Canadian Stripper operator shuts down and abandons 4700 wells

[wrs + 893]

So this is what happens to conventional production.  It eeks along losing money on a regular basis, worse than shale but pretending it does make money and eventually ends in bankruptcy with more cleanup costs than could ever be recovered from the "assets".  This is CONVENTIONAL production at it's death, doesn't look any better than the shale.  What's the difference?

"Trident does not have the funds to operate its infrastructure or enter into creditor protection. As a result, they have decided to walk away, leaving more than 4,400 licensed sites, many of them active, without an operator," the watchdog told CBC.

So they are dead broke and have been borrowing to stay in existence long after profitability or payback was a reasonable consideration.  How is the stripper business different from the shale business?  The shale business actually produces a lot of oil we can use while these types of wells do not.

https://oilprice.com/Latest-Energy-News/World-News/Canadian-Oil-Driller-Abruptly-Shuts-Down-Abandons-4700-Wells.html

Edited May 2, 2019 by wrs

[Ian Austin + 131]

8 hours ago, wrs said:

So this is what happens to conventional production.  It eeks along losing money on a regular basis, worse than shale but pretending it does make money and eventually ends in bankruptcy with more cleanup costs than could ever be recovered from the "assets".  This is CONVENTIONAL production at it's death, doesn't look any better than the shale.  What's the difference?

"Trident does not have the funds to operate its infrastructure or enter into creditor protection. As a result, they have decided to walk away, leaving more than 4,400 licensed sites, many of them active, without an operator," the watchdog told CBC.

So they are dead broke and have been borrowing to stay in existence long after profitability or payback was a reasonable consideration.  How is the stripper business different from the shale business?  The shale business actually produces a lot of oil we can use while these types of wells do not.

https://oilprice.com/Latest-Energy-News/World-News/Canadian-Oil-Driller-Abruptly-Shuts-Down-Abandons-4700-Wells.html

Let’s hear what a stripper producer has to say. 

@Mike Shellman what is your take?

[Justin Hicks + 162]

9 hours ago, wrs said:

So this is what happens to conventional production.  It eeks along losing money on a regular basis, worse than shale but pretending it does make money and eventually ends in bankruptcy with more cleanup costs than could ever be recovered from the "assets".  This is CONVENTIONAL production at it's death, doesn't look any better than the shale.  What's the difference?

"Trident does not have the funds to operate its infrastructure or enter into creditor protection. As a result, they have decided to walk away, leaving more than 4,400 licensed sites, many of them active, without an operator," the watchdog told CBC.

So they are dead broke and have been borrowing to stay in existence long after profitability or payback was a reasonable consideration.  How is the stripper business different from the shale business?  The shale business actually produces a lot of oil we can use while these types of wells do not.

https://oilprice.com/Latest-Energy-News/World-News/Canadian-Oil-Driller-Abruptly-Shuts-Down-Abandons-4700-Wells.html

Is@Darlene Wallace on here? She's Chairwoman of the National Stripper Wells Association.

[Justin Hicks + 162]

Most stripper well operators I know here in Oklahoma operate out of their own pocket. Having 4000+ stripper wells and having to walk away sounds like someone who thought one day " Heck I'll just start an oil company" The patch is littered with people who have more money than sense.

" I knew a guy that had a million dollars....when I met him, he had 5 million"😊

[ceo_energemsier + 1,818]

10 hours ago, wrs said:

So this is what happens to conventional production.  It eeks along losing money on a regular basis, worse than shale but pretending it does make money and eventually ends in bankruptcy with more cleanup costs than could ever be recovered from the "assets".  This is CONVENTIONAL production at it's death, doesn't look any better than the shale.  What's the difference?

"Trident does not have the funds to operate its infrastructure or enter into creditor protection. As a result, they have decided to walk away, leaving more than 4,400 licensed sites, many of them active, without an operator," the watchdog told CBC.

So they are dead broke and have been borrowing to stay in existence long after profitability or payback was a reasonable consideration.  How is the stripper business different from the shale business?  The shale business actually produces a lot of oil we can use while these types of wells do not.

https://oilprice.com/Latest-Energy-News/World-News/Canadian-Oil-Driller-Abruptly-Shuts-Down-Abandons-4700-Wells.html

These werent "stripper" oil wells. The company was a natural gas producer from shallow conventional wells and CBM, the natgas price bottomed out and they had to shut down.

Trident is not an oil player, they have been a shallow natgas and cbm driller producer, so that takes them out of the actual oil production game. Still the takeaway capacity seems to have been their major cause of the downfall. Given the right conditions being available, some other company/investor may come along and get these assets for pennies on the $.

_____________

 

 

" Trident Exploration Corp. (“Trident”) is a private, independent natural gas production company, principally focused on the exploration for and exploitation of natural gas resources in the Western Canadian Sedimentary Basin ("WCSB"). Trident’s operations are in Alberta, Canada and substantially target coalbed methane (“CBM”) as well as conventional shallow gas. Trident’s operations are focused in two core areas – Shallow Cretaceous Gas (“Cretaceous Gas”) concentrating in the Central Alberta shallow upper Cretaceous deposits within the WCSB; and the Mannville CBM operating area consisting primarily of gas production from Mannville CBM deposits in northern Alberta. "

April 30, 2019

Trident Exploration Corp. Ceases Operations

 

Calgary, Alberta - We regret to announce that Trident Exploration Corp. (“Trident”) ceased operations effective today, April 30, 2019. All 33 employees and 61 contractors have been terminated and approximately 4,700 wells are being transitioned to the care of the AER. Trident’s total estimated abandonment and reclamation obligations are approximately $329 million. Behind these obligations, we do not anticipate any recovery for shareholders and unsecured creditors. Likewise, any recovery for secured lenders is highly uncertain. 

 

We had been working openly and collaboratively with our lenders and the Alberta Energy Regulator (“AER”) since February. The combination of extremely low natural gas prices and high surface lease and property tax payments (totaling $0.72 C$/GJ) has exhausted the liquidity of the company. These challenges reached a tipping point with persistent, unaddressed capacity constraints on TransCanada’s NGTL system leading to April AECO prices averaging $0.81 C$/GJ and summer prices currently averaging $1.00 C$/GJ. Further, and despite our extensive efforts, Alberta has no mechanism to allow a struggling energy company such as Trident to address its inflated surface lease and property tax obligations. 

 

Although we had substantially settled the terms on a financing solution with our primary creditors for an orderly restructuring and sales process, we were unable to secure AER support for a restructuring in a timely fashion. Ultimately, the recent Redwater decision, regulatory uncertainty and a lack of egress has created a treacherous environment for energy investors that dare to risk their capital in Canada. 

 

As many have speculated and we have now unfortunately proven, the Redwater decision has had the unintended consequence of intensifying Trident’s financial distress and accelerating unfunded abandoned well obligations. Without regulatory collaboration and clarity, Trident is unable to address its near-term liquidity needs and has no financial ability to continue operating. We fear that many other companies may falter without clear, sound policy making post-Redwater. In the face of this extended uncertainty, lenders and investors may flee Canada and further job losses will occur. Without access to financing, we expect that the Orphaned Well Association may grow exponentially. 

 

We are incredibly grateful to everyone who has worked hard to help Trident grow over its history. Trident remains especially proud of its strong environmental, health, and safety record. 

 

About Trident Exploration Corp. 

 

Trident Exploration Corp. is an Alberta-based natural gas producer. Trident produces approximately 67,500 mcfe/d (4% liquids) and operates approximately 4,700 wells. As of its 2018 reserve audit, Trident has approximately 458 billion cubic feet equivalent of proved reserves.

 

[Mike Shellman + 548]

10 hours ago, Ian Austin said:

Let’s hear what a stripper producer has to say

Ian, I'll rely on you to address how the Canadian government has abandoned the oil and gas industry, completely, in Alberta, how western select crude postings have been destroyed for lack of takeaway and essentially how the US shale oil and gas phenomena has changed the market order in North America for both oil and natural gas and hurt Canada, badly.  A recent court decision, I believe  in Alberta (Redwater),  actual prohibits these Trident wells from being sold and placed back on production and they now MUST  go to the orphaned well bank. THAT I do not understand, sorry, and I believe this  case is being appealed. This is all very unfortunate and I make no excuses for any corporation who is financially irresponsible and cannot fulfill its obligations regarding the environment and applicable regulations. 

The American government has, of course, NOT abandoned the US shale oil industry, not by a long shot; we ignore laws and allow the unfettered waste of associated gas thru flaring, the Trump administration has eased regulations on EVERYTHING to do with oil and gas, the FED is now a puppet to this administration and low interest rates continue to benefit the US shale oil industry greatly, we can't built pipelines and LNG ports fast enough in America (all on borrowed money, by the way) and hell, even OPEC is propping up the  American shale phenomena by cutting its production, raising prices and giving away its market share. All it takes is a tweet.

Nothing seems to be helping the LTO biz. 1Q19 earnings from the shale oil industry, particularly in the Permian, are horrible. Almost every large to medium public company lost money last quarter, even EOG who made money, could not generate any FCF. For all the crap about low break-evens, etc. etc. that stuff NEVER shows up on financial statements and in earnings. The BS being said about shale oil in America has now reached epic proportions: https://www.oilystuffblog.com/single-post/2019/05/02/Oily-Stuff-Issues-Rare-Buy-Alert

Wells making less than 3-4 BOPD in America still contribute something like 500,000 BOPD to our hydrocarbon needs and 80% of ALL oil and natural gas wells in America are classified as stripper wells. That segment of our industry is viable and important, employs tens of thousands of good men and women and contributes billions of dollars in tax revenue. 

Every stinking shale oil well in America is headed for stripper classification, unless they reach economic limits before 15 BOPD, which given rising GOR's and the costs of produced water, will. At the moment there are about 85,000 something shale oil wells in the US that, IMO, have a total plugging and decommissioning liability of over $10 billion dollars. Lots of Bakken crap is all subject to NORM and it is going to be a nightmare paying for all that plugging. Take a gander at SEC filings to see how much money has been set aside for plugging and decommissioning in the shale oil industry and otherwise don't forget it is already $300 billion in debt (P&P) and still outspending revenue every year. To assume its going to be more "responsible," in the end, than stripper well operators, is stupid. Its massive debt, with all those "monster" wells, does not make it very responsible NOW.

I am a proud stripper well operator. I don't have any debt, my plugging liability is set aside, pay vendors within 30 days, have had the same employees for 40 years and I can stand on my own two financial feet. I don't lie to anybody to make myself look better. I like the shale oil phenomena for its ingenuity and the jobs its provided; I've made good money from it and it does not hurt my stripper well operations anymore. Its distortion of facts and exaggeration of reserves WILL, however, eventually do great harm to my country. Watch.

Stripper wells are not evil, put in America by evil Russians trying to harm poor little 'ol royalty owners, I assure you. 

Take care, Ian. 

 

 

 

 

Edited May 3, 2019 by Mike Shellman

[Justin Hicks + 162]

6 hours ago, Mike Shellman said:

Ian, I'll rely on you to address how the Canadian government has abandoned the oil and gas industry, completely, in Alberta, how western select crude postings have been destroyed for lack of takeaway and essentially how the US shale oil and gas phenomena has changed the market order in North America for both oil and natural gas and hurt Canada, badly.  A recent court decision, I believe  in Alberta (Redwater),  actual prohibits these Trident wells from being sold and placed back on production and they now MUST  go to the orphaned well bank. THAT I do not understand, sorry, and I believe this  case is being appealed. This is all very unfortunate and I make no excuses for any corporation who is financially irresponsible and cannot fulfill its obligations regarding the environment and applicable regulations. 

The American government has, of course, NOT abandoned the US shale oil industry, not by a long shot; we ignore laws and allow the unfettered waste of associated gas thru flaring, the Trump administration has eased regulations on EVERYTHING to do with oil and gas, the FED is now a puppet to this administration and low interest rates continue to benefit the US shale oil industry greatly, we can't built pipelines and LNG ports fast enough in America (all on borrowed money, by the way) and hell, even OPEC is propping up the  American shale phenomena by cutting its production, raising prices and giving away its market share. All it takes is a tweet.

Nothing seems to be helping the LTO biz. 1Q19 earnings from the shale oil industry, particularly in the Permian, are horrible. Almost every large to medium public company lost money last quarter, even EOG who made money, could not generate any FCF. For all the crap about low break-evens, etc. etc. that stuff NEVER shows up on financial statements and in earnings. The BS being said about shale oil in America has now reached epic proportions: https://www.oilystuffblog.com/single-post/2019/05/02/Oily-Stuff-Issues-Rare-Buy-Alert

Wells making less than 3-4 BOPD in America still contribute something like 500,000 BOPD to our hydrocarbon needs and 80% of ALL oil and natural gas wells in America are classified as stripper wells. That segment of our industry is viable and important, employs tens of thousands of good men and women and contributes billions of dollars in tax revenue. 

Every stinking shale oil well in America is headed for stripper classification, unless they reach economic limits before 15 BOPD, which given rising GOR's and the costs of produced water, will. At the moment there are about 85,000 something shale oil wells in the US that, IMO, have a total plugging and decommissioning liability of over $10 billion dollars. Lots of Bakken crap is all subject to NORM and it is going to be a nightmare paying for all that plugging. Take a gander at SEC filings to see how much money has been set aside for plugging and decommissioning in the shale oil industry and otherwise don't forget it is already $300 billion in debt (P&P) and still outspending revenue every year. To assume its going to be more "responsible," in the end, than stripper well operators, is stupid. Its massive debt, with all those "monster" wells, does not make it very responsible NOW.

I am a proud stripper well operator. I don't have any debt, my plugging liability is set aside, pay vendors within 30 days, have had the same employees for 40 years and I can stand on my own two financial feet. I don't lie to anybody to make myself look better. I like the shale oil phenomena for its ingenuity and the jobs its provided; I've made good money from it and it does not hurt my stripper well operations anymore. Its distortion of facts and exaggeration of reserves WILL, however, eventually do great harm to my country. Watch.

Stripper wells are not evil, put in America by evil Russians trying to harm poor little 'ol royalty owners, I assure you. 

Take care, Ian. 

 

 

 

 

I'm continually amazed by what you know Mr.Shellman( apple polishing😊) 

I guess I spent too much time in meetings with my feet up going" well ...let's get on with it, I've got wells to service"

[Ian Austin + 131]

14 hours ago, Mike Shellman said:

Ian, I'll rely on you to address how the Canadian government has abandoned the oil and gas industry, completely, in Alberta, how western select crude postings have been destroyed for lack of takeaway and essentially how the US shale oil and gas phenomena has changed the market order in North America for both oil and natural gas and hurt Canada, badly.  A recent court decision, I believe  in Alberta (Redwater),  actual prohibits these Trident wells from being sold and placed back on production and they now MUST  go to the orphaned well bank. THAT I do not understand, sorry, and I believe this  case is being appealed. This is all very unfortunate and I make no excuses for any corporation who is financially irresponsible and cannot fulfill its obligations regarding the environment and applicable regulations. 

The American government has, of course, NOT abandoned the US shale oil industry, not by a long shot; we ignore laws and allow the unfettered waste of associated gas thru flaring, the Trump administration has eased regulations on EVERYTHING to do with oil and gas, the FED is now a puppet to this administration and low interest rates continue to benefit the US shale oil industry greatly, we can't built pipelines and LNG ports fast enough in America (all on borrowed money, by the way) and hell, even OPEC is propping up the  American shale phenomena by cutting its production, raising prices and giving away its market share. All it takes is a tweet.

Nothing seems to be helping the LTO biz. 1Q19 earnings from the shale oil industry, particularly in the Permian, are horrible. Almost every large to medium public company lost money last quarter, even EOG who made money, could not generate any FCF. For all the crap about low break-evens, etc. etc. that stuff NEVER shows up on financial statements and in earnings. The BS being said about shale oil in America has now reached epic proportions: https://www.oilystuffblog.com/single-post/2019/05/02/Oily-Stuff-Issues-Rare-Buy-Alert

Wells making less than 3-4 BOPD in America still contribute something like 500,000 BOPD to our hydrocarbon needs and 80% of ALL oil and natural gas wells in America are classified as stripper wells. That segment of our industry is viable and important, employs tens of thousands of good men and women and contributes billions of dollars in tax revenue. 

Every stinking shale oil well in America is headed for stripper classification, unless they reach economic limits before 15 BOPD, which given rising GOR's and the costs of produced water, will. At the moment there are about 85,000 something shale oil wells in the US that, IMO, have a total plugging and decommissioning liability of over $10 billion dollars. Lots of Bakken crap is all subject to NORM and it is going to be a nightmare paying for all that plugging. Take a gander at SEC filings to see how much money has been set aside for plugging and decommissioning in the shale oil industry and otherwise don't forget it is already $300 billion in debt (P&P) and still outspending revenue every year. To assume its going to be more "responsible," in the end, than stripper well operators, is stupid. Its massive debt, with all those "monster" wells, does not make it very responsible NOW.

I am a proud stripper well operator. I don't have any debt, my plugging liability is set aside, pay vendors within 30 days, have had the same employees for 40 years and I can stand on my own two financial feet. I don't lie to anybody to make myself look better. I like the shale oil phenomena for its ingenuity and the jobs its provided; I've made good money from it and it does not hurt my stripper well operations anymore. Its distortion of facts and exaggeration of reserves WILL, however, eventually do great harm to my country. Watch.

Stripper wells are not evil, put in America by evil Russians trying to harm poor little 'ol royalty owners, I assure you. 

Take care, Ian. 

 

 

 

 

Mike,

Many thanks for the vote of confidence. 

On the first point - you've certainly made a good one. However, I'm not s sure I'm the one to comment on it. Although I'm not devoid of credibility, I can't say that I can provide any clear or direct answers/insight.

Regarding the Clearwater decision, I think a lot of us boneheaded Engineers, who don't have the requisite legal background are still digesting the outcome. I was probably as surprised as many to see that the assets we're "Skipping the Board and Advancing directly to Go", with "Go" being AER control. It has been a huge (I'm not sure I am giving it the proper emphasis) point of contention, that a profit-making (or at least intending to be) corporation can walk away from, sometimes Billions, in liability while passing the proverbial buck to the taxpayer. It's always nice to hear that the normal Woman/Man doesn't have to pay up so an institutional investor can 'get theirs'.

With that being said, I'm not so sure the Court ruling didn't go too far. Now we're into prematurely abandoning revenue (and royalty - for the people) generating assets, in the name of protecting against downside. As I've asked around, and have been lead to understand, these assets will be placed in the queue to be plugged/abandoned. Maybe they should be - I'm not claiming to be knowledgeable on the economics, but you'd think a non-debt ridden company could turn some kind of profit on the production. 

As a question - does the State of Texas have a better way of addressing this quagmire? I think our government and Regulator can use all the help they can get.

Ian

[Oilcom1985 + 2]

If the systems rules are changed midstream of the wells life cycle the companies financials are reduced.  The rules are  changed by gov.and new technology.  Both can impact stripper well survival .  One càn be successful  if the regulatory expectations can be reliable and reasonable

[Mike Shellman + 548]

10 hours ago, Ian Austin said:

As a question - does the State of Texas have a better way of addressing this quagmire? I think our government and Regulator can use all the help they can get.

Ian, though I understand the orphaned well situation in Albert is a big problem it seems to me this is government overreach on a big scale. As you point out, that Trident issue represents a large well inventory probably capable of some net revenue that most certainly could be applied to other liability. 

We have an orphaned well problem in Texas also but are addressing it pretty well, I think. Revenue for plugging wells is generated from permitting new well fees and as you might expect with HZ activity the piggy bank is filling up and the TRRC is plugging lots of wells.  Minerals (royalty) are considered real property in Texas law, same as fee simple land, and before business failure occurs there is almost always a willing buyer that believes he or she can squeeze more money out of marginal wells, in which case the liability of plugging transfers immediately. Service providers can place liens on equipment, etc. if there are unpaid bills, etc. In BK proceedings every effort is made to liquidate assets and transfer plugging liability. There is new case precedence, however, where that liability can sometimes remain with the seller; all and all it is getting tougher and tougher to be an irresponsible operator in Texas. All well bores now have to be pressure tested for casing integrity, those tests  witnessed; the TRRC is clamping down, hard. The plugging "bond" situation that all operators must have is woefully inadequate and levels need to be increased but that helps a lot as well. Bonds to allow operations in Texas are tougher to get and cost a lot of money.

Plugging is a problem, everywhere. Louisiana is a nightmare. My idea to fix the problem in Oklahoma would be that any shale oil company that frac's into a shallow stripper well (and that happens, a lot!) gets to pay for plugging it, plus damages, plus restitution to the operator. They'll come a time when 200,000 HZ shale oil wells in the US will be a problem too. We joke that there will  someday be 2,000,000, 436 barrel stock tanks for sale on eBay for $39 each. 

Conventional oil and gas production in (North) America allowed industrialization to occur, our economy to thrive and made America and Canada what it is today. It still represents 48% of America's total production and more than 93% of all world production is conventional production. Shale oil is just a temporary speed bump on the long road to hydrocarbon depletion. If it was like sliced bread it would all be paid for by now. Its not. More shale oil than has already been produced in America will have be produced in the future, just for the shale oil industry to get out of debt. 

 

 

 

Edited May 4, 2019 by Mike Shellman

[Jan van Eck + 7,558]

On 5/3/2019 at 12:17 AM, ceo_energemsier said:

Trident is not an oil player, they have been a shallow natgas and cbm driller producer, so that takes them out of the actual oil production game. Still the takeaway capacity seems to have been their major cause of the downfall.

I think all you fellows are missing the keystone of why Trident collapsed.  

The problem with the 4,700 Trident wells was that the royalties that Trident was contractually obliged to pay to whoever had the mineral rights, which I speculate were the surface landowners, consumed some 95% of the gross revenue the company was receiving in the sale of the gas. That "extraction payment" had an irreducible floor, by contract.  So as the price of the product, the gas, collapsed, there was simply not enough margin  (the remaining 5% or less) from the sales dollar to actually run the company. 

When that occurs, the company is simply being a cash agent for the royalties payees.  If that thin margin were just a touch larger, then you could be a "zombie producer," just running the business and turning over the cash for the right to stay alive in zombie form, awaiting better days and higher prices. If for example Canada had pipe running to an East Coast seaport and a liquefaction facility, that gas could be sold as LNG to Poland - where prices are much higher.  But that pipe and facility are not there. So the gas has to be sold to already well-supplied customers at discount prices, and that is where the trouble starts.

The problem that Trident faced is that going into the Canadian Bankruptcy Courts is expensive - and they did not have the cash to even do that. The legal system is different compared to the USA, where the thrust of the U.S. law intent is to reorganize, allow the company to shed contracts (or have the Court provide for a new, reduced payment to creditor landowners) and for the business to survive and become viable.  In Canada, those rules are for the benefit of the existing secured creditors.  Under Section 187 and Sec. 88 of the Canada Bank Act, the financing bank takes first priority over the other creditors (except leased machines) and installs a Receiver - expensive for the Company.  The Receiver then effectively liquidates the operation for the benefit of the Bank.  Well, if that is the outcome, might as well just walk away. 

Unless Trident could force the royalty payees to take less, it cannot ever operate (unless gas prices magically doubled).  And that is implausible.  So they fold. Management just shrugs its shoulders and says: "OK, so now it is some else's problem.  They don't want us to run it, let them figure it out."  

[Mike Shellman + 548]

I haven't missed anything; this tread had little to do with Trident from the get go. A dumb inference was made between this, in Canada, and conventional production and stripper well operations in America. Justin addressed that specifically and Ian asked me a question, I assume to offer some actual operational insight into the matter and not just another posted link off the internet.  I answered it by stating that conventional production still accounts for nearly 50% of oil production in America and over 92% in the world, that the vast majority of oil and gas wells in America are classified as stripper wells and, also when asked, how Texas addresses its orphaned well problems.

To be factual the Trident matter is just another example of how expensive production (95% royalty burdens?!) has gotten caught up in the prop wash  of fiscally stimulated, over production in the US. Find me a country in the world that hasn't been caught in the same wash. 

[Ian Austin + 131]

7 hours ago, Jan van Eck said:

I think all you fellows are missing the keystone of why Trident collapsed.  

The problem with the 4,700 Trident wells was that the royalties that Trident was contractually obliged to pay to whoever had the mineral rights, which I speculate were the surface landowners, consumed some 95% of the gross revenue the company was receiving in the sale of the gas. That "extraction payment" had an irreducible floor, by contract.  So as the price of the product, the gas, collapsed, there was simply not enough margin  (the remaining 5% or less) from the sales dollar to actually run the company. 

When that occurs, the company is simply being a cash agent for the royalties payees.  If that thin margin were just a touch larger, then you could be a "zombie producer," just running the business and turning over the cash for the right to stay alive in zombie form, awaiting better days and higher prices. If for example Canada had pipe running to an East Coast seaport and a liquefaction facility, that gas could be sold as LNG to Poland - where prices are much higher.  But that pipe and facility are not there. So the gas has to be sold to already well-supplied customers at discount prices, and that is where the trouble starts.

The problem that Trident faced is that going into the Canadian Bankruptcy Courts is expensive - and they did not have the cash to even do that. The legal system is different compared to the USA, where the thrust of the U.S. law intent is to reorganize, allow the company to shed contracts (or have the Court provide for a new, reduced payment to creditor landowners) and for the business to survive and become viable.  In Canada, those rules are for the benefit of the existing secured creditors.  Under Section 187 and Sec. 88 of the Canada Bank Act, the financing bank takes first priority over the other creditors (except leased machines) and installs a Receiver - expensive for the Company.  The Receiver then effectively liquidates the operation for the benefit of the Bank.  Well, if that is the outcome, might as well just walk away. 

Unless Trident could force the royalty payees to take less, it cannot ever operate (unless gas prices magically doubled).  And that is implausible.  So they fold. Management just shrugs its shoulders and says: "OK, so now it is some else's problem.  They don't want us to run it, let them figure it out."  

Royalties are paid to government about 99.999% of the time. The resources belong to the people of Alberta. There are a small number of what we call “Freehold” lease owners, usually around/near legacy railway lands - they really are an almost negligible number though. 

Trident has been in trouble for years, dating back to the late 2000’s and have previously been through Bankruptcy protection/reorganization. I know people love to blame government, but they’re no longer around because they were poorly run (no more or less so than a lot of Shale outfits, but they didn’t have Wall Street taking a big eraser to every error they made)....

We all love to blame government, OPEC/ Saudi Arabia, and everybody short of the Easter Bunny when a company fails. Long story short, they made their own bed, and are ultimately responsible for the mess it was/is in

[Jan van Eck + 7,558]

45 minutes ago, Ian Austin said:

We all love to blame government, OPEC/ Saudi Arabia, and everybody short of the Easter Bunny when a company fails. Long story short, they made their own bed, and are ultimately responsible for the mess it was/is in

Not really.  I suspect, just on speculation as a businessman, that when those royalty leases were made, there was plenty of margin in there for the operator (Trident) to extract gas and make a tidy profit.  Nobody signs a lease where the royalties are going to consume 95% of the gross revenues.  Then the sales price tanks, but that is hardly the fault of Trident management, now is it?  Nor can you expect that Trident management is going to build some long 3,000-mile pipeline to markets in Montreal to sell the gas; the anticipation is there that Trans-Canada Pipe will have the ability to deliver the gas (and/or re-sell it).  

Whoever is the royalty payee, either the Alberta Govt or a private landowner, has the option to "take less" as their share and keep the gas flowing.  Obviously, that did not happen here.  The payee(s) got stubborn.  When the external prices collapse, the company is left upside-down. Makes no difference how competent the managers are; if you don't have the revenue, you are going to tank.  Way of the world. 

[Ian Austin + 131]

1 hour ago, Jan van Eck said:

Not really.  I suspect, just on speculation as a businessman, that when those royalty leases were made, there was plenty of margin in there for the operator (Trident) to extract gas and make a tidy profit.  Nobody signs a lease where the royalties are going to consume 95% of the gross revenues.  Then the sales price tanks, but that is hardly the fault of Trident management, now is it?  Nor can you expect that Trident management is going to build some long 3,000-mile pipeline to markets in Montreal to sell the gas; the anticipation is there that Trans-Canada Pipe will have the ability to deliver the gas (and/or re-sell it).  

Whoever is the royalty payee, either the Alberta Govt or a private landowner, has the option to "take less" as their share and keep the gas flowing.  Obviously, that did not happen here.  The payee(s) got stubborn.  When the external prices collapse, the company is left upside-down. Makes no difference how competent the managers are; if you don't have the revenue, you are going to tank.  Way of the world. 

Because those leases were made in the mid-2000s when Nat Gas was $9/mcf. Why should the people of AB absorb Tridents business risk, granting a break on royalties, so they can continue to circle the toilet a little longer?

[Jan van Eck + 7,558]

1 hour ago, Ian Austin said:

Because those leases were made in the mid-2000s when Nat Gas was $9/mcf. Why should the people of AB absorb Tridents business risk, granting a break on royalties, so they can continue to circle the toilet a little longer?

No reason at all, Ian.  Except now you have this walk-away, the people of Alberta get to eat the costs of shut-in in any event, and the Albertans working at Trident are now unemployed.  But hey, as you point out, no need to "grant a break" om royalties if you don't want to. 

Think of the Province as a "supplier."  In business, everyone takes risks, including suppliers.  If the Company goes under, the suppliers take the hit  (just as the suppliers to General Motors, they will tell you all about it).  In this case, the Trident supplier, the Crown, also will take the hit, as it will be the Crown that will end up with the tab for those 4,700 wells.  It is what it is. 

[Mike Shellman + 548]

Like everything else on this forum, and particularly this thread, from the beginning, comments have now become about expert opinions by people who have never written a check in their lives to actually participate in the profits, or losses, of an oil well, or bunch of oil wells. That does not seem to deter anybody now days from being "knowledgeable" about oil and gas. If they read it on the internet or on an investor presentation, or so much as saw a drilling rig one time, they are experts.  

Mr. Van Eck, please provide me with proof positive that total royalty burdens, taxes and leasehold obligations on Trident by the AER total 95%. I can then make up my own mind who is dumber, the business decision to accept those burdens, regardless of price, or the province, for not relaxing those burdens. I don't particularly need you to make up my mind for me. A very specific link, please, so I can research it.

 

 

 

[Ian Austin + 131]

1 hour ago, Jan van Eck said:

No reason at all, Ian.  Except now you have this walk-away, the people of Alberta get to eat the costs of shut-in in any event, and the Albertans working at Trident are now unemployed.  But hey, as you point out, no need to "grant a break" om royalties if you don't want to. 

Think of the Province as a "supplier."  In business, everyone takes risks, including suppliers.  If the Company goes under, the suppliers take the hit  (just as the suppliers to General Motors, they will tell you all about it).  In this case, the Trident supplier, the Crown, also will take the hit, as it will be the Crown that will end up with the tab for those 4,700 wells.  It is what it is. 

Make no mistake, the Crown would have ended up with that tab anyways. I had mentioned in the above comment to Mike that I think the government may have went too far on this Redwater ruling, and that there has to be a better way to manage the risk than this. 

However, I don’t agree with giving “breaks” to profit driven corporations - that’s called charity, whether we want to admit it or not. I’ve personally been caught up in this mess, and lost quite the cushy lifestyle. If we’re going to give royalty breaks to the Tridents of the world, then I guess the next expectation is that about 100,000 people are going to get their six figure salary covered too right? I mean, we lost it on account of somebody else’s mistake. 

Of course, life doesn’t work like that. If you can’t take care of yourself then nobody will - we actually do reap what we sow. I won’t miss Trident at all - I read the press release and it sickens me that Management has basically “passed the buck on” for what amounts to their own failures. Funny how’s that works with a lot of “businessmen” hey? What’s good is all me, what’s bad is all on somebody else...

@Mike Shellman you’re right, this is spiralling. Amazing thought to me, that a lot of the “expert” advice is coming from South of the border, from people (Shale producers) who seem all to willing to ignore their own shortfalls (there are many) to pontificate on the virtues of the oil business - it’s almost as if nobody outside of W.Texas has ever produced a barrel of oil, or executed a project successfully 

[Ian Austin + 131]

1 hour ago, Mike Shellman said:

Like everything else on this forum, and particularly this thread, from the beginning, comments have now become about expert opinions by people who have never written a check in their lives to actually participate in the profits, or losses, of an oil well, or bunch of oil wells. That does not seem to deter anybody now days from being "knowledgeable" about oil and gas. If they read it on the internet or on an investor presentation, or so much as saw a drilling rig one time, they are experts.  

Mr. Van Eck, please provide me with proof positive that total royalty burdens, taxes and leasehold obligations on Trident by the AER total 95%. I can then make up my own mind who is dumber, the business decision to accept those burdens, regardless of price, or the province, for not relaxing those burdens. I don't particularly need you to make up my mind for me. A very specific link, please, so I can research it.

 

 

 

Mike

Here is a copy of the most recent royalty information for Natural Gas wells. This is straight from the Government of Alberta website. Note the rate at a price <$2.50/GJ - pretty low

https://www.energy.alberta.ca/AU/Royalties/Documents/MRFgas.pdf

[Douglas Buckland + 6,308]

Mike, I applaud you for bringing up the issue of the plugging and decommissing costs. I feel that this cost is routinely ignored when discussing LTO economics.

[wrs + 893]

19 hours ago, Mike Shellman said:

I haven't missed anything; this tread had little to do with Trident from the get go. A dumb inference was made between this, in Canada, and conventional production and stripper well operations in America. Justin addressed that specifically and Ian asked me a question, I assume to offer some actual operational insight into the matter and not just another posted link off the internet.  I answered it by stating that conventional production still accounts for nearly 50% of oil production in America and over 92% in the world, that the vast majority of oil and gas wells in America are classified as stripper wells and, also when asked, how Texas addresses its orphaned well problems.

To be factual the Trident matter is just another example of how expensive production (95% royalty burdens?!) has gotten caught up in the prop wash  of fiscally stimulated, over production in the US. Find me a country in the world that hasn't been caught in the same wash. 

If the inference is dumb then that's on the one inferring.  The OP implied something that apparently you missed.  Stripper operators are stripper operators, whether gas or oil.  This is a company trying to make money using too much debt on the wrong end of the production curve for conventional wells.  It's the way most businesses are run, get over it.  

Edited May 5, 2019 by wrs

[Old-Ruffneck + 1,239]

 

12 hours ago, Mike Shellman said:

Like everything else on this forum, and particularly this thread, from the beginning, comments have now become about expert opinions by people who have never written a check in their lives to actually participate in the profits, or losses, of an oil well, or bunch of oil wells. That does not seem to deter anybody now days from being "knowledgeable" about oil and gas. If they read it on the internet or on an investor presentation, or so much as saw a drilling rig one time, they are experts.

And that is the reason as you so eloquently explained I chose to stay out of this thread till now. You are spot on @Mike Shellmanand know your business quite well. The keyboard fanatics on here, some have good intelligent answers but bet less than .05% ever stepped foot on a rig or even know what a "9linebind" is. Thanks fer yer intelligent input 🙂

[Ward Smith + 6,615]

On 5/5/2019 at 6:59 AM, Old-Ruffneck said:

 

And that is the reason as you so eloquently explained I chose to stay out of this thread till now. You are spot on @Mike Shellmanand know your business quite well. The keyboard fanatics on here, some have good intelligent answers but bet less than .05% ever stepped foot on a rig or even know what a "9linebind" is. Thanks fer yer intelligent input 🙂

Old Ruff, I worked on rigs for 4 years on and off during college and never heard of a "9lineblind". I even looked in the "knowledge box" in the doghouse, no joy. 

Now if it was a plain old lineblind…

[Ward Smith + 6,615]

On 5/4/2019 at 7:41 PM, Ian Austin said:

Mike

Here is a copy of the most recent royalty information for Natural Gas wells. This is straight from the Government of Alberta website. Note the rate at a price <$2.50/GJ - pretty low

https://www.energy.alberta.ca/AU/Royalties/Documents/MRFgas.pdf

And here's a link courtesy of Enthalpic to orphaned wells. 

http://www.orphanwell.ca/about/orphan-inventory/

A quick perusal showed the majority of the 3170 wells were from a very few operators, mostly Lexin and LGS (what Lexin changed their name to? ). 

It does seem a shame to fill them all with cement if they're still producers. There's new technology for the pump that eliminates the pump jack and rods. But it still might take more energy to produce than the energy retrieved. 

[kbmullen + 5]

OK, this whole discussion is a bit off track.  Trident was not a stripper well operator.  Waaaaay back before shales became prominent, they were a CBM driller in Alberta, Canada.  They began their existence when natural gas prices were several (5-6X) time what they are today, and when it looked like the only natural gas that could be found was in coal seams.  These were incredibly inexpensive wells to drill and complete; generally vertical to slightly deviated and very shallow.  At the time most of them were put down their payout was typically less than 18 months (including substantial dewatering at the front end).  Unfortunately, despite incredible early success, Trident continued to drop down new wells as natural gas prices in Canada fell to sub $1 levels.  The company was levered from the outset (like so many smaller shale players are today), and had planned on selling out long before the wells crapped out (and presumably into a much stronger pricing environment).  Ultimately, and in no small measure due to shale success around them, they missed their window.  Since then they have been hanging on hoping for improved pricing that now looks very far in the future. A recent court decision (Redwater) have unexpectedly  put their loans into a priority challenge (subordinate) vis a vis government claims in respect of abandonment, which was the straw that broke the camel's back.Ironically, they look a lot like the independent and private shale operators in the US in the sense that their economics no longer work full cycle (trident's actually did at one point), and their exit through sale to larger players has become problematic.