Canadian Storm Resources sees flip side of rising prices
Canadian producer Storm Resources on August 13 reported a Q2 2021 net loss of about C$11.8mn (US$9.4mn), compared to a loss of C$11.7mn a year ago, and attributed most of the current loss to the impact of sharply rising commodity prices.
In the quarter, Storm’s realised commodity prices, on an oil equivalent basis, nearly doubled, to C$26.82/barrel of oil equivalent from C$13.86/boe. Natural gas jumped to C$3.58/’000 ft3 from C$2.23/’000 ft3 in Q2 2020.
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“Natural gas prices have risen dramatically over the quarter, and are up materially from this time last year, from a combination of strong US demand, namely LNG exports, [and] storage levels being lower than last year and the five-year average,” Storm said. “With corporate production weighted 80% to natural gas, the strength in natural gas prices has been a big contributor to the year-over-year increase in funds flow.”
Natural gas production averaged 130.2mn ft3/day in the second quarter, up from 114.8mn ft3/day in Q2 2020, and combined with stronger prices boosted revenue to C$65.55mn from C$30.2mn and funds flow to C$27.9mn from C$10.9mn.
But backwardation in commodity prices – with futures prices below current spot prices – outran the company’s hedging program, leading to an unrealised hedging loss in Q2 of C$30.3mn – the main factor behind the quarterly loss and indicative of the flip side of rapidly rising prices. Realised losses on risk management contracts totalled C$9.1mn in Q2 2021 compared to a realised gain of C$6.5mn in the same quarter last year.
“In response to the backwardation in pricing…additional hedges for the second half of 2022 will be layered on more slowly depending on pricing and market conditions,” Storm said. “This is expected to result in approximately 45% of current production being hedged six to nine months forward with a lesser volume 10 to 18 months forward.”