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Market Watch Weekly - February 7, 2014

Erik Dekker - Feb 07, 2014
Over the last number of months we have talked about the possible build out of BC LNG and the economic spinoffs that could potentially result.

Over the last number of months we have talked about the possible build out of BC LNG and the economic spinoffs that could potentially result. This week we thought we would expand on that just a bit as we are coming up to the BC Provincial budget where it is expected that we will see further detail, with the final financial details coming this fall.

It is our belief that the BC Liberal government is purposefully taking a cautious approach in making a final decision around the construction of the LNG tax regime. Notwithstanding the considerable debate on both sides of this issue, it is our expectation that BC’s economy should experience a considerable period of growth due to LNG.

Earlier this week, we had the opportunity to meet with Chris Theal of Kootenay Capital Management, an alternative asset manager solely focused on the energy sector. During his presentation he outlined his expectations for building of both the Prince Rupert and Kitimat export facilities. Consortia led by Chevron, Apache, Exxon Mobil and British Gas, among others are expected make their Final Investment Decisions by 2015, resulting in potential economic spending benefits in excess of $10 Billion within our province.

The economic benefits would also be quite distributed within the province. Drilling companies in Northeastern BC, supply delivery and pipeline construction across the entire province, as well as coastal terminals in both Prince Rupert and Kitimat will have to be built. The beneficial spin offs as a result of the incremental demand for airline or bus transportation, hotel or motel rooms as well as restaurant meals should be expected to generate substantial taxation revenues for the entire province.

These benefits should not be expected to be limited to Prince Rupert or Fort St. John and all points in between, but also the engineering and construction firms in Vancouver, modular housing construction firms in the interior, and infrastructure supply and construction companies all throughout northern British Columbia.

Even prior to the signing of the first Final Investment Decision, the companies involved in the consortia will be increasing their spending in preparation for the next two years, by several hundred million dollars. From Fort St. John to Prince Rupert companies will be spending on government relations, public relations, engineering and consulting in order to figure out the logistics on how to execute the largest infrastructure project in Canadian history.

For the long term investor, the build out of BC’s LNG could be expected to provide significant investment opportunities, ranging from the small to the large. Companies such as Petro west or Westernone that are smaller than $1 billion in market capitalization, or Finning International that is nearly $5 billion, all the way up to Chevron at over $200 billion in size are all involved to a certain degree in the building of the LNG sector within BC.

How the investor decides to position themselves within that array is specific to your own goals and risk tolerances, thus everyone would be slightly different. We have had this discussion with many of our clients and will continue to do so within the right context, as we do feel that having an ownership within this sector over the next several years will generate substantial value.

Today marks the start to the Winter Olympiad hosted by Sochi Russia. For those still trying to figure out the time difference for television viewing, it is basically 12 hours, so recording and watching delayed will most likely be your best option. That is unless you want to become nocturnal for a couple weeks.

These Olympic Games mark a real convergence with “X Games” with twelve new events being added; several coming straight out of the X Games. The new sports will be:

  1. Biatholon mixed relay
  2. Figure Skating team event
  3. Luge team relay
  4. Ski halfpipe – Men’s and Women’s
  5. Ski slopestyle – Men’s and Women’s
  6. Snowboard slopestyle – Men’s and Women’s
  7. Snowboard parallel slalom – Men’s and Women’s
  8. Women’s Ski Jumping

Now some of these may be a little less exciting to watch than others, but it will certainly be nice to watch some of our local athletes compete in the newly added Ski and Snowboarding events.

For those already looking to map out their viewing schedule, the Men’s Hockey Gold Medal Game will be on February 23rd at approximately 3am. I think a late night run to Flying Wedge for their Breakfast Pizza will be in order.

Enjoy the Opening Ceremonies tonight and have a great weekend.

As always, we welcome any feedback.

Thank you for your trust.

The Dekker Hewett Group