Wow. Where does the time go folks? It seems like only yesterday that I was a wee buck, wet behind the ears, looking to make my way in a land of uncertainty and boundless opportunity. And now? I’m a beaten down wreck, a long term sufferer of the vagaries of the worst industry on the planet – the energy industry.

OK, not really. The energy industry has been just fine to me and my family. Which of course is why we rebranded recently. Actually, that’s not true either. We rebranded so we would stop confusing clients. Which makes me think that maybe I should rebrand? I kind of did, when I got my post-lock-down haircut after all I left it longer on top to show off my natural curls, a hairstyle I have not sported since those heady post high school days when everything seemed possible and Duran Duran was cool.

See what I’m doing here? I’m dating myself. Speaking of dating, it was in September of 1992 when I moved away from Montreal. Interesting right? Relevant? Maybe. Gotta wait.

Hey – we got a Fair Deal report this week. Pretty cool. It seems Alberta has a lot of beefs with the Federal government and its place in Confederation. Not sure I agree with all of them… Hmm, let’s face it, not sure I actually agree with any of them. Not sure this is even an appropriate time to be bringing them up – hey, can you spare a dime for our primary industry? Thanks. Oh and by the way, here is a list of all the reasons you suck.

But it was a promised undertaking by the UCP government and they did it. There were no surprises in there anyway, it was all telegraphed and pre-ordained.

As I get older (and I do get older every day), I become more cynical and jaded about politics and, fortunately, thus more capable of drowning it all out.

So when the government of the day deems the establishment of a provincial police force or pension plan to be more important than, say, jobs or the tsunami of bankruptcies coming our way, I simply shrug it off and admit that hey, I’m not the one in power – what do I know?

Same for the Federal government. We didn’t get our rotating seat on the UN Security Council. We barely got invited to the vote. Even though we spent millions of dollars trying to get there. Was it important? Meh, I don’t know. Not sure I care. Some people do. Not the same people who cared in 2010 the last time we were rejected, because that was a different party. Look, would it be good to have a voice that no one is going to listen to? Sure. But what influence do these rotating seats really have when the heavyweights all have a veto and would run roughshod over us at the first opportunity? Not much, but at least now that the answer is officially “no”, can we please get back to the business of running a rich but not so internationally relevant country because, you know, jobs and tsunami of bankruptcies. They kinda need attention.

But really, that is not why we are here today, I have much grander designs which involves some annual traditions.

Looking back to this time last year, I realize that I am now turning 55. Which means I am officially in the Freedom 55 cohort, which we all know in Alberta and energy really means Freedom 55 plus 20 (if you’re lucky!). But I suppose that’s OK, because for the rest of my working life, I now qualify for all sorts of super-cool seniors benefits and discounts that should be really useful for business development.

Want some examples? Try 20% off at Golden Griddle (excludes alcohol); 20% off at Shoppers and 20% off at Value Village. How cool is that? I know where I’m getting my next suit and, if we are ever able to eat together again, I’m buying breakfast, and I’ll bring the discounted store brand antacid. This should play well with all the millenials and Gen Z’s who are my new most likely client base. I wonder if they have avocado toast at Golden Griddle?

Hey – another new senior’s discount? I get to put 20% less effort into the blog anytime I want. Oh, and I can yell at clouds and tell kids to get off my lawn.

What does that mean to you? Well this week it means a lazy-ass mail it in 55^th birthday listicle from yours truly. So sorry, I know you were hoping for more and it will likely happen, next week, unless I forget, being of advanced age and all. Plus I didn’t really have time this week, I have a lunch date. But next week for sure I plan on addressing the issues of the day, from the perspective of a grizzled old coot.

At any rate, true to tradition, each year I throw together a lazy list of energy and/or random thoughts. And this year there are 55 of them because duh.

So, before I “retire” for the day and start my long weeekend… Here are some pithy, insightful (?) and random observations – primarily about the oil and gas sector but some other stuff thrown in so you actually have to read it. There will be a quiz.

1. Just like last year, we are depending on OPEC+ to help us out with the price of oil. Where last year we were at $57 and worried about tariff wars and global growth, this year we find ourselves flirting with $40 and worried about demand destruction, global growth and pandemics. Kinda the same, kinda different.
2. The natural gas industry in Canada has actually been a beacon of stability through this. Go figure.
3. Last year I thought the Saudis would never let over-production and low prices sewer their economy. Then an impetuous prince did just that. Fortunately, he accidentally crushed shale in the process. Saudi will be just fine thank you very much.
4. North America has more than 3 million miles of oil and gas pipelines, split roughly 80/20 between the United States and Canada
5. Since I was born in 1965, there have now been 4 major oil price shocks including exactly one day when prices were negative. Each time the market recovered. Go figure.
6. I am older than OPEC
7. Having achieved Freedom 55, I am reminded that my youngest daughter’s teacher played an investment advisor in one of the classic Freedom 55 ads. I guess I could have learned a thing or two from that ad.
8. In 1965, the American’s closest ally in the Middle East was Iran
9. The first real frac job ever recorded was in 1865 (100 years before I was born!) in Titusville Pennsylvania when Civil War veteran Col. Edward A.L. Roberts lowered a torpedo into an oil well, covered it with water and detonated it, vastly improving the well’s yield.
10. The first commercial hydraulic frac was in 1950.
11. Since that time, frac’ing has significantly improved, but the process is still the same – jam something under massive pressure into a well until the rock fractures and the molecules/liquid flow to the surface. Biggest difference between now and then? Efficiency. And safety. I guess we can’t forget that. Boom.
12. The longest horizontal frac on record is about 18,500 ft, drilled in the Utica Shale, which is a natural gas play. Total depth was about 27,000 ft. So 1.5 miles down and 3.5 miles horizontally. 124 frac stages.
13. The largest frac job ever utilized close to 50 million pounds of sand or proppant in a Haynesville shale well in Louisiana. The lateral length of the well was about 10,000 ft. As a point of reference, the Eiffel Tower weighs 14 million pounds and is just under 1,000 ft tall.
14. “Frac hits”, a phenomenon where laterally drilled wells start to run into vertical and horizontal wells belonging to other operators continue to plague large scale drilling operations in the United States. This is leading to much legal work. Seriously folks – 5 miles of drilling in multiple directions from a multiwell pad and held open by 3 and a half Eiffel Towers worth of drill pipe, sand and water – is anyone really surprised companies are running into each other?
15. Canada has the 3^rd largest reserves of oil in the world and the 10^th largest reserves of natural gas
16. Canada is the only country in the world that has only one customer for its largest export
17. The energy sector, broadly speaking, represents between 10% and 15% of Canadian GDP.
18. Put another way, 15% of our national wealth depends on the exploitation of these reserves, our 500,000 miles of pipeline and the goodwill of one country
19. In 2019, Canada was recognized as having one of the most stringently regulated oil and gas industries in the world. The jury is still out on 2020.
20. It is estimated that in Russia the equivalent of 50,000 bpd of oil is spilled annually (5% of production). That would be like half of the production of the massive Surmont SAGD facility in Fort Mac being dumped into the Athabasca River every day!
21. Venezuela is an environmental and societal basket case, has the largest reserves in the world and has seen production collapse from 3.5 mm boepd to less than 0.5 mm and now requires black market refined fuel imports from Iran.
22. The environmental degradation of Venezuelan oilfields and facilities from lack of investment and little to no regulation is likely to never be cleaned up… I repeat, never. You can light Lake Maracaibo on fire. But hey, Canada is the bad guy
23. Global spend in the oil and gas sector averages about $2 trillion a year, about $200 billion more than Canada’s annual GDP. Of that, about $600 billion is typically spent on exploration and new production
24. Global E&P capex in oil and gas is expected to be down 30% to $400 billion in 2020 due to COVID caused demand destruction.
25. In Canada, capital spending in the oil and gas sector is expected to be less than $25 billion this year, less than the estimated capex for renewables. For the first time ever.
26. Of the $11 billion spent on environmental protection in 2012 (last year data available, gotta love government), 43% was spent by the oil and gas industry. The next closest industry spent 12%
27. Total spending on tangible environmental protection by Canada’s environmental lobby groups since I was born in 1965 has been about $0
28. The first politician whose name I ever heard and recognized at age 3 was named Trudeau. Now, a mere 52 years later, it’s the same damn name. Go figure.
29. Western alienation is a big deal that I didn’t understand when I was 3 although I do now. Oddly enough, this guy got it https://www.cbc.ca/archives/entry/trudeau-not-worried-about-western-alienation
30. The oil and gas sector is one of the largest employers of First Nations people in Canada.
31. Suncor employs more First Nations people than the Federal Government
32. In 1965, global consumption of oil was just over 30 million barrels of oil a day. In 2019 it was about 100 million barrels a day. In 2020, it is expected to close the year at about 94 mm bpd. It took a pandemic and global economic shutdown to stop this growth.
33. In 1965, North America produced about 10.9 million bpd (32% of global production of 34.5mm bpd) and in 2020 that number is expected to be about 17 million (23%)
34. In 1965, the Middle East produced about 9.4 million bpd (27%) and in 2019 that number was about 27 (27%). Total all-in OPEC production is currently about 34% of total global production
35. There are currently more than 300 million vehicles in the United States. At current rates of production, it will take about 100 years to replace all of them with electric vehicles.
36. Alternatively, annual vehicle sales in the US are about 17 million. If all vehicles sold from this day forward were EV’s, it would take about 60 years to replace the fleet. And you’d still likely have about 150 million gas powered vehicles on the road. People like to have 2 vehicles.
37. In the early 2000’s, total fossil fuels’ share of the energy market was about 85%. Since then, hundreds of billions of dollars have been invested in renewables such that fossil fuels current share of the energy mix is… Yup, you guessed it, 85%.
38. Pre-COVID, no country was on track to meet their Paris Accord emissions targets, except France. And maybe the US, which has seen major reductions in emissions, ironically thanks to accelerating gas production edging out coal for power. Ironically the whole pitch behind exporting Canadian LNG to Asia
39. Post COVID, no country is on track to meet its Paris Accord emissions targets. Except maybe France and the US.
40. 40% of the world’s ocean cargo is oil
41. It took more than 100 years and trillions of dollars to build out our current fossil fuel based infrastructure
42. There are more than 1.75 million active oil and gas wells in the United States.
43. There are more 225,000 active oil and gas wells in Canada
44. In the United States it is estimated that the oil and gas industry supports around 10 million jobs or 5% of the labour force. Of this, close to 800,000 are directly employed in the services sector
45. The US oil and gas services workforce is among the hardest hit by COVID in the world, with at least 100,000 jobs lost
46. In Canada, the similar employment number is 250,000 direct oil and gas jobs and probably another 300,000 indirect jobs, with COVID related job loss likely in the range of 50,000.
47. In 2019, the US drilled some 12,000 and completed about 10,000 wells. In 2020, the US is expected to drill and complete less than 6,000 wells and complete about half.
48. In 2019, in Canada, about 5,000 wells were drilled and/or completed. There is no current forecast for 2020, but expect plan for a 2/3 reduction.
49. On this date in 2019 there were 789 rigs drilling for LTO in the United States. Today there are 189. Which may have been what it was in 1965.
50. Donald Trump has been positive for the energy sector in general. Don’t expect that to continue under a Biden presidency. Which is bullish for Canadian energy. Go figure.
51. Saudi Arabia still decides where the energy industry is going to go. Which makes it reassuring that they have picked up some heavy oil shares
52. Only half of a barrel of oil is used for gasoline, the rest is used in more than 6,000 common products including hand lotion, football helmets, insecticides, fertilizer and fidget spinners
53. The countries with the highest use of energy per capita also have the highest life expectancy, demonstrating that access to cheap and plentiful energy is critical to increasing life expectancy and pulling people out of poverty
54. The energy industry is one of the most important industries in the world and touches virtually all aspects of our lives, every day, so maligning the energy industry and blocking projects is hypocritical and denies the reality on the ground that our privileged lifestyle depends on a healthy energy economy
55. Notwithstanding Coronavirus, in 2020/2021 the private and public sector in Canada will likely be involved in the construction of close to $75 billion in energy infrastructure including thousands of kilometres of oil and gas pipeline and massive investments in LNG and petchem processing facilities. Not bad for a country mired in regulatory gridlock, in the midst of a pandemic, a sector facing an existential crisis, demand destruction, high debt loads and, let’s face it, an indifferent population. Imagine what we could do if we cared!
56. Bonus extra muse – This is my fourth energy cycle as an industry participant. It’s a soul-crusing grind but it also makes you eternally optimistic. I truly believe the future is bright for Canadian energy in all its forms and am proud to play my part in helping it grow. Regardless of whether we are Stormont Capital or Stormont Energy, the companies and people who produce the energy, service it, deliver it, maintain it and clean it up when it’s been used remain our key constituency and we are committed to being part of their team for the foreseeable future, or as I like to call it – Freedom 75 (ugh 20 more years of blogs – what have I gotten myself into?).

Office Cat

Office Cat has decided I am too old to be of any use to him. He is gone.

Stormont Capital Crude Coffee

Another great conversation.

The main topic was debt. Lots of debt. And bankruptcies.

Then we talked politics. And decided to rename the Greeenline the Pipeline – so the province would fund it.

This week I promise to track down another interesting guest who isn’t me, although I reserve the right to blather away about stuff I want to talk about.

Prices as at June 19, 2020

• Oil
  • Oil storage was… up. (kind of expected – does no one read the news?)
  • Production was down
  • OPEC+++++ extended cuts
• Natural Gas
  • Storage was up, historically very high; consumption down; production flat; exports flat.

• WTI Crude: $39.42 ($36.53)
• Western Canada Select: $30.57 ($26.13)
• AECO Spot: $1.850 ($1.875)
• NYMEX Gas: $1.747 ($1.806)
• US/Canadian Dollar: $0.7353 ($0.7350)

Highlights

• As at June 12, 2020, US crude oil supplies were at 539.3 million barrels, an increase of 1.2 million barrels from the previous week and a increase of 56.9 million barrels from last year.
  • The number of days oil supply in storage is 40.4 compared to 28.4 last year at this time.
  • Production was down 600k for the week at 10.500 million barrels per day. Production last year at the same time was 12.200 million barrels per day.
  • Imports fell to 6.642 million barrels from 6.864 million barrels per day compared to 7.467 million barrels per day last year.
  • Crude exports from the US rose to 2.462 million barrels per day from 2.439 million barrels per day last week compared to 3.422 million barrels per day a year ago
  • Canadian exports to the US rose to 3.085 million barrels a day from 2.949 million barrels per day last week
  • Refinery inputs increased during the current week to 13.600 million barrels per day
• As at June 12, 2020, US natural gas in storage was 2,892 billion cubic feet (Bcf), which is 17% above the 5-year average and about 33% higher than last year’s level, following an implied net injection of 85 Bcf during the report week
  • Overall U.S. natural gas consumption fell 7.1% during the report week.
  • Production was up 0.5% for the week. Imports from Canada fell 5.5% from the week before. Exports to Mexico were down 4.7% on COVID
  • LNG exports totaled 29 Bcf
• As of June 19, 2020, the Canadian rig count decreased 4 to 17 (AB – 11; BC – 6; SK – 2; MB – 0; Other – 2). Rig count for the same period last year was 58.
• US Onshore Oil rig count at June 19, 2020 is at 189, down 10 from the week prior.
  • Peak rig count was October 10, 2014 at 1,609
• Natural gas rigs drilling in the United States is down 3 at 75
  • Peak rig count before the downturn was November 11, 2014 at 356 (note the actual peak gas rig count was 1,606 on August 29, 2008)
• Offshore rig count was down 2 at 11.
  • Offshore peak rig count at January 1, 2015 was 55

US split of Oil vs Gas rigs is 86%/14%, in Canada the split is 66%/34%

Trump Watch: Bolton!

Kenney Watch (new!): Fair Deal!

Trudeau Watch (for balance): UN smackdown, haircut!