Wow, has it been a year already? I guess it has, and here I sit in my office transfixed by the opening rounds of my favourite sports tournament of the year and contemplating the meaning of a day stuck between the Ides of March and St Patrick’s Day. And as always, as my basketball bracket implodes and I see all my bets wither and die, I am reminded that the big dance is also happening in the energy world and, as tradition dictates, I need to do my picks.

 

Last year was a pretty intense energy tournament and my final match up was a doozy, featuring Permania against OPEC, with OPEC winning going away after the boys from shale ran out of steam.

 

 

This of course was a fairly prescient prediction as OPEC has indeed managed to control the market somewhat and in some ways outshine Permania, at least for now. That said, in the interests of fairness, in order to properly assess my predictive chops, it is worthwhile to also take a look at my actual “basketball” picks from last year.

 

Let’s see, in my actual Final Four I picked Duke vs Arizona and Kansas vs UCLA, with UCLA beating Duke. This is instead of Gonzaga vs South Carolina and North Carolina vs Oregon and UNC beating Gonzaga for the championship. So that pretty much sums that up. I had none of the right teams and my picks were all wrong.

 

Gambler’s advice? Take my predictions with a grain of salt – please. And only rely on me for the early round wipe outs.

 

As always, this year’s players in the energy bracket are a little different than last year. The early rounds saw some interesting matches and upsets. Much of Canada as we know is officially out or relegated to the junior tournament, but familiar names such as OPEC and Russia remain and Permania – the UNLV of the energy sector is still around to shake things up.

 

So without further ado, the major themes face off against each other in an epic battle for global relevance.

 

Sweet Sixteen

 

In the first game, perennial favourite and number one seed OPEC faced off against number 16 seed Natural Gas. While there was considerable hype before the game – mainly from me – about Natural Gas’s resurgence, and they did score occasionally, they were no match for the professionalism, size and dominance displayed by the top-ranked team and defending champion.

 

In an ironic seeding, the number 2 seed, Permania, finds itself matched up against up and comer, analyst favourite and former very important concept Profit.  Profit plays an old school four corners game, very conservative and bottom line focused. Unfortunately for profit, they were no match at all for Permania and all its hype. At times it seemed like Permania didn’t actually care about Profit at all and engaged in a display of show-boating and pandering to the crowd more reminiscent of the Harlem Globetrotters than a serious team.

 

 

Storage, the number 3 seed, absolutely crushed Alternative Energy which when you think of it kind of makes sense since Storage is as we all know Alternative Energy’s nemesis. The deciding moment of the game (aside from tip-off) was at the end of the first half when Alternative Energy had nothing left in the proverbial tank and Storage went on a massive run.

 

In a rematch from last year, 13^th seeded Oilfield Services was in tough against US Production. Services had done a major rebuild since last season, significantly expanded its roster and had a massive influx of funding to support it, but at the end, it seemed like they were a year away from being a true competitor.

 

Moving to the middle of the bracket, the team rankings get closer and the upset potential that much more probable. This year’s surprise entrant into the bracket Black Swan overwhelmed 6^th seeded Russia which had no answer for the mystery team. While Russia is no doubt a strong player, the strategy of misdirection and obfuscation employed by Black Swan was baffling and the coaches had no answer. It is rumoured that the players, coaches and management of the Russia all developed radiation and nerve agent poisoning at the post game dinner. Vladimir Putin’s personal chef, who prepared the meal, had no explanation.

 

10^th ranked Infrastructure was unable to pull off an upset against the 7 seed Debt. Once an important player in the energy community, Infrastructure was plagued by an inability to finish, particularly there were a few Canadian players who were so unprepared they shouldn’t actually have showed up.

 

In a bizzaro twist, the upset of the day went to the plucky lone Canadian entry Rachel Notley who shocked Demand Growth with a last second rally. A recent transfer from Infrastructure, Rachel Notley seemed energized by the fight and went toe-to-toe with Demand Growth, ultimately outlasting the perennial tournament participant. With the reward a matchup with US Production, Rachel Notley’s run may be short lived, but at least they gained some valuable street cred by putting up a good fight.

 

The last matchup of the opening round was YUGE pitting number 8 ranked Trump against the Environment, which was ranked 9^th in a rematch of last year’s epic match.  Notwithstanding that Fox News declared this a win for Trump before the tip off, a game still needed to be played. The Green team started strong and had good support from the crowd but then the orange crush (agent orange to some) started to rain body blows onto the Environment using an inside-out game that kept the Environment so off balance that they couldn’t get their act together. Even using newly recruited Stormy Daniels as a power forward didn’t seem to rattle the Trump side, although the cheerleader squad quit en masse. Ultimately, Trump won – was there ever any doubt? Remarkably, they didn’t even cheat this year.

 

Elite Eight

 

A number of intriguing matchups in this round.

 

Another rematch here with the underdog Trump trying his shtick against defending champion OPEC. While able to use bluster, made up words and confusion to squeak past the Environment in the first round, these tactics were of no use against a more disciplined and patient opponent. This combined with inexplicable turfing of player after player mostly being replaced with cardboard cutouts of Trump with a Steak ultimately doomed the Trump team to the dustbin. Even a last ditch effort to introduce tariffs on the OPEC squad backfired. To most observers it seemed that without the energy of Rex (sexy Rexy) Tillerson in the middle the match with OPEC was doomed from the start.

 

In another highly anticipated matchup, Cinderella-story Rachel Notley (what – you prefer I say “rags to riches”?) went up against the juggernaut that is US Production. Both of these teams represent the interests of large and sophisticated oil patches but this is team Notley’s foirst time under the bright lights of the tournament. Notwithstanding an excellent effort the Rachel Notley team was overmatched and was sent home a little worse for wear but quite a bit wiser. It remains to be seen if the lessons stick.

 

On the other side of the bracket, we got to see a matchup of Storage, such a major player last year, going up against Black Swan – this year’s mystery team from a mystery conference. Notwithstanding its playoff and big game experience, Storage appeared tentative and frightened by this particular matchup given the uncertainty associated with Black Swan. Finally, all the forced errors by Storage proved unsurmountable and Black Swan won going away.  How the mighty fall when confronted by uncertainty

 

In the final match, Permania faced off against Debt. If Permania left the impression in the first round that they didn’t give a rat’s ass about profit, this round was doubly so when it came to Debt. Debt took somewhere close to 500 billion shots, but Permania was able to somehow keep pace. Lots of ebbs and flows to the game but each time Debt seemed to come close to taking Permania down, Permania had an answer. When the dust settled, Permania came out ahead, barely. I rather suspect that sometime soon the highly aggressive Debt is going to have Permania’s number, and will call. Better luck next year.

 

Final Four

 

In the opening game of this round, Permania found itself matched up against Black Swan. In a matchup of hype versus the unknown you had to know all bets were off. Far from the free for all, show time feel of the early rounds, Permania, much like storage before, seemed tentative in the early parts of the game as if the confidence was too thin and too easily shaken. Black Swan attacked in a quiet inexorable fashion – like an incoming tide. Eventually this steadfastness broke the previously unbreakable as Permania wavered, sprang a leak and then completely let go. Discipline was gone, and things quickly devolved into mass chaos and anarchy. Permania was done in by its hubris, its lack of profit, its disregard for debt and, ultimately, the dreaded Black Swan. Still not sure what Balck Swan’s secret weapon was, although it is theorized that is has to do with tariffs.

 

In the second match, top seeded OPEC took on emerging power US Production, but it quickly became apparent that OPEC was far superior, both in terms of its quality and the quantity of its reserves. In the same domineering style that it demonstrated last year on its championship march, OPEC demonstrated strength, resolve and discipline that US production just couldn’t match, especially when it became apparent that its best player LTO was too light for the inside presence of the OPEC heavies.

 

Championship

 

OPEC vs Black Swan. This game was truly a clash of titans, with OPEC the favourite coming up against the mysterious Black Swan which has grown in prominence and stature with each game. True to form, OPEC raced out to a massive lead in the first half but as the second half started, the classic Black Swan advancing tide started to make itself felt and OPEC faltered. As victory seemed to slip from its grasp, OPEC began desperately looking for a saviour on its suddenly thin bench. Russia of course by now had eliminated all its players so they were no use, Trump had moved on to bigger, yuger, stupendous things (he knows the best things) and natural gas was long gone from the tourney. Sensing a need for fresh blood, OPEC called on Notley to see if she could get Oilsands to help, to which she agreed subject to three pipelines, one petrochemical project and a co-investment in carbon capture and storage. At press time, OPEC had managed to tie the game thanks to its infusion of fresh blood and was headed to overtime. Black Swan didn’t care. It can wait, it has all the time in the world. The game will take a while to play out  but I suspect that when the fog clears, Black Swan wins. It’s inevitable.

 

So there you have it – agree or disagree, it’s hard to argue that the metaphor got taken behind the proverbial woodshed and beaten to death.

 

Oh yeah, Final 4 – University of Virginia v Xavier and Villanova v Duke. UVA over Villanova. Done like dinner. Go Cavaliers. Go Charlottesville.

 

 

Prices as at March 16, 2018 (March 9, 2018)

• The price of oil rose was pretty flat during the week on a not so bullish/mixed storage report.
  • Storage posted a big increase but finished products had a massive draw
  • Production was up marginally
  • The rig count in the US was mixed
• After a smaller than expected withdrawal, natural gas remained in the doldrums – expect continued volatility…

 

• WTI Crude: $62.22 ($62.04)
• Nymex Gas: $2.694 ($2.730)
• US/Canadian Dollar: $0.7636 ($ 0.7804) – just in time for Spring Break, thanks a lot Bank of Canada!

Highlights

• As at March 9, 2018, US crude oil supplies were at 430.9 million barrels, an increase of 5.0 million barrels from the previous week and 97.2 million barrels below last year.
  • The number of days oil supply in storage was 26.9 behind last year’s 34.1.
  • Production was up for the week by 12,000 barrels a day at 10.381 million barrels per day. Production last year at the same time was 9.109 million barrels per day. The change in production this week came from a decrease in Alaska deliveries and a slight increase in Lower 48 production.
  • Imports fell from 8.003 million barrels a day to 7.585 compared to 7.405 million barrels per day last year.
  • Exports from the US fell to 1.487 million barrels a day from 1.498 last week and 0.717 a year ago
  • Canadian exports to the US were 3.098 million barrels a day, down from 3.442
  • Refinery inputs were up during the week at 16.367 million barrels a day
• As at March 9 2018, US natural gas in storage was 1.532 billion cubic feet (Bcf), which is 16% lower than the 5-year average and about 32% less than last year’s level, following an implied net withdrawal of 93 Bcf during the report week
  • Overall U.S. natural gas consumption was up 5% during the report week, influenced by weather
  • Production for the week was flat. Imports from Canada were up 13% compared to the week before. Exports to Mexico fell 1%.
  • LNG exports totalled 14.8 Bcf.
• As of March 12 the Canadian rig count was 246 – 173 Alberta, 6 BC, 62 Saskatchewan, 4 Manitoba and 1 elsewhere. Rig count for the same period last year was about 270. Warm weather may have impacted activity levels.
• US Onshore Oil rig count at March 16, 2018 was at 800, 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 1 at 189.
  • 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 13
  • 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%

 

Drillbits

• In an escalation of an already escalating war of words over the TransMoutain Expansion, the Alberta government stated that they wouldn’t raise the carbon tax to match Federal levels unless the pipeline moves forward and, you know, has some oil flowing through it
• Kinder Morgan has been granted an indefinite injunction against protestors blocking tow of its construction sites but the judge is allowing a structure called “Camp Cloud” to remain, which will of course serve as a rallying point and gathering place for protestors and for a structure called the Watch House, recently erected on the pipeline right of way, to remain. Sure sounds safe to me. This should all end well.
• It was announced that Doug Suttles, CEO of Encana was relocating to Denver for “personal reasons” but that this was not a precursor to moving the Canadian company there as well. We shall see. If the reason rhymes with “snacks”, we may have a problem. Otherwise, I am inclined to take them at their word.
• Trump Watch: Tillerson out. Son getting divorced. Trump Organization subpoena’d. Just another week at the office.