The glow of a bright future┬áKeith Regan learns how Ember Resources has positioned itself to weather any downturns in commodities prices and take advantage of long-term trends. The province of Alberta has become a key producer of energy for much of North America, mining and pumping natural gas to heat and cool homes and businesses across Canada and the United States. While a host of major gas and oil exploration companies have descended on the province to help keep the gas flowing, relatively few such firms have focused on the opportunity that lies in coalbed methane natural gas. Ember Resources Inc. is even rarer still, as one of the few junior exploration companies that have made a decision to focus on the coalbed methane opportunity. Ember was spun off from Thunder Energy three years ago to create a company with the resources to focus on that niche, says executive vice-president and chief operating officer Terry Meek. Two recent developments have Ember increasingly optimistic about the future: first, the province of Alberta enacted new regulations that boost the royalty rates the government collects from traditional natural gas drilling endeavors, a move that will likely increase interest in other sources. ÔÇ£Once the reality of the new royalty rates sets in, I think producers will be noticing more niche opportunities,ÔÇØ Meek says. Meanwhile, Ember recently changed its own outlook by completing a major acquisition that dramatically increased the numbers of acres under its control and the size of the total gas resources available to be captured. After winning a bidding war over utility company Enmax, Ember purchased Cordero Energy for around $200 million. The combined firm controls some 425,000 acres with a total resource in place estimated at 2 trillion cubic feet and defined reserves of 150 billion cubic feet. Cordero controlled what Meek calls a ÔÇ£very complementary asset base in the same basic geographic region and with similar horizons to our producing properties. We saw the combination giving us the scale to move ahead with significant cash flow in light of the current market,ÔÇØ he adds. ThatÔÇÖs important because it means Ember can continue to operate and invest without having to go into the public markets to raise additional equity at a time when any such offering would bring very unfavorable numbers. Cordero brings specific experience, resources and expertise to the combination as well, including extensive work with getting production from hard-to-reach resources, such as coalbed seams that are under lakes or underneath towns or other populated areas. The combined company has strong expertise in being environmentally sensitive, Meek says, often choosing not to build permanent roads to its drill sites and using low-impact methods wherever possible. ÔÇ£WeÔÇÖre always looking to find an efficient way of doing our work without causing any more significant surface impact than we absolutely have to,ÔÇØ he adds. After enjoying soaring commodities prices for much of 2008, Ember and its fellow gas drillers have seen prices tumble amid concern about a worldwide economic slowdown and credit crisis. The price changes ÔÇ£certainly affect cash flow directlyÔÇØ and force drillers to operate in the most low-cost and efficient manner possible. The Cordero merger helped Ember significantly on that front, Meek says, with the combined company ranking in the top quartile among Canadian companies in terms of operating on a low-cost basis. ÔÇ£In this kind of price environment, that becomes all the more important so you can keep margins somewhat protected,ÔÇØ he adds. The entity is ÔÇ£pretty leanÔÇØ on the people side, he notes, and seeks to make the best possible use of the cash it does invest by focusing on existing facilities, something it has far more options to do since the merger. Ember brought in about $200 million in revenue in 2007 with about 15 full-time direct employees. ÔÇ£One of the other things the merger does for us is give us more options to apply our capital and spend money in areas where we donÔÇÖt necessarily have to increase the facility size or start up new operations right now,ÔÇØ Meek says. ÔÇ£We can gain efficiency that way.ÔÇØMeek believes the current price drops are not a sign of any changes in the long-term trends that favor expanded use of natural gas for the foreseeable future. With calls to utilize electricity more in transportation, natural gas will remain a key fuel for generation plants in Canada and the US. Because it burns cleaner than other power-plant fuels also found in the US, such as coal, natural gas is one answer to reducing dependence on oil imported from the Middle East, he notes. ÔÇ£Even if you take this dip into account, youÔÇÖre still going to see a fairly significant upswing in energy prices over the next 10 to 30 years,ÔÇØ Meek says. ÔÇ£North America is looking for ways to move away from dependence on foreign oil, and natural gas is one of the logical choices to help do that.ÔÇØ Ember, meanwhile, will not limit its own exploration activities geographically. For the time being, the companyÔÇÖs sights are squarely on the opportunity that is literally beneath its feet in Alberta. But as it continues to distinguish itself with its expertise in coalbed methane identification, location and retrieval, the opportunities to apply what it learns in other locations may become greater as well. ÔÇ£We see the potential to grow internationally as well,ÔÇØ Meek says. Other acquisitions may be in the future also, though the time is not right for those now, with cash difficult to raise in the private and public markets alike. ÔÇ£Right now weÔÇÖre focused on growing what we have, and as those energy prices start to move back up again, we think weÔÇÖll see additional opportunities open up for us.ÔÇØ┬á