Crude Observations

Is it a joke?

I know I write a lot about the Permian Basin and all the hype associated with it. I know that I can come across as somewhat skeptical about the hype machine. But that doesn’t mean there isn’t opportunity.


For that reason, Dave and I are pleased to announce the creation of Stormont Energy Advisors USA, a full-service M&A advisory firm based in Texas specializing in energy services and related industrials. Seriously, why should everyone else have all the fun and profit? Our skills and expertise easily cross borders and some of our best clients have come from the United States. Plus, with the soon to be canyon-like delta in tax rates, it’s kind of a no-brainer.


Interestingly, last year about this time I published a blog saying that the Trudeau government had approved the Pacific NorthWest LNG project and implying imminent approval of pipelines as well. Given how prescient this supposed canard (there’s those ducks again) proved to be, I suppose you can say that anything is possible, even when it starts as a classic “poisson d’avril”. Time will tell.


Quick Rant


Another week, another international oil and gas firm pulling the proverbial plug on the Alberta oilpatch. It’s getting so you can’t open the paper without some big wheeled global player heading for the exit.


This past week saw the sale by Conoco Philips of its Foster Creek Christina Lake oilsands joint venture and a bunch of Deep Basin and Alberta gas properties to its partner Cenovus, to the tune of $17 billion. This hot on the heels of the Shell exit from the oilsands (sale to CNRL) and the big Exxon writedown.


I’d be lying if I said this wasn’t cause for concern. Any time a large well-heeled investor pulls up stakes, it kinda sucks, because it is taken as a sign that the global capital markets have lost confidence in our basin and that the end of the domestic industry can’t be far behind. And if all you do is trade in that side of the story, whether through a natural pessimism or political opportunism, then yeah, I get it – the signs are pretty dire.


But… and there is always a but. This too shall pass and, more importantly, there is indeed another side to this trade. That’s the buy-side. For what have we seen the last two weeks except bold moves by two home-grown success stories to further consolidate their positions through transformative acquisitions of producing assets at discounted prices? Rest assured that the management teams of both CNRL and Cenovus are pretty pleased with themselves right about now – deservedly so – and are not likely to rest on their laurels. They have plans for these assets which involve more than simply maintaining production. Hopefully they aren’t spending too much time reading the local and national rags because if they were, they would be rightly pissed.


So, instead of doing the sad sack Canadian thing and lamenting the fact that a company based in France or Norway or Texas is no longer enamoured of the prospects of our astounding bounty of natural resources, perhaps we should instead celebrate the great Canadian companies that continue to reinvest into our oil patch and show themselves to be world class accumulators of energy assets. And, to further put the lie to part of the capital flight flag-wavers, let’s celebrate the bond and equity investors who continue to support these companies.


As it regards Stormont USA? Stay tuned I guess.


Prices as at March 31, 2017 (March 24, 2017)

  • The price of oil took it on the chin early in the week before rallying on improved sentiment.
    • Storage posted a small increase
    • Production was up marginally
    • The rig count in the US continues to grow, although at a slower pace
  • Natural gas was weak early in the week on milder weather but rallied toward the end of the week
    • WTI Crude: $50.85 ($48.00)
    • Nymex Gas: $3.192 ($3.075)
    • US/Canadian Dollar: $0.7516 ($ 0.7483)


  • As at March 24, 2017, US crude oil supplies were at 534.0 million barrels, an increase of 0.9 million barrels from the previous week and 30.2 million barrels ahead of last year. High import volumes and refinery turnarounds are holding back meaningful invetory reduction. Inventory draws typically begin this time of year
    • The number of days oil supply in storage was 33.9, ahead of last year’s 33.4.
    • Production was up for the week by 18,000 barrels a day at 9.147 million barrels per day. Production last year at the same time was 9.022 million barrels per day. The change in production this week came from a small increase in Alaska deliveries and increased Lower 48 production.
    • Imports fell slightly from 8.307 million barrels a day to 8.224, compared to 7.748 million barrels per day last year.
    • Refinery inputs were up during the week at 16.226 million barrels a day
  • As at March 17, 2017, US natural gas in storage was 2.049 billion cubic feet (Bcf), which is 14% above the 5-year average and about 17% less than last year’s level, following an implied net withdrawal of 43 Bcf during the report week.
    • Overall U.S. natural gas consumption was down by 10% during the week on decreased weather related demand increases across all sectors
    • Production for the week was down 1% and imports from Canada fell by 6% from the week before
  • As of March 27, the Canadian rig count was 148 (23% utilization), 113 Alberta (26%), 28 BC (39%), 6 Saskatchewan (5%), 1 Manitoba (7%)). Utilization for the same period last year was about 20%. With breakup likely beginning, this count isn’t expected to rise significantly for the next month or so.
  • US Onshore Oil rig count at March 31 was at 662, up 10 from the week prior.
    • Peak rig count was October 10, 2014 at 1,609
  • Natural gas rigs drilling in the United States was up 5 at 160.
    • 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 4 at 22
    • 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%


  • The Savanna Energy Services/Total Energy Services/Western Energy Services saga came to a surprising end this week with Savanna ending its arrangement agreement with Western and Total announcing that it had successfully acquired Savanna. Doink!
  • Apparently Brad Wall, Preier of Saskatchewan sent a letter to Whitecap Resources, a Bakken E&P company, offering them incentives to relocate their head office to Regina, Saskatchewan, igniting a firestorm of nonsense. While the likelihood of this happening is pretty much nil, I would respectfully suggest to both governments to get off their high horses on this front and turn their attention to manufacturing firms in Ontario who are going bankrupt because of high power prices. That might actually have some success!
  • Cheniere Energy Partners, L.P. announced that Substantial Completion of Train 3 of the Sabine Pass liquefaction project in Cameron Parish, Louisiana was achieved on March 28, 2017. Trains 4, 5 and 6 are also in progress and nearing completion. In Canada meanwhile…
  • Trump Watch: This week’s target? The environment. The Trump administration this week signed an executive order repealing many of Barack Obama’s signature initiatives relating to climate change including rules on emissions for coal plants, restrictions on energy exploration on federal lands, rules on methane and, strangely, some rule restricting the killing of endangered species. I am guessing this last was a bit of an oversight. Like them or hate them, this tilts the landscape for energy development in the United States firmly in favour of industry.
Crude Observations
Sign up for the Stormont take on the latest industry news »

Recent Posts