would bring faster and more durable gains than subsidizing such dubious conversions as turning corn into ethanol or pouring huge sums into money-losing solar enterprises.

Encanna and Devon – Joint Ventures LNG

Devon Energy Center under construction, from t...

Devon Energy Center under construction, from the northwest. (Photo credit: Wikipedia)

Encana* (ECA ) :  $19.60

Encana  announced yesterday that it will look to accelerate the commercialization of its oil and liquids-rich plays through joint ventures (JV). ECA talked about this at the LNG Summit in Singapore

 

The JV expectation is already in the marketplace given it wants a deal similar to the $2.5 billion JV Devon Energy (DVN) struck with Sinopec (SNP) , which involved:

 1) SNP to reimburse Devon for drilling costs incurred prior to closing and acreage acquisition costs incurred subsequent to the effective date of the agreement;

 2) SNP to make a $900-million cash payment upon closing and $1.6 billion paid in the form of a drilling carry. The drilling carry will fund 70% of Devon’s capital requirements, which results in SNP paying 80% of the overall development costs during the carry period;

 1) Based on the current work plan, Devon expects the entire $1.6 billion carry to be realized by year-end 2014;

 2) Devon will serve as the operator and will have ultimate responsibility for the allocation of capital. The company is also responsible for commercially marketing all production from these plays into the North American market. Devon said it had tremendous interest during its data room process, and

 ECA will experience the same level of interest. The acreage across the Tuscaloosa, the Utica/Collingwood, the Eaglebine and the Mississippi Lime was quoted in the press release to be ~ 1.2 million net acres, which is larger than the ~900,000 net acres we were estimating in prior research.

Given ECA’s large acreage position,  it can do a JV of similar size to the Devon/Sinopec deal. He updated the Devon/SNP JV implied value across the JV targeted acreage of ECA on a 100% basis.

 ECA plans to host an investor day on June 21 to highlight its resource potential within its oil and liquids-rich plays.

 

 

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