Oil juniors face a nasty culling

Some say that as many as 200 junior oil and gas shops will fold

Oil juniors face a nasty culling

Alberta’s oil and gas juniors are hurting. The recession, low commodity prices, scarce credit and higher royalties have combined to push drilling activity lower than it has been in 16 years. Calgary’s TSX Venture Exchange, which lists many juniors, posted a massive market capitalization loss of $41 billion for 2008, losing almost 75 per cent of its value.

Greg Kuipers, president and CEO of junior Black Sea Oil and Gas, predicts that as many as 200 shops like his will soon go bust or be cannibalized by larger outfits. “When the oil prices come back,” he says, “the companies will be a lot more careful—and there will be fewer of them.”

That could mean the end of the juniors as we’ve come to know them. Entrepreneurial and swashbuckling, these small firms are “the closest thing Canada’s ever developed to a homegrown Silicon Valley-type business culture,” argues Gary Leach, of the Small Explorers and Producers Association of Canada. Leach says that in three years, the juniors will be fewer and larger, transforming the Alberta landscape. The likes of EnCana, Canadian Natural Resources and Nexen will sail through by staying dull and predictable.

Why should we care? “What’s potentially at risk is losing a significant chunk of that entrepreneurial class of people that are going to form the great Canadian companies of the next generation,” says Leach. “Canadian Natural Resources is a huge company today; 20 years ago they were a junior with six or seven employees.”

It’s not all bad. The slump has slashed development costs and rewarded outfits like Kuipers’, which took on little debt. Others are moving into B.C. and Saskatchewan, or buying their faltering Alberta brethren. “I always love a good drop,” says Kuipers of the oil-price plunge. After all, he’s con?dent he’ll be one of the larger juniors that’s left.