Crude Observations

The Grapes of Wrath

Alright folks, I’m mad as hell this week and I just can’t take it anymore. No, really, I’m hot under the collar mad. So mad my head is about to explode. I am mad and aggrieved and can’t believe all these things are happening to me, caused by forces outside of my control and for reasons I don’t understand. I’m so mad in fact that you could call me outraged, triggered, enraged, berserk, fuming, livid, beside myself, positively fuming… You get the picture.


What is making me so mad you may ask? I DON’T KNOW! Maybe it’s something to do with the government – and I don’t particularly care which one. Maybe it’s you people. Maybe you’re all to blame! Maybe it’s the water or pipelines or language or health care. I’m mad about it all dammit.


Anger seems to be the flavour of the moment in politics and life. It certainly feels like it’s happy hour for howling here in Alberta. And trust me, I’m not going to wade into the toxic fever swamp of rage and self righteousness coming from every angle on the firing of Don Cherry, but the storm and drang around that is symptomatic of something that by now should be obvious to everyone – anger and the crass opportunists on all sides of the political divide who stoke that anger for their own agendas is the defining moment of late 2019.


And this makes me mad. Mad at having to suffer through the self-destructive lunacy that is #wexit. Mad at having to endure the culture of blame that seems to be the predominant movement of the moment. Resigned to having to live through the pointing of fingers, the sound-biting, the sniping, the posturing and the misrepresenting that seems to be what passes for politics and policy discussion in the aftermath of the Alberta and Federal elections. But at the same time, I am hopeful, because I have learned a valuable lesson – time always wins out (more on that later).


But back to rage. I know the polls may suggest otherwise, but I am willing to bet that deep down most Albertans would agree with me when I say all we want to do is have the politicians pipe down and let us get on with our lives. We don’t need to “fight back” or conduct a study into foreign funded activists or wait for a report on how to get a “fair deal”. We don’t need to keep hearing about the climate crisis and how our industry is causing an imminent extinction event (hint – it’s not). That we are climate criminals and that we need to self-impoverish ourselves with ever increasing carbon taxes so that someone at UN headquarters can pat us on the back. Or that Quebec doesn’t want our oil even though they want our oil. We don’t need this constant hypocritical battle between the Bloq Quebecois and Alberta/Canada about energy and special treatment for Quebec and equalization – it’s all political theatre and it is exhausting.


Wouldn’t it be nice if for just a month or two – heck, even a week – we weren’t subjected to the near constant barrage of negative energy and misinformation that seems to be so pervasive in the country today.


If we don’t take a step back, we will be stuck in our own version of the Trump Chaos Vortex – that state where the near constant chaos around him normalizes everything, so that shaking down a foreign government for personal gain has the same ethical and moral equivalence as presidential golf trips, bad trade decisions, tax cuts, typos in tweets, paying off your porn star mistresses or having a white supremacist as an advisor.


And since you’re already mad, the rage machine is kept at a constant boil and conflict is the order of the day. Eventually you just shrug and say “I guess that’s just the way things are” when nothing could be further from the truth.


It feels the same way about all the #wexit nonsense and all the other initiatives we have on the go here in Alberta. What’s the end goal? Or is the process the goal? Or is the goal the process? Is the deliberate firing up of grievances and endless panels and studies designed to provide an outlet for all these bad feelings so that they eventually subside or can be managed and put under control for political purposes? Or alternatively, is the goal to keep the fires stoked to feed a more nefarious purpose?  Is there some genius strategy at play or are we just running around yelling at stuff?


I don’t know. I suspect it is largely to manage the rage and help it subside over time, but it’s got me worried nonetheless – what if you can’t contain it? What if instead of containing all this separatist angst, we inadvertently set the house on fire? What then? I’ve already lived in a province where there was a strong separatist moment and I’ve seen what it can do to an economy. I saw the businesses leave because of the uncertainty, I saw and lived the economic decline. It has taken almost the entirety of my life to see my hometown and province recover back to what is its rightful economic position. Is this really what we want here?


The uncertainty that a separatist movement causes is real, even if the possibility of its success is a complete fantasy. Think about it, you are a major source of capital or a global investor – are you really going to put your cash to work in a jurisdiction that is in a constant state of conflict with its national government, has a separatist movement and employs a war room to execute a one-sided defence of a single industry? People want to invest in stable environments, in places where anger (misplaced or justified – doesn’t matter) isn’t the prevailing mood whenever they visit or read.


Where am I going with this? I don’t know. But I’m tired. Tired of all the anger and all the negativity and the near constant debates. Can’t we just concentrate on that? Isn’t that what the UCP campaigned on? Jobs. Economy. Pipelines. Focus. (that last one is mine BTW).


So, you might rightfully ask yourself, is he giving up? Heck no. Despair not! Remember when I said earlier to give things time? Trust me – it works. Time will heal all wounds and from where I sit, things are looking up. So I’m going to park all my anger, lift my head up out of the clouds and look forward with a positive attitude. Why you might ask? Because when the dust settles we will be where we are – the richest province in the greatest country in the world with an egress problem that is gradually being solved.


And because we just closed a deal.


Not just any deal. A deal that represents in so many ways the trials that the last 5 years have foisted on Alberta and the energy sector. And closing this particular transaction symbolizes for us the official end of the downturn. Not sure what I mean by this? Come for a little walk with me to the days before everyone was mad.


Anyone remember the heady days of mid to late 2014? I do – it was the best of times and it was soon to be the worst of times. The year started with great promise, but you could feel the wheels coming off a bit as the year progressed. Deal multiples and expectations on other deals were starting materially diverge between buyers and sellers as everyone started to get greedy. At the same time, while commodity prices had yet to start their retreat, the market signals for the upstream service sector were flashing red as clients were starting to see business prospects rapidly turn negative. It was in this environment that I found myself sitting in the Houston airport, returning from a very discouraging meeting on another file when I got a call from a former client who wanted to refer us to a company that was exploring a succession for its owners.


Upon meeting them we were promptly engaged and commenced our marketing process. This was around September of 2014 and we hit the market before the end of the year, just as oil prices began their precipitous collapse. We weren’t that concerned though, given our client’s business was infrastructure and maintenance focused and less dependent on the drill bit.


So we hit the market in late 2014 and what followed was probably the most unexpected series of extraneous events to assail a client engagement in my more than 20 years of doing this, paralleling in many ways the trials and tribulations of the Alberta energy economy.


As anticipated we had very strong interest right out of the gate, mostly from private equity but also from strategic buyers (both independent and private equity owned). The company had rock solid revenue, great margins, a blue chip customer base and a great management team – why would it be any different. In short order we had a compelling private equity backed offer that met the vendors expectations and we chose to go exclusive.


By this time of course everyone and their cousin Bob was panicking about the energy sector and in that environment, no one was panicking more than banks. So much so that if you had the word energy, oil, gas or (seemingly) Alberta in your name or business plan, you would have better luck getting an apology from Don Cherry than squeezing money from pretty much any lender. We got caught in that trap and our buyer couldn’t source the debt financing it needed to close.


But that was OK – we had many interested parties and quickly pivoted to plan B with a very credible buyer – a US private equity backed strategic with a small Canadian presence that was interested in getting in on the coming construction boom that everyone saw coming for export pipelines in Canada (at the time, both Keystone XL and Northern Gateway were actual things). Unfortunately as we moved through the diligence process we had to talk our American buyer off the ledge with respect to the NDP government in Alberta (check), Keystone getting canned by Obama (not our fault, there were other options), a new Trudeau being elected (Liberals like Alberta tax money, it won’t be that bad) and Northern Gateway being cancelled (don’t worry, they are about to approve the TransMountain Expansion and Line 3 replacement is progressing). So we survived all of those headwinds of mid to late 2015 but unfortunately were done in when oil prices collapsed further and touched $27 in early 2016 and our buyer’s board, filled with American upstream producer and service guys, literally ran for the hills. Undeterred, our client posted their third best year ever – whatev’s right?



As most will recall, 2016 was a year of change and hardship for pretty much anyone in the energy sector. The first six months were the worst ever and then the environment improved. Prices rallied on OPEC cuts, the Permian took off like a rocket and Canada firmly settled into its cycle of pipeline politics analysis paralysis.



Strategically we entered a phase that I like to call “catching” instead of “pitching”. Many companies at the time were undercapitalized and the sector was largely adrift. The companies that had capital wanted a bargain or saw existential risk around every corner and the ones that weren’t as spooked either had no money or no clue.


So we treaded water waiting for certainty. We had some discussions with buyers that ultimately didn’t fit my client’s needs. We re-engaged with our American buyer from earlier only to be infamously told that the board had determined that Mexico was less risky than Canada so that was where they were going to allocate capital (wonder how that worked out?). We were in pretty serious discussion with another industrial business locally, but their capital provider was enamoured with a different industry vertical so we were told we would have to wait, which we didn’t want to do. It was 2016-2018 in a nutshell – an industry adrift.


Finally, towards the end of 2018 I got a call from a company I planted a seed with – a locally based strategic who I knew quite well and thought was a perfect for our client culturally and strategically. We had chatted during the initial marketing process but at the time they were going through a restructuring from an upstream focused contractor to a more broadly based upstream/midstream business and were also bringing in a private equity partner to finance their growth. The fit was right, the timing was off


But now? Now they were ready. Were we? That’s the ultimate question. In any file that has gone on this long, deal fatigue is a real thing. To their credit, our client had stuck with us and the process all the way through. Information was clean and up to date. Important restructuring had been implemented. We engaged with the prospective buyer and the rest as they say is history. And unlike in 2014 when our clients were watching positive results melt in front of their eyes, this time our client literally hit it out of the park, posting their best year ever and proving what a great opportunity they really were for the right buyer.


The deal which closed last week was five years in the making, but it’s the right deal and a good deal for our client and their people, just as it is a compelling and strategic opportunity for the buyer. And it is with the party I told our client was going to be the ultimate buyer when we first got engaged.


And the deal was going to happen regardless of politics or who was in power. It didn’t depend on commodity prices because the buyer actually figured out that they weren’t really a factor. Pipeline politics played a small confirmatory role, and TMX being underway will be a very profitable outcome for the combined business, but it wasn’t front and centre.


So what’s the lesson here for cranky old Alberta? Calm down, be deliberate. Be strategic. Good things come to those who wait. The headwinds we faced were monumental and pretty much all out of our control, but we persevered and got it done and at no time did we ever believe we wouldn’t.


Great business. Great client. Good deals will always get done.


The rest is just noise. Time to get back to work.




Prices as at November 15, 2019

  • Oil prices are up for the week again.
    • Storage posted an increase week over week once again
    • Production was up
    • Rig Counts: Alberta down 3; US down week over week
    • Natural gas storage above 5-year avg
  • WTI Crude: $57.78 ($57.40)
  • Western Canada Select: $39.18 ($35.28)
  • AECO Spot: $2.42 ($2.42)
  • NYMEX Gas: $2.617 ($2.694)
  • US/Canadian Dollar: $0.7544 ($0.7559)



  • As at November 8, 2019, US crude oil supplies were at 449.0 million barrels, an increase of 2.2 million barrels from the previous week and an increase of 6.9 million barrels above last year.
    • The number of days oil supply in storage is 28.3 compared to 27.0 last year at this time.
    • Production was up for the week at 12.800 million barrels per day. Production last year at the same time was 11.700 million barrels per day.
    • Imports decreased to 5.750 million barrels from 6.077 million barrels per day compared to 7.452 million barrels per day last year.
    • Crude exports from the US rose to 2.633 million barrels per day from 2.371 million barrels per day last week compared to 2.050 million barrels per day a year ago
    • Canadian exports to the US were 3.009 million barrels a day, down due to the Keystone spill
    • Refinery inputs rose during the during the week to 15.916 million barrels per day
  • As at November 8, 2019, US natural gas in storage was 3,732 billion cubic feet (Bcf), which is equal to the 5-year average and about 15% higher than last year’s level, following an implied net injection of 3 Bcf during the report week
    • Overall U.S. natural gas consumption rose 10% during the report week.
    • Production was flat for the week. Imports from Canada rose by 19% from the week before. Exports to Mexico were unchanged for the week
    • LNG exports totaled 47 Bcf
  • As of November 15, 2019, the Canadian rig count was down 6 at 132 (AB – 90; BC – 8; SK – 31; MB – 3; Other – 2). Rig count for the same period last year was 196.
  • US Onshore Oil rig count at November 15, 2019 is at 674, down 10 from the week prior.
    • Peak rig count was October 10, 2014 at 1,609
  • Natural gas rigs drilling in the United States was down 1 at 129.
    • 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 flat at 22.
    • Offshore peak rig count at January 1, 2015 was 55

US split of Oil vs Gas rigs is 84%/16%, in Canada the split is 69%/31%


Trump Watch: Impeach this!

Kenney Watch (new!): I hate the Bloc!

Trudeau Watch (for balance): Gotta keep my head down for just a few more weeks…

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

Recent Posts