One of the impacts that the COVID-19 pandemic is having on business is that many initiatives that companies had under way get shelved or put aside in the immediacy of the moment. What is a long term investment in the future of a business may seem a luxury when faced with the sudden need to establish work from home protocols, ensure your virtual presence is seamless and also help clients and prospects understand and navigate a volatile and frightening environment.
That said, time passes and soon enough people adapt and remember that the long term plans for their business are just as important as the short term ones.
For Stormont, these plans have been in motion for some time now and revolve around a milestone that is worthy of celebration, albeit muted in this time of uncertainty. Specifically, our 10th anniversary of operation.
For those who don’t know, Stormont was founded in the summer of 2009 by my partner Dave Munro. Yes, I know, another time of economic anxiety.
At any rate, Stormont Energy Advisors raison d’etre then as it is now was to bring big firm M&A and Corporate Finance expertise to an underserved private mid-market energy service and related industrial space, underpinned by an operationally-informed deep domain expertise that was unique in our space.
As 2009 progressed, Dave recruited me to assist on a complex financing assignment and then in early 2010 I bought into the firm and its been a great ride ever since.
Which of course means that we are in our 10th year of corporate existence and, sometime during this whole pandemic, the actual 10th anniversary of our partnership has actually happened.
Mindful of this last September, we started to pursue a variety of initiatives related to this upcoming anniversary that we felt would properly reflect and commemorate what we believe to be a pretty significant achievement for us both professionally and personally.
As we deliberated on what we wanted to do, we had occasion to reflect back on how our business has evolved over the past decade and the many clients we have served and the people we have met. We also had many discussions about where we wanted to take the firm strategically as we prepared for the next decade. As we did this, several things struck us and informed our decision-making.
One of the first things we noted as we started this exercise was that the nature of our clients had significantly evolved over the arc of that ten-year period. Starting from pure upstream-focused oil field service companies, we have increasingly taken on what can only be described a second and third derivative energy related transactions as well as assignments related to other industrial sectors more traditionally associated with the general economy.
In addition to the preceding, since 2015 and the first oil price crash, we had been wrestling with a strategic dilemma, specifically how to grow our business in a challenging market environment. As we thought through it we realized that we had basically two options which for want of more erudite terms we called the North-South and the East-West strategies (we are corporate finance people, not corporate communications after all).
The North-South strategy was predicated on the fact that we have this deep domain expertise in the energy services space and that we could grow our business through an expansion into the much larger US market, which of course made sense as we saw increasing levels of engagement with US private equity on buy-side assignments, Canadian firms looking to expand south and a robust M&A market (at the time).
The east-west strategy was based on a belief that in true matrix fashion we were Corporate Finance and M&A experts first and our domain expertise was a value-add to our clients and was, in fact, much broader than just an energy services vertical, informed as it has been by our collective 50 years of transaction experience. In addition, as mentioned before, our client base was evolving into all these related industrial and economic sectors, so under this approach, as long as we stayed true to our industrial, business to business roots, we would be able to deliver our services to a much broader market and diversify away some of the risk associated with being a pure play “energy” advisor without losing our soul, so to speak. This last part was of course critical, as we believe we have established a reputation for Stormont in the energy services space that punches well above our weight class.
Ultimately, we agreed that the East-West strategy made the most sense for us and for Stormont. It allows us to have the best of all worlds – execution capability across a broad range of industries with a reputation for domain expertise honed over a decade of executing M&A and corporate finance assignments in our volatile and wacky energy services world.
Which of course brings me back to the 10th anniversary conundrum and the title of this blog – what’s in a name. What do we call this new direction and how do we make sure we have continuity.
We have long known that Stormont is the brand and “energy advisors” is just a description so the decision we ultimately made, which was to drop “energy advisors” from the name, was relatively easy. It is easier for the market to understand, we build further on the legacy of the Stormont name, we can stop confusing clients who aren’t in an energy-related space.
After much arm-wrestling and mocked up designs, we settled on Stormont Capital as the new name and amended our logo to reflect this, ultimately including the word “advisors” again because, well, it looked better and as we discovered through this process, even incremental change is hard.
In its simplest form, when you get down to it, Capital is really what we do – we match capital to opportunity. Regardless of industry, whether it is financing a business, selling a business or buying a business, capital is the unifying factor.
And Stormont is who we are.
That is why, effective now, we are Stormont Capital Advisors. Stormont for short.
Of course, it’s never that simple, there are websites to revise, business cards to print (will people still use those?) and clients and stakeholders to inform. So the roll-out and transition is going to take some time, but we are impatient and wanted to get it done. So here we are.
One thing that won’t change of course is Crude Observations, you can rest assured of that. Too much fun is wrapped up in that and as regular readers know, while it has and will continue to have an energy bias, there is no shyness in addressing other relevant topics. Think of all the stuff I can write about now!
Alright. I’m glad that’s over. On to the other topic of the day.
Earlier today, the Federal Government finally announced the broad-brush outline of the first stage of their energy sector support package and, at first blush, it’s a good and not unexpected first step.
The gist of the announcement is as follows:
- $1.7 billion towards the cleanup of abandoned and orphaned wells in Alberta, BC and Saskatchewan
- $750 million in funds for projects that reduce or mitigate methane emissions including $75 million targeted at offshore projects in Newfoundland
- Certain undetermined credit support for mid-sized producers
- BDC support for small and medium sized energy sector participants
While falling far short of the scale desired by the oil patch and deliberately ignoring the pleas for reduced regulation and the suspension of the carbon tax, this is targeted relief that also stays consistent with federal environmental goals. Not to mention it being well in excess of the dollar amount previously requested by ex-Alberta Premier Rachel Notley and current Premier Jason Kenney as well as Scott Moe of Saskatchewan.
Naysayers will of course say this the federal government assuming liabilities that should be to the account of energy companies and they would be right. But. These liabilities are both physical and financial and in a world where even well-capitalized companies could see themselves swept under due to price fluctuations, the prospect of these legacy wells being cleaned up in any significant measure over what was currently happening is remote. As someone who is acquainted with the costs to clean up abandoned wells, I can assure you that $1.7 billion buys you a lot of cleanup – the actual job numbers may be on the low side.
From a producer standpoint, moving these liabilities off-balance sheet will buy them goodwill with their creditors and relieve some of the covenant pressure they are feeling and could in theory allow them to access more capital.
So that’s two wins for producers for the price of one for the environment, which I guess is pretty good.
From the service sector perspective, it’s a decent plan because it provides jobs, but as this is highly specialized work, it is really only to one subsector.
I am hopeful that the “credit support” to the mid-sized energy firms will address the broader service sector working capital issues and I may have done some reaching out to the powers that be to offer my suggestions.
The funds allocated to methane reduction are a longer-term investment that is entirely consistent with the Liberal agenda of greenhouse gas reduction and address a problem that industry has that is well acknowledged by all levels of government. Given that methane is (variously) twenty times more potent a greenhouse gas than CO2, any reductions achieved will have an outsized impact on national climate goals.
I await more detail as that is where the devil resides, but it’s a thoughtful and material start, for just one of the dozens of impacted industries. I think it’s important to realize that everyone will to some extent, be looking for a hand up. We shouldn’t be too disappointed we didn’t get everything we wanted for energy, which is why I appreciated Premier Kenney’s thoughtful and laudatory comments post announcement. I also suspect there will be plenty more to come in the coming weeks.
Office Cat Week 5
Office cat has made his return. He is currently on his perch, proof-reading as I type.
Never one to be shy, Office Cat had an idea for me, which was to propose a Zoom Coffee chat.
How does that work you might ask? Well it would be an informal but scheduled appointment, where a group of like-minded professionals could virtually assemble and discuss relevant issues of the day.
I’ve participated in some of these and they are fun. Think of it as CEO type council with hoodies and no fees.
So here’s what I will propose.
This coming Tuesday, April 21st at 10 AM MST, I will host a Zoom Coffee and the topic of the week will be the Federal Support Program for energy by which time there will hopefully be more detail. Plus whatever other topics come up for discussion. I will probably cherry pick and have some smarter guys than me join if they are available.
If you would like to be a guinea pig for this experiment, please email me and I will add you to a calendar invite.
Lord help me!
Prices as at April 17, 2020
- Oil prices
- Oil storage was up (no kidding!)
- Production was down
- OPEC+++++ cuts did little
- Natural Gas
- Storage was up, but historically very high; consumption down; production flat; exports flat.
- WTI Crude: $18.44 ($23.17)
- Western Canada Select: $4.19 ($5.10)
- AECO Spot: $1.75 ($1.74)
- NYMEX Gas: $1.74 ($1.71)
- US/Canadian Dollar: $0.7088 ($0.7166)
Highlights
- As at April 10, 2020, US crude oil supplies were at 503.6 million barrels, an increase of 19.2 million barrels from the previous week and a increase of 48.5 million barrels from last year.
- The number of days oil supply in storage is 35.3 which is 7.8 above last year at this time.
- Production was down 100k for the week at 12.300 million barrels per day. Production last year at the same time was 12.100 million barrels per day.
- Imports decreased to 5.680 million barrels from 5.874 million barrels per day compared to 5.992 million barrels per day last year.
- Crude exports from the US rose to 3.486 million barrels per day from 2.833 million barrels per day last week compared to 2.401 million barrels per day a year ago
- Canadian exports to the US increased to 3.249 million barrels a day from 3.156 million barrels per day last week
- Refinery inputs decreased during the week to 12.665 million barrels per day
- As at April 10, 2020, US natural gas in storage was 2,097 billion cubic feet (Bcf), which is 19% above the 5-year average and about 76% higher than last year’s level, following an implied net injection of 73 Bcf during the report week
- Overall U.S. natural gas consumption rose by 3% during the report week.
- Production was flat for the week. Imports from Canada rose 18% from the week before. Exports to Mexico were down 8% week over week due to maintenance.
- LNG exports totaled 61 Bcf
- As of April 17, 2020, the onshore Canadian rig count decreased 5 to 30 (AB – 17; BC – 10; SK – 2; MB – 0; Other – 1). Rig count for the same period last year was 87.
- US Onshore Oil rig count at April 17, 2020 is at 438, down 66 from the week prior.
- Peak rig count was October 10, 2014 at 1,609
- Natural gas rigs drilling in the United States is down 7 at 89.
- 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 17.
- 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%
Trump Watch: Daily press briefings.
Kenney Watch (new!): Rolled up sleeves and a powerpoint
Trudeau Watch (for balance): Don’t talk moistly
