Shale gas is not dead, just resting

By Jeffrey Jones

CALGARY, Alberta (Reuters) - Shale gas producers are victims of their own success, at least in terms of the glut of the fuel they helped create.

Now, they may be forced to keep applying their technology to tap other, less gassy, energy opportunities for at least another year until prices start some kind of recovery.

It's a strategic side trip, but a necessary one as gas prices stuck in a range of $4 to $5 per million British thermal unit push a lot of shale wells below break-even and crimp cash flows of companies such as Encana Corp (ECA.TO: Quote) and Talisman Energy Inc (TLM.TO: Quote).

"It's tough to see share-price accretion for most of the gas-weighted names," said Macquarie Securities Canada analyst Chris Feltin, who sees perhaps another 12 months of weakness.

"We still have a preference for oil-weighted names as the visibility for higher oil prices seems to be improving supply and demand fundamentals globally."

That's no secret to shale players, who invested heavily in prolific prospects in British Columbia, Texas, Louisiana and Pennsylvania and in the multistage rock-fracturing technology that has allowed the gas to flood markets in increasing volumes.

Encana, for instance, has become so efficient at producing the stuff it has somewhat immodestly dubbed its operations "gas factories". Now, it and its peers face a market at the end of their assembly lines that won't pay the price to produce it.

Shares in Encana, whose business was built on shale gas, ended Friday's Toronto Stock Exchange session at C$31.21, up 84 Canadian cents. That is down 13 percent in the past 12 months, compared with a 22 percent gain by the shares of its former oil unit, Cenovus Energy (CVE.TO: Quote), and a 9 percent increase in the S&P/TSX energy group. .SPTTEN