Corridor Resources: Striking Down The Moratorium

Corridor Resources has seen a major improvement in the fundamentals of its business, namely the election of a Progressive Conservatives government. Bruce Northrup, MLA for Sussex-Fundy-St. Martins, said it wants a fracking bill by Christmas.

The community there has always supported shale gas development. Corridor operated in the area for 15 years before the enactment of the moratorium in 2014. Residents even called the previous Liberal government for the end of fracking in 2016.

Reserves dropped substantially after the government imposed a indefinite moratorium on all hydraulic fracturing in 2014.

Corridor engaged GLJ to assess the impact of the Government’s decision on Corridor’s reserves and to update its reserves report in respect of the McCully Field to take into account the continuation of the moratorium, which reduced the estimate of proved natural gas reserves by 23.1 bscf to 18.8 bscf and the estimate of proved plus probable natural gas reserves by 38.8 bscf to 22.9 bscf. As a result, Corridor recognized impairment losses of $28.4 million in Q2 2016.

Annual Information Form, March 30, 2017, Page 9

The reserves of the company are detailed below.

CDH Yearly Reserves November 2018

Source: Chart by the author using Corridor Annual Information Forms

The hit to the reserves of the company was, of course, massive. Reserves could be brought back on the books should the moratorium be lifted. The NVP10 of the reserves of the company were estimated as follow:

CDH Yearly NPV10 November 2018

Source: Chart by the author using Corridor Annual Information Forms

The return of those reserves on the books would bring huge value for Corridor shareholders.

Corridor can harness revenues from its natural gas assets in the McCully field until the moratorium is lifted, if ever. These operations still generate free cash flow, despite having minimal development for the last 4 years.

Here is how I see the next steps for the company:

  • Work on lifting the moratorium;
  • Secure a joint venture partner to develop the Frederick Brook Shale;
  • Continue maximizing cash flows from the McCully assets;
  • Make use of the huge working capital and move West.

Disclosure: I am long CDH. Not for republication on Seeking Alpha.

Portfolio Update: Be Confident On What You Own

I took profits on Altura Energy on Wednesday. Of course, the company announced excellent operational results the next day. I feared I missed another good opportunity to do nothing instead of selling a good stock.

ATU October 14


The market’s reaction was positive. However, the bump was gone by Friday. The stock still looks weak in the short-term.

I am holding on Baytex Energy despite the rout. The company’s Canadian heavy oil operations will face challenges. However, Baytex already has crude by rail contracts in place for a third of its heavy oil volumes. And shares are priced cheap.

The exposure to international oil prices and US natural gas is also interesting. Funds flow from operations increase by twice as much when WTI oil prices increase compared to WCS oil prices.

I added to Gear Energy. Gear could defer capital to later next year should the disproportionate differential endures.

Disclosure: I am long BXE, GXE. Not for republication on Seeking Alpha.

Bought Bellatrix Exploration

I added Bellatrix Exploration this morning.

I figured Bellatrix would ride the speculation surrounding LNG Canada just like other Canadian natural gas stocks.

This position is smaller than the one in Peyto Exploration I established two months ago. Be careful. It’s not a long-term hold.

Disclosure: I am long BXE. Not for republication on Seeking Alpha.

New Brunswick Elections: PC Minority Government

As of now, the Progressive Conservatives, lead by Blaine Higgs, were ahead with 22 elected representatives. New Brunswick Liberals followed with 21 seats. Majority is 25 of the 49 seats of the Assembly. Results are not official yet as some ridings were won by less than 10 votes.

Bryan Gallant, the leader of the NB Liberals, didn’t concede victory to the conservatives in his speech tonight. He wanted to speak with the Lieutenant Governor and other parties to try to form a government, even though the Liberals didn’t have the most seats.

On the contrary, Higgs said it was his own responsibility to convene a minority government.

The highest number wins.

Blaine Higgs, Leader of the Progressive Conservatives of New Brunswick.

Higgs was referring to his higher number of seats, despite losing the popular vote. The NB Liberals are claiming a moral victory as they hold a 6% lead in the popular vote.

The probable outcome is for Higgs to form a minority government. This, despite not a majority government, is a bullish breakthrough for Corridor.

Disclosure: I am long CDH. Not for republication on Seeking Alpha.

Corridor Resources: The Detailed Story

I still believe Corridor Resources is a cheap way to bet on the results of the New Brunswick elections tomorrow. However, no clear winner is emerging, despite waiting a month for a clearer picture on today’s elections. This option is cheap for a reason.

Nonetheless, the story of the company is interesting to know whether you want to speculate on the outcome of today’s elections or not. Indeed, Corridor represent an interesting opportunity and will be subject of an article no matter the election results today.

This is a recap of the history of Corridor, its New Brunswick operations, the fracking moratorium and finally the special market for natural gas in the Northeast.


Corridor is a micro company operating out of the Canadian Province of Nova Scotia. Corridor has a history of stranded assets. The company has had three assets in its recent past:

  • The Anticosti Island shale prospect in Quebec;
  • The Old Harry offshore prospect in the Gulf of Saint Lawrence, and finally;
  • Shale gas acreage in New Brunswick.

The Anticosti Island prospect benefited from strong support from the government at first, despite a indefinite moratorium on fracking for the rest of the Province of Quebec. This favorable environment all came crashing down after the 2015 Paris Climate Conference. Premier Couillard vehemently condemned the project when attending the conference. This was in December 2015.

The project then became a political nightmare. Still, preparatory work and exploratory drilling followed its course. The government stopped the operator just before the first fracking took place. The government announced a plan to abandon the project, following the compensation of the partners involved in the exploration of the island.

The Old Harry offshore structure was on Corridor’s radar for quite some time now. A drilling lease was first issued in 2011. The lease was expanded recently to 2021 for the drilling to drill a new exploratory well. Unfortunately, Corridor had to abandon exploratory work in there following disappointing results from the CSEM. There isn’t a future in the medium-term for the Old Harry prospect.

New Brunswick shale gas

The last asset on its book is the New Brunswick shale gas asset. Corridor currently earns all of its revenues through its natural gas operations, despite the asset being under a fracking moratorium since 2014.

Oil Gas Rights New Brunswick

Source: Potential Economic, Health and Environmental Impacts of Shale Gas Development, Volume 2

The New Brunswick Liberals imposed a moratorium on all fracking done in the province in 2014, after failing to meet their own set of conditions.


The NB Liberals first instituted the fracking moratorium just after the election, in December 18, 2014. Then, it was announced in early 2016 the moratorium would be extended indefinitely, until five key conditions, spelled out after the environmental evaluation, are met:

  • A social license in place;
  • Clear and credible information about the impacts of hydraulic fracturing on our health, environment and water, allowing us to develop country-leading regulatory regime with sufficient enforcement capabilities;
  • A plan that mitigates the impacts on our public infrastructure and that addresses issues such as waste water disposal;
  • A process in place to respect our obligations under the duty to consult with First Nations;
  • A mechanism in place to ensure that benefits are maximized for New Brunswickers, including the development of a proper royalty structure.

Source: New Brunswick Governement

Some interest groups are pushing to permit fracking again in New Brunswick. It could very well be a gold mine for the province: Natural gas prices are very high in the Maritimes and in the Northeastern US. Those markets are interlinked by the Maritimes and Northeast Pipeline.


Maritimes And Northeast Pipeline

Source: Maritimes & Northeast Pipeline

The use of natural gas increased significantly in New Brunswick from 1999 to 2013, mainly because of the arrival of natural gas from Nova Scotia’s Sable Offshore Energy Project (SOEP) in 2000.

New Brunswick’s economy is now heavily linked to natural gas and will be for many years to come. Should prices remain competitive, natural gas demand is expected to keep growing, namely because of electricity production, and for industrial and commercial uses.

The local market is very inefficient because of a lack of takeaway capacity in the Northeastern US, coupled with growing demand, especially in the winter months, and shrinking supply. There isn’t enough natural gas to heat American homes and produce electricity at the same time. This leads to a substantial premium compared to Henry Hub prices.

AGT Pricing

Source: Corridor Resources, May 15, 2018

This huge mispricing in the market is, of course, a money making machine for Corridor. Operating netback was C$11/Mcf in Q1 2018, or an astonishing C$65/boe. The operating netback was substantially lower in Q1 2017, at C$34/boe.

The premium pricing in the winter is expected to persist in the long-term, or better for Corridor, increase. Indeed, offshore natural gas production is expected to decline substantially. SOEP decommissioning has begun in late 2017. Deep Panuke is having problem of its own, namely water leakage. Encana, the owner and operator, has already filed an application to start the early abandonment of the offshore field. Encana anticipates conducting decommissioning activities during the 2019-2021 timeframe.

Transportation costs from key US shale plays to New Brunswick is estimated at C$3.67 per MMBtu, excluding local delivery costs and the price of the commodity itself. As such, not only will the price Corridor receives will trade at a premium compared to Algonquin Citygates, but it will also pay less for shipping given the proximity of the McCully field to the demand centers in New Brunswick.

A pipeline project connecting Marcellus gas to the Northeast US and the Canadian Maritimes is currently landlocked in Massachusetts. Both senators from Massachusetts are vocally opposed to the project and called into question the FERC ruling on the necessity of the pipeline. Unless the Maritimes can source additional natural gas from the Marcellus, ironically being shale gas, the province will pay an even bigger premium for its gas.

In all, the substantial pricing advantage is expected to continue, no matter the election results.

Disclosure: I am long CDH. Not for republication on Seeking Alpha.

Portfolio Update: Escaping Volatility

I was out of Gear Energy, as you know, and MEG Energy. My timing was, for once, good. I took profits.

On the other hand my timing on Granite Oil wasn’t good.

GXO August 19


I sold Granite at a rock bottom price. It was frustrating as the stock was at C$3 per share a month ago. The stock continued falling last week. Granite could be an interesting buy in the future. For now it simply didn’t make sense to keep the stock.

I still think MEG is an interesting play on Canadian heavy oil, despite having sold half of my position. The stock showed some strength at the end of last week. There is a future for MEG shareholders, especially with an activist investor such as Highfields Capital.

I started to rebuild my position in Gear after the fall last week.

I also bought Corridor Resources. The New Brunswick election in September is coming in a month and it’s currently projected to be much more closer than what’s reflected in Corridor’s share price. All hope is not lost for shale gas in New Brunswick. Stay tuned for an updated article on Corridor.

I also bought more Raging River. My portfolio is also overweight Raging River. For the sake of good timings, this stock is one of them. Stock is at a 6-year low and I am off only by about 10%. Not so bad.

Disclosure: I am long CDH, GXE, MEG, RRX. Not for republication on Seeking Alpha.

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