A bit of a sidetrack from the energy sector this week as I contemplate a question that was asked of me the other day and is being asked with increasing frequency across the United States, Canada and the rest of the world, in particular after this past week’s “Super-Tuesday” primaries where both Hillary Clinton and Donald Drumpf appeared to tighten their grips on their respective nominations.

 

“Can Drumpf win and what happens if he does?”

 

So let’s separate this into two different but similar tracks, the first being about the nomination and the second being about the presidency.

 

Can Drumpf win the nomination?

 

Drumpf can definitely win the nomination. His path there is going to be difficult – now that the Republican establishment has woken up in a collective cold sweat to the fact that there is almost unstoppable momentum in the Drumpf train and that the “cast of thousands” candidate slate that created this monster is still carving up the oppositional vote, so the resources to defeat him are being brought to bear.

 

The goal is simple – wake people up to what they are voting for, mobilize forces to support the other candidates and hopefully win a few of the more populous states and move this whole shlomozzle to the convention floor in July where hopefully you can have a contested nomination and defeat him.

 

From Super PACs spending millions of dollars on negative advertising to events such as we saw on Thursday when Mitt Romney launched a withering attack on Drumpf’s character, business acumen and fitness to be president, that machine is in motion. This was further evidenced by the further descent into theatre of the absurd in the debate last night which featured schoolyard bullying, obfuscation, tantrums and references to manliness and hand size.

 

This is no guarantee of success, but it is, at this late stage, the only way to stop his candidacy.

 

But from where I sit, regardless of whether Drumpf wins or not, the Republican Party as we know it appears hopelessly fractured and destined to at least two if not three election cycles in the wilderness if it even survives at all.

 

It is, to use a technical term, a dumpster fire.

 

Follow the logic here – a Drumpf win chases moderate Republicans and Independents to the Democrats. This elects Hillary, likely by a wide margin, but only after a horrifically divisive and toxic campaign. Hilary serves one term and clears the path for the next generation of Democrat leaders to run in four years and take advantage of a split Republican party – they may never get the feet under them again. At the same time, the House and Senate both turn Democrat as voters align themselves with the winning party if only to keep a seat at the table.

 

The alternative is that Drumpf gets squeezed by the party and a more “palatable” (read – selected by the backroom powerbrokers) candidate gets the nomination. This candidate may or may not poll well against Hillary, but the “Drumpf” bloc will have been marginalized and may never show up to vote (if they were ever going to) or, more likely, splits off into some nativist, populist right wing third party – a home for the disaffected, the fanatical, the marginalized and the just plain weird.

 

This is nothing that we haven’t seen in Canada where the parties on the right are in a constant state of covert pandering to the fringe all the while trying to come back to the middle to eke out majorities in an increasingly centrist population, the only difference is that in Canada it plays out much more quietly. Note that in Canada, conveniently, we see the same thing happen on the left. The end result is a Goldilocks government that is forever driving up the middle of the road, afraid to pass or pull over. But the comparison doesn’t end there, because the result is often spectacular blow-ups on the right side of the spectrum, as happened with the Federal conservatives after Mulroney and what happened in Alberta in 2015.

 

Can Donald Drumpf win the presidency?

 

Under the right set of circumstances, anything is possible. One school of thought holds that Hillary has so much baggage there is no way she can win against the vitriolic, insult-hurling, hate-spewing gas bag that is Drumpf. That said, the Clinton camp is deep, with a lot of campaign experience and support and, at the end of the day, it would be foolish to underestimate a Clinton.

 

All in all, from a historical perspective, it would be a cage match that would be an awesome spectacle to watch.

 

But, no, I do not think he can win. But I also thought Denver had zero chance in the Super Bowl.

 

What if he does win? What then?

 

Well, since this is an “energy” update, I am going to skip any commentary about trampling the First Amendment, freedom of the press, freedom of religion, walls in Mexico, anti-immigrant policies, virulent anti-muslim policies, pro-torture positions and lack of any discernible knowledge of or respect for international law.

 

Instead, let’s answer Canada’s energy industry question – “what’s in it for me?”

 

Well first off, he has indicated that Keystone XL will be approved, which is a good thing.

 

Presumably he would be in favour of increased oil and gas development in the lower 48 and in coastal regions that don’t have Drumpf hotels, so that would be a positive for general levels of activity although it might serve to keep prices lower. One would imagine that given his rhetoric about trade balances, being energy self-sufficient will matter and since, as we have discussed previously, when Americans talk about energy independence they include Canada, this should be a net benefit.

 

On the other hand, it would appear that he considers long-standing trade agreements like NAFTA as mere suggestions rather than binding legal agreements, although it is not clear that he considers or knows that Canada is a party to it. Perhaps the answer is that we should expect random interpretations of trade deals, with arbitrary decision-making most likely to benefit something Trumpy and/or energy development, unless it’s in Mexico, then a tariff gets collected at the wall.

 

As it regards climate change or carbon, I am actually not sure Drumpf has ever specified any policy there. There was some tweet where he suggested climate change was a Chinese conspiracy, but …

 

Given the amount of hot air he expels however, I am certain he is not in favour of a carbon tax.

 

So, on the surface, maybe (????) a net positive for the energy industry, if only because of a pipeline. In exchange, we have to live for four years with an unpredictable lunatic.

 

There really is no point sugar-coating it, is there.

 

Donald Drumpf is a master showman and a carnival barker who appeals to everything that is base and wrong in a specific section of an alienated, malcontent and disenfranchised electorate.

 

He has zero policy depth or understanding of social, fiscal, bilateral or international issues. He is not versed in the functioning of a modern democracy or government and doesn’t appear to care about much aside from himself and his Trumpness. He is making a mockery of the process to be elected to and the dignity of the office of the “leader of the free world” and it is frightening. From the outside looking in? He doesn’t love the United States, he loves himself, this is the “most important job in the world” so of course he must have it. It’s a hostile takeover and no one has the right playbook on how to stop it.

 

I guess from the cheap seats (especially here in Canada) all we can do is sit and watch events unfold as they will.

 

However, even NASCAR races eventually end.

 

Prices as at March 4, 2016 (February 26, 2016)

• The price of oil ended the week up
  • Storage was up significantly, finished product inventories remain high as refinery turnaround season is in force
  • Production was down
  • Markets continue to be influenced by the storage story.
  • The rig count decreased
  • The market is anticipating eventual OPEC action
• Natural gas fell during the week on warmer weather, low draws and high storage.

• WTI Crude: $35.85 ($32.98)
• Nymex Gas: $1.674 ($1.787)
• US/Canadian Dollar: $0.7398 ($ 0.7398)

 

Highlights

• As at February 26, 2016, US crude oil supplies were at 518.0 million barrels, an increase of 10.4 million barrels from the previous week and 73.6 million barrels ahead of last year.
  • The number of days oil supply in storage was 32.9, ahead of last year’s 29.0.
  • Production declined for the sixth consecutive week and was down to 9.077 million barrels per day. Production last year at the same time was 9.324 million barrels per day. The decrease in production this week came from the Lower 48.
  • Imports continued at elevated levels during the week exacerbating the storage issue
• As at February 26, 2016, US natural gas in storage was 2,536 billion cubic feet (Bcf), which is 36% above the 5-year average and about 46% higher than last year’s level, following an implied net withdrawal of 48 Bcf during the report week.
  • Overall U.S. natural gas consumption increased by 2.0% for the period led by residential and power consumption
  • It is hoped that a warmer summer and low gas prices will increade demand for power generation and draw down inventories in the summer months.
• Oil rig count at March 4 was down to 392 from 400 the week prior.
  • Rig count at January 1, 2015 was 1,482
• Natural gas rigs drilling in the United States was down to 97 from 102.
  • Rig count at January 1, 2015 was 328
• The continuing massive decline in U.S. rig counts continues to be a somewhat overlooked story given all of the OPEC related noise
• As of February 29, the Canadian rig count was at 140 (20% utilization), 88 Alberta (19%), 31 BC (38%), 21 Saskatchewan (17%), 0 Manitoba (0%)). Utilization for the same period last year was about 40%.
• Offshore rig count was down to 24
  • Offshore rig count at January 1, 2015 was 55
• US split of Oil vs Gas rigs is 80%/20%, in Canada the split is 40%/60%

 

Drillbits

• More companies reported their Q4 and full year 2015 numbers. Of note with many of these companies is the significant declines in capex. Many are reporting and projecting lower production numbers year over year in a sign that low prices are finally forcing production declines
  •  TORC reported cash flow of $34 million for Q4 and $133 for 2015 compared to $42 and $189 million in the same periods last year. Net loss for the quarter and year was $90 million and $176 million respectively. Capex for 2016 is expected to be $90 million
  • Baytex delivered funds from operations of $93.1 million for Q4 and $516 million for the year compared to $105 and $880 million in the same periods last year. Net loss for the quarter and year was $413 million and $1,134 million respectively. Capex for 2016 is expected to be $225 to $265 million, mostly invested in the Eagle Ford.
  • CNRL reported funds from operations of $1,379 million for Q4 and $5,785 million for the year compared to $2,368 and $9,587 million in the same periods last year. Net income for the quarter and year was $131 million and ($637) million respectively. Capex for 2016 is expected to be $3.5 to $3.9 billion.
  • Peyto Exploration reported funds from operations of $151 million for Q4 and $565 million for the year compared to $173 and $663 million in the same periods last year. Net income for the quarter and year was $43 million and $138 million respectively. Capex for 2016 is expected to be $500 to $550 million.
  • Gibsons annouced fiscal 2015 EBITDA of $386 million compared to $453 million for fiscal 2014
  • Calfrac announced plans to cut 500 jobs
  • Repsol announced plans to cut 10% to 15% of its Canadian workforce
• RIP – On Wednesday, March 2, the energy sector lost a pioneer, as Aubrey McClendon passed away after a car accident. While more recently known for bid-rigging charges brought against him by the US government and one of the world’s priciest divorces, Aubrey McClendon was a pioneer of the “fracing” movement, and Chesapeake Energy, the company he founded and ran until his ouster in 2013 was the primary driver in the rapid growth of shale gas in the continental United States. While the circumstances of his death remain cloudy given his indictment just the day before, the energy world has lost a major influencer
• Quebec announced it was seeking an injunction against the Energy East pipeline project to ensure it was able to complete a full envirnmental review. After the predictable reaction, the mood calmed down somewhat
• The provinces and federal government convened in Vancouver to discuss carbon pricing and just how the heck they are going to meet the Paris commitments. In a true cooperative fashion of “getting it done”, they kicked the can down the road to September, agreed provinces should set their own targets and said notionally that a $15 per tonne target seemed OK.
• Drumpf Watch – Oy.