Well that was sure a nice break, anyone miss me? But now it’s time to get back to the grindstone and get everything ready for the gong show that 2017 is already shaping up to be what with the coronation, oops “inauguration” of President Donald Trump (still can’t say that without giggling), a brand new carbon tax in Alberta and Vladimir Putin as master puppeteer for the globe!

 

Not for the energy sector of course. For us in the patch, 2017 promises to be quite a bit better than 2016 was and maybe, just maybe, better than 2015, which would put it on par with, say, 2010, or those halcyon days of 2006 when it seemed a person could do no wrong, or, dare I say it, 2003 because you know what that year was like! Which of course takes me back to 1999 – where everything started!

 

Where am I going with this? Nowhere really, I mean each of those years was distinct in its own right, but I don’t have any specific memories of those years, except some major events – 1999, the year I got married; 2006, the income trust debacle; 2010, joined Dave at Stormont. That said, I dare anyone of you to a) remember anything more than superficial events from any one of those years; and b) grade yourself on what you thought that year was going to be like when it started. But you can’t, because there is no record of those thoughts. Me and 2016 on the other hand? There is a record. There was a forecast too. Some of it was good. Some was downright awful. And now it’s time to pay the piper. Gulp.

 

Report Card Time – The Final Matriculation

 

Look, before we get started, I just want to say this – lots of people hate forecasting and say that forecasts aren’t worth the paper they are on the second the forecast is made and it’s waste of time and energy. I get that. But me? I like it. It’s fun. It’s even more fun when the forecast is wrong. But you can’t run away from it, you have to own it. If you believe to the best of your knowledge that something is going to happen, say it and don’t be afraid of it. So how did I do anyway?

 

Price of oil

 

So, overall I think I predicted a rally in the price of oil and clearly that has happened. In addition to all the in-year calls on OPEC and supply and production, it is actually gratifying to have this one major call at least directionally correct.

 

My year-end prediction was $60 a barrel for WTI and a $45 average price with most of the price appreciation in the second half of the year. As of December 31, the price of oil was $53.72 (10% under) and the average price for the year was $43.46 (3% under). So pretty close, right? I mean not so bad. I guess a slightly harder rally after the OPEC announcement would have been better, but a couple of headwinds to that, most notably the big pop in the US dollar following the election and all the noise about tight oil drillers racing back to make swiss cheese out of the Permian because of a the oil price rally. I am still happy with my forecast. I think if we would have reached $60 at year end, the average price would have scored. Grade B+.

 

Price of Natural Gas

 

As most of you know by now, I am starting to become a big fan of gas. The supply build was well below expectations over the summer and production has levelled off. Going into the heating season, draws have been quite large, industrial use continues to grow and power demand is high. The continued shift from coal to gas for electricity generation, more offtake capacity via pipelines and LNG in the US and just general declines is providing impetus for prices. My year end prediction was $3.50, and my average price for the year was $2.75 is going to require some serious price assistance. December 31 price was $3.724 (+8%) and the average for the year was $2.55 (-8%). As with the price of oil – not so bad, right? Grade B+.

 

Production

 

In my 2016 forecast we discussed production across a range of producing regions.

 

The main part was an expected 500,000 bpd decline in the US. At December 30, 2016, US production was off by 449,000 bpd, so a pretty solid showing as production declines have levelled off and DUCs get completed and the rig count rallies with the price of oil.

 

There was an expectation that Russia and OPEC as a whole would maintain “current levels of production” which is a miss, depending on where year-end numbers come out as the data is current only to November. Notwithstanding the promised 2017 cuts, production in Iraq seems to have plateaued, Nigeria is dealing with ongoing militant attacks that have played havoc with production and Libya is Libya. Iranian crude production has recovered to just below pre-sanction levels and is stubbornly stuck there. The ongoing crisis in Venezuela is having a major impact on production there which is off more than 300,000 barrels. Saudi production spiked over the summer (as it always does) and is gradually deflating. Year-end 2015 production for OPEC was about 32.11 mm barrels and at November 2016 production was 33.87 mm – an increase of 1.7 mm barrels, projected year end is about 33.1 mm. Russia? Well they started the year at 10.41 mm barrels per day and look set to close the year at about 11 mm barrels per day, an all-time high.

 

Another expectation was a poorly defined “other non-OPEC, non-Russian” production being down a similar amount to the US. This covers South American and Mexico where the data is hard to get as accurately as desired, but all countries are flat or down this year.

 

Overall, the call on reduced or stable production appears to have been optimistic with production levels falling more rapidly than expected in certain areas while others (Russia and OPEC) are growing. Which basically makes the case for the OPEC cuts. Overall Grade C.

 

Activity Levels

 

I said 2016 was going to be a train wreck and it most certainly was. Decade lows in utilization combined with an early breakup to produce one of the worst years the WCSB has seen since the late 1980s. Activity levels picked up as the year came to an end and, on a relative basis, is quite robust, but we’ve got a long way to go to get back to typical levels.

 

While I hate to give myself a grade for calling a market disaster, that’s part of the game, so: Grade – B.

 

Canadian Dollar

 

I made a short term call that the Canadian dollar would likely rally through Q1 to about $0.75 based on what the Fed did and oil prices and it did. That was a good call. The dollar closed the year at $0.744. I had suggested $0.80 to $0.85 but I needed $60 oil, no Fed increase, no Trump rally and a more than anemic Canadian economy to take it there. Swing and a miss. Grade D

 

M&A Activity

 

This has definitely picked up, especially in the Permian basin, but not as much as expected. Capital raising has been the name of the game as equity capital fixes balance sheets, but so far not a rush of M&A into either the service sector or the E&P space. While a few deals started to percolate towards the end of the year, it was still soft for M&A as the market was generally unsettled until the last quarter. Grade – C.

 

US Election

 

I predicted a Trump-caused implosion of the Republican party with a Rubio-Kasich ticket emerging and getting thumped by Hillary and the Democrats. We’ve already gone through a lot of Trump-nalysis. I think if I’d seen this bit of data before the election, I would have called Trump, but I didn’t.
Apparently, the five most popular vehicle models among Republicans are all trucks, with the Ford F-150 leading the way. Among Democrats, the Subaru Outback is the most popular choice. If you drive a truck, you’re probably a Republican. If you drive a Subaru, you’re probably a Democrat. Donald Trump won every single state in which the Ford F-150 is the most popular vehicle (even Pennsylvania). He won all but four of the states in which the Chevy Silverado is the most popular vehicle, including Iowa, Michigan, Ohio, and Wisconsin. Hillary Clinton handily won the states where people prefer Subarus. Grade – F (150)

 

Infrastructure Projects Approved

 

In m year end forecast I said that three major energy projects would be approved or get the nod. At year end, the Pacific NorthWest LNG project had been approved as had the Transmountain expansion and Line 3. So, 3. Grade – A+ woohoo !

 

Stock Picks

 

Stock	Jan-01	Mar-31	Jun-30	Sep-30	Dec-31	% Change
Peyto	24.87	28.89	35.03	37.33	33.21	33.5%
Suncor	35.72	36.17	35.59	36.42	43.9	22.9%
TransCanada	45.19	51.06	57.9	62.31	60.54	34.0%
Mullen	14.01	14.39	14.14	16.46	19.83	41.5%
*EOG	70.79	72.58	83.42	96.71	101.1	42.8%
*Halliburton	34.04	35.72	45.29	44.88	54.09	58.9%
Average						38.9%
TSX Capped Energy	161.88	172.6	189.25	199.79	220.91	36.5%
*Not currency adjusted

 

A couple of star performers and a couple of laggards. Mullen rallied in the second half. Suncor has underperformed due to the Fort Mac fires and the significant losses they will incur as a result of that. That said, the Fab 6 beat the index, so not so bad after all. Grade B+.

 

So I guess all in not so bad a year on the forecasting front. I give myself a solid B, with my “close to home” picks making up for the bigger whiffs on politics and Russian oil production. There is a message in there somewhere.

 

At any rate, next week is time for the next round of forecasts. I’m already making excuses!

 

Prices as at January 6, 2017 (December 30, 2016)

• The price of oil rallied at the end of the week on improving confidence OPEC would live up to their deal.
  • Storage posted a surprise decrease
  • Production fell slightly
  • The rig count in the US and Canada continues to grow

 

• Natural gas was down during the week as milder weather reduced bullish sentiment

• WTI Crude: $53.99 ($53.72)
• Nymex Gas: $3.285 ($3.724)
• US/Canadian Dollar: $0.7563 ($ 0.744)

 

Highlights

• As at December 31, 2016, US crude oil supplies were at 479.0 million barrels, a decrease of 7.1 million barrels from the previous week and 28.1 million barrels ahead of last year.
  • The number of days oil supply in storage was 28.9, behind last year’s 29.1.
  • Production was up for the week by 4,000 barrels a day at 8.770 million barrels per day. Production last year at the same time was 9.219 million barrels per day. The change in production this week came from a small reductions in Alaska deliveries and flat lower 48 production.
  • Imports fell from 8.167 million barrels a day to 7.183, compared to 7.510 million barrels per day last year.
  • Refinery inputs were up during the week at 16.689 million barrels a day
• As at December 30, 2016, US natural gas in storage was 3,311 billion cubic feet (Bcf), which is 1% below the 5-year average and about 10% less than last year’s level, following an implied net withdrawal of 49 Bcf during the report week.
  • There was no additional release this week
• As of January 2, the Canadian rig count was 204 (30% utilization), 150 Alberta (36%), 24 BC (32%), 27 Saskatchewan (31%), 3 Manitoba (33%)). Utilization for the same period last year was about 20%.
• US Onshore Oil rig count at January 6 was at 529, up 4 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 135.
  • 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)
• US split of Oil vs Gas rigs is 80%/20%, in Canada the split is 50%/50%
• Offshore rig count was up 1 at 23
  • Offshore rig count at January 1, 2015 was 55

 

Drillbits

• Alberta has a shiny new carbon tax
• Alberta has a shiny new carbon tax
• Alberta has a shiny new carbon tax
• Alberta has a shiny new carbon tax
• Yes. I did that on purpose.
• Trump Watch: Wikileaks – better than the CIA. 14 year olds hacked the Democrats.