Crude Observations

Can(nabis)adian Thanksgiving

For those of you who pay attention to these things, this coming weekend is Canadian Thanksgiving. If you’re busy, and I’m betting quite a few of you are, you’re welcome for the reminder. If you’re Canadian, yes Monday is a stat.


My American friends will note of course that Canadian Thanksgiving is earlier than American Thanksgiving. The simple reason for this is that we like to have it before the first snow of the season wrecks all of the beautiful fall foliage and the temperature is still warm. I remember growing up in Quebec that Thanksgiving was typically the weekend we would shut down the cabin for the season with the lake still warm enough to swim in! Ah youth.


Of course, now I live in Calgary and had to suffer through the chaos of Snowmageddon 2018 which saw close to 40 cm (14 inches for you heathens who still use the Imperial system) of fresh white snow dumped on the city in the space of 36, terrifying, white-knuckle driving, commute-destroying, ice-covered hours. Thanks for nothing global warming!


Anyway, I digress. Thanksgiving is one of my favourite times of the year – turkey, gravy, mashed potatoes, more gravy, more turkey… You get the point.


It’s also a time of year where families gather for a dinner and, depending on how cruel the host is, everyone around the table is required to say the one thing they are thankful for in a cringe-inducing, sappy, a**-kissing clockwise trip around the table. Meanwhile, the food gets cold, the gravy congeals and the cat gets on the kitchen counter to snack on the turkey carcass. Invariably someone takes forever and wants a do-over to use someone else’s idea and it all devolves into a fight. Am I right?


Well this year, since this is my blog I’m technically the host so time for that painful trip around the table. I’m going to go first and then my imaginary “very important people” and organizations will be given my ideas on what they should be thankful for this year. I fully expect to get reports back on if they used them.


What am I thankful for?


This one will be a little out there, but here goes. I guess I would have to say I am thankful that the legalization of cannabis is only two short weeks away. Ya man, but not for the reasons you might think. I have no current plans to spark a doob in the office at noon on October 17 (hmm). There’s no stash of edibles in the second drawer on the right side of my desk next to the dry-roasted peanuts.


No, I’m just waiting for all the anticipation to be over. I am beyond done with cannabis, in all

it’s oxygen sucking, business TV network consuming, economy addling, attention seeking, mind numbing glory.


Seriously. We are two weeks away from legalizing pot and you would think it is already the largest industry in Canada with all the attention it gets. The media is beyond excited, giddy is a better word. BNN Bloomberg has virtual non-stop coverage with stories of stratospheric valuations, border-agent shakedowns, pie in the sky growth rates and other assorted manifestations of reefer madness. All this for an industry that for the most part doesn’t exist yet.


Look, I get it. It’s going to be big and it’s new and it’s exciting and it’s different. But what does it say about the Canadian economy in general that the most exciting thing to happen and the highest growth sector is the legalization of a narcotic plant. Wouldn’t it be so much cooler to see something a bit more productive get equal attention? Fintech anyone? Energy?


OK, last digression.  I have read that the pot market in Canada will have sales between $5 billion and $8 billion within 5 to 10 years. Sounds big right? Until you think that a company like CNRL has revenues of $6.3 billion. Last quarter. Or that a simple pipeline to Vancouver might generate the same tax revenue over it’s life and help Canadian oil companies recover some of the estimated $15 billion in foregone revenue because we only have one buyer. Or that Canada just landed the largest private infrastructure project in its history.


I’m not saying pot isn’t fun (it is), but can we keep some perspective? And be thankful, like I am, that while we live in a country that can legalize Mary Jane we have an energy sector powering the economy and not a narcotic sector.


Now, on to my guests – I dare any of you to top that!


Justin Trudeau


Justin should be thankful that at least one energy project he was peripherally involved in hasn’t skidded off the rails – yet. I am of course referring to the recently FID’d LNG Canada project. This $40 billion project is the largest private sector investment ever made in Canada and, like him or hate him, Justin can rightly take some credit as the Federal government has made representations to offset some tariff related costs. With the uncertainty and delays tied to the TransMountain Expansion no doubt rattling around the hamster wheel inside his head, this is an actual toke from a bong for his government. Yes, I do know it was approved under the Conservatives.


John Horgan – Clown Prince of BC


Premier Horgan should also be thankful for LNG Canada, and he should be thankful for the BC Liberal is approaching this like grownups. Why? Because this is an economic game changer for the province of BC which up til now has relied on the rapacious evils of forestry, mining, over-priced real estate and illegal cannabis sales to sustain it. He will be thankful to the Liberal party because they will support any confidence motion regarding LNG to prop up the government because it’s the right thing to do and the Greens won’t. This will allow Horgan to maybe finish his term. Getting LNG Canada going probably gives him a good shot at a second term. And yes, I know the project was approved under Christy Clark.


Rachel Notley


Mixed year for Rachel Notley, but she should be thankful the Federal government owns TransMountain. Notwithstanding the delays to the project, had Kinder Morgan owned it when the FCA announcement came, the project would have been dropped so fast you would have thought it was growing out of the floor all along. She should also be thankful that the Federal government is implementing the FCA suggestions to get the project back in play instead of filing a lengthy and probably pointless appeal to the Supreme Court. One is a straightforward process with a timeline that could conceivably see the project back on before the all-important May 2019 provincial election, the other is a fishing expedition with an unpredictable and likely undesired outcome – let it go, free your mind.


Donald Trump


The Don should be thankful for the big new beautiful trade deal that he has made with Canada and Mexico. While many are aggrieved that Justin Trudeau gave up some market openings for US dairy producers, at least we got to keep our auto industry. All in a reasonable trade. It’s still unclear whether cannabis is part of the new NAFTA. Wait, it’s not NAFTA anymore? But it didn’t change that much. USMCA? What does that even mean? Well if we have to rename it, I vote for Mexico United States Canada Reciprocal Agreement on Trade – MUSCRAT. It’s perfect. We could even have a mascot. I’m actually thankful for the new MUSCRAT as well. Even if the deal is a net negative for everyone and cars will cost more, at least it got done. Wow. I have something in common with Donald Trump. Pass the dutchie on the left hand side please.




OPEC, by which I mean, as always, Saudi Arabia, should be thankful that the United States has chosen this moment in time to ratchet up the sanctions on Iran thereby cratering the benign balance in the oil market (and blaming OPEC for the resulting price increase, although that’s another matter). At any rate, with Iran sidelined and out of the picture, Saudi Arabia is free to produce at will at whatever the prevailing price is giving them copious amounts of cash with which to buy arms, pay off the population and otherwise accumulate obscene amounts of wealth. Why, I wouldn’t be surprised if, with all this new-found cash flow, they don’t go out on a mammoth shopping spree and buy some over-priced Canadian cannabis producers, or IPO Aramco.


Russia and Vlad the Impaler


Russia and Putin should be thankful for Donald Trump. A few modest sanctions aside, by leaving the Iranian nuclear agreement Donald Trump initiated the current oil price run-up providing Russia with some much appreciated oil-related income. Russia should also be thankful that it has pretty much solidified a working relationship with Saudi Arabia, er OPEC. This mutually beneficial relationship makes Russia relevant and important in the Middle East and on the broader world stage.  Well played Vlad. No word yet on the status of cannabis legalization in mother Russia.


Permian Drillers


Permian drillers/frackers/operators should be thankful for low interest rates, high prices and all the investors that haven’t clued in yet to the fact that in many ways the business resembles a Ponzi scheme. You know what that is, don’t you? It’s where you use new money (suckers) to pay a return to old money (marks). In the oil patch, you source a bunch of capital, blow it and some sand and water underground at high pressure and generate some oil that has a super steep decline rate. You sell that oil to generate cash to pay dividends off you declining resource then go back to the market to raise cash to do it again. Look, it’s not a perfect Ponzi, it just has many of the same features. This is what happens when you pour money into a rapidly declining resource. Anyway, with this structure, you can keep drilling forever until the money or the commodity runs out and likely never get held to account since by then people will have flitted over to the next great thing. Like cannabis


Wall Street Financiers


The financial community should be thankful that pretty much no one pays much attention to the risks they take with other people’s money. I am thinking specifically about the banks that continue to double down in the Permian, funding capex ad nauseum even though there’s no free cash flow. Add in the high yiled debt market and the investment banks that hype the stocks and what do you end up with? Average Joe buying into some scammy oil well because of an ad he heard on Mad Dog Radio on satellite radio. It reminds me of something, I can’t put my finger on it… oh wait I know. Cannabis. Sheesh.




Investors should be thankful that whatever weird market elevating spell is out there hasn’t yet worn off. Honestly, can anyone recall such an extended period of robust stock market performance that has been so persistent and thinly based? Fundamentals? Who needs ‘em. Profits? Meh, over-rated. Tariffs off? Market’s up. Tariffs on? Market’s up. Rates up ? So is the market. Trump tweet? Market’s up. Oil up? Market up (just not the oil companies). Oil down? Market up. It’s gotten that the stock market is so disconnected from reality that the only reason I can think of is that someone, somewhere has figured out a way to deliver cannabis via the internet, which when you think about it, is kind of far out.


Cannabis Investors


Cannabis investors should be thankful for all the hype. I’m not sure who is going to make money in the long run, but I’m not convinced it’s going to be the individual investors snapping up hopelessly overvalued hype stories. Check that, I know someone who is going to make money. He’s one of the oil and gas guys turned cannabis investor and entrepreneur – he’s got it cased. And he doesn’t use his own product.


Canadian Oil & Gas Companies


I’d like to say that Canadian oil and gas companies should be thankful that they aren’t being over-inflated like their US brethren, but that would be wrong. Because it sucks being undervalued and under-appreciated by the investment community. It makes it hard to raise capital and grow your business and exploit promising new plays, replace your reserves and ship your oil to overseas markets – oh wait, sorry about that one. Hmm, Canadian Oil and Gas companies should be thankful they are the last great value play available in Canada? How about they should be thankful there is a light at the end of the tunnel and it isn’t a fast moving crude by rail tanker train. No, they should be thankful at the glacially slow but noticeable turn that is happening in their favour. Infrastructure improvement, expansion in crude by rail, new projects like LNG Canada, TransMountain – delays notwithstanding, rising indigenous interest in participating in the energy economy. These are all positives. Not cannabis positive and not likely to hit the BNN/Bloomberg highlights until any rally is well underway. But this cycle has many years left in it. Our turn is coming.


Pipeline Contractors


It’s all well and good to celebrate the big infrastructure wins with the producers and operators but you know who is really thankful? Pipeline contractors. Welders. Integrity companies. Clearing companies. Reclamation companies. Maintenance companies.  The list goes on. Think about it. LNG Canada is expected to be complete by 2023. Before that happens, among others, the following projects will happen – Line 3 Replacement, Keystone XL, North Montney Loop, Coastal Gas Link and TransMountain Expansion – representing close to $40 billion in energy infrastructure. Never mind all the crude by rail expansions which require facilities, new midstream developments, new petrochemical facilities, expansions of existing infrastructure and maintenance of the existing pipeline network. As one client told me – there aren’t enough contractors in Western Canada to do all this work – and he wasn’t smoking cannabis when he said it. It’s going to be a busy five years. Start the drug-testing now. And for that, the contractors are thankful.


The media


The media should be thankful for, well duh, cannabis. A story that keeps giving. They should also be thankful for the rabid partisanship that seems to be the new normal in our social media age. Without conflict there isn’t much to report so good for them. They should also be thankful for Donald Trump. There is no more journalist-friendly person out there. Got a deadline? What is Trump doing. Writer’s block? What’s Trump up to. Need a new cannabis angle? What does Trump think. See where I’m going with this? It’s impossible for Donald Trump to be out of the news, because the news needs him as much as he needs the news. This is also the reason he will win re-election, but that’s a story for another day and no, I’m not smoking something.


Jason Kenney


Jason Kenney, presumptive premier of Alberta and leader of the provincial opposition should be thankful for ongoing Liberal brain-farts on the pipeline file. Say what you will about the bullying way he sometimes politics, his criticism of the Federal Government and policy prescriptions have been picked up by the Notley NDP as this saga has unfolded. This gives him “I told ya so” standing, even if some of the ideas aren’t always workable. At the same time, all these fumbles by the Liberals and the timeline virtually assure that the Alberta election will be at least partially determined by the fate of a pipeline expansion now in the hands of the Trudeau Liberals. No pipeline by May? Full-on offensive. Pipeline approved and started by May? Even better – “see, my pressure worked” and, of course, the base-rallying – see, Trudeau was so afraid of a UCP government he forced the pipeline through to help Notley and the NDP win. See how that works? That’s a much more tantalizing morsel for the rabid base than, say, cannabis retailing.


Doug Ford


Premier Ford of Ontario should be thankful he got elected. How does that happen by the way Ontario? He should be thankful that he delivered the Ontario PCs the mandate they probably deserved and that he almost helped them blow yet again. Notwithstanding his surprising win, he should also be thankful for a number of things we have already enumerated including MUSCRAT, which avoided auto tariffs and will save Ontario’s economy from partial ruin. And Cannabis, because as an admitted dealer, he may get his record cleared.




Americans should be thankful to have such good neighbours as Canada. How good? Try this on – we sell the US pretty much all of our energy exports at deep discounts to what we would receive on global markets or what we actually have to pay ourselves – sometimes discounted as much as 50% like oil to the Gulf Coast or electricity to New York. How selfless is that? We send you all of our entertainers and in return we are graciously allowing your dairy producers access to an incremental 0.35% of our market before we start charging tariffs. Finally, what about that Gordie Howe Bridge. Don’t know what that is? Well the bridge between Windsor and Detroit gets among the highest annual and daily value of bilateral trade in the world. It’s also busy and decrepit. So a new bridge is needed. So Canada is building it and paying for it. What a neighbour! You’re welcome. Finally, Americans can now cross the border and legally spark a doob.




Canadians should be thankful for a lot of things. Great weather. Hockey. The CFL. Stable government. Sane government. Human rights. Health care. MUSCRAT. How about just quietly living in one of the greatest countries in the world? Nature. Mountains. Lakes. Oceans. Rivers. Unspoiled wilderness. All of that. And cannabis. How could I forget that.





Prices as at October 5, 2018 (Sept. 28, 2018)

  • The price of oil rose during the week on supply fears.
    • Storage posted a big increase
    • Production was flat
    • The rig count in the US was down marginally
  • After a smaller than expected injection, natural gas rallied slightly during the week…


  • WTI Crude: $74.35 ($73.45)
  • Nymex Gas: $3.151 ($2.977)
  • US/Canadian Dollar: $0.772 ($0.774)


  • As at September 28, 2018, US crude oil supplies were at 404.0 million barrels, an increase of 8 million barrels from the previous week and 61.0 million barrels below last year.
    • The number of days oil supply in storage is 23.6 below last year’s 30.3.
    • Production was flat for the week at 11.100 million barrels per day. Production last year at the same time was 9.561 million barrels per day. There was no change in production in Alaska or the Lower 48.
    • Imports rose from 7.802 million barrels to 7.965 million barrels per day compared to 7.214 million barrels per day last year.
    • Exports from the US fell to 1.723 million barrels per day from 2.640 million barrels per day last week and 1.984 million barrels per day a year ago
    • Canadian exports to the US were 3.110 million barrels a day, down from 3.285
    • Refinery inputs were flat during the during the week at 16.591 million barrels per day
  • As at October 4, 2018, US natural gas in storage was 2.866 billion cubic feet (Bcf), which is 17% lower than the 5-year average and about 18% less than last year’s level, following an implied net injection of 98 Bcf during the report week
    • Overall U.S. natural gas consumption fell 1% during the report week
    • Production for the week was flat. Imports from Canada increased 5% from the week before. Exports to Mexico were flat.
    • LNG exports totalled 14.2 Bcf
  • As of October 1, 2018 the Canadian rig count was 306 (AB – 217; BC – 24; SK – 60; MB – 5; Other – 0. Rig count for the same period last year was 358.
  • US Onshore Oil rig count at October 5, 2018 was at 861, down 2 from the week prior.
    • Peak rig count was October 10, 2014 at 1,609
  • Natural gas rigs drilling in the United States were flat at 189.
    • 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 grew 3 to 23
    • Offshore rig count at January 1, 2015 was 55

US split of Oil vs Gas rigs is 80%/20%, in Canada the split is 65%/35%




  • Precision Drilling emerges as the white knight to Ensign Energy’s hostile bid for Trinidad Drilling, offering just over $1 billion to acquire the company
  • LNG Canada announced a positive FID for the construction of its LNG project in Kitimat BC
  • TransCanada Pipelines announced a positive FID for the construction of the Coastal Gas Link, a 960 km pipeline to bring gas from Northeast BC to Kitimat on the coast
  • The Federal government appointed Frank Iacobucci, a retired supreme court justice to lead a new round of consultations with affected indigenous communities along the TransMountain Expansion route. While no timeline is set, given that Round 3 was three months, it is not unreasonable to expect that this will be complete by the end of the new NEB tanker review process
  • Trump Watch: MUSCRAT! A big win. Also looks like Justice Kavanaugh will be appointed to the Supreme Court. Mid term and 2020 elections will be the arbiter of the success of this appointment. Oh, there was some massive investigative report on the Trump family and issues regarding tax evasion, fraud and cheating. Given the reaction, it was likely too detailed as the media chipmunks dropped it like it was candy corn.
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