Ah, the first of May. First official day of Spring here in Calgary BTW, at least until it snows in a week or two (I kid you not). It is also officially day 2379 of our Covid19 induced self-isolation, which is rapidly just becoming the new normal – a kind of extended summer vacation where no one is around, mystery people ride bikes up and down our streets and my recent addiction to ripple potato chips conspires to rob me of any weight loss benefit of all this self-isolating eating.

 

Also worthy of note – today is the day that Georgia and Texas reopen for business. That’ll be an interesting social experiment. Neither state is seeing any appreciable overall progress on the virus front, but both have Republican governors who are feeling the pressure of the reopen crew and the Donald Drumpf administration, although the White House isn’t explicitly endorsing the reopen.

 

Today is also the first day that the service market for the reclamation of abandoned wells starts doling out cash. Service companies with real contracts in place with producers can, as of May 1, apply to the government through a brand new online portal to access funds from the first tranche of $100 million to execute these contracts and, in theory, start the greening of Alberta. What could possibly go wrong!

 

Next up on the list of May hits is this coming Monday where you can expect no less than 2,134 “May the 4^th Be With You” memes on Social Media, including at least one Baby Yoda saying “Be With You the 4^th May Be”.

 

Last on the hit parade for the first week of May is of course Cinqo de Maio, the US celebrated Mexican holiday that, it seems to me, probably has a higher likelihood of prolonging the pandemic than opening up a couple of drive thrus in Texas.

 

But really,  I’m here for “May Day” and to me, May Day means three separate things. The first is the subversion of International Worker’s Day into the obsequious  celebration of the Soviet Union and grandiose parades in honour of the great (failed) socialist experiment. The second May Day is of course the distress call. The last May Day that comes to mind is my glorious May Day tree outside of my house whose leaves occasionally come out this time of year signifying rebirth, spring, flowers, pollen and hope (plus raging allergies that people will no doubt confuse with Corona symptoms). And yes, I know that May Day is a big deal in Europe.

 

And thinking about May Days, May 1 and current events, it comes to mind that many of these can be ranked or rated according to the three May Days referred to above which I will hereinafter refer to as The Iron Fist of Government, Distress and Sign of Hope.

 

Not sure how this is going to work? Neither am I, but let’s give it a go. At least I’m wearing pants and a collared shirt. Means I’m legit.

 

Notwithstanding a less that expected product build last week (reduction in production will do that), the US light tight oil market continues its slow downward spiral. While I heard rumours North Dakota added a rig and Conoco is brazenly saying its going to acquire assets, the reality on the ground is that oil pricing is a dumpster fire, storage is filling up and consumption cannot recover fast enough to stop the carnage. Even with Drumpf promising an aid package to the beleaguered sector, the damage is done. $43 billion in high yield debt comes due in 2020. Who’s going to refinance that nut? Answer – DIP financing. May Day rating? Distress!

 

I read that in Ottawa, the municipal government has been particularly tone deaf, supposedly banning  socially distanced driveway pints and, inexplicably, banning but then reinstating the practice of people doing window visits with their senior relatives at care facilities. May Day rating? The Iron Fist of Government.

 

Alright, on a roll. Canadian energy services sector. Notwithstanding a more aggressive than acknowledged support package and the aforementioned orphan well program kickoff, the Canadian energy services sector is facing a perfect storm of collapsing capex, low prices, a liquidity crunch and, if work ever starts again, the prospect of being ground on rates for years. As an exercize on a call today, I looked at a bunch of publicly traded service companies (which I rarely do by the way) and what I saw was pretty grim. May Day rating? Distress.

 

After last week’s debacles and bleach drinking recommendations, the Donald Drumpf pandemic briefings (which were cancelled for a total of about 6 hours over the weekend) have gone back to the whining and complaining blather fests that they were prior to him recommending people hurt themselves. Even more interesting, all the major networks, with the exception of Fox, have decided that they will no longer air these. May Day rating? Sign of Hope.

 

Drumpf has used the powers of the Defense Production Act to order meat packing plants dealing with COVID19 outbreaks and reduced demand to reopen lest a shortage of meat products roll across the country and make the toilet paper hoarding of March 2020 look like a kitten fight. May Day rating? This one is hard. Probably a combination of Distress and Iron Fist.

 

The unemployment rate is in excess of 13% across most of North America. Capital is frozen and there is little sign of any of this easing in the near term. The US economy contracted by a 5% annualized rate in Q1, which was ironically not as bad as the market expected. But it’s bad, right? It’s all bad. Q2 is going to a total disaster. Most of us are insulated in our home office bubbles, but it feels like the economy is starting to come apart at the seams. Supply chains are stressed, demand is lousy, the subsistence economy isn’t enough to sustain things and governments are running out of money and ideas. In Canada, the Federal deficit alone is going to be 25% of GDP. May Day rating? Distress!

 

The S&P 500 finished April on the biggest percent winning streak in history, posting a 17% gain. I suppose like many I was able to participate in this gain, mainly because I stopped looking at my portfolio when oil prices collapsed so it is highly likely I got some kind of lift. May Day rating? Sign of Hope!

 

Canadian Oil industry. Ah, what to make of these guys, right? Will they suffer the fate of their American brethren in the dusty oilfields of Texas or will it be worse? To read the local papers and the more ranty side of social media, you would think that the entire energy industry in Canada is finished. One article I read actually wondered “what if the industry dies?” What? I mean seriously. What?!?!?!? Who writes that kind of nonsense. The “industry” isn’t going to die. And it isn’t going to die if the Federal government doesn’t bail out the larger players (hint – they are going to help eventually). The energy industry is in the grips of a price, demand and liquidity crisis. But they are still producing close to 4 mm barrels of oil a day, multiple spreads are working on the TransMountain Expansion and Line 3 Replacement project as I write this. Canada’s heavy oil is in demand at refineries that can turn it into multiple products aside from gasoline. Our operators are efficient and our decline rates are the envy of the producing world. Let’s all dial down the rhetoric for just a bit and absorb the implications of the light tight oil collapse in the United States for Canadian energy. Deep breath… Got it? Good. Now look 3, 6 and 12 months out. We have a liquidity crisis now, but it is nothing compared to the wave of defaults coming in the United States. Canada will be OK in the long run. May Day rating? Sign of hope.

 

Natural gas has been quite quiet during this pandemic. Working away in the background, powering electrical generation and keeping the lights on so that we can all  binge Netflix and Prime (not that weird Apple TV thing), firing up gas cooktops and grills so we can cook non-shortage meat and in general holding steady at low but stable prices. With the crash in LTO, a lot of associated gas is coming out of the market and rigs are being idled in the Marcellus. And so far, LNG Canada and Coastal Gas Link are continuing (no jinxies please). These are all silent silver linings for a much-maligned commodity. May Day rating? Sign of Hope.

 

Ah the Environment, what is one to make of the environment? Surely this pause in industrial and economic activity has had some impact? You would have to be a pretty inept Twitter junkie to not notice all the nifty pictures of Los Angeles with no smog, clear waters in the Venetian lagoons and anecdotes about wildlife taking over vast swaths of urban North America (#wearethevirus). I have read that it is expected that the current lockdown will result in a 5% reduction in global CO2 emissions in 2020. Not enough say the environmentalists! We need to do more and shut everything down or the world is going to burn to the ground by 2100. We’re never going to meet our Paris targets! Government intervention is needed! First, government no longer has the power to intervene – they are too busy throwing money at a pandemic to help as many of the at-risk people as they can to survive. Capital markets and price will determine where energy comes from in the years to come (hint – fossil fuels and renewables). Second, we have seen what a partial shut down of the economy looks like, do we really think it waise to double down? Third and final, and pardon me for pointing out the obvious – we are going to record an at least 5% reduction in global emissions in 2020 which is likely to continue for several years. This will be the first time this scale of reduction HAS EVER HAPPENED. Is this not a good thing? Even if it’s not “enough”? May Day rating? Sign of hope.

 

Politics, which had taken a back seat for the early stages of the pandemic, has started to descend into a weird morass of partisanship of late in Canada. The Conservative Party of Canada decided to fight a battle about whether Parliament needed to sit virtually or not, has spent weeks sniping at Trudeau playing dog-whistle politics against China and has of late reactivated its leadership contest which is a three way battle between a buffoon, an authoritarian and a racist. As I have read in many publications, the long journey to third party status usually begins by ignoring the world around you and tripping over your own tie down the stairs. The Liberals of course have sensed this weakness and have elected to jam their progressive mandate through the non-meeting Parliament, especially now that they have learned that Michele Rempel in in Oklahoma with her husband’s family. I had thought late in 2019 that the Liberals might be headed for a short stint as a minority government and needed help to survive. I now think they will force an election after the US election and cruise to a historic majority. May Day rating? Iron Fist.

 

Not to be outdone, the United States is a similar cess-pool of partisan warfare as the blue and red states separate themselves in their pandemic response, the Administration plays favorites and armed mobs invade legislatures under the guise of protest and no one has the cojones to call them what they are – insurrectionists and terrorists. All these fringe groups protesting lockdown orders and walking around armed to the teeth at the seats of legitimate government share just a couple of notable things in common. They are predominantly male and almost exclusively white. This is how civil unrest takes hold. I would not fault any state governor for calling out the National Guard to deal with these morons. May Day rating? Distress.

 

Most of the people I talk to have remained healthy during the pandemic and associated lockdown. This includes physicians, field workers, construction workers, professional service robots, random people 6 feet away from me on the street, family both immediate and distant, twitter followers, the Tuesday coffee crew and more. This means we are doing things right, we are staying clean and following guidance of medical professionals and not the kooks and lunatics. May Day rating? Sign of hope!

 

I hear that in many places across the world there is an excess supply of potatoes, specifically potatoes genetically engineered to be longer so they can be used to make French fries, or freedom fries or Corona Fries. This is due to the widespread closure of restaurants, more people cooking at home and a distressing lack of deep fryer panic purchases amongst the bread maker, flour, yeast, baking powder, toilet paper and paper towel hoarding crew. The appalling lack of quality frozen French fry options is also a major culprit. Ironically, sales of potato chips is up 23% compared to last year. How bad is it for the genetically modified potato storage people? Well in Belgium, they have asked their citizens to have French fries twice a week. First, I love their government. Second, pass the vinegar. May Day rating? Sign of hope.

 

Recent articles on the treatment front have suggested that Remdisivir, a drug developed to treat other diseases has shown signs of promise in the treatment and shortening of COVID10 so its use is being fast tracked for use by the FDA and, I imagine, other countries’ regulatory bodies (right Canada?). In addition, the race to develop a vaccine is moving ahead at breakneck speed with one of the promising new vaccines developed by scientists in Oxford, England already moving to human trials. New tests and tracing systems are being rolled out on a regular basis and eventually, it is hoped, a home test that doesn’t involve stabbing your brain with a six inch Q-tip can be developed to allow people to self-monitor. May Day rating? Sign of Hope.

 

Finally, provinces and states are coming out with their plans to gradually reopen their economies. While some, such as the aforementioned Texas and the like, are doing the basic rip the bandaid approach, others are taking a more measured tack. Heer in Alberta, we stared by allowing golf. Because why not. Anecdotal evidence suggested that many people interpreted that as saying “restaurants” so there have been reports of several opening up to patrons. Don’t do that people. Take your time. The extra week isn’t going to kill you, but being dumb could kill others. At any rate, by May 14, Albertans will be allowed to go for lunch at a 50% capacity restaurant (which will be awesome for restaurateurs because before the pandemic, the downturn-caused crowd was averaging 33%). In addition, hairstylists and barbers will be allowed to get rich. And of course, THERE WILL BE GOLF! May Day rating? Sign of Hope. Unless idiots wreck it for everyone. Then we’re back to the Iron Fist of Government.

 

So overall, way more signs of hope right? And my May Day tree pretty much has leaves. So I am content.

 

Office Cat Week 8

 

Missed him last week in my write-up. He is visiting less and less. I don’t think he likes that I am on the phone so much. I’ll survive. I guess. Sigh. (May Day rating – distress!).

 

Stormont Capital Crude Coffee

 

We had the second edition of this last Tuesday at 10 AM and it was another great conversation and included further dialogue about the oil and gas support program, an update on the Calgary real estate market (May Day rating – distress!) and an eye opening overview of the challenges facing the arts through an update on Theatre Calgary. I note that museums and galleries are allowed to reopen in the first phase of the reopening strategy, which is cool, and unexpected (sorry UCP, but it’s not really your style).

 

This week I promise to have another interesting headline guest who isn’t me, although I reserve the right to rant about stuff that bugs me, just because.

 

As always, if you want to participate, please email me and I will add you to the roster.

 

Stay safe. Wash hands. Be kind.

 

Prices as at May 1, 2020

• Oil prices
  • Oil storage was up (no kidding!)
  • Production was down
  • OPEC+++++ cuts starting
• Natural Gas
  • Storage was up, historically very high; consumption down; production flat; exports flat.

• WTI Crude: $17.31 ($17.31)
• Western Canada Select: $8.76 ($8.76)
• AECO Spot: $1.74 ($1.74)
• NYMEX Gas: $1.75 ($1.75)
• US/Canadian Dollar: $0.7092 ($0.7092)

 

Highlights

• As at April 24, 2020, US crude oil supplies were at 527.6 million barrels, an increase of 10.0 million barrels from the previous week and a increase of 57.1 million barrels from last year.
  • The number of days oil supply in storage is 41.0 which is 12.1 above last year at this time.
  • Production was down 100k for the week at 12.100 million barrels per day. Production last year at the same time was 12.300 million barrels per day.
  • Imports rose to 5.302 million barrels from 4.937 million barrels per day compared to 7.414 million barrels per day last year.
  • Crude exports from the US rose to 3.230 million barrels per day from 2.937 million barrels per day last week compared to 2.611 million barrels per day a year ago
  • Canadian exports to the US fell to 3.104 million barrels a day from 3.307 million barrels per day last week
  • Refinery inputs increased during the week to 12.761 million barrels per day
• As at April 24, 2020, US natural gas in storage was 2,210 billion cubic feet (Bcf), which is 19% above the 5-year average and about 55% higher than last year’s level, following an implied net injection of 70 Bcf during the report week
  • Overall U.S. natural gas consumption fell by 3.8% during the report week.
  • Production was down 1% for the week. Imports from Canada fell 12% from the week before. Exports to Mexico were up 3%.
  • LNG exports totaled 39 Bcf
• As of May 1, 2020, the Canadian rig count increased 1 to 27 (AB – 16; BC – 7; SK – 2; MB – 0; Other – 2). Rig count for the same period last year was 58.
• US Onshore Oil rig count at May 1, 2020 is at 325, down 53 from the week prior.
  • Peak rig count was October 10, 2014 at 1,609
• Natural gas rigs drilling in the United States is down 4 at 81.
  • 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 down 1 at 16.
  • Offshore peak rig count at January 1, 2015 was 55

US split of Oil vs Gas rigs is 86%/14%, in Canada the split is 66%/34%

 

Drumpf Watch: No news conference. China did it!.

Kenney Watch (new!): Fine. You can golf. Sheesh.

Trudeau Watch (for balance): No more guns!