As some of you may be aware, Calgary has three distinct seasons – winter, construction and Stampede. And the first day of Stampede is, as everyone knows, a sort of stat holiday, with the Stampede parade hitting the streets of our fair city to entertain one and all with bands, clowns, marchers, VIPs and the like.

So in deference to the Parade and the free holiday I am taking, this week’s missive is both late and a bit random, knowing full well that next week is virtually certain to be a Stampede-themed annoyance.

So, a few items of note from this week that I felt were noteworthy or deserved comment, not because they are particularly important, but mainly because they struck me.

US Reserves could be much larger than anyone thinks!

At least that’s what the good folks at Rystad Energy would like to have us think as Bloomberg heroically ran a press release saying that thanks to tight oil technological developments, US oil reserves could in fact dwarf those of Saudi Arabia, Venezuela and Russia (I didn’t see Canada listed in the initial press release, I keep forgetting we don’t count).

At any rate, Rystad estimates that U.S. could have up to 264 billion barrels of reserves, quite the leap from the widely acknowledged 55 billion proved and probable reserves from the widely followed BP statistical review. How do they get there? Ah, there’s the rub. They get these inflated numbers by including proved, probable, potential reserves in recent discoveries and in yet undiscovered fields. Um, what? That’s alright though, because they use the same methodology to calculate reserves in other countries as well so everyone’s number is equally inflated (except Canada, whose reserves for some reason decline when you include “undiscovered” reserves which I can only imagine is a hole in David Suzuki’s backyard).

They then use this inflated, pie in the sky, made-up number to say that the world has plenty of oil to meet demand for another 70 years or more. Phew, right? Is it just me, or does something sound fishy about this? While I don’t dispute that there are likely sources and reserves of oil that have yet to be discovered and techniques that can exploit areas we already operate, at least part of the exercise has to be based on cost of recovery etc.

Is it possible that there is that much oil? I guess it could be. But if you want people to make decisions on the basis of a quintupling of reserves, I think you need to find those reserves first.

Bird migration season

No, not Jason Kenney – something on him below. Rather, I was struck on a call the other day how much of our time in industry is spent dealing with regulatory hurdles that people in other jurisdictions (where there are apparently hundreds of billions of barrels of oil just waiting to be discovered) couldn’t even conceive of. Whether it’s the toad relocation program I talked about a couple of weeks ago, or work on pipeline infrastructure being put on hold while some migratory bird/bat/butterfly makes its way across Western Canada we seem to have no problems whatsoever stopping work, adding on layers of costs and doing similar to ensure that we preserve the environment we live in and share with other creatures – big and small.

So when someone says “well Canada is a high cost basin” make sure to point out that part of the reason it is high cost is because we regulate the stuffing out of it and that those places that eschew the regulatory burden we have chosen to have present a whole other level of cost to the planet.

Untie the Right

No that isn’t a typo. It’s a request. I mean seriously, can we just unwind this mess and figure things out? The political right in Alberta is like that Slinky you gave your kid that wound back on itself and is now a hopeless knot that may in fact be impossible to sort out.

This week, Jason Kenney, long serving Member of Parliament and significant player in the former Harper Conservative government announced that he was going to step down as an MP and throw his (newly purchased cowboy – it’s Stampede after all) hat in the ring for the leadership of the Progressive Conservative Party of Alberta, which as we know last year suffered electoral evisceration at the hands of the big bad Notley orange machine and vote-splitting on the right.

Good for him, right? And good for conservatives! I mean the right needs a saviour, someone who is battle tested, with Federal government chops, experience in provincial politics who can lead a movement of righteous fiscal and occasional social conservatives back from the wilderness to heights previously thought impossible. Except he exists already and his name is Brian Jean and he leads the Wildrose Party, who by the way is the official opposition in Alberta after resurrecting themselves from that last unite right movement orchestrated by Danielle Smith and Jim Prentice. Plus his house burned down. And Jason Kenney has stated he wants to put him out of a job. I don’t see how that wins a lot of votes north of Edmonton.

OK then, how about that the PC party of Alberta is the natural governing party in the province and all that is needed to rebuild that big tent and unite true conservatives under a star candidate with Federal government bonafides who can serve as a rallying point and bring home the gold. Except we tried that already, and he’s the one who got us into this mess.

Well never mind that. Let’s just get back to basics. Conservatives in the province need to unite. So why not Jason?

Good question.

I have been thinking about this because it bothers me, in particular the presumption that “conservatives” need to unite and that all “conservatives” are ideologically cut from the same cloth and will naturally follow a chosen one, so this should be a cake walk because he is a star candidate. But if you use this logic, how do you explain why Wildrose was never able to form a government and why are the PCs still attracting a core group in the polls and why do the leaderships and grass-roots of each party so emphatically NOT want to unite?

I think there are only two words that matter – progressive and conservative. The PCs were a big tent party because they were able to retain the “anyone but Liberal” Alberta voter and offer a moderately progressive destination for naturally fiscal (but not social!) conservatives who could never vote for the left side of the ledger.

But now the schism has happened. The left has their progressive champion in the NDP government and the Wildrose has locked down the social and fiscally conservative vote. In many ways, the PCs lost the last election because they lost the middle to the NDP and this is what they need to get back if they want to form the next government. Uniting with the Wildrose is just as likely to drive some of that middle over to the NDP as it is to be additive.

To reclaim the middle, the PCs need someone who reflects that middle and it’s hard to say that Jason Kenney is that guy.

From an ideological standpoint he runs to the socially conservative right, which aligns him more with the Wildrose than anyone else and his career in the Conservative Party of Canada (note, not “progressive”) is evidence of that. On top of that, another parachute candidate isn’t likely to play well with the PC middle as surely there must be someone who has grown up with specific Alberta issues and understands them intimately from a provincial perspective. Look, I’m not tryiong to disparage Jason Kenney – he is my MP and he did a fine job, he is bright, articulate and hard-working. I’m just not convinced he’s right man for the job, because I just can’t escape the feeling that the right person needs to have a better handle on the changed demographics in Alberta, particulalrly in the large cities, that have moved the province to the centre. A shrill, angry unite the right, NDP blows campaign isn’t going to play well in too many places aside from rallies stacked with true blue supporters. That said, only time will tell and until a better candidate emerges, that’s what we have to work with.

The West Wing

So for the past week or so while my wife was away I have been binge watching the West Wing and have been fascinated by how topical the storylines are today, even after ten plus years. The arguments of left versus right are much the same now as they were before and the bipartisanship we all see in the current US government are all on display.

Overall, the show is eminently watchable, the writing is second to none, the acting top rate and it manages to capture its audience without the use of zombies, meth labs or serial killers. I am glad I decided to revisit it, although I sure am tired…

Where am I going with this? Well the one change I do notice is that some of the tone in the show is decidedly hawkish. What does that mean? Well, given the time the show was being broadcast, both pre and post 9/11, it is interesting to note that the uber-progressive domestic Bartlett agenda sure does give way to a take no prisoners, we hate terrorists, interventionist, exceptionalist foreign policy a la Geirge W. Bush – which I believe is probably indicative of what a Hillary Clinton presidency might be. We should be prepared for the US electing Jeb Bartlett without the charisma. Hopefully with as good a staff.

Prices as at July 8, 2016 (July 1, 2016)

• The price of oil ended the week down sharply
  • Storage posted a smaller than desired decrease
  • Production was down
  • The rig count was up marginally
  • Conitnued production declines in the US are helping keep prices up as are the production shut-ins around the world
  • The market over-reacted to supplies coming back on stream in Canada (real), Nigeria(rumoured) and Libya (ha!)
• Natural gas fell during the week on cooler weather before staging a comeback..

• WTI Crude: $45.18 ($49.21)
• Nymex Gas: $2.801 ($2.987)
• US/Canadian Dollar: $0.7666 ($ 0.7744)

Highlights

• As at July 1, 2016, US crude oil supplies were at 524.4 million barrels, a decrease of 2.2 million barrels from the previous week and 58.6 million barrels ahead of last year.
  • The number of days oil supply in storage was 31.7, ahead of last year’s 28.3.
  • Production was down for the week at 8.428 million barrels per day. Production last year at the same time was 9.604 million barrels per day. The change in production this week came from a large unexplained decrease in Alaska deliveries and a drop in lower 48 production.
  • Imports jumped during the week to 8.428 million barrels a day, compared to 7.316 million barrels per day last year. Imports are distorting the storage story.
  • Refinery inputs were up flat during the week at 16.687 million barrels a day, but strong for this time of year
• As at July 1, 2016, US natural gas in storage was 3,179 billion cubic feet (Bcf), which is 23% above the 5-year average and about 20% higher than last year’s level, following an implied net injection of 39 Bcf during the report week.
  • Overall U.S. natural gas consumption was down 4% during the week with increases across all major sectors
  • A heat wave in California is driving consumption
  • Production for the week was up slightly and imports from Canada declined
• Oil rig count at July 8 was at 351, up 10 from the week prior.
  • Rig count at January 1, 2015 was 1,482
• Natural gas rigs drilling in the United States was down 1 at 88.
  • Rig count at January 1, 2015 was 328
• As of June 27, the Canadian rig count was at 58 (8% utilization), 41 Alberta (9%), 8 BC (9%), 8 Saskatchewan (8%), 0 Manitoba (0%)). Utilization for the same period last year was about 20%.
• US split of Oil vs Gas rigs is 80%/20%, in Canada the split is 20%/80%
• Offshore rig count was flat at 19
  • Offshore rig count at January 1, 2015 was 55

Drillbits

• The NEB announced that as a result of last week’s ruling by the Court of Appeals regarding the approval of the Northern Gateway Pipeline that it was suspending both the request for an extension of the sunset clause by the proponent and its review of any filings related to the 209 conditions imposed on the project. Not a good couple of weeks for Northern Gateway. On the flip side, if a pipeline is going to be built, Transmountain is looking pretty good.
• Seven Generations purchased Deep Basin/Montney assets from Paramount for consideration of $1.9 billion. This deal is expected to result in more acquisition activity as Paramount re-orients its asset base
• Chevorn announced a $37 billion expansion project at its oil projects in Kazakhstan and BP announced a $8 billion expansion to an LNG facility in Indonesia. Before breaking out the tea and crumpets to celebrate the return of capex, let’s remember this is mainly to keep up, not grow.
• Bellatrix sold a 35% interest in a gas plant to Keyera for $112.5 million in cash.
• At an estimated $3.6 billion, the Alberta/Fort McMurray wildfires are expected to be the most expensive natural disaster in Canadian history. Note I say natural disaster, but the betting moeny is that the initial fire was caused by “huiman factors”
• Nigerian militants bombed a pipeline July 6.
• Drumpf Watch – Drumpf continued to celebrate Brexit, and took time out of his busy schedule to offer up his praise and admiration for Saddam Hussein, who was apparently “so good” at dealing woth terrorists, repeating a bizarre talking point of some more fringey right wingers that the world was better off with despots, as they kept the crazies in check. Never mind that they were crazy on their own and responsible for many more deaths than terrorists will ever be able to accumulate. President Bartlett would not have been impressed, and to sort of quote: “Saddam so good with terrorosts eh? I want you to remember this as the moment I decided to kick your ass”.