Not long ago, in a land not far from here or there, the Canadian Resource sector took two near fatal mortar rounds to the chest. The first was the oil price decline that left the sector neutered in 2015 with many casualties. In the midst of that recovery, the jubilation for LNG exports to Asia – perceived saviour of the industry—was derailed as major partners went to ground.
One theory that might be more prudent this time is to put early investment dollars into equipment and infrastructure companies that are gearing up.
As a proxy for this growth, Enterprise Group (E:TSX), the premier industrial rental company in Western Canada comes into this burgeoning market aggressively and debt free: The Company appears to be a substantial proxy and winner as several huge potential developments unfold in its target area. As well, the Company has significant access to funds for buying equipment, complementary companies or both. Enterprises history is to buy accretive assets, utilized them for several years to generate significant revenue and then sell at a profit.
As the LNG 2.0 growth commences, Enterprise is known as a one stop shop very well known by the industry as having exceptional equipment coupled with wide ranging custom solutions. Not to mention the plaudits it gained by working with clients to help in the downtimes. Not everything is about money.
And at C$0.45 trades at less than ½ book value of C$1.01.
Why Own Enterprise? Salient Points:
- Refocus to grow the lucrative industrial/resource rental business
- Cash flow positive since the beginning of 2015 downturn
- Profitable trend seems intact last three quarters
- Trades at less than half book value (C$1.01)
- Development of StarChain, a revolutionary monitoring and asset management software
- 15 proprietary patents for specialized equipment and processes
- Cost effective custom solutions
- Significant acquisition and capital expenditure
- Significant domestic growth plans
Third Time the Charm
Due to the vagaries of the sector, these products and services are always needed. If it all comes together at once—LNG Canada commences and oil stays reasonable the renaissance of multiple sectors is or could soon be apparent.
“If you think back three, four years ago when we all had LNG euphoria, that there was a slew of projects ahead of us, we certainly didn’t see any boxes being ticked to the same degree that they are today,” stated Horizon North Logistics Inc. (HNL:TSX ) Chief Financial Officer Scott Matson. “Our view internally is that the flag in the ground was Petronas buying in. We have a hard time believing they would spend an ounce of time, energy or a dollar unless they had a clean line of sight to the project moving ahead.”
The Centre of the Universe?
In St. Albert near Edmonton Alberta, there were several reasons the Enterprise C-Suite team worked to save, expand and grow Enterprise Group. During the almost fatal resource decline mid-decade, one main reason was the new prospect of the significant resurgence of massive LNG spending.
The reasons for this renewed activity years on –after Pacific Northwest LNG populated mainly by Malaysia’s Petronas cancelled participation in 2017. Always watch the left hand as in a feat of corporate legerdemain it is now a major partner in the phoenix-like reanimation of LNG Canada. The workforce will not be a vast majority of TFW (temporary foreign workers) which was a major plank of the previous plan, but the vast majority (approximately 95%) Canadian.
” The potential for the development of LNG to announce and go ahead in the fall is roughly an 8 out of 10,” stated Des O’Kell SVP of Enterprise. ” Related activity is apparent from Kitimat to Fort St. John; negotiations with First Nations, equipment plans and office leasing. All of this is against a backdrop of high condensate prices to make the bitumen flow effectively. The reality is that early exposure to this development trend is key; with an eye to commodity prices. Opening a valve to Asia would very simply provide massive growth of Canada’s energy exports.”
To give some perspective, Alberta’s Black Diamond (BDI: TSX) announced to a contingent $42.5 million camp contract in concert with indigenous partnerships. The landscape is getting thicker with a growing list of monies to be spent and plans to be executed. Houston-based Civeo Corp (NYSE: CVEO) has already been awarded conditional contracts for a 440-bed permanent facility at Kitimat and a 4,500-bed temporary camp for the export terminal construction phase.
Kitimat’s Haisla Nation has made its support apparent through a letter to the NDP from Chief Councillor Crystal Smith:
“Unlike others who think the answer is simply ‘no’ to development, we believe in balance between the economy and the environment. Projects can be built right. A project like LNG Canada provides the right balance for us, being a potential major employer and the lowest CO2 emitting LNG facility in the world. We’ve spent more than a decade speaking with LNG proponents to emphasize what’s important to us in our communities and we’ve enjoyed the debate which has led us to today.”
BC Opposition is also onside. Former BC Liberal LNG Minister Rich Coleman stated; “It would get a product we have a huge amount of, we have a 150-year supply of natural gas and would allow us to ship it to China and other countries. Shipping to China would help with climate issues and everything else.”
LNG has much going for it, not the least of which, along with massive supplies is, no apology to Trump, the natural replacement for coal. It’s also important to realize the Trump factor which seems that he could do something ridiculous that could help or hurt the resource sector. He could do nothing with the same result. There will be no in between.
From the Financial Post:
“Those LNG markets are turning around, says Shell’s 2018 LNG outlook. It found the market has defied expectations, growing by 29 million tonnes in 2017.”Based on current demand projections, Shell sees a potential for a supply shortage developing in the mid-2020s, unless new LNG production project commitments are made soon.”
So, what do we get? We unlock a giant-killing amount of Nat gas, open up LNG markets to lessen dependence on the US. As well as essential jobs created for decades and the prospect of further projects. Considerable interaction with First Nations as substantive partners. Get bitumen flowing to markets. This situation is not merely some ‘nice little resource deal.’ It is an entirely and possibly multi-generational expansion that, until alternatives come online, provides a viable and cleaner source of power that of coal, oil, etc.
After the last two go-arounds this decade, trepidation would likely be an apt description. But as any risk-taking investor will tell you; Fortune Favors the Bold and merde happens.
Faites vos jeux, mes amis.
For further Enterprise news and corporate updates, and to speak directly with the #management team, join the Enterprise “Investor Group on 8020 Connect http://bit.ly/2FNPjyk