VIRTUAL
DATA ROOM

Crude Observations

It’s Gonna be…

Because I have a deal closing soon and this whole Muskitter or Twelon deal seems to be all anyone wants to talk about, I thought I would avoid serious stuff and carry on the tradition of the tongue in cheek April blog to the very end of the month.

 

Because you know what they say:

 

April is tough and nasty or so they say

But I don’t care, ‘cause on the morrow

It’s gonna by May!

 

Anyway.

 

From Chaucer (he dropped the iambic pentameter hammer on April showers) to folksy sayings (April showers bring May flowers (punch)) to the usual Calgary litany of freak snowstorms and patio weather (often in the same day!), April is typically a bear of a month and this year, AGAIN, it hasn’t disappointed.

 

Fortunately, there are a few green shoots. For example, typically by this time, all Canadian teams have been eliminated from the NHL playoffs – but not this year – playoffs haven’t even started yet! And while it appears we are going to have to listen to Leafs fans predict an imminent Stanley Cup for probably a few rounds in the playoffs (assuming they avoid the ridicule they endured last year getting spanked by Montreal), we also have two western teams to cheer for: Connor McDavid and his playoff disappearing act and, of course, our Caaaaaaaaal..gary Flames – not good enough for a new barn, but good enough for an entire neighbourhood (Beltline – Red Mile) to entrust their economic survival to. I feel like playoff hockey may be enjoyable out here until at least May 3rd!

 

Meanwhile it is still dreary April.

 

However, out of this doom and gloom, like clockwork, a hero has emerged. And his name is Elon Musk. Yes him. The world’s richest man has outdone himself by singlehandedly goosing the price of Twitter stock to $50 with his initially passive and now decidedly active investment, culminating in his $44 billion massively leveraged take private offer. While I give it a 50/50 chance of closing (others are higher), it has been fun (and profitable) to watch. How he is planning to service $24 billion in debt with $1,5 billion in cash flow is beyond me, but what do I know – it’s just my job.

 

Not to be outdone, Facebook released results that upended the market consensus on their descent into Meta-irrelevancy and the stock popped 20% on market open Thursday. Then, just to put the cherry on top, some random activist shareholder decided to out Suncor as underperforming dud and the stock was up 10% on the day.

 

Needless to say, it was a good month for the old Stormont portfolio. Mostly.

 

On top of that, it’s the NFL Draft! The annual meat market wherein large men find out they have to move to such glamourous locales as Detroit, Cleveland and Jacksonville or have their careers needlessly wrecked by being drafted by perennial sad sack teams like the Jets. While the good teams also select players, the most ironic part of the draft for me is that the best players invariably find themselves in the worst places, unless someone makes a trade.

 

 

Anyway, I digress. While I take a break between Round 1 withdrawal and wait breathlessly for Round 2, I am going to cast off these April blahs, and, just like the NFL, I am going to hold a draft – like I do every year, except, as regular readers know, mine is a Global Energy League Draft.

 

So here goes.

 

The Global Energy League Draft of 2022

 

OK, first the rules. For the purposes of this draft there are only 10 teams, the others are all in some minor league or other entity like a Soccer Super League. The draft will take place in typical inverse order, so if you had the weakest record in the last year, you get to pick first. This means the best picks last. Each participant has 10 minutes to make their pick, spawning the term “on the clock”.

 

 

Trades are allowed, encouraged and occasionally happen. As an analogy for global energy politics, it needs to make at least a little bit of sense and clearly, if Russia isn’t portrayed as evil, then what’s the point?

 

 

Finally, just like in the NFL draft there has to be a last pick, in this case it is pick number 60 because this draft actually has 6 rounds. In the NFL this pick is called Mr. Irrelevant just to demean that poor kid a bit more, so we will go with that.

 

 

Alright, here comes honorary commissioner and noted candidate for YYC mayor Roger Baker to announce that the team with the number one pick in the Energy Draft is up and has ten minutes to make its pick.

 

 

“Ladies and gentlemen, Canada is officially on the clock and the draft is on”

 

 

Canada – first pick overall! Very exciting, right? Just like last season Canada has the first pick which means… They were the worst performer of everyone. Not a big reason to celebrate, right? Maybe if they pick the consensus number one, but if they screw it up…

 

Last Season. The last season for Canada was nothing short of hopeless on the energy front. The country started relatively strong but faded fast as the year went on. Expensive free agent TransMountain finally got on the field, but it was clear that after having to sit for two years while negotiating a new contract, it was going to be at least another season before any significant contribution. Another high profile draft-pick from prior years was Coastal Gas Link got on the field for a bit but weather and protests slowed its progress considerably. Rising energy prices certainly worked out well for a lot of the players but didn’t translate into growth on the field. The career-ending injury to highly touted rookie KXL doomed the Canadian side.

 

Needs: Everything. Seriously. OK, maybe not that seriously but there are holes in this lineup that newly hired Coach Poilievre needs to address to attract more potential free agents. Probably needs a more focused GM, but that’s for another day.

 

The Pick. This one is really no surprise. The consensus number one pick in the draft has always been staring any team in Canada right in the face. They need to protect and get the best performance out of their most prized assets. With the first pick in the draft, Canada picks LNG which should pay massive dividends and allow CGL to maximize its performance for years to come.

 

Pick Number 2 goes to the Russian team courtesy of a trade with Venezuela which was solidly in second to last place. Moving up from number 9, the Russians gave the Venezuelans some much needed foreign currency and a couple of bottles of vodka.

 

There was a lot of debate as to whether Russia should be allowed to participate in this year’s draft due to their invasion of Ukraine, but this is an energy analogy after all and they are a major participant.

 

Last Season: Led by Vlad the Impaler Putin, the Russian Bears trampled roughshod over pretty much everyone they faced last season yet somehow still finished a distant second to Saudi Arabia. As always. Even their traditional cheating and intimidation did little to help. Their late season inability to beat Ukraine doomed their playoff hopes anyway.

 

Needs: It is hard to say what the Russians need at this point. Their energy team is typically very balanced and requires very little tinkering. But invading your neighbour comes with a lot of unintended consequences, some of which include a lot of current customers declining to buy your stuff, the team owners having their assets seized and the minions on your team being ritualistically humiliated by an upstart team from Ukraine. Then they lost the NordStream 2 – last season’s first round pick, so things aren’t going great.

 

If pressed, it would appear that Russia’s two biggest issues appear to be the diconnect between Putin the Coach/GM/President and Chief Play Caller and the extremely well-paid minions/stars he has toiling away for him and the general disdain that the Russian team seems to have for pretty much anything not Russian.

 

Pick: To no one’s surprise, the Russians decided that they would cheat and pick up multiple players with their one and only draft pick. Then, unhappy with his picks, Putin executed all of them and demanded that he get to pick again. This time he picked an 80-year old Ukrainian grandmother, ultimately deciding his team needed a bit of backbone and toughness.

 

Picks number 3 and 4 this year both go to Alberta, home to former league commissioner Jason Kenney. The number 3 pick is “earned” thanks to Alberta’s continued lousy record the past season while the number 4 overall pick is a compensatory pick from the United States for the cancellation of the Keystone XL pipeline project.

 

Last Season: Compounded by pipeline challenges, multiple pandemic waves and an ongoing conflict with Canada, last season was a bit of a mess for Alberta. Overloaded with rigid ideology and non-functioning strategies like the War Room, carbon tax battles and expensive free agent busts like KXL and cutting crude by rail, the Alberta team spent much of the year blaming everyone else for their poor performance instead of assessing their weaknesses and starting from scratch. After an incredibly tough start to the year, the players decided it was time to get back to basics – have a strong ground game, play by the rules, keep your head down and don’t draw attention to yourselves and you will be competitive week after week. Start to muck around with the basics and think you are smarter than the opposition? You are done. Dividends started to pile up pretty fast.

 

Needs: With division rival Russia appearing to be on a downtrend, there is an opportunity here for Alberta to step up and maybe even contend for a playoff sport this year but with TransMountain on the Canada roster and KXL out of the league for good, Alberta is going to need some breaks along the way. Having the powerhouse US as a perennial power and also contending with teams such as Iran and Iraq will be a challenge. Second year coach and former league commissioner Jason Kenney has his hands full.

 

Pick #3: With this pick, Alberta went the safe route and chose to bulk up its defence, and who can blame them after the manhandling they have suffered the last few years. The pick is Carbon Capture. It’s a bold choice worth trying, and will be useful to fight off ant challenges from upstarts like ESG.

 

Pick #4: With this pick Alberta is faced with a conundrum. Do you take a flyer on an unproven pipeline like Energy East and hope it pans out? More infastructure? A Quebec emissary? Ultimately this pick came down to the wire and with time almost expiring to make the call, Alberta went with the trendy, flashy pick – Hydrogen. A flyer in my eyes, but this is what you do when you have two picks.

 

 

The 5th overall pick in this draft belongs to the United States, who finished in the middle of the pack, notwithstanding having one of the best teams in the league, on paper.

 

Needs: While they got steady production out of their core energy assets for much of the year, the US team suffered from a lack of cohesion and strategy leading to some pretty disappointing results. The problem of course stemmed from an ownership group that in the past didn’t understand restraint or salary caps resulting in a lineup constantly filled with pricey free-agent acquisitions, divas and is a lot of flash over substance. Case in point is former #1 overall pick Permamia, easily sucking up 75% of the salary cap. New General Manager Occasionally Angry Joe Biden clearly doesn’t understand the league very well or what he needs to be doing to improve the team. Case in point – he demanded more production from his team then gave their uniforms to the ESG squad.

 

The Pick. True to form, the United States ignored the advice of the scouts and industry veterans, selecting Strategic Petroleum Reserve releases. It’s going to be a loooonnnngggg season.

 

 

The 6th overall pick in this draft belonged to Iran and for the longest time, it was radio silence as they searched for their scouting notes, a list of available choices and a video-feed that wasn’t in Russian.

 

Last Season: Iran was blacklisted for much of the season last year as perennial powers United States and Saudi Arabia did their best to sideline them and keep them out of the playoffs. It was one debacle after another as they found themselves hemmed in with nowhere to send their energy. Then Russia invaded Ukraine and they were everyone’s darling for a bit but still ended the season basically ignored. Looking forward, even their cheating by sending barrels to China is being met with Russian crude..

 

Needs: For Iran, it’s pretty simple. They have some of the best assets in the energy league outside of Saudi Arabia but no way to properly use them unless the US lets them.

 

Pick: In anticipation of finally being allowed back into the league in a meaningful way, Iran needs a flashy pick that will make American fans sit up and take notice. Not believing their luck, the Iranians found the sleeper of the draft and selected Hunter Biden (complete with Laptop!). If this doesn’t solve their nuclear agreement issues and get them right back in the oil game, nothing will.

 

The 7th overall pick this year belonged to China, a surprise leader last season, especially when one considers they are primarily a consumer and not producer of energy.

 

Last Season: Finishing fourth in the league last year was something of a major accomplishment for a talented and disciplined Chinese squad. They dominated the energy league by building up massive reserves, satisfying demand by being open to trades with anyone who had a viable option for them and not being intimidated by any team in the league. In a season bookended by major losses to the Corona Virus team, they more than held their own. They could have done even better if they hadn’t taken such a huge gamble on supporting the Russian team.

 

Needs: With strength at virtually every position, the Chinese entry has no glaring needs so they are free to draft strategically. In the current league incarnation, the real rivalry for the Chinese team is the United States, especially General Manager Finger Pointing Joe Biden who is a bit of a wildcard in his approach to the Chinese team.

 

Pick: In a bid to solidify their influence in the league and secure a leading competitive position for years to come before the US team gets its act back together on the foreign influence front, the Chinese team selected Russian Commodities. This will allow China to secure their energy and resource needs for years to come and suck Russia dry. Rumour has it they may even contemplate a takeover.

 

The 8th overall pick went to third year Coronavirus who has translated some high expansion draft capital into a three year run of annoyance for what was at one point a pretty stable league.

 

Last Season: Building on their first two seasons in the league this team continues to have an outsized impact, utilizing both a stifling defense and fast-moving offense to confound opposing teams and sap their energy. Players came in waves and all have Greek names and it took all that opposing teams could do to finish games.

 

Needs: The Corona team was pretty solid at every position but some of their newer players aren’t as strong as the first-year guys, or maybe the other teams have become smarter at opposition and immune to some of their tricky ways.

 

Pick: Last year this team was so stacked they let the clock expire without making a pick. Now, most of the teams have colluded in some form or another and developed doping mechanisms that allow them to overpower pretty much 95% of Corona’s players. To counter this Corona needed to be creative, so they drafted the CEO of Pfizer so they could get the inside track on any new vaccine development and quickly mutate to counter it.

 

As you recall from earlier, Venezuela did the trade with Russia so they pick next at 9.

 

Last Season: This past season, like many of the last 10, was an unmitigated disaster for Venezuela. They started weak and got weaker with production falling from beginning to end. The only thing that kept them from utter collapse was financial support from both Russia, China and Iran, a refusal to pay their players and a worse season by Canada. Remarkably, a late season infusion of interest from the United States gave them hope.

 

Needs: Everything. Up and down the board. They don’t even have a medical staff. What they do have is the deepest bench in the league – just no way to pay anyone.

 

The picks: No surprise here, the desperation is real for this team so they elected to draft a Washington DC lobbyist to continue to talk themselves up as the saviour solution for high gas prices in the United States and to aggressively campaign against Canada.

 

The 10th and last pick of the draft belonged to Saudi Arabia, perennial favourite, founder of this and its onetime rival league OPEC.

 

Last season: As always, Saudi Arabia started out as the favourite, won the most games, dominated the headlines, the stat sheets, the press, talk radio, the playoffs – you name it. They won the season going away, crushed the spirit of any team they faced and easily locked down the championship. They are the perennial favourite and this coming year will be no different.  They don’t even have cheating scandals to hang around their necks.

 

Needs: Absolutely none. How do we know that? History. Plus Saudi Arabia has the bankroll and the cap space to wait anyone out – just ask the United States, or Russia, or Iran, or Venezuela.

 

The Pick. There is no weakness on their roster. Their farm teams are stacked, they have a massive cost advantage. Last year, they drafted some LNG just to tease the rest of the league. True to form, the Saudis decided to draft some industrial scale solar, because why not. Not only will they win this space, but they will win the ESG battle as well.

 

OK, there you have it. An awkward energy draft.

 

Before I leave this flea-bitten, beaten to death analogy, I have to acknowledge the previously discussed Mr. Irrelevant.

 

So, with pick number #60, which based on how the draft order works typically falls to the #1 draft position team, Canada decided to pick, purely as a flyer, LNG exports to Europe. Seems like a wing and a prayer for sure, and no one will allow the infrastructure to be built, but at least it will use a lot of natural gas if it ever gets off the ground. Maybe it has staying power, maybe not. Like all draft picks – you just have to wait and see.

Crude Observations
BLOG
Sign up for the Stormont take on the latest industry news »

Recent Posts