By: Tomas Ronolski - AllPennyStocks.com News

Tuesday, January 20, 2015

This morning the International Monetary Fund (IMF) cut its forecast for global economic growth. A slowdown in the global economy is bad news for crude oil prices, which fell 50% last year and have continued their slide in the first two weeks of 2015. Brent crude prices are currently hovering around $50 per barrel, while WTI is down to around $47.50 per barrel. While lower oil prices have hurt shares of oil and gas companies in general, independent producers in the U.S. and Canada have been among the worst hit. The cost of extraction for many of the independent oil and gas producers in the U.S. and Canada is significantly higher than those companies that focus on conventional fields. Not surprisingly, lower oil prices have hurt their margins and their stock price.

One of the biggest losers among smaller Canadian oil and gas producers has been Marquee Energy Ltd. (TSX-Venture:MQL), a Calgary, Canada-based junior oil and gas company. Marquee is engaged in the acquisition, exploration and production of petroleum and natural gas reserves in Western Canada. The company’s shares have fallen nearly 60% in the last six months as oil prices have tumbled.

Marquee shares are likely to remain in focus on Tuesday after the company announced that it met its 2014 exit production target. In addition, the company also announced its guidance and capital budget for the first half of this year.

Marque said this morning that driven by its ongoing drilling success, production in the fourth quarter of 2014 was approximately 5,250 barrels of oil per equivalent per day. Based on this, the company’s average production for the full year 2014 was 4,860 barrels of oil equivalent per day. This represents an increase of 120% over the production levels in 2013.

Despite the rising production, Marquee said that it is cautious in its outlook for 2015 due to the slump in oil prices. Due to the volatility in the oil market, the company has provided guidance for only the first half of 2015. The company has based its budget on WTI prices of $50 per barrel and AECO C$2.65/gj. The company expects first half cash flow to total $13.1 million. Not surprisingly, the company is cautious about its capital spending in the first half. Capital spending forecast for the first half is $5.6 million. Importantly, the company plans to use the excess cash flow to bring down its debt levels, which is a positive.

Marquee’s capital program includes the drilling of two strategic wells and some infrastructure expenses. The company expects its debt levels at the end of the first half of 2015 at around $53.6 million. Production for the first half of 2015 is expected to average 5,300 barrels of oil equivalent per day.

Richard Thompson, President and CEO of Marquee Energy, noted that in the existing low price environment the company will be prudent and conservative in maintaining its balance sheet while lowering capex to less than estimated cash flow.

The key for Marquee will be to strengthen its balance sheet. While the company aims to reduce some of its debt by the end of the first half, debt levels will still remain quite high. This could be a worry if oil prices remain lower for a sustained period. The outlook for oil, meanwhile, will depend on how the global economy performs. While the outlook for the euro zone and China is weak, the U.S. is expected to grow at a robust pace. Meanwhile, on the supply side, many of the shale oil producers have announced production cuts already. However, these cuts will have an impact on prices only when the market is fundamentally balanced again. Until then prices will remain under pressure, especially given the weak demand outlook. 2015, therefore, could be another challenging year for Marquee Energy and other junior oil and gas companies, but at least they are working in the right direction to minimize the downside risk and planning for robust growth when better times arrive.

Copyright © 2015 AllPennyStocks.com. All rights reserved. Republication or redistribution of AllPennyStocks.com's content is expressly prohibited without the prior written consent of AllPennyStocks.com. AllPennyStocks.com shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon.