Ivanhoe’s Kipushi zinc mine in the DRC officially reopens
The restart marked exactly a century since the mine first went into production.
By Henry Bonner
Joe Durante joined Sprott Toscana as CEO in 2003 and is based in Calgary, Alberta. Joe works closely with Rick Rule, Chairman of Sprott Global Resource Investments Ltd. on opportunities in the oil and gas sector.
Western Canada is one of the most important locations for oil and gas production in the world. This region produced around 3.2 million barrels of crude oil per day in 20131,principally from Alberta. That is around 40% of production in the US during that period.2
Sprott Toscana is a leading lender to oil and gas projects in Western Canada, providing companies with development capital, most often in the form of loans. They use this capital to pay for drilling operations, oil and gas rigs, pipelines, roads, power lines, labor, and permitting costs.
Other companies, instead of borrowing, choose to sell off some of their mature projects in order to build or expand new operations. An affiliate of Sprott Toscana, Toscana Energy Income Corp., buys those that are attractive and receives the revenue for the rest of the production life – or can sell them off later at a potential gain.
The Canadian oil and gas sector has been out of favor with investors for the last several years. Canadian crude oil fetches a lower price than crude that flows from West Texas, or Brent crude. The lack of transportation infrastructure to bring oil and gas out of the basin has led to a back log of oil and gas, which sells at a discount. In fact, the lack of pipelines is the main reason transporting oil by train has become widespread.
Negative sentiment around Canadian oil and gas companies has led to a unique opportunity in the past several years, says Joe.
“There are fewer competing participants in this sector, meaning there is less available capital for these projects. This allows us to demand higher returns on our loans, be more discerning about which deals we accept, and to acquire assets relatively cheaply,” said Joe on a recent call from Calgary, Canada.
Getting into attractive deals can be daunting, especially for investors who are not ‘in-the-know,’ he adds.
“There’s a saying that ‘good deals never make it out of Calgary.’ In the oil and gas sector in Alberta, access to deal flow is usually limited by ‘who you know.’ So having a network of contacts, like the one I’ve built up over 25 years in the industry, is a huge advantage. It has given us a competitive edge.”
When deals pass a certain threshold in size – a loan of over $25 million, for instance – Sprott Toscana may seek other investors to join alongside it, in order to raise greater amounts of money.
If a loan is ‘syndicated,’ other investors, including retail investors of Sprott Global Resource Investments Ltd., may also have the opportunity be able to participate in these deals.
Where are the biggest opportunities today?
“Fewer investors are following the oil and gas sector in Alberta and British Columbia than in the US,” he explained, “but this is one the most important regions for oil and gas production in the world and new technology has drastically increased the amount of opportunity.
“We’re seeing a big move into liquids-rich natural gas deposits in Northwestern Alberta and Northeastern British Columbia,” said Joe.
Natural gas ‘liquids’ are by-products of high-energy-content natural gas. These by-products (known as condensate, butane, pentane and propane) generate additional revenue for natural gas producers and substantially improve the operating margins from these wells.
“I think ‘liquids-rich’ oil and gas producers will be some of the top performers going forward.
“The ‘shale game’ is real, and I believe it’s the future for oil and gas producers in North America,” he added.
Joseph S. Durante has over 24 years of experience in Canada’s oil and gas industry. Since 2003, he has been the Chief Executive Officer of Toscana. Prior to joining Toscana, Mr. Durante was the Managing Director of Norrep Resource Management Inc., a private consulting corporation. Mr. Durante was also a co-founder and Chairman of Fairmont Energy Inc., a public junior exploration and production company acquired by Delphi Energy Inc. Mr. Durante is currently the Chief Executive Officer of Maple Leaf Energy Income Management Corp, the general partner of Maple Leaf Energy Income Limited Partnerships.
1 http://www.neb-one.gc.ca/clf-nsi/rnrgynfmtn/sttstc/crdlndptrlmprdct/stmtdprdctn-eng.html
2 http://www.eia.gov/dnav/pet/pet_crd_crpdn_adc_mbblpd_a.htm
