Crude Observations

Is Capital Finally Back for Service Companies?


Read some promising news for service companies recently, particularly those south of the border as it appears that there has been a pretty robust recovery in the capital markets for oilfield service. While too early to declare a solid trend, it’s a long weekend and my glass is half full, so I say it’s positive!


As you will recall, last year and the beginning of this year were record times for E&P companies raising equity dollars as the great deleveraging of 2015/2016 went forward. Now, flush with cash, or at least access to cash, these E&P companies are attempting to drill up a storm in land-based regions in the US and Canada, raising demand for rigs, people, water trucks, sand, cement, coiled tubing, vac trucks, surface rental equipment, downhole tools, construction equipment, pipelines, facilities and just about anything you can shake a purchase order at.


Accordingly, investor interest has started to turn to those companies providing these services, opening up capital markets that had been essentially closed for much of the downturn as everyone waited for the bottom and once it was found stomped all over the service companies in the name of drilling efficiency until prices rallied. Oh how quickly things can turn.


Let’s take a look at what happened so far.


According to Bloomberg, the $1.36 billion in new stock sold in energy service IPO’s so far in 2017 is the largest in the last 10 years and more than was sold in 2013, the last full year of market “peak”. This is three times the amount of money raised on the IPO side for E&P companies.


Among the names raising capital:


  • Mammoth Eenrgy Services raised $116 million in October of 2016
  • Keane Group Inc. raised $585 million in January
  • ProPetro raised $350 million in March
  • Solaris Oilfield Infrastructure Inc. raised $121 million last week
  • Select Energy Services raised $110 million with an over-allotment option for another $20 million
  • NCS Multistage Holdings Inc. raised $150 million at the end of April


And it’s not just happening in the United States as we saw two energy service IPOs in Canada so far in 2017


  • Source Energy Services raised $175 million
  • Step Energy Services raised $100 million


Still to come this year are expected IPOs from BJ Services for $300 million and Nine Energy Services for $100 million.


The other side of this money coin is that the M&A market is finally loosening up as companies use their new found access to capital to consolidate their customer base, vertically integrate other services into their existing customer base and otherwise re-orient themselves in the new market.


Among initiatives we are discussing with our clients are geographic expansions into the massive gravitational pull that is the US market (hopefully a warming yellow dwarf star like our sun and not a blackhole, but that’s for another day), reorientations into more active Western Canadian plays as well as developing a breadth of service business model through strategic acquisition to better serve the procurement driven purchasing decisions of E&P companies.


Random Notes on Stuff


I know last week I promised a mini-rant on LNG, but it’s so hard to get angry when I am feeling so resigned.


What’s got me blue? Well last week, the US agreed on a framework agreement with China to allow US exports of LNG to that energy consuming behemoth across the pond. As part of this agreement, China has indicated a willingness to invest in US-based LNG infrastructure. And of course just this week, La Grande Orange is on his way to the Kingdom of Saudi Arabia where no less than 10 co-investing initiatives are expected to be announced. Part of this is expected to be $40 billion worth of KSA investment into US infrastructure including, presumably, refining capacity, probably some shale and who knows, an LNG plant or two to ship American natural gas to China.


Meanwhile, Trudeau was in Seattle hobnobbing with tech billionaires who will never relocate to Canada and having some dark roast coffee with the governor of Washington and presumably posing for the requisite salmon tossing selfie in Pikes Place Market while protestors gathered denouncing Canadian pipelines.


I point this out because yet again, Canada is being left behind. Not because we aren’t a great place to invest, but because we aren’t welcoming. We wait, twiddling our thumbs behind a ponderous regulatory and approval process and when we have foreign investors ready and willing to risk their own capital to develop some of these economy altering projects we tie them up in so much red tape and colonial guilt that it’s a wonder they keep coming back.


Here’s what I think – if someone wants to spend $30 billion in your country on a long term growth project, you owe it to your constituents to try and land the plane. I’m all for sober review and scientific consensus and all the regulatory buzzwords, but… If you have already determined that said project is in the national interest and a welcome investment and all the while your biggest competitor is lapping you not once, but twice, you need to figure out how to get from feel good to Final Investment Decision or you get left behind and you lose the game. Much like John Horgan in BC wants to use all the tools available to stop the TransMountain Expansion, the Federal government needs to use all the tools in its tool kit to advance the projects it has approved.


Maybe that makes me an energy industry shill, maybe not. But it’s not enough to approve a project. You have to help make it happen or all that investment simply goes somewhere else.


National Energy Board


So, the expert panel on the future structure of Canada’s National Energy Board (the body that decides on the merits of federally regulated energy infrastructure) released its report this week and proposes splitting it in two, creating an information and data group like the US’s Energy Information Agency and a regualtory/approval body (OK, I’m with you so far). As part of the approval process, they suggest putting the “national interest test” ahead of the “technical test” (good idea, timelines seem too long) and relocating the new entity to Ottawa to avoid the perception that the new NEB is in the industry’s backpocket… Um, Wait… Waaah??


Far be it from me to over-generalize Canada but the last time I checked, there are very few people in Ottawa who work in the oil and gas and pipeline industries, understand the energy sector or could find a pipeline on a map. The professional staff at the NEB are energy specialists, the Calgary market has the highest ratio of engineers to potholes on the continent and is the knowledge repository for all things oil, gas and pipeline – we also understand the electricity sector. The NEB was moved from Ottawa to Calgary in the Mulroney years to prevent political interference. Now they propose to move it back? Because this time it’ll be different? Because a bunch of “stakeholders” who don’t know how the industry works cried collusion to raise funds? Eliminate quality jobs in a market still suffering from a downturn? Create more empty office space? Give a city yet one more reason to distrust the word Liberal?


Vraiment Justin. Ça vaut pas d’la marde.


Or, allow me to quote someone I rarely agree with, Premiere Rachel Notley, expressing it more politely:


“That’s dumb.”


Prices as at May 19, 2017 (May 12, 2017)

  • The price of oil rallied further during the week on storage and a little bit of OPEC optimism.
    • Storage posted a larger than expected decrease
    • Production was down marginally
    • The rig count in the US continues to grow, although at a slower pace
  • Natural gas was down marginally during the week mostly on benign weather
  • WTI Crude: $50.33 ($47.90)
  • Nymex Gas: $3.256 ($3.413)
  • US/Canadian Dollar: $0.7403 ($ 0.7297)


  • As at May 12, 2017, US crude oil supplies were at 520.8 million barrels, a decrease of 1.7 million barrels from the previous week and 11.0 million barrels ahead of last year.
    • The number of days oil supply in storage was 30.5, behind last year’s 33.6.
    • Production was up for the week by 9,000 barrels a day at 9.305 million barrels per day. Production last year at the same time was 8.791 million barrels per day. The change in production this week came from a decrease in Alaska deliveries and increased Lower 48 production.
    • Imports rose from 7.620 million barrels a day to 8.590, compared to 7.677 million barrels per day last year.
    • Refinery inputs were up during the week at 17.122 million barrels a day
  • As at May 12, 2017, US natural gas in storage was 2.369 billion cubic feet (Bcf), which is 12% above the 5-year average and about 14% less than last year’s level, following an implied net injection of 68 Bcf during the report week.
    • Overall U.S. natural gas consumption was down by 1% during the week – an increase in power demand offset decreases in retail and commercial demand
    • Production for the week was flat and imports from Canada fell by 9% from the week before
  • As of May 15, the Canadian rig count was 81 (13% utilization), 66 Alberta (15%), 8 BC (11%), 7 Saskatchewan (6%), 0 Manitoba (0%)). Utilization for the same period last year was below 10%. With breakup and road bans almost, this count should start to rise modestly for the next month or so.
  • US Onshore Oil rig count at May 12 was at 720, up 8 from the week prior.
    • Peak rig count was October 10, 2014 at 1,609
  • Natural gas rigs drilling in the United States was up 8 at 180.
    • 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 up 3 at 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 56%/44%


  • Most new was covered above – happy Victoria Day weekend in Canada, weekend before Memorial Day weekend in the US and Dollard Day in Quebec.
  • Trump Watch:
    • Apparently Donald Trump shared highly classified secrets with the Russian Foreign Minister – they say this is bad…
    • Confusing himself with Nelson Mandela and others, The Donald declared himself the most mistreated politician ever. And the subject of a witch hunt, as opposed to the cheerleader of one against, say, Hillary (Lock Her Up!) or Obama (Fake Birth Certificate)
    • A special councel, oops, counsel was appointed to investigate RussiaGate
    • The NAFTA renegotiation timeline has begun
    • Trump is off to Saudi Arabia for hsi first foreign state visit, not Canada as is typical. Then it’s off to give NATO a bill for military services and to hawk some Trump Steaks.
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