Crude Observations

It’s Drafty in Here

As a big National Football League fan, I have to say that this time of year is very exciting to me with the schedule coming out last week and this week getting all wrapped up in the draft, contemplating how badly some of the teams with the top draft picks will screw up this year, which promising young quarterback will be ruined by the New York Jets, the usual.


One of the most fun things to do is to read and obsess about the 367 mock drafts that get prepared because there is nothing more fun than reading someone’s review of how 32 teams are going to pick, in order, for multiple rounds. Over and over again. Including hypothetical trades. Plus all the media coverage is downright addictive. And annoying. Mostly annoying.


OK seriously, who am I kidding. I couldn’t actually care less who Cleveland picked number 1 and number 4 overall and what Denver did with their pick. Although watching that first round yesterday? Wut?!?!?!


But what about if there was a draft for Energy Producin and Consuming jurisdictions? Like the NEL – National Energy League? And what if I was the commissioner?


Now that would be super cool, wouldn’t it?


Imagine if any of these energy jurisdictions had the ability scour the talent and influencers around them and make the one pick that will make all the difference to their future. What would it look like? Would the picks be smart? Would there be any trades? Who has the most to lose and the most to gain? Who is the top-rated prospect in the draft and whose stock is plummeting? Did anyone fail any drug tests?


Now there’s a mock draft I can get behind.


Fortunately for you, I’m about to. Also, fortunately for you, I have made this a 10 team draft and I am only projecting one round. Any more would be torture. Even 10 torture. Sorry.


The first pick in the Energy Draft belongs to Alberta.


As all sportsball fans know, the first pick in the draft is “earned” by the worst performing team from the year prior. You would think that this pick would belong to Venezuela this year, but the rules have changed such that deliberately tanking can no longer earn you the first pick (entirely at the discretion of the commissioner). Thus Alberta, underperforming and under siege has the first pick – which makes sense because when you think of it, Alberta of late has been the Cleveland Browns of the Energy world. A lovable loser that everyone makes fun of, full of talent and promise, but in the recent past quite poor on execution. The one interesting thing about Alberta (and the Browns) is that with the right management team in place and the right pick, this province can get very good, very fast.


Needs: Alberta needs a champion. A single catalyst to come in and change the dynamic in the province. They need something to spur confidence in the industry and as we all know that confidence is going to come from the kick in the pants a TransMountain Expansion shovel in the dirt would give. They need someone ready to do something now.


Eager to avoid a draft bust such as when Alberta drafted Ed Stelmach, the choice is clear. With the first pick in the draft Alberta selects… Justin Trudeau. What!?!?!?!?! Why? Because he is the only person who can deliver the clear and decisive blow that’ll kick-start the TMX and thus the rest of the industry. Is it the be all and end all? Nope. But when you’ve only won 1 game in two years, anything helps. And I’m pretty sure Alberta can look past the failed drug test for marijuana. Don’t believe he can deliver? Just watch him, as his dad would say.


Second Pick – Venezuela


As discussed above, Venezuela tanked last year in order to secure itself a prime draft pick. Unfortunately, as commissioner of the energy league I changed the rules at the last minute so Alberta would get their pick. So it turns out the tanking exercize was for naught as the highest pick they could get was second overall. That said, the second pick overall is still pretty good and Venezuela was never going to take Trudeau. And with lots of talent on the board, they might be able to get a bona fide future hall of famer.


Needs: Venezuela is a mess. Oil production is down close to 500,000 barrels per day since last year, the population is starving, the treasury is empty, inflation is close to 8000%, the government is on the way out, they boast the world’s largest oil reserves yet are importing oil and finally, they are so under the influence of both China and Russia they might as well be Mongolia. Does anything more need to be said?


So, with the second pick in the draft, Venezuela selects… Rex (Sexy Rexy) Tillerson. Wow – the first surprise of the draft. I guess when you need to rebuild your entire energy industry, who better to pick than everyone’s favourite unemployed ex-CEO of Exxon. Think about it, they can pay him a bazillion dollars in that weird petro-crypto currency they have been trying to create, he’s on a first name basis with Putin and Trump and he probably knows a thing or two about the industry. An inspired pick.


Third Pick – British Columbia


Yet another Canadian entry picking in the top half of the draft, BC finished a close second to last to Alberta and could actually have been in last place if it hadn’t been for the fact that they actually already possess that which Alberta craves – a functioning oil pipeline to tidewater. I sometimes wonder what would have happened if Kinder Morgan had been a bit quieter with their pipeline expansion – I would be willing to bet there is a fairly sizeable portion of the Lower Mainland population that didn’t even know there was a pipeline terminus in Burnaby!


Needs: British Columbia’s needs are many, but on the energy side they specifically relate to the lack of drilling over the last winter, the lack of progress on the TransMountain expansion and the future of LNG, if there is one. As we all know, any motion on the LNG front is hostage to the outcome of the TMX decision and the anti-pipeline/LNG/Fracking Green Party whose support the NDP government’s tenuous minority needs. Why TMX? Well if the pipeline doesn’t happen, the LNG guys are probably gone for good.


So… with the third pick in the draft, BC chooses… the leader of the BC Liberal Party, Andrew Wilkinson. Why would they do that? The thinking is that if the major obstacle in the way of the NDP supporting any fossil fuel related initiative is Green Party support and the fear of losing power, the BC Liberals are in the unique position of being able to offer Premier Horgan a deal, along the following lines: Allow TMX to proceed and support LNG and we will in turn agree not to vote against the government in any confidence motion relating to these initiatives and for a period of time. This would effectively neuter the Green Party and move these critical projects forward, which I rather suspect the NDP actually wouldn’t mind.


Fourth Pick – Alberta again. Acquired via trade from Oklahoma


As I said before, if Alberta drafts right, they could get awfully good in a big hurry. Two picks in the top half of the draft can be a game changer for most teams, even one as inept as Alberta seemed to be.


Needs: With the first pick, they tried to beef up one part of the export story, now they need to get the second leg done, it’s as simple as that. For Alberta to win, the export capacity has to get ahead of the production capacity and stay there for an extended period of time.


Accordingly, with the fourth pick in the draft, Alberta selects reluctant regulators in Nebraska and Minnesota. Why would they do that? Well, with these regulators onside, it should allow TransCanada to finally get Keystone XL moving past the “well Donald Trump approved it” phase to actual construction as well smooth the road for the Line 3 rebuild. Along with the TMX secured above and fairly robust oil prices these pipelines will ensure security of supply to the heavy oil thirsty gulf refineries and attract some much needed capital to fill those lines.


Fifth Pick – Iran


Oh Iran – such promise at the beginning of the year and an unmitigated disaster down the stretch. Remember when everyone was freaked out by the Iran nuclear deal and the lifting of sanctions and the impact of all of Iran’s millions of barrels hitting the market? Yeah, me neither.


Needs: Someone to be its champion in the face of an increasingly hostile America as represented by the orange tweeter and his new attack dogs John Bolton and Mike Pompeo. As a result, investment in Iran’s energy sector is decidedly up in the air with the many billions of dollars required to modernize and super-charge it’s prolific resource base sitting largely on the sidelines. Waiting.


Selection – Hoping to break the logjam, Iran picks the uber-slick and patronizing Emmanuel Macron of France. This pick is really a no-brainer. Although he isn’t named Vladimir Putin, Macron appears to enjoy a rather peculiar bromance with President Trump (although that might be weaker after this past week) and influence on and flattery of Trump is what Iran desperately needs. At least until May 12th. Able to go into action immediately, Macron needs no training and given the billions of investment on the line for France’s Total SA, he should be motivated. Expect him to hit the ground running.


Sixth Pick – Russia


As we move into the later rounds, we start to work with those countries that are winning the energy war so we begin to see picks made not so much to act as saviours or plug some gaping strategic hole, rather they are increasingly of the “best available” tactical nature or to meet a specific need.


Needs: Russia needs capital to invest in their energy sector and upgrade aging facilities and infrastructure.  Currently treading a fine line between setting up a long term extra-OPEC relationship with Saudi Arabia to manage oil prices for the next 20 years and a desire to determine Europe’s energy future with its prolific gas supplies, Russia has needs in a variety of areas. Not to mention that outside of energy, Russia is all over the place with its courtship of Iran and Syria, inroads into Eastern Europe, the Caucasus and election meddling.


Deciding to focus on oil, Russia drafts a generic Saudi prince who is close to Mohammed Bin Salman. Strategically, throwing in your lot with the big oil producer in Saudi Arabia is the surest and quickest way to attract serious investment into the biggest economic engine you have and delivers outsized influence to Russia. A good pick.


Seventh Pick – China


China finished high in the energy rankings and got a low draft pick largely as a result of its strength and attractiveness as a super-charged consumer of all types of energy ranging from coal to oil to LNG to EV batteries.


Needs: China is a juggernaut and doesn’t have many weaknesses aside from a need to swap out coal for cleaner burning natural gas. To do this, China will be consuming more and more LNG, will require pipelines from Russia and will generally be setting the market for Natural gas for years to come.


Not wanting to take a flyer on Vladimir Putin, China does the safe thing and drafts John Horgan in the hopes of converting him to an unabashed LNG flag-waver. Given BC’s proximity to Asia, prolific resource base and desperate need to be recognized as a viable place to invest, this is a reasonable pick that should bear fruit if Horgan can unlearn some of the bad habits he learned at the Green school for environmental hypocrites.


Eighth Pick – Texas


As we move into the bottom three draft picks, we are really in the cream of the crop of the energy players. Texas has certainly reaped the benefits of the surge in capital investment in the patch, with the Permian in particular driving significant growth. Never mind that Texas requires the most investment and constant coaching and work or production drops off like a stone, it’s still the place to be.


Needs: Again, more tactical than strategic, what Texas really needs are pipelines and midstream capacity to get all that production out of a suddenly constrained Permian Basin.


However, in a shocking twist, with the eighth pick Texas selects the gullible investor. In a way this pick was inevitable, because no matter the current constraints on delivery infrastructure, if the endless supply money were to dry up for the drilling treadmill, current decline rates suggest that the existing infrastructure may actually be overkill.


Ninth Pick – United States


Notwithstanding certain localized challenges – infrastructure in Texas, pipeline constraints for shale gas in the East, California – the United States is the real deal when it comes to energy. The sector is broad, wide and exceptionally deep.


Needs: Nothing really. LNG is going strong, oil production is at its highest levels ever, exports are robust, the environmental movement is waning and investment is soaring. These are indeed heady days for the United States on the energy front. The only real blemish on an otherwise enviable energy sector is access to heavy oil for the Gulf Coast with the declines in Mexican and Venezuelan imports causing a bit of an issue.


Always a good drafter and able to think five steps ahead of the opposition – kinda like the Patriots – the United States selects a company, not a person with their pick – TransCanada. This pick is a solid player that will deliver for years building both natural gas export lines into Mexico and maybe, finally, getting underway with the Keystone XL which will go a long way to solving the Gulf coast heavy oil demand situation, with mutually beneficial spillover effects for Alberta.


Tenth Pick – Saudi Arabia


The undisputed champion of the energy sector, Saudi Arabia exhibits few, if any, fundamental weaknesses. As the largest exporter of oil in the world, Saudi Arabia’s influence and position is largely unchallenged. That said, its proxy battle for political dominance in the Middle East is an ongoing struggle – Saudi Arabia competes in a pretty tough division.


Needs: Nothing really on the energy front, that is well in hand. Instead, this year Saudi decides to beef up its special teams by drafting the New York Stock Exchange to facilitate its IPO, which given the current pricing environment should be expected before year end.


Special note – I know the actual first round of the NFL draft was yesterday. And the media has been obsessing about this for months now and will be for the next 12 given the depth of talent available. My picks to watch? Two of them: Lamarr Jackson – probably the most physically gifted QB in the draft and Kyle Lauletta – steady Eddy QB, can he be the next Tom Brady. Only Belichek knows.


Prices as at April 27, 2018 (April 20, 2018)

  • The price of oil held steady during the week
    • Storage posted a increase
    • Production was up marginally
    • The rig count in the US was mixed
  • After a small yet larger than expected withdrawal, natural gas recovered modestly…


  • WTI Crude: $68.10 ($68.38)
  • Nymex Gas: $2.771 ($2.739)
  • US/Canadian Dollar: $0.7800 ($ 0.7850)


  • As at April 20, 2018, US crude oil supplies were at 429.7 million barrels, a increase of 2.2 million barrels from the previous week and 99.0 million barrels below last year.
    • The number of days oil supply in storage was 25.5 behind last year’s 31.4.
    • Production was up for the week by 46,000 barrels a day at 10.596 million barrels per day. Production last year at the same time was 9.265 million barrels per day. The change in production this week came from a increase in Alaska deliveries and a increase in Lower 48 production.
    • Imports rose from 7.930 million barrels a day to 8.469 compared to 7.930 million barrels per day last year.
    • Exports from the US jumped to 2.331 million barrels a day from 1.749 last week and 1.152 a year ago
    • Canadian exports to the US were 3.238 million barrels a day, down from 3.548
    • Refinery inputs were down during the week at 16.621 million barrels a day
  • As at April 20, 2018, US natural gas in storage was 1.281 billion cubic feet (Bcf), which is 29% lower than the 5-year average and about 41% less than last year’s level, following an implied net withdrawal of 18 Bcf during the report week
    • Overall U.S. natural gas consumption was down 6% during the report week
    • Production for the week was flat. Imports from Canada were up 2% compared to the week before. Exports to Mexico were down 1%.
    • LNG exports totalled 21.6 Bcf.
  • Can you say “Break-up”? As of April 23 the Canadian rig count was 79 – 75 Alberta, 1 BC, 3 Saskatchewan, 0 Manitoba and 0 elsewhere. Rig count for the same period last year was actually higher.
  • US Onshore Oil rig count at April 27, 2018 was at 825, up 5 from the week prior.
    • Peak rig count was October 10, 2014 at 1,609
  • Natural gas rigs drilling in the United States was up 3 at 195.
    • 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 18
    • Offshore rig count at January 1, 2015 was 55
  • US split of Oil vs Gas rigs is 80%/20%, in Canada the split is 70%/30%



  • David Suzuki is going to get an honorary degree from the University of Alberta. I don’t know how I feel about this. Lots of people are up in arms about this, but it really doesn’t matter to me. It seems stupid and petty to get all wound up about something that I don’t really care about and think is dumb anyway. Honorary degrees aren’t worth the paper they are written on. Suzuki is a shell of what he used to be and no one takes him seriously. By way of context, Kanye West, Ed Sheeran, Kim Kardashian, P. Diddy, Kermit the Frog, Celine Dion and Michael Jackson all have honorary degrees as well. Meryl Streep has six. Bill Cosby has dozens. Robert Mugabe has one. Many universities regularly deny granting one to Obama. How relevant are these things really? Let Suzuki have what is known as the toilet paper of the university industry. He may need it when the trees are gone. I’ve got more important things to worry about.
  • The BC government drafted their refernce case to the BC Supreme Court in the latest salvo of the obstruction wars. Meanwhile, polls show the pipeline gaining support. You know who pays a lot of attention to polls? Federal Liberals. John Horgan, your time is almost up.
  • Trump Watch: Stuff happening in Korea. Very interesting.
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