Canadian Energy producers are gearing up to announce in the next few weeks an all-time obscene gusher of profits. There is going to be so much money flowing, Tony Montana would be embarrassed at the riches. Donald Trump himself will have never seen anything quite so yuge and John Paul Getty will be rolling over in his grave and pinching John D. Rockefeller in the tuckus.
Notwithstanding this veritable tsunami of cash, Canadian E&P’s continue to struggle for the respect they deserve on the national, global and investment stage. So bereft of ESG bonafides and ridden with performative angst over the nasty, dirty and brutishly sticky and volatile compounds they produce are these companies that they can’t even get the Alberta government to give them the time of day.
So what exactly is a money geysering company to do when all it wants is a little love and affection you may ask? Well I’m glad you did, because there are multiple uses for all that cash that can be leveraged to build (or buy) goodwill from any number of stakeholders – ranging from the top of the food chain (capital markets) to the bottom (politicians… maybe Hollywood).
So forthwith here are some ideas I have been toying with that I think will go a long way to realign the public consciousness and opinion about our mighty polluters and maybe allow them to once again rub shoulders proudly with the Davos elites and other masters of the universe.
Before I get too far, let’s set the table with what companies are currently doing. As it stands now, the media approved plan amongst the producer class is to harvest cash and “return it to shareholders” through three primary methods:
- Pay down debt. A few years ago, most producers were overlevered messes but in the current regime, where they are generating 20% or higher Free Cash Flow yields and no one wants to lend them money, aggressively paying down debt has a multiplier effect on equity value, even if multiples don’t expand. Good for shareholders.
- Pay dividends. Far from using all available funds to pay down debt, many producers are paying ever higher dividends to shareholders as they try to complete their metamorphosis into safe, high yield investments. Sometimes these dividends are even special. Look, anytime a company can return cash to its shareholders while still executing its core business, I say take the money and run. Good for shareholders.
- Buy Back Shares. This one is all the rage. We have so much cash, we may as well buy those shares back from you so that you can have your money back, isn’t that great? Absolutely great, if you think the shares are headed south. Kinda premature though if the company is making bank and doing all the other correct moves (1 and 2 above). WOuldn’t you want to let it play out and get some gains in the shares? This one is really only good for remaining shareholders and, let’s all admit it, management. Especially if they are shareholders.
See anything missing? Hmm. Wait a sec. I got it!
Drilling Wells and Growing Production!
Oh yeah, that.
That’s right. The current climate remains hostile to companies actually producing more of the molecules they are famous for whether it is due to financing factors (thanks Carney!), pandering to the IPCC and the environmental community (thanks Trudeau!), lack of labour/materials/federal leases (thanks Biden!), the massive Green Shift and Just Transition (thanks fiction writers) or simply a lack of desire to go those hostile locations that seem to yield the more prolific production (thanks Putin!).
Meanwhile, inflation roars on, purchasing power is diminished and the cost of everything is rising. The time to act is now. Let’s get to work gentlemen.
Alternative Spending Plans
A Big Party
Who doesn’t like to throw, or better yet attend, a big blow out party. Not a real blow out, that would be scary and typically give industry a black eye. I’m thinking a great big pan-Alberta celebration of elevated commodity prices. The producers could spring for a six-pack of local IPA for each and every (legal) Albertan. This would only be fair since so many of Alberta’s burgeoning class of brew masters are former oil and gas workers, many of whom got the boot at the beginning of the downturn and were never rehired. I think it only fair of course for the government to cover the cost of the hard liquor by sponsoring the Jameson’s bar, but that is the only involvement they should have – can’t imagine anything more depressing than a government organized party.
Think about it, a party tent in every city, village, town, hamlet and burg in the province, complete with an assortment of pancakes, beef on a bun and rollicking country music revue. It will be awesome.
Buy 9.2 % of Tesla, then make a fake bid for the rest
Taking a page right out of Elon Musk’s bizarre playbook this move is absolute genius for our cash flow vomiting, carbon spewing planet destroyers. Sure, the valuation seems a bit high, but the irony of a company whose value is completely unsupported by its teeny tiny cash flow being bought by a consortium of companies whose massively cash flow is completely disconnected from their embarrassingly low valuations is surely not lost on anyone. And by doing the deal with “cash”, the energy companies would show up Elon’s 100% leveraged bid for Twitter as what it is, a childish attempt to goose the value of his 9.2% equity position.
It is of course not lost on me that by buying the most prominent producer of electric vehicles in the world the energy companies will find themselves in the enviable position of being able to shut down this “transition” nonsense once and for all.
Buy Facebook
I get it. I just made fun of Elon for his Twitter nonsense and how is this any different. Well it is. Mainly because Facebook is in the Metaverse. And if you want to sell oil and gas to Metapeople so they can gas up their Metacars and heat their Metahouses, you need to make this Metapurchase. The best thing about this is that in the Metaverse they don’t really care about Metacarbon because they are so new to Metapollution. Another irony is that in the Metaverse there is a MetaKXL and a MetaEnergyEast, the Prime Minister of MetaCanada is MetaMulroney and the premier of MetaAlberta is MetaRogerBaker.
Buy all the Battery Stuff
I know, I know. I could put in the effort to be more precise about exactly what I am proposing here, but battery tech is just too fluid. What I guess I am suggesting is that the producers should pool all their cash flow and buy all the lithium, nickel, cobalt, copper, zinc, manganese, silver, vanadium, neodymium, cadmium, dilithium and unobtanium deposits and supplies that they can get their hands on. This way, they will corner the future energy markets in as complete a fashion as they own the current one. Take that price taker!
Buy Russia
Or at least the parts not owned by domestic Russian producers who, I am guessing, are feeling the pinch right about now. At any rate, want to be hailed as global heroes for delivering peace in our time? Cut a cheque to whoever is in charge of that Russia place and buy the whole thing. It’s likely available at quite the discount right now thanks to sanctions. I am betting there are a few Ukrainian billionaires who would kick in some cash to join the buyer group. In fact, once his Twitter bid falls on its face, I am willing to bet that Elon would join in. Just don’t let him have a seat on the board.
Clean up the Oilsands
Never mind the tailings ponds. Is there any reason that all this money can’t be allocated to clean up the largest oil spill on the planet? Imagine what you could do a giant fleet of bulldozers, steam generators and separating equipment. I bet you could dig up that whole area, clean all the dirt and restore it to its natural state. Maybe even resell the sticky stuff you extract to a bunch of processors and upgraders so you use the funds to do even more cleanup. Sheer genius.
Buy a whole bunch of Crypto
This one should be a no brainer, so I’m surprised it hasn’t happened already. With bitcoin being such a great hedge against inflation, it stands to reason that any prudent treasury manager at an E&P should be buying crypto as a hedge on energy prices as opposed to those predictable, liquid and highly tradeable futures contracts and collars and straddles and swaps they are currently buying. Who cares if Bitcoin is down 40% in the last 3 months, it’s a buying opportunity bro! It’s never been this low – the way to make money is to Buy The Dip. Are you all new here? What could possibly go wrong.
NFTs
Energy companies flush with cash should go out and buy up all the Monkey NFTs that Hollywood people have overpaid for… Nah. Sorry. I can’t do it. This is nothing but dumb. May as well buy Tom Brady’s fake retirement football.
Buy Stormont
Self-serving I know. But we are awesome and full of good advice. There is absolutely no reason in my mind, that I can see, that Murray Edwards couldn’t carve a measly billion or so out of his Q1 profits at CNRL and e-transfer it over to good old Dave and Stu, slogging it out just trying to make a living. He’d get ownership of a fancy office, some cool artwork, a bunch of laptops, some NFL footballs, a half-eaten jar of peanuts and some expired cream. It’s a bargain.
Raise Executive Pay
I can’t believe I hadn’t thought if this one yet. In fact, I can’t believe they haven’t thought about it yet! What’s that? They have and they constantly do? Fine. But what better way to use cash generated by a business owned by the broader public market than to line your own pocket with as much of it as possible! Cash, shares, options, bonuses, private jets, fancy pensions, health care, club memberships… the potential is limitless!
Buy the TransMountain Expansion from the Feds
Over budget. 50% complete. I bet you could have it for a song. No way Justin Trudeau wants this hanging around his neck once its complete. This necessary evil may be a flash point, but it’s also a source of life for the energy industry. You need it more than you think. Here’s the plan. The federal government is eager to be rid of the project and wants to support first nations in their quest for economic independence (but not too much, lots of civil service jobs depend on the reserve system being poor). Producers needs to take advantage of this. Fund a consortium of nations so that they can buy a piece of the puzzle and buy the rest yourself. Secure your future. It’s really that simple.
Okay, enough (sort of) tongue in cheek, here are a few actual ways that energy producers should use the volcano of cash they are generating.
Go Private
I know I made fun of share buybacks earlier, but that was mainly because the small buybacks that are being done serve no real purpose. Instead, if you have all this cash flow and literally no one is respecting that cash generating capacity via your share price, go out and find a private equity sponsor and take your company private. Then you will lose all the baggage that comes with being public – the scrutiny, the verification of financials, the endless calls with moronic shareholders and clueless analysts, the costs of endless compliance. Instead you will be the master of your own domain and you can keep that delicious, wonderful and ever-increasing cash flow for the benefit of your now vastly reduced number of shareholders and, most importantly, PAY YOURSELF FIRST.
Clean Up Your Mess!
This one is near and dear to many people in Alberta. Look. I know the federal government funded a lot of cash during the pandemic to keep some oilfield yahoos employed to address the obvious and work on cleaning up a whole bunch of orphaned and abandoned wells but that was then. Like two years ago when oil prices were -$37 and the world was coming to an end. It’s different now. You are making money hand over fist. The price of gas is the highest it has ever been on a “price tag” basis. The spectre of ESG mandates hangs over your head like the sword of Damocles and the PR battle was lost ages ago. Are you producers really going to let a touchy, feely performative muppet like Justin Trudeau and his gang of inflation loving Laurentian elites get one over on you with the Canadian public? Come on. You drill holes. Some of them produce. Some of them don’t. You run pipe. Some of it transports liquids and gas, a lot gets abandoned. You use water and mud and other funky chemicals. Some of it is recycled. Most of it goes into “ponds” the size of Muskoka Lakes.
It’s time to use your money to retire some of those long term obligations by cleaning them up before the bill comes due or enough successive governments pass you by that they forgive you or you go bankrupt and walk away.
This is how you do it. Pack out what you pack in. Use your extra cash flow to clean it up, above and beyond. Make the critics STFU.
For companies that are trading below asset value, that “goodwill” you create will be invaluable.
Drill some freaking wells already
Okay, this is the money shot.
I’ve already mentioned that gas prices and utility prices are at all time highs. Inflation is running rampant. Renewables don’t have a hope in hell of catching up to growing energy demand in my lifetime. Supply is constrained. Everyone hates the energy companies. Russia is mess and Europe is in an energy crisis. OPEC has no spare capacity. Iran is a pariah. Venezuela is… Venezuela. Public markets ignore you. Lenders disrespect you. The media lambastes you. You have exhausted all possible uses of free cash. There are no more NFTs left to buy.
Fellas, it’s time. Time to unleash the geologists. The reservoir engineers. The planners. The seismologists. The geotechnical weirdos. The finance guys. The landpeople. The millwrights. The geophysicists. The production engineers. The lawyers. The procurement professionals. The drilling and completions consultants. The pipeline integrity analysts. The hot-tappers. The drillers. The swampers. The rig pigs. The tool pushers. The wireline weirdos. The perforators. The line locators. The instrumentation propellor heads. The roughnecks. The welders. The pipeliners. The truck drivers. The excavator operators. Even the Environmental Specialists. You get the point.
It’s time to unleash everybody and take advantage of this last and greatest boom and drill some holes, produce some molecules and sell it to whoever wants it. There may never be a better time.
I don’t care if the “market” doesn’t want it. I don’t care if your investors don’t want it.
Did you get inti this market to be a squishy pushover to some mid-level pencil pushing weenie on Wall Street?
No! You got into it to drill holes in the ground and extract liquid gold and sell it to thirsty markets.
And now you have more money than Midas.
Enough of the waffling.
Get back to work.
Put. The. Money. In. The. Ground.
