As the holiday season ramps up and we get closer and closer to Christmas, some of you may have noticed a disturbing trend in this blog. Namely, that we have a whole bunch of things we need to cover off before we leave and that the blog seems somehow rushed, like I am in a big hurry to get out of the office and do some Christmas shopping even though, like most of the guys I know, I have a tendency to do all of this on the last day of shopping in the busiest place imaginable. Go figure.

 

Of course doing this just results in indiscriminate gifts being bought for family members (look more socks!) and things that are close but not quite what they asked for (I know you wanted a black sweater, but this pair of pants has a gift receipt from the same store) and finally, the extravagant gift that you buy when you are out of ideas and need to buy something, anything (have I mentioned the pub-style Pacman game I have in my basement?).

 

This year though, I vowed would be different. I set a budget (and promptly exceeded it) and made an itemized, detailed and rationalized list, just like, you know, the big guy himself.

 

And it worked, which leaves me lots of time to take my kids to see the same big guy. Of course while I was there, I couldn’t avoid getting into a little mischief of my own and, well, I noticed that beside his chair, Mr. Claus had a scroll. So I decided, when he was distracted by my kids, to unroll the scroll. And take some pictures. Which I looked at when I got home and what I saw surprised me. It was “the” list. And it was very interesting.

 

So in case you are wondering how the Claus goes about gifting, the following will be of interest. Lots of names, lots of reasoning. And a plethora of interesting takes from a guy who dispenses righteous naughty/nice judgement from afar. Some of the highlights as follows…

 

Donald Trump – Naughty

 

This is the 24^th year in a row on the naughty list for young Donald. While gifting him the Presidency should have got him onto the Nice list, it clearly hasn’t worked. This year Donald will get an object lesson in how to play in the sandbox with others, especially women, Democrats and people who disagree with him.  Donald will also get a new phone with a bigger screen and spellcheck software for his tweeting, a new TV for the White House that gets more than one channel and finally, a lifetime bigly supply of soy beans, mainly because there are so many of them in storage because of his easy to win trade war. No coal this year, but maybe some polluted water from a formerly protected watershed.

 

Justin Trudeau  – Naughty

 

There was a lot of debate on this one. Where does he fit? Great socks, fabulous selfies, but… a giant mess when it comes to policy implementation, pipelines under construction, an energy sector wondering which way is up with carbon taxes and renewables, military procurement gone totally sideways, relations with China, India and the US completely off the rails and an overtaxed economy running on fumes. Yeesh! What a year for the social justice warrior version of Trump. This year, young Justin gets an excavator and a side-boom, as well as the financing associated with it plus a demand letter from the bank. Let him figure out how to pay the loan without any pipeline construction happening. I think, as well, just for fun, we are going to give him Jason Kenney as premier of Alberta, because Doug Ford in Ontario wasn’t enough.

 

Rachel Notley – Naughty and Nice

 

It’s been another tough year for Rachel. On the one hand, she has been relentless in her defence of the TransMountain Pipeline and the Alberta energy sector. Her leadership and decisiveness have been a credit to her astute political mind and show her as a true defender of Alberta’s interests. We can quibble at her timing – was she too late to take action, too early whatever, but there is no denying that she has been relentless. We can also question the ideas she is pushing – rail, refinery, curtailment. Not to mention her choice of political allies. But to do her justice, it is not the first time an Alberta politician has been hung out to dry by a federal counterpart, nor will it be the last – when the regulator sits in Ottawa, there will be conflict. That said, on the naughty side, the carbon tax has been a loser for her outside of beer-money seeking millennials and the rising minimum wage is a punch in the face for small business.  Other policies are a bit of a wash. So it is hard to pick a good present for Ms. Notley, but the one that has been chosen will probably be looked at as a lump of coal when she gets it but in the sepia-toned assessment of hindsight will ultimately be viewed as the best gift she could ever get. That is a short, intense electoral fight in April followed by defeat on election night. Take some time off, write a book and then run federally for the Liberals. Rest assured that even though Alberta may show you the door, your efforts are not unnoticed and are appreciated.

 

Jason Kenney – Naughty

 

I know a lot of people won’t be happy with this, but it was debated pretty intensely. As the Leader of the Opposition and the presumptive next Premier of Alberta, Jason has a lot of responsibility. He has accomplished a tremendous amount in a very short time to reposition the right side of Alberta’s political spectrum in a manner where defeating the NDP seems a very real possibility. But the path there has been littered with not so nice shenanigans and so much of what is going on seems so mean-spirited and tone-deaf.  Jason gets a few gifts this year. The first is the one that has been on his list for the past couple of years – yes he gets to be Premier of Alberta. A little humility will be in his stocking.  Finally, a box of sedatives that he can take whenever he feels the need to grab an issue and run recklessly with it before checking with his staff and advisors.

 

Bill Morneau – Naughty

 

This one is fairly obvious but needs to be said. Super rich guy introduces changes to how small businesses are taxed that will disproportionately punish the very middle class he pretends to support. At the same time he sits on an ethical time bomb regarding how he addressed his own tax-sheltered assets upon being elected to Parliament and assuming the most powerful cabinet seat in the country. Then he buys a pipeline and has no real plan to get it built, travels to the centre of the oil universe in Canada and delivers nothing but glib, nothing-burger answers for legitimate complaints. Gift for Bill? A ride out to Zama City where he will be dropped off with a barrel of oil, a match, a couple of pieces of pipe, some tanks and a DIY refineries for dummies book and a 1972 Ford F150. If he can figure out how to make gasoline and get home, he can go on the nice list next year.

 

Mohammed Bin Salman – Naughty

 

Ordinarily I don’t spend a lot of time giving gifts to people who don’t celebrate my holiday or quite frankly those who likely ordered a hit on a journalist, but MBS (as he is popularly known) needs to be reminded through the exchange of gifts how civil society works. So the main gift he will receive is of course a framed needlepoint of the Golden Rule – “Do unto others as you would have others do unto you”. MBS’s second gift is intended to serve as a reminder to not act so rashly. An electric dog collar that delivers a shock whenever he starts to give controversial orders, and a list of orders that would be considered controversial. The last gift is the naughty person’s booby-prize, a secret business partnership with Individual 1.

 

Shale/tight Oil – Naughty

 

Can we talk about this whole shale oil thing? I mean it’s getting out of hand. The amount of money – good after bad – that gets thrown into tight oil is ridiculous. And it keeps coming. Don’t get me wrong, there are some great tight oil prospects and the Permian is going to be rocking for years to come. But the alternate reality is that shale oil production is distorting the market to the detriment of pretty much everyone – just like in 2014. The other reality of the tight oil world is that it is sucking all life and sense out of the market. Every serious oil producing jurisdiction on the planet is cutting production except the Permian which, as has been astutely stated repeatedly by energy economists such as Anas Alhaji (look him up), produces exactly the the type of crude (light) that isn’t in demand. So overall prices are depressed and the heavier oil investment suffers, setting the stage for price disaster in the next few years. But, American energy independence right? Shale’s gift? Capital discipline, some humility and less frac hits. Maybe some free cash flow finally, but not too much. And some Ducks, I mean DUCs. How about a few thousand?

 

Oil and Gas Financiers – Naughty

 

Seriously, some of these people need to calm down. Find something else to invest in.  Like cannabis. Wait, belay that. Equity performance in the producer space has been absurdly negative relative to prices, so it’s not the equity market, it’s the lenders. Just stop. Gift for the oil finance world? A great big fat default to teach some discipline.

 

Canadian E&P’s – Naughty

 

Look, I know the price differential was soul-crushing and that is why so many of the Canadian E&P companies exposed to it lobbied so hard for curtailment to save the industry, jobs and quite possibly the whole freaking universe. So of course they get what they want and what do we see? Layoffs (before Christmas) and lowered capital budgets for 2019. Look, I get it, business is business, but if you’re going to cut anyway, don’t act like you are doing us a favour. Gift – higher service costs in 2019. A lump of coal. Four more years of Trudeau.

 

Environmental Movement – Naughty

 

I think the environmental movement does a lot of valuable work in drawing attention to wanton degradation of the planet, pollution, climate change, wildlife and the preservation of our encroached upon natural spaces. But when they engage in the spurious spreading of false narratives, allow themselves to be co-opted by financial, charitable and commercial special interests and allow the movement to become bigger than the job at hand there is a problem. For single-minded opposition to a relatively simple and safe pipeline shipping Canadian oil to the hypocritical demonization of the Canadian energy sector while accepting documented funding from American special interests, you get coal, lots of it, and 7,000 tankers full of bitumen dropped on your Kitsilano lawn. Plus your heat is cut off.

 

The Media – Naughty

 

I don’t think we need to over-analyze this one, but here in the North we think the media needs to really just take a deep breath and get perspective. Not everything is “the most important thing ever” and sometimes we can live with more facts and less hype. The gift for media this year? Perspective, sober second thought and a reprieve from fake news accusations from the Tweeter in Chief (see above, he got a Blackberry so it’s sure to slow things down).

 

Saudi Arabia – Nice

 

Ignoring the whole journalist fiasco, Saudi Arabia did a fine job this year being respectful of the so-called “cuts” they made to oil production in their largely self-serving goal of raising prices by stopping shooting themselves in the foot via over-production. Then they agreed to raise production to make up for Iranian sanctions and support Donald Trump’s mid-term GOP election chances, which of course helped to undo all the price-raising work they had done, because, well, the Americans didn’t sanction as much as they said they would. This of course led to the recent round of cuts, which apparently no one cares about because the US has a mythical 50 billion barrels of oil that no one wants. Keeping up? An appropriate gift in return for the old college try to keep prices steady? Future decades of high oil prices starting in 2020, 5 gold-plated Airbus 380s and a break.

 

Venezuela – Naughty

 

Has anyone been more deserving of the naughty list this year than the leadership in Venezuela? A once great South American success story reduced to a debt defaulting failed state puppet of both Russia and China. These guys don’t even deserve a lump of coal because that has at least some intrinsic value they could benefit from. They deserve to be marched out of power. To the long-suffering people of Venezuela, unfortunately we can’t give anything more than hope. But we do send that. And a coup. At this point it doesn’t really matter by who.

 

Men in General – Naughty

 

Seriously. This is a bit of a side-track, but men in general still have a ways to go as it regards interaction with women. If it isn’t payoffs to porn stars, it’s pudding pop pitchmen feeding unsuspecting victims roofies. And just mistreatment and disrespect in general. Time to grow up. Gift? A great big lump of coal. A pictorial guidebook on how to interact with women. And a gift card for lunch with Nancy Pelosi.

 

Pipeline Projects – Nice

 

Pipeline projects in general have been nice this year, especially if you measure niceness as a function of patience and calm in the face of absurd opposition. I don’t know how you can file an application for a project, spend a billion dollars, get denied for political reasons, spend another billion, become a political football, get denigrated, demonized, misrepresented and otherwise vilified for years and still be at the table with a smile on your face, ready to spend your own capital to create jobs, opportunity and prosperity for the biggest set of ingrates I’ve ever seen. Now the Federal government, sorry, all Canadians, own a pipeline and a project to help capitalize on our shared Canadian wealth and we are being subjected to the same special interest driven obstructionism. Your presents this year? Simple. A shovel. And a popular backlash against the anti-pipeline crowd. And maybe some better informed judges – especially in the United States.

 

Energy East Revivalists – Nice

 

These folks are very earnest and likable in their enthusiasm for Canada, nation buildiong and pipelines. Unfortunately they also suffer from the delusion that this massive project has a snowball’s chance in hell of being resurrected. The proponent is out. The refinery the product it was going to is out. There is no will to fight the political battle to make it happen. And ultimately it doesn’t make that much sense anyway. Get me to ports on the West Coast and the Gulf Coast and we can talk about maximizing value. Build a pipeline to the East and sell discounted oil to a New Brusnwick refinery? Sounds like a stellar plan – Trudeau the Elder called it the National Energy Program. Gift: A map of major refinery centers thirsty for heavy oil from Canada – hint, they are all south, not east.

 

François Legault – Naughty

 

Ah, the new premier of Quebec. A businessman. A conservative! A right winger! Surely he will be supportive of pipelines and be able to cut through all the hypocrisy that is Quebec’s position on Alberta oil, it’s existing refineries, the carbon and methane bomb that is the flooded James Bay that produces “clean” hydro, the massive demand for fossil fuels that drives Quebec’s economy, the resentment many in Canada feel at Quebec’s special kid-glove treatment and equalization payment buffet. Nope, sorry. Wasn’t ever going to happen. Did no one pay attention to the provincial election? He pandered to the same people everyone else did. And his statement that there is no societal case for oil pipelines in Quebec? While offensive, it is 100% true. So a gift for this gentleman? A lesson in how to say “no” without triggering a separatist movement in a province that contributes disproportionately on a per capita basis to equalization payments.

 

Vladimir Putin – Nice

 

OK, I get it, his Vladness is a despot, but has he really done anything this year to merit a spot on the naughty list? Not really, I mean aside from the whole Ukraine business. In fact, it’s arguable that his ability to control Russian oil production has been vital for the energy industry. Look, the list is all about redemption – every year is a fresh start. So for Christmas this year Vlad gets to be President of Russia for another 6 years, a couple more billion dollars in his non-existent secret bank account and a date with Ivanka. Plus a lifetime supply of tear-away t-shirts and a horse so he can do the bare-chest/bare-back thing on a moment’s notice.

 

People in Calgary and the Energy Sector in Western Canada in general – Nice

 

It’s been a long four years, or is it five? I’ve lost track. We can’t give you another boom, but I think it’s fair to say that the pieces are finally in place to allow for a recovery. Seriously, cautious optimism folks! When you’re feeling down the best place to look is up!

 

Members of the United Alberta Separatist Uprising for Energy Independence and All That Stuff Quebec Gets – Naughty

 

OK, come on people. what is this all about? What are you trying to accomplish aside from drawing attention to yourselves. Look, I get “western alienation” but this isn’t the way to solve it. I grew up in Quebec in the 1970s and 1980s when separatist fervour was actually at its peak. I lived through a real referendum on separation. I know how divisive it can be at the family and personal level. I have lost friends because of my position or their position. And Quebec is an actual distinct society, with a much better case for independence.

 

But Alberta? Really? What do you solve? Do you solve market access? No! Do you fix the differential? No! Do you reduce your taxes or change the size of the economy? No! Will you get to keep everything (like all the oil)? No! Will there be First Nations support? No! Will individual taxpayers save any money relative to what they think they pay Quebec in equalization? No! It’ll just go to the new government. Will yelling at the top of your lungs about how hard done by Alberta is engender any sympathy from people across Canada? No! All that happens is we come across as misguided crackpots and inevitably get labelled as Quebec hating racists. You want real constitutional change and a better deal from the Canadian government? I’ve got your back. Say you want to become a landlocked state with no egress solutions for all the fossil fuels we will still be selling to only one customer? Don’t waste my time.

 

Gift for these folks? An all-expenses paid trip to anywhere but here and a muzzle. We don’t need you. You aren’t contributing to the dialogue.

 

Crude Obervations Blog Readers – Nice!

 

Seriously, what did you think I was going to say? In all honesty though, all of you are the best. I love getting feedback – complementary or critical – it’s gratifying to know that people take time out of their busy lives to read my rants, so thank you for that. Your gift? I’m going to renew your subscription for another year of inane commentary on the energy market. For free! What? It’s already free? Whose dumb idea was that?

 

Prices as at December 14, 2018, (December 7, 2018)

• The price of oil rose during the week on supply concerns then fell on China weakness.
  • Storage posted a decrease
  • Production was down
  • The rig count in the US was down
• Withdrawals from storage were higher than anticipated for natural gas. Price fell…

• WTI Crude: $51.02 ($52.61)
• Western Canada Select*: $33.49 ($30.96)
• AECO Spot *: $1.59 ($1.34)
• NYMEX Gas: $3.815 ($4.525)
• US/Canadian Dollar: $0.7477 ($0.7509)

*Due to overwhelming interest, we are now including prices for Canadian commodities, in case you weren’t angry enough.

Highlights

• As at December 7, 2018, US crude oil supplies were at 442.0 million barrels, a decrease of 1.2 million barrels from the previous week and 1.0 million barrels below last year.
  • The number of days oil supply in storage is 25.5 compared to 26.1 last year at this time.
  • Production was down for the week at 11.600 million barrels per day. Production last year at the same time was 9.780 million barrels per day.
  • Imports rose from 7.219 million barrels to 7.393 million barrels per day compared to 7.363 million barrels per day last year.
  • Exports from the US fell from 3.203 million barrels per day to 2.274 million barrels per day last week compared to 1.086 million barrels per day a year ago
  • Canadian exports to the US were 3.480 million barrels a day, up from 3.472
  • Refinery inputs rose during the during the week at 17.436 million barrels per day
• As at December 7, 2018, the traditional end of injection season, US natural gas in storage was 2.914 billion cubic feet (Bcf), which is about 20% lower than the 5-year average and about 20% less than last year’s level, following an implied net withdrawal of 77 Bcf during the report week
  • Overall U.S. natural gas consumption was up 15%  during the report week as more normal weather returned
  • Production for the week was flat. Imports from Canada were up 27% from the week before. Exports to Mexico increased 2%
  • Deliveries from LNG plants for the report week were 26.2 Bcf.
• As of December 14, 2018, the Canadian rig count was 172 (AB – 124; BC – 17; SK – 29; MB – 2; Other – 2. Rig count for the same period last year was 160.
• US Onshore Oil rig count at December 14, 2018 was at 873, down 4 from the week prior.
  • Peak rig count was October 10, 2014 at 1,609
• Natural gas rigs drilling in the United States was flat at 198.
  • 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 unchanged at 23
  • Offshore peak rig count at January 1, 2015 was 55
• US split of Oil vs Gas rigs is 80%/20%, in Canada the split is 65%/35%

Drillbits

• The Government of Alberta announced they would curtail production by 325,000 barrels per day or 8.7% to narrow the differential, which snapped back by $10 on the announcement. No cuts to anything but capex budgets have been announced since. Curtailment is expected to start in January.
• Trump Watch: Michael Cohen.