Slowing delivery despite increased production of U.S. super-light oil output

Adding to existing concerns about its quality compared with other types of crude, the rapid growth of super-light oil production in Texas has resulted in slowed deliveries into the United States’ main storage hub in Oklahoma, draining supply there and adding to a glut in Texas.

Oil markets in Midland, Texas are slumping as inventories rise and production grows. Super-light oil now makes up nearly 15 percent of current Permian production of about 4.2 million barrels per day (bpd).

Drillers are producing more oil in recent months known as West Texas Light (WTL), a type of crude that differs from what is blended at the Cushing, Oklahoma hub to produce the benchmark U.S. oil grade. Cushing, which currently has 46 million barrels in storage, is one of the biggest blending markets in the world, where light and heavy crude are mixed to produce that blend, which is deliverable against benchmark U.S. futures.

Due to worries that the grade is too light, differing too much from other crude gathered in west Texas. pipeline companies have started requiring shippers to separate the super-light oil. This has slowed deliveries, since the oil has to be sent in batches, rather than mixed in the line with other crude, and also needs to be stored separately. So far in April, segregated WTL deliveries are rising while flows of other grades from North Dakota and Canada remain subdued. Traders say the shortage of the right blend boosted near-term prices at Cushing,

Crude lines typically have a common stream to blend shippers' crude together, but that is changing. Plains All American, which runs the Basin line to Cushing, recently required shippers to segregate WTL in order to "maintain the integrity of the common stream," adding that it could reject shipments otherwise.

Some traders said blending issues could be short-lived as more pipelines from the Permian to the Gulf Coast will come online this year to facilitate exports and if flows from other regions recover.  For now, traders are scrambling to find the right tanks for storage at Cushing and source enough blending components so the crude can meet quality requirements.

There have also been shortages of other types of crude. Heavy crude has been in high demand after sanctions on Venezuela and production curtailments in Canada. Winter production outages have reduced supply of light crude out of North Dakota and Colorado, which are also blended in Cushing.

 

Ontario gas stations required to display federal carbon tax stickers

Ontario’s latest budget includes fines of up to $10,000 per day for gas station operators who don’t display government-mandated stickers about the price of the carbon tax. New legislation called the Federal Carbon Tax Transparency Act requires gas stations to display the sticker on each pump. The sticker shows the federal carbon tax adding 4.4 cents per litre to the price of gas now, rising to 11 cents a litre in 2022.

The legislation allows the provincial government to send inspectors to see if gas stations are properly displaying the stickers and sets out penalties for non-compliance. Individuals could be fined up to $500 each day, or up to $1,000 a day for subsequent offences. Corporations could be fined up to $5,000 a day, or up to $10,000 a day for subsequent offences. Obstructing an inspector would carry a fine of at least $500 and up to $10,000.

Federal Environment Minister Catherine McKenna, who denounced the fines as “ridiculous” and “Not only is this a violation of freedom of speech, it will cost small business owners across the province who don’t want to take part in this government propaganda campaign. This should be denounced by all political parties as a new low for our political discourse,” Minister McKenna said in a statement.

The provincial Conservatives are against the federal carbon tax. At a speech this week, Premier Doug Ford said, “When you go to the ballot box [in the October federal election] think of your future. Think of the country’s future. Think of your children’s future, because we cannot accept this carbon tax.” Ontario is challenging the carbon tax in court this coming week.

Director of Communications for Ontario’s Energy Minister Greg Rickford said the stickers are about transparency. The carbon tax is expected cost to a typical household $258 this year and $648 by 2022. Ontario is one of four provinces, including Manitoba, Saskatchewan, and New Brunswick, where Ottawa imposed the levy because they opted not to impose their own pricing schemes on carbon emissions.

Duff Conacher, co-founder of the left-wing advocacy group Democracy Watch, called the stickers “propaganda” and that the stickers don’t mention carbon tax rebates.

Spokespeople for Suncor Energy, which operates Petro-Canada gas stations, and Husky Energy said they would comply with the legislation.

Vermilion Energy drills new exploration wells in central Europe

Canada’s Vermilion Energy will drill its first two exploration wells in Croatia in June. The company won four licences in 2015 for oil and gas exploration in Croatia’s flat northeastern areas and the drilling will take place on one of these. Vermilion also has a presence in Slovakia and Hungary.

Croatia is currently running two new tenders for oil and gas exploration in the north and in the mountainous southern region. They are open until June and September, respectively. Head of the central and eastern Europe division Bryan Sralla said Vermilion is determining whether it will participate: “Although we see evidence of gas charge from the new seismic data we have acquired, we’ll not know for sure whether any of this is commercially producible until after these initial wells are completed”, which will likely be mid-to-late July.

Mr. Sralla said, “Our team is evaluating the potential of all the Croatian licences on offer, but we have not yet made a decision whether we will bid on any. Our internal executive review is scheduled for late May. I’m hopeful our team will identify some potential.

In an interview with Reuters last week, a senior official at Croatian energy firm INA said it planned to bid for several exploration blocks in the north but was still considering options for the south.

Vermilion plans to drill four wells in Hungary this year, two in partnership with Hungary’s MOL, and four wells in Slovakia in partnership with Slovakian energy company Nafta. Mr. Sralla said, “We see encouraging signs of natural gas potential in these countries,” adding that the drilling results were likely to be announced in the early autumn. He also said Vermilion could expand into other central and eastern Europe countries as the company was evaluating investment opportunities across the region.

New Alberta Premier Jason Kenney seeks cooperation with PM Trudeau and Quebec on pipelines

Alberta’s Premier-elect Jason Kenney, who is expected to be sworn in with his new United Conservative government on April 30, spoke to Canadian Prime Minister Justin Trudeau in a “cordial” phone call on Wednesday and said the plan is to soon meet one-on-one. From outside Alberta’s legislature building, Premier Kenney said, “He called to offer his congratulations. We spoke for about 15 minutes. We had a respectful conversation about a number of issues, including the need to get Canadian energy to foreign markets.

On Tuesday, Premier Kenney’s United Conservatives won a strong majority government over Rachel Notley’s NDP. Central to his campaign success was leveraging voter dissatisfaction with PM Trudeau and then-Premier Notley as supporting federal energy policies that undermine Canada’s oil and gas sector. The dynamic between Premier Kenney and PM Trudeau will be pivotal as the UCP work to implement its core campaign promise to create more jobs and grow the oil and gas sector.

Premier Kenney has criticized the federal Liberals on proposed legislation, including a tanker ban on the northern B.C. coast and Bill C-69. Bill C-69, which is now before the Senate, creates new approval rules for energy projects. Premier Kenney calls it an unconstitutional power grab on areas of provincial authority and promised to fight it in court. He will also go to court to try to stop the federal government from imposing a carbon tax on Alberta once his UCP follows through next month on its promise to repeal the Alberta carbon tax introduced by Notley’s government.

Prospective relations between Alberta and Quebec may be off to a more flexible start. In his victory speech, Premier Kenney spoke in French, which Quebec’s Premier Francois Legault called an elegant gesture, to say we need pipelines for the prosperity of all Canadians. He also praised the Premier Legault government’s commitment to reducing Quebec’s dependence on equalization transfers.

Premier Legault congratulated Kenney on his electoral victory Wednesday, however, he said all parties in Quebec’s legislature still oppose any new oil pipelines. Premier Kenney said he wants to start on a positive note with Premier Legault, adding, “We don’t think it’s reasonable for other provinces, like Quebec, to take our equalization money while opposing pipeline projects that can help us pay the bills.” Despite the fact that a recent poll showed there is 60 percent support for new pipelines by Quebec’s residents, Premier Legault said, “What I am saying is there is no social acceptability for a new oil pipeline in Quebec.” He said the province already receives more than half its oil from Western Canada and is open to a proposed natural gas pipeline coming from Alberta.

Ontario’s Conservative Premier Doug Ford welcomed Premier Kenney’s opposition to the federal carbon tax when stood in the legislature Wednesday to congratulate the new Premier along with the rest of his caucus, who rose for a standing ovation. “We see just a blue wave going across this country from west to east. We’re building an anti-carbon tax alliance like this country has never seen.” Premier Ford said.

Premier Kenney plans to recall the legislature in the third week of May. He has said that the first day of his government will see him proclaim into law a bill passed by Notley’s legislature allowing Alberta to reduce oil flows to British Columbia if B.C. continues to thwart the expansion of the Trans Mountain pipeline to take more Alberta oil to the West Coast.

Canadian government extends Trans Mountain pipeline decision deadline to June 18

Federal Natural Resources Minister Amarjeet Sohi said the extended deadline will give the Canadian government more time to complete its consultations with Indigenous groups. The National Energy Board endorsed an expansion of the Trans Mountain pipeline on February 22, starting the clock on a 90-day period for Ottawa to make a final decision, making May 22 the original deadline.

Last year, construction of the pipeline expansion was put on hold after the Federal Court of Appeal ruled the NEB had failed to consider marine impacts and the government needed to do more Indigenous consultation. The NEB’s report in February made 16 new recommendations for the government, including implementing measures to reduce ferry noise, adding incentives and establishing requirements for quiet vessel design.

In his statement, Minister Sohi commented:

"We also continue to make real progress in the Phase III consultations. Consultation teams continue to meet with potentially impacted Indigenous group. This process includes engaging in meaningful, two-way dialogue - to discuss and understand priorities of the groups our teams meet and to offer responsive accommodations, where appropriate. I also continue to build relationships with Indigenous groups, and I want to thank them for their time and such thoughtful conversations.

"The Government has consistently said that a decision would only be made on the project once we are satisfied that the duty to consult has been met. Through this process, Indigenous groups have told us that more time is needed to complete the Phase III consultations.

"To meet this obligation, to respond to what we have heard from Indigenous groups, and with advice from Federal Representative Justice Iacobucci, the Governor in Council (GiC) has extended the deadline so that a decision on TMX can be made by June 18, 2019. Our goal is to make a decision at the end of this period. This provides the time required to respond to what Indigenous groups are telling us and to conclude the Phase III Crown consultations before the GiC decision.”

Skipping the Test

If you point out that an April snowstorm hardly feels like global warming you get the patronizing lecture about the difference between weather and climate. And if you ask “Then why is hot weather touted as proof?” they declare the science is “settled” and shut down the discussion. Well if it is then I want to know what’s going to happen ahead of time, not after the fact.

I know the difference between weather and climate. But I also know the difference between science and flimflam. One observes data, forms hypotheses about causal relationships, then tests them by making predictions about the future and seeing if they succeed or fail. The other distracts, distorts and blusters.

Testing theories is a complex process involving a good deal of intuition about what hypotheses to test and what constitutes confirmation or refutation. If we’re too ready to abandon theories in the face of anomalies, we just get confused. But if we’re too stubborn, we get dug in.

I can’t count the number of news stories I’ve read saying climate science is settled. Or the number rationalizing any and every weather event as somehow being consistent with the theory. But if the theory really is so settled, let’s hear what wouldn’t be consistent with it.

If some alarmists are willing to say it’s not that simple, fine, provided they’ve been busy shooshing the politician who uses one wildfire as proof that we’re on the brink of annihilation or the celebrity who says California’s droughts will never end because we’re on the brink of annihilation. Let’s hear them admit that it’s complicated when it hurts their argument as well as when it helps it.

For instance a number of us believe the sun has a strong influence on climate so if it’s now entering a significant quiet period, temperatures are liable to flatline or even drop. (And if you want to see a real climate catastrophe, try some cold on Canada’s agriculture.) If temperatures do drop over the next, say, decade, alarmists could claim it’s just a short-term cooling laid on top of a still-worrying long-term trend of human-GHG-driven warming. But how would you test that theory, if up-trends and down-trends can both be rationalized?

Blaming the sun for a short-term temperature drop in the 21st century would require also attributing some previous warming to its 20th century intensification (which the roughly contemporary warming on Mars, Jupiter, Triton and Pluto surely points to), in which case CO2 caused less of the warming than the models say and is less dangerous than the alarmists say. So they don’t want to test that theory. But at the Climate Discussion Nexus, we do.

Then there’s the oft-repeated idea that man-made global warming is causing glaciers to retreat. When a glacier advances instead, like Jakobshavn in Greenland, they tend to go oh that’s weird then resume beating the warming drum. But what about the fact that most glaciers have been retreating for centuries? Wikipedia’s article “Retreat of glaciers since 1850” cheerfully attributes the phenomenon both to the natural end of the Little Ice Age and to man-made GHGs. But as with Mr. Sun and CO2, there’s only so much warming to go around. And I’m at a loss to know how to test a theory that says the retreat was natural until 1970 and not since. But if it’s science, there must be a way.

As for the argument we heard during the brutal winter conditions of early 2019, that overall warming pushed Arctic weather systems south leading to cold weather, it’s easy to be snide about the vaguely Orwellian claim that cooling is warming. But it’s not impossible. The problem again is, how can we test a theory that can never be proved wrong by events after they’ve occurred? The answer is predictions. Don’t tell us afterwards that obviously warming caused the cooling, duh, because a theory that can explain anything after the fact but can’t predict Christmas in December isn’t science, it’s rationalization. A.k.a. flimflam. So here’s my challenge to alarmists.

Tell us beforehand what kind of summer to expect in 2019: a cool dry one, a warm wet one etc. Tell us how much extreme weather to expect, and where. And what will winter 2019-20 be like, in North America, in Europe etc? If you can’t or won’t offer such predictions, then don’t show up afterwards claiming whatever happened was consistent with your theory.

Now if you respond by demanding a prediction from me you might be disappointed because I don’t know what next winter will be like. But as my theory is that climate is too complicated to model my prediction is that nobody’s predictions are any good. And the way to prove me wrong is make ones that work.

So go ahead. Predict something. I don’t care what. A warm winter. A cold one. Glaciers retreating. Glaciers advancing. More rain or less. Forests ablaze or green and verdant. The sky turning purple. I just want some way to tell if your settled science has any validity.

What’s that? You can’t? Gosh, a minute ago you seemed so certain.


About the Author

Dr. John Robson is Executive Director of Climate Discussion Nexus. He holds a Ph.D. in American History from the University of Texas at Austin and has worked as a historian, policy analyst, journalist and documentary filmmaker for three decades. He has been examining the climate change issue for many years, including both the science and the policy debates.

Collateral Damage Caused by the Supreme Court of Canada’s Decision to Overturn the Redwater Decision

The release on January 31, 2019 of the long-awaited court decision (the “Appeal Decision”) by the Supreme Court of Canada to the appeal by the Alberta Energy Regulator (the “AER”) of the May 2016 ruling by the Court of Queen’s Bench of Alberta that provincial regulations are in conflict with the federal Bankruptcy and Insolvency Act (the “Redwater Decision”) was publicly lauded by many observers as the correct “social” decision.  The public-at-large generally accepts the “polluter pays” thinking that was behind the decision as being the correct outcome.

In this lengthy article we will not touch on the social issues resulting from the Appeal Decision.  We will focus instead on the broader implications of the Appeal Decision which we believe will inflict significant collateral damage on oil and natural gas companies, bankers, receivers, the AER and ultimately, and most importantly, the Orphan Well Association (the “OWA”), the very organization that the Appeal Decision was indirectly designed to protect.

Background

Before discussing the broader business implications of the Appeal Decision, it is worth clarifying some of the background issues.  One key point to note is that the assets of an oil and natural gas company are unlike those of a mining company, or almost any other industry which would be impacted by the Appeal Decision.  A non-oil and natural gas company typically has a very small number of assets which might lead to future environmental obligations.  An oil and natural gas company, on the other hand, might have hundreds or even thousands of such assets.  Of note is the much-discussed receivership of Lexin Resources Ltd. et al (“Lexin”), which left behind approximately 1,500 licenced wells and approximately 1,500 licenced pipelines and facilities.  Most of these licenced assets were eventually dropped into the lap of the OWA.

If an insolvent entity with a relatively small number of assets goes into receivership (“Receivership”), it is relatively straightforward for the court-appointed receiver (the “Receiver”) to deal with the very small number of assets, as compared to handling the thousands of discrete assets that result from the insolvency of an oil and natural gas company such as Lexin.

Subsequent to the Redwater Decision and prior to the Appeal Decision, the Receivers of insolvent oil and natural gas companies, generally acting on behalf of the most senior secured creditors, i.e. the creditor with the most to lose (which could be a chartered bank, a mezzanine finance lender or any other secured creditor (the “Creditor or Creditors”)), worked to monetize some of the assets from the insolvent companies which could be sold (the “Saleable Assets”) in order to recover some of the funds owing to all of the secured creditors.

Until the Appeal Decision was announced, any unsold oil and natural gas wells, pipelines, facilities and equipment (the “Residual Assets”) were disclaimed by the Receivers and ultimately delivered to the OWA, the industry-funded organization mandated to “safely decommission orphan oil and gas wells, pipelines and production facilities …”

As very publicly reported over the past several months, this resulted in a significant increase in the OWA’s orphan well count.  This has led to much public discussion, discussion which generally points the finger at the big bad Receivers acting on behalf of the socially insensitive Creditors to saddle the public with the financial burden of dealing with the resulting environmental obligations of the Residual Assets.  As a related aside, rarely does it get reported that the oil and natural gas industry, not the public, funds the OWA.

The Reality

We believe that the Appeal Decision will ultimately result in more Residual Assets being delivered to the OWA for further handling than would have been the case if the Redwater Decision was not overturned by the Supreme Court.  Further, the Appeal Decision was believed to be a method to provide much needed cash to the OWA to handle the liabilities, by directing the proceeds of any dispositions of Saleable Assets to the OWA.  We do not see how this can happen.

The sale of an insolvent entity’s assets through a Receivership can only occur if there is a party which is willing to fund the costs of the Receivership.  These costs are very real and they can quickly become significant.  Included in the costs of a Receivership are the costs of the Receiver’s time, the Receiver’s third party costs, legal expenses, court filing fees, selling agents’ fees, etc.  The Creditor will typically advance funds to the Receiver at the start of a Receivership process to cover these costs only if it is believed that the recovery from the liquidation of the Saleable Assets will exceed the costs of the Receivership and the settling of any priority claims to the estate.

Sayer has been involved in Receivership asset sales for several years, acting as sales agent for the Receivers of 36 insolvent entities.  These entities collectively held approximately 4,000 licenced wells.  We were able to sell approximately 30% of these wells, 1,200 in total.  Absent sales processes funded by Creditors through Receiverships, the 1,200 wells that were sold would likely have been delivered to the OWA along with other related Residual Assets.

As previously-mentioned, for approximately 32 months subsequent to the issuing of the Redwater Decision and prior to the issuing of the Appeal Decision, Receivers were able to act on behalf of Creditors to sell whatever wells, facilities and equipment could be sold from the estates of insolvent oil and natural gas entities.  Subsequent to the disposition of any Saleable Assets, Receivers were able to disclaim any Residual Assets and deliver them to the OWA.

With the Appeal Decision in place, any funds realized from the Saleable Assets must now be ultimately directed to the OWA, not to the Creditors, so that the OWA can use the funds to manage the abandonment and restoration of any environmental liabilities associated with the Residual Assets.  While the social aspect of this is quite clearly understood, the collateral damage that will result is significant.

Creditors will now be loath to put insolvent entities into Receivership.  Why would a Creditor fund a Receivership if there is not a realistic expectation of recovering its costs as well as a meaningful portion of the funds owing to it by way of its secured debt position?

Instead of pushing companies into Receivership some Creditors will possibly force insolvent entities to minimize overhead, following which the Creditor will then bleed off any available cash flow to help to pay down the debt position until such time as the operations are unsustainable.  After cutting the losses, it is possible that the Creditor will simply just walk away from its position once the operations are unsustainable. The likely outcome of this scenario, collateral damage caused by the Appeal Decision, is that all of the assets of insolvent oil and natural gas entities will end up as Residual Assets, bagged, tagged and delivered to the OWA.

As previously-mentioned, absent funding by Creditors, this type of scenario would have resulted in roughly 1,200 additional wells being sent to the OWA from only the 36 Receiverships that Sayer has been involved in.  If you consider the numerous other recent oil and natural gas industry Receiverships, plus all of the future ones, the collateral damage from having to deal with this likely avalanche of Residual Assets will undoubtedly overwhelm the OWA.

One way for the OWA to receive funds from the sale of the Residual Assets in a scenario such as was previously-discussed would be if the AER were to act as a Creditor, forcing the sale of assets for the account of the OWA.  Without going into too much detail, Sayer recently worked with Grant Thornton Limited, Lexin’s Receiver, in managing the sale of assets from Lexin on behalf of the AER, Lexin’s Creditor by way of the funds owed to it.  We believe that after being front and centre in that process, the AER would not be interested in getting actively involved in another Receivership.  As well as creating obvious conflicts, we believe that acting as a Creditor in such scenarios is beyond the mandate of the AER as an independent regulator.

Another significant outcome of the Appeal Decision is that bankers may not continue to provide debt funding to junior oil and natural gas companies.  The implications of this collateral damage are tragic, and could spell the beginning of the end of this once robust segment of our local economy.

Background to One Possible Solution

Sayer does not believe in criticizing anything without providing an alternative solution to a problem.  To that end, approximately 18 months ago we initiated a meeting with Mr. Jim Ellis, the CEO of the AER at the time, to discuss the aforementioned possible outcomes to the Appeal Decision, which was still pending at that time.  I will quote our advice to Mr. Ellis.

Jim, regardless of how the Supreme Court rules, the AER, the Creditors and the Receivers must all learn how to play nice together in the sandbox.”

We presented a possible solution (the “Solution”) to Mr. Ellis, who did not disagree with the need for a similar outcome.  The Solution, which we stand by today, is actually quite simple.  To better understand the Solution a bit of background information is in order.

Before a Creditor pushes an insolvent entity into Receivership, the Creditor prepares an economic evaluation of the costs and benefits of the potential process.  On the benefit side, the Creditor will typically engage the services of a mergers and acquisition specialist firm like Sayer (the “M&A Advisor”) to provide an analysis of what the proceeds from the sale of any Saleable Assets might be.  An experienced M&A Advisor can generally predict which assets can be sold, what the sale proceeds will be, and which assets will become Residual Assets.  If the Creditor believes that the proceeds will exceed the expected costs of a Receivership, a Receiver is hired, and a process to market the assets is undertaken through an M&A Advisor.

At the conclusion of the Receivership, the Creditor receives the proceeds of the sales of the Saleable Assets, net of costs.  The Residual Assets are then disclaimed by the Receiver, ultimately ending up in the OWA.

One Possible Solution

Sayer’s Solution is that prior to putting a company into Receivership, the Creditor, the AER and the M&A Advisor would work together to discuss the assets.  With many details to work out, the basic workings of the Solution would involve the following steps.  The first step would be to have the Creditor advise the group as to the amount it requires to satisfy its position.  The M&A Advisor would then provide its best estimate of whether or not the estate has any Saleable Assets, and, if so, what the proceeds of a sale of those assets might be.

Once the estimate of which of the assets will become Saleable Assets is in hand, the AER would then provide its best estimate of the cost to deal with the obligations of the Residual Assets which the M&A Advisor believes will be left to deal with.

The parties now have an estimate of the results of a liquidation of the estate, factoring in the estimated cost of the Receivership, the estimated proceeds from the sale of any Saleable Assets, and the estimated cost of dealing with the Residual Assets.  With this information in hand, the disposition of assets can take place in an orderly, equitable manner.

Let’s use as an example a situation where the Creditor needs $20 million, the M&A Advisor estimates the market value of the Saleable Assets to be $12 million and the AER needs $10 million to deal with the Residual Assets.  Using an allocation determined by the proportionate shares of the required recoveries of $20 million (Creditor) and $10 million (AER), the Creditors, requiring two-thirds of the estimated recovery, would pay for two-thirds of the costs of the Receivership.  The AER, requiring one-third of the estimated recovery, would pay for one-third of the costs.  The net proceeds from the sale of the Saleable Assets would be distributed to the two parties using the same two-thirds to one-third split, in this example $8 million to the Creditor and $4 million to the AER.

Recognizing that the M&A Advisor’s estimates will be good, but not perfect, after the assets are sold and it is time to wind up the Receivership the allocation of net proceeds and expenses would be adjusted to account for the realized proceeds from the sale of the Saleable Assets and for the estimated cost of dealing with the resulting Residual Assets.

The end result of the Solution should be that the number of Residual Assets would be minimized, while providing some funds to the OWA to deal with the Residual Assets, overall a far more palatable outcome might be expected absent a Receivership process.

Potential Backlash to the Solution

While the Solution appears at first glance to be fair and equitable to all parties, before considering going down this road the AER would need to find a way to manage the public perception.  In light of the negative sentiment to the industry resulting from the recent public discussion of a few notable insolvencies, including Lexin, and in light of the Appeal Decision, the public backlash of this cooperative approach to lightening the load of the OWA would most likely be huge.

If the AER and a Creditor were to work together to share the costs and proceeds from the liquidation of assets in a Receivership, well-meaning but ill-informed third parties would look at this in horror, as the Solution conflicts with the ruling of the Supreme Court that effectively says that the OWA would be entitled to receive all of the proceeds from any asset sales in a Receivership.  This will not likely be publicly-received as the good news story that it is; it will likely be treated as a travesty of justice.  It is possible that legal challenges to any cooperative effort will follow.

The flip side is that any approach that is not collaborative is likely to result in a very significant increase in the Residual Assets heading to the OWA.  No matter how you look at it, that would not serve the best interests of any party, especially the OWA, the AER, the Creditors, the oil and natural gas industry, and even the general public.

Conclusion

While our proposed Solution has obvious positive factors rendering it worthy of consideration, the negative implications may prove to be difficult to overcome.  We are tabling it here as a starting point for discussions, as we believe that the ultimate solution will require a collaboration of industry, the financial community, government and the public.  We are sure that other solutions can be found; however, we have not yet heard of any proposals.  For the sake of our industry’s future, we all need to step up and work towards collaborative solutions to these types of issues, sooner rather than later


About the Author

Alan Tambosso, P.Eng. P.Geol., is President of Sayer Energy Advisors.

Alberta’s oil and gas industry has suffered deeply under the NDP

After protesting against the oil industry for 10, 20, 30, and even 40 years, Alberta’s NDP took the helm of the province in 2015 after a remarkable sum of events leading up to that fateful day. Since day one of their governorship, Alberta’s oil and gas industry has suffered deeply–it will likely go down as the worst 4 years in the sector’s history.

Capital fled and did not return

The day after the 2015 election, massive amounts of capital began fleeing the province. During a 2 day period when oil prices increased (May 5 & 6 2015), the TSX Energy index dropped over 4%. Small cap energy producers were hit hard, and over $20 billion was wiped from the Canadian energy markets on day one and two.

Reports from banks and analysts hit the streets, the consensus from the investment world was conclusive: the NDP’s election victory would have a negative impact on this market. Alberta became a jurisdiction looked upon unfavourably by portfolio and fund managers.

Over the next 4 years, investment fell year after year. Compared to 2015 when $75 billion was invested in Alberta, 2016, 17 and 18 saw only $60 billion in capital spending. If spending had held from 2015, Alberta would have had an additional $45 billion of capital in this province.

Alberta investment by year

Alberta investment by year

Alberta’s government fought against pipelines

Prior to forming government, you would be extremely hard pressed to find a whisper of support for a pipeline project from any member of Alberta’s NDP. Immediately upon taking office, the party began its advocacy against pipeline projects. Premier Notley stood up in the legislature during their first sitting and claimed the government’s opposition to Keystone XL. A pipeline which (if built) would have saved Alberta tens of thousands of jobs.

After the election of Justin Trudeau, Notley (and her crew) supported his cancellation of the desperately needed Northern Gateway pipeline. That particular project was in the crosshairs of the NDP as they had members who traveled to Kitimat to oppose its construction.

Lastly, the Energy East project which had the potential to be a true nation builder, was killed by the Trudeau government. The public heard not even a peep from Alberta’s NDP. Their silence was deafening.

Costs and regulations increased

Coupled with their active fight against pipeline construction, Premier Notley and the NDP began instituting a series of costs and regulations which crippled the industry’s hope of a recovery. Needless to say, the carbon tax did nothing to ease the burden on oil and gas producers. In fact, their announcement of a climate and royalty review caused several oil and gas producers to put plans and spending on hold and ultimately reduce overall activity.

The NDP also introduced higher corporate taxes, higher payroll taxes, increased labour costs, more stringent regulations via the AER, and appointed several anti-industry spokesmen to positions they have absolutely no business holding. All in the name of ‘improving Alberta’s environmental record’ — which was not an issue to begin with. They put all of this on Alberta during the worst oil market downturn in decades.

Activity levels decimated

Activity levels in Alberta have been severely depressed during the NDP’s reign. Rig counts have stayed incredibly low and have not improved. With no capital, increased costs and regulations, this was an inevitability.

And unfortunately, coupled with the decimation of activity, came massive unemployment, record numbers on employment insurance, huge office vacancy rates, higher suicide rates and all other terrible things which accompany a bad economy combined with anti-business and industry policies.

It’s been an extremely dark 4 years in the province. The only takeaway will hopefully be a reminder of how bad things can get, and the damage a government can inflict on business and its chief industry.


About the Author

Josh Groberman publishes the BOE Report.

Extinction Rebellion climate extremists shut down London public transit

In the latest evolution of the far-left’s extremism, April 15 saw the start of three days of protests that ground London to a halt, affecting more than 500,000 people. Over a thousand Extinction Rebellion (XR) campaigners threatened to bring the British capital city of London to a standstill for up to two weeks.

Extinction Rebellion is the latest in vogue protest movement for climate change activists. It has grown into an international movement backed by left-wing celebrities, academics, and writers by calling for “radical change in order to minimise the risk of human extinction and ecological collapse”. Activists in at least 80 cities in more than 33 countries will hold similar demonstrations on environmental issues, campaigners said.

Extinction Rebellion protestors blocked busy London roads and bridges, spray-painted government buildings, glued themselves to a DLR train at Canary Wharf, and chained and glued themselves to buildings, including the gates of Buckingham Palace. Semi-naked activists had previously glued themselves to windows in the public gallery of the House of Commons during a Brexit debate. The following day, two dozen protesters occupied the International Criminal Court in the Hague, in the Netherlands. “Only a peaceful planet-wide mobilisation of the scale of the Second World War will give us a chance to avoid the worst-case scenarios,” and “the world has “run out of the luxury of time to react incrementally” Extinction Rebellion campaigners said.

Police arrested more than 300 Extinction Rebellion protestors while London Mayor Sadiq Khan attempted to ingratiate himself with them, diverting attention from intense and ongoing criticism of his poor response to London’s knife crime epidemic. The former Labour MP and London mayor said that the “climate change emergency” was a “top priority” for City Hall and reiterated his “passion” for peaceful protest as “the cornerstone of our democracy”. West End businesses complained of a GBP 12 million loss in sales while Mayor Khan professed his “full respect” for the anarchists.

Mayor Khan attended last month’s march for a second Brexit referendum, and likened the climate protesters to suffragettes, declaring, “I was at a protest myself a few weeks ago, protesting, campaigning and lobbying on whether the public should have a final say on staying in the union and given the option of what parliament’s voted for.” The upcoming mayoral election takes place in May next year. Mayor Khan’s mayoral rival, Conservative candidate Shaun Bailey, said, “The Mayor is telling law-abiding Londoners their interests come second to those who shout loudest and disrupt the most.

Despite their claims that they are proponents of non-violent civil disobedience, on Monday, Extinction Rebellion protesters vandalised Shell’s headquarters, gluing themselves to windows and smashing glass revolving doors, causing more than GBP 6,000 of damage and enabling them to have a platform in front of a jury trial in Crown Court. Now, according to Extinct Rebellion’s legal advice, some of the protesters will soon be citing Mayor Khan’s “climate change emergency” rhetoric in their defence.

Extinction Rebellion says direct action is needed to force governments to act urgently on climate change and wildlife declines and halt a “sixth mass extinction”. Their demands include the declaration of an ecological emergency, greenhouse gases to be brought to net zero by 2025, and the creation of a citizens’ assembly to lead action on the environment. Extinction Rebellion says the systems propping up “modern consumer-focused lifestyles” will lead to mass water shortages, crop failures, sea level rises, and the displacement of millions. Extinction Rebellion says it wants “ecocide”, the deliberate destruction of the natural environment, to be listed alongside crimes against humanity, war crimes, genocide and crimes of aggression.

1,500 people showed up to Extinction Rebellion’s first protest on October 31 last year on Parliament Square in London. The group later claimed that over the next several weeks “Six thousand of us converged on London to peacefully block five major bridges across the Thames.” Extinction Rebellion claims to have chapters in dozens of countries, including the United Kingdom, the United States, the Solomon Islands, Australia, Spain, South Africa, and India.

Extinction Rebellion professes to be about climate change but in reality, is the latest rebranding and marketing campaign of Marxism. Their manifesto, published on their website, gives their game away. The tactics, slogans, and the general behaviour of the Marxist protesters exactly echoes that of the anti-globalisation protests of the early 2000s.

Beyond their climate focus, Extinction Rebellion demands the end of interest-bearing loans and to bring down the global economy with it. They want to disrupt and destroy. global capitalism and know the term ‘Marxism’ isn’t going to get the results they want, so they dress their agenda up as ‘environmentalism’ to tempt useful idiots to join their cause. In fact, Extinction Rebellion don’t admit the obvious fact that renewable energy needs capital and therefore investors who issue interest-bearing loans.

Support for Canada’s energy industry is at the heart of Alberta separatist sentiment

Ahead of Alberta’s April 16 provincial election, several political parties in the country's energy heartland are speaking to voter anger with federal policies that are harming the petroleum industry and the well-being of the province’s citizens.

The roots of Alberta separatism stem from the time of Confederation, when the west was repeatedly pit against the seat of power in Ottawa and the east due to federal policy. It has largely been a fringe idea in the province for years but last month the Alberta Independence Party, which was revived in 2018 after a 17-year hiatus, was awarded official status after registering 63 candidates to fight in the election.

The Alberta Independence Party would hold an immediate referendum on separation if it came to power and interim leader Dave Bjorkman said there is a lot of support among people dissatisfied with Ottawa. "Right now these people do not vote because they are so sick of the system," he said. "The more our GDP growth, the more we have to pay out."

The central issue of the election campaign is clearly the economy, specifically the years-long economic recession Alberta has suffered primarily due to a lack of access to new international markets, such as Asia and Europe, via new pipelines to the coasts. Adding fuel to the separatist fire is a promise by the United Conservative Party, which is leading in polls and expected to form a majority government, to hold a referendum on equalization payments unless new oil export pipelines are built. Alberta, home to Canada's vast oilsands, receives nothing under a federal system of equalization payments because of oil and gas wealth, whereas provinces such as Quebec repeatedly receive billions of dollars.

As Jared Wesley, political science professor at the University of Alberta, notes, "[The UCP] is suggesting if we don't get what we want, there are plenty of people here that view separatism seriously. It's the first time we've seen a mainstream political leader in Alberta take as dramatic a step with the potential to jeopardise national unity."

In the televised Leaders' debate, UCP leader Jason Kenney promised, "I will make clear to (Canadian Prime Minister) Justin Trudeau that if we do not get a fair deal in the federation, if we do not get a coastal pipeline, I am prepared to hold a referendum on removing the principle of equalization from the constitution of Canada."

“Kill that Bill” protestors at Bill C-69 Senate committee hearing in Calgary

The proposed federal Bill C-69 aims to change the way Ottawa assesses major energy projects and has provoked strong negative reactions from energy supporters. Bill C-69 would repeal the Canadian Environmental Assessment Act and retire the National Energy Board, leaving the Impact Assessment Agency of Canada and the Canadian Energy Regulator as authorities responsible for assessments of the environmental, health, social, and economic impacts of designated projects.

Representatives of Canada’s biggest oil and gas companies took turns demanding major changes to Bill C-69 before a Senate committee on a cross-Canada series of hearings that started in Vancouver on Monday. Hundreds of people rallied outside the downtown Calgary hotel where the hearing was taking place, chanting “Kill that Bill” and waving signs.

Steve Laut, Executive Vice-Chairman of oilsands producer Canadian Natural Resources told the Senators that “Bill C-69 as currently written is unworkable. However, with common sense amendments, we can make this bill workable and create a large number of well-paying jobs for Canadians, unleash Canadian ingenuity, support investment in a low-carbon energy mix and make Canada a world leader on climate change.

Spokespeople for large oilsands producers Canadian Natural, Suncor, Imperial Oil, and Cenovus Energy told the hearing they support the intent of the bill to improve the regulatory process but only if sweeping amendments proposed by the Canadian Association of Petroleum Producers (CAPP) are adopted. They also expressed concern about what projects will be on the designated list, noting that crucial information has not yet been released by the federal government.

CAPP’s changes would prevent public policy debates from being part of project assessments, would restrict application interveners to those directly affected by the project or with expertise, would require firm timelines and would limit government ministers’ discretionary powers. Speaking on the rally sidelines outside the hotel, CAPP CEO Tim McMillan said, “I think it’s crucial [the amendments] get adopted. Canada can’t sustain the damage that the bill in its current form would cast on our economy. I think the fact so many people would show up on a Tuesday morning speaks to the importance.”

Chief Roy Fox of the Blood Tribe of southern Alberta also testified, saying oil and gas development has taken place on his reserve since the 1950s with no environmental problems: “I understand that the regulatory approval process as it stands in Canada is flawed, but Bill C-69, as it is written, just makes that process worse. It is poorly worded and vague and, as a result, the oil and gas industry is already moving their investment out of the country. But we, the Indigenous peoples, cannot move our territories.” Price discounts for western Canadian oil and gas blamed on a lack of export pipeline capacity caused his reserve’s energy royalties to drop from $610,000 last August to $120,000 in January, he said. He added an investment chill means producers are less willing to spend money to expand production on the reserve.

Suncor’s Vice-President of Government Relations Ginny Flood is concerned about Bill C-69’s potential to greatly increase the time it takes to approve offshore exploration drilling, which would hurt Canada’s competitiveness with other countries.

The testimony Senators have been gathering will likely result in amendment recommendations by May 9 when the energy committee is scheduled to give its report to the Senate, said chairwoman Rosa Galvez in an interview. She added she thinks it’s possible for the bill to be sent back to the House of Commons by June, giving enough time to be passed into law before it shuts down ahead of the expected October federal election.

 

Kenney considers turning off oil taps to BC over pipeline obstruction

In a speech to supporters in Medicine Hat, United Conservative (UCP) Leader Jason Kenney said if he becomes Alberta’s next Premier, he will bring in a law to turn off the oil taps to British Columbia and wouldn’t be afraid to use it.

Mr. Kenney said the NDP brought in legislation after pressure from the UCP but never proclaimed it or used it. He said he would proclaim the law on his first day if the UCP is elected on April 16. Mr. Kenney also said he would make it clear that Alberta is prepared to scale back exports of its crude to B.C. refineries if the provincial NDP government there continues to obstruct the Trans Mountain pipeline expansion, which provides access for Alberta oil to reach new international markets.

As gasoline prices hit an all-time high of CAD $1.67 per litre in B.C., Mr. Kenney predicted they would remain high if Alberta were to turn off the taps. Earlier in the week, current Alberta Premier and NDP Leader Rachel Notley claimed she is confident the pipeline expansion will be approved by the federal government by the end of May and is willing to bet her Premiership on it.

President Trump orders support Canada-US pipelines and makes it harder to block them

United States President Donald Trump have given energy projects such as the TransCanada Keystone XL oil pipeline a fresh start as he asserts his executive power and insists his exercise of presidential authority is not subject to judicial review.

Last month, the President issued a new permit for the stalled Keystone project, which would move Alberta crude to U.S. refineries. With the support of business groups, President Trump signed two executive orders this week designed to speed up oil and gas pipeline projects. They come after officials in Washington state and New York have increasingly used the permitting process to stop new energy projects over the last decade.

The first order clarifies the President alone has authority to issue permits for cross-border projects such as pipelines. Until now, the Secretary of State has the authority to issue permits for cross-border infrastructure. The second order makes it harder for states to block pipelines and other energy projects on the basis of environmental concerns and eases the process for energy projects that cross international borders. The order also directs the Transportation Secretary to propose a rule allowing liquefied natural gas to be shipped in approved rail tank cars and directs the Labour Secretary to review whether investment fund managers who invest based on social goals are fulfilling their responsibility to maximize shareholder returns.

Too often badly needed energy infrastructure is being held back by special interest groups, entrenched bureaucracies and radical activists,” President Trump said. He singled out New York for his harshest criticism, saying “obstruction” by the state “was hurting the country.” One of President Trump’s executive orders calls for the EPA to consult with states, tribes, and others before issuing new guidance and rules for states on how to comply with the law.

Nearly a dozen business groups told Environmental Protection Agency (EPA) Administrator Andrew Wheeler that the environmental review and permitting process for energy projects “has become a target for environmental activists and states that oppose the production and use of fossil fuels.” In their April 5 letter, the groups said individual states shouldn’t be able to use provisions of the Clean Water Act “to dictate national policy, thereby harming other states and the national interest and damaging co-operative federalism.” The Trump administration insisted it was not trying to take power away from the states but, rather, trying to make sure that state actions follow the intent of the Clean Water Act.

Trade groups representing the oil and gas industry applauded the orders and said greater access to natural gas benefits families and the environment. President and CEO at the American Gas Association Karen Harbert said, “When states say ‘no’ to the development of natural gas pipelines, they force utilities to curb safe and affordable service and refuse access to new customers including new businesses.

Norway Destabilizes Europe’s Energy Security

Norway is western Europe’s biggest petroleum producer where oil and gas account for more than half of the country’s exports. Last week, the opposition Labor Party withdrew its support for oil exploration in the Lofoten islands in Norway’s Arctic, which contains an estimate of 1 to 3 billion barrels of oil, creating a strong majority in Parliament opposed to offshore drilling. The significant shift by Norway’s biggest party is a substantial blow to support of the oil industry and potentially signals the end of an era for the Scandinavian nation that made it one of the world’s most affluent.

The decision was met with opposition by Norway’s powerful oil industry and its worker unions. Oil companies led by state-controlled Equinor ASA, the biggest Norwegian producer, have said that gaining access to Lofoten is key if the country wants to maintain production as resources are being depleted.

Head of the Norwegian Oil and Gas Association Karl Eirik Schjott-Pedersen said, “The whole industry is surprised and disappointed. It doesn’t provide the predictability we depend on.” Some oil executives had already given up on Lofoten, which has been kept off limits for years due to political compromises as Norwegians are starting to question their biggest export and source of wealth amid growing concerns over climate change.

Norway’s biggest oil union Industry Energy has been a long-time ally of Labor but harshly criticizes the party’s new stance on Lofoten, which was adopted less than two years after an internal party compromise on the issue. The union’s leader Frode Alfheim said, “It creates imbalances in the policy discussions for an industry that’s dependent on a long-term perspective and we can’t accept that. There’s probably a lot of people in the industry who are wondering what Labor actually stands for.” Mr. Alfheim still expects Labor and other big parties to protect the terms for oil companies and said tougher requirements for emissions could be a good thing for the industry.

The battle between Norway’s government and industry will now likely move on to whether drilling should continue in the Barents Sea. The oil industry fears that Labor will now compromise on other issues the next time it takes the reins of government, such as petroleum taxes and an attractive exploration refund for companies that aren’t profitable.

Labor leader Jonas Gahr Store said Labor will continue to be a supporter of the oil industry and to back the existing tax system. However, last week he also said he wants oil companies in Norway to commit to a deadline for making operations completely emissions free, an ambition the country’s top oil lobbyist called “very demanding.

Old election advice still rings true

To train his political pugilist for the 1992 US Presidential primary and subsequent election campaigns Democratic strategist and cornerman James Carville famously told his contender from Arkansas: “It’s the economy stupid!” Apparently he wrote it on a note and ensured it was ever present in Bill Clinton’s pocket.

His fighter never forgot. Clinton with the help of a Ross Perot-gifted vote split rode the advice and that note to an unanimous decision win.

Truth is, the words on that note are not just a good political device. Their wisdom is the foundational bearing behind any effective government plan.

It is after all the economy that pays for everything. It provides the tax revenue upon which every single public service entirely depends. It provides the fiscal room for tax competitiveness, responsible budgeting; yes even balanced budgeting.

So in this Alberta election the most important question for voters, the illusive ballot question – if you will – is: ‘who has the best plan for the economy?

I admit to a bias here but the answer is Kenney and the UCP and the evidence is objectively clear and on display in their respective platforms and in the existing record of the NDP.

The NDP bought into the social license theory that some self-immolating, indulgence like a carbon tax imposed on its own people and its own economy would swing support Alberta’s way from those who have manifestly opposed the continued existence of the Canadian fossil fuel energy sector.

It was folly from the beginning. What’s more, the decision seemed to give an agreeing nod to those who attack Alberta’s energy sector that they might have been right after all. Premier Notley also supported the feds capitulation on Northern Gateway, was nowhere to be heard or seen as a few of us were fighting for KXL and whose comments on the feds killing of Energy East, C-69 and the tanker ban on Alberta oil C-48 were whispered if said at all.

While I have a great deal of respect for Premier Notley these instances were, in my opinion, fundamental failures in leadership. More seriously, the cumulative effect of policies from Ottawa and Edmonton including the NDP’s failure to defend Alberta’s economic interests have left the oil and gas economy of Alberta trailing the energy economies of Texas, North Dakota, and yes, Saskatchewan.

Here are the latest reported unemployment rates in each of those places.

Alberta: 6.9%

Saskatchewan: 4.9%

Texas: 3.8%

North Dakota: 2.4%

Granted each of these economies is different, some more diversified than others. It’s worth noting however that there is only one of them that self-imposed the largest tax hike – a carbon tax hike no less- whose leadership allied with a federal government that isn’t sure it wants Canada to have an energy sector, who gave up on pipelines and whose fiscal improbity reached near to Biblically proportioned levels.

Policies matter. Economic policies matter most.

Albertans have to wade through the muck that has been raked in this campaign and there’s been no small amount of it and ask themselves. Who does have the best plan for the economy? Who will fight for our province’s economic interests? Who will place Alberta jobs at the very top of every meeting agenda?

Voting decisions are never easy. They shouldn’t be. But James Carville’s cajun accented admonishment of his old boss can help sort things out.

It’s the economy, stupid.


About the Author

Brad Wall served as the 14th Premier of Saskatchewan from 2007 to 2018.

Get rid of gas… hey, where’s the gas?

Here come the unicorns. Or so we’d better hope. Because if they don’t hop onto the treadmill and start churning out power things are going to get kind of chilly and hungry. Not to say awkward.

Look no further than the absurd statement by B.C. Premier John Horgan that if gas prices didn’t fall soon he would do some unspecified thing to bring “some relief”. According to the Globe & Mail, “Horgan said he can’t explain a 12 cent a litre increase and perhaps the industry should invest more in refineries and the federal government should invest more in supply.”

No, neither you, nor I, nor the Globe have entirely taken leave of our senses. That really is the same John Horgan bitterly opposed to pipelines and tankers including expanding Trans Mountain to bring Alberta oil to British Columbia, a province in which various mayors and city councils have done everything possible to annoy and scare away companies that invest in energy.

So it is Horgan who has taken leave of his senses. Convinced fossil fuels are setting the sky on fire he’s been pushing hard, and sanctimoniously, to keep cheap gas away from his citizens. And now he wonders witlessly why somebody doesn’t give them cheap gas.

To some extent what we are seeing exposed here is mere hypocrisy, the politician who values saving his seat above saving the planet. Which looks pretty ugly on people who glibly accuse climate skeptics of being in it for personal advantage. But to some extent we are seeing something much more dangerous than dishonesty, namely misguided sincerity.

Advocates of harsh measures to curtail or eliminate fossil fuels tend to believe that we are this close to having abundant sources of alternative energy from wind to solar. They do not know, do not care to know, and do not check awkward facts like wind, solar and battery power supplying just 2% of world demand and 3% of that in the United States. And with rare exceptions they are viscerally opposed to nuclear partly due to fear of everything atomic because of nuclear weapons and partly from deep, inarticulate, metaphysical rejection of anything practical.

Economist Kenneth Boulding once observed that those on the left believe all utilities can be maximized simultaneously. Which is how economists talk. But Boulding was far from being some cranky right-winger; he was a Quaker peace activist and author of an essay “The Economics of the Coming Spaceship Earth” about resource depletion. Nevertheless he rightly worried that many of his fellows genuinely did not believe in tradeoffs.

Far too many on the left still don’t grasp that there is no free lunch, that you must invariably give something up to get something else. Thus we hear people seriously say we should not penalize drivers of cars and trucks with a carbon tax because it is the fossil fuel companies that are responsible for all those emissions. Or that we can transition completely away from hydrocarbons within 12 years (and after lunch, retrofit every building in America carrying materials by bicycle or some such). And when you warn about impracticality or real costs you speak a language they do not comprehend with results infuriating, comic or both familiar to tourists. Just ask John Horgan.

If it really were true that all the world’s scientists called man-made climate change an urgent crisis, which it’s not, we would be in a pickle because without fossil fuels we would see our prosperity vanish. (An amusing video along the lines of “Zinc oxide and you” recently depicted a hapless suburban millennial seeing everything made from petroleum vanish.) It would require us to think long and hard about how to adapt, and how fast, and whether adapting to whatever changes in climate do occur might not be more effective in preventing misery and death. But thinking long and hard about that topic requires a general disposition, and ability, to think long and hard about anything.

Those who believe in powering modern civilization by putting unicorns on treadmills, or spend years trying to get rid of fossil fuels then gape at expensive gasoline, seem ill-prepared for such a task. Which is a problem. And awkward.


About the Author

Dr. John Robson is Executive Director of Climate Discussion Nexus. He holds a Ph.D. in American History from the University of Texas at Austin and has worked as a historian, policy analyst, journalist and documentary filmmaker for three decades. He has been examining the climate change issue for many years, including both the science and the policy debates.

One Question Remains As The US Moves Closer To Drilling In ANWR: How Much Oil Is There?

The Arctic National Wildlife Refuge’s (ANWR) coastal plain, or 1002 area, could hold billions of barrels of oil and natural gas, but the results of the only test well drilled in the refuge has been kept secret for decades.

The New York Times recently tried to pierce the veil of secrecy of the 1986 test well, called KIC-1, by looking through court documents filed in Ohio and talking with the attorneys involved in the case.

“The discovery well was worthless,” said now-retired attorney Sidney Silverman, who represented Standard Oil of Ohio shareholders in a 1987 lawsuit against BP, one of the oil companies that drilled the KIC well.

After deposing a BP executive, Silverman told The Times he remembered being convinced “either there was no oil and gas there, or the oil couldn’t be produced at an economic value.” That sentiment was echoed by a BP executive and a lawyer The Times spoke to.

The Times’s April 2 piece will no doubt be seized upon by opponents of ANWR drilling, but the question remains: How much can one really know about ANWR’s oil and gas potential from one test well?

Oxford-educated geologist Roger Herrera was first sent by BP to look for oil and gas in the Alaskan Arctic in the 1960s, including ANWR’s coastal plain. He said it was “absolute nonsense” to judge ANWR based on one confidential test well.

“Either the writer or the people he was writing about didn’t have the slightest clue what they were trying to understand,” Herrera, now retired, said in an interview with The Daily Caller News Foundation. “The point is, it doesn’t matter.”

Herrera was not privy to the KIC well results but has experience with looking for oil and natural gas across the North Slope and Arctic. He said test wells often turn up no hydrocarbons but provide valuable geological data.

“The evidence you get from that well is the data and position that gives you an advantage,” Herrera said. “It allows you to assess the geology of the area because you’ve got real data down to 10,000 feet or so that you can tie to the seismic data.”

Anyone else looking for oil and gas in ANWR would be guessing, Herrera said. “That assessment might downgrade the whole area or it might do the exact opposite,” he said.

“It allows them to make those estimates whereas everybody else is completely guessing,” Herrera said.

Herrera, for decades, advocated for drilling in ANWR, but the refuge remained off-limits to energy exploration for decades as environmentalists held enough sway in Congress to keep drillers out.

ANWR’s 1.5 million-acre coastal plain was finally opened to energy exploration when President Donald Trump signed 2017 tax cuts into law. That provision was put in the tax legislation by Alaska GOP Sen. Lisa Murkowski, one of the biggest proponents of opening ANWR.

Opening ANWR comes more than three decades after BP, Chevron and two Alaska native corporations teamed up to drill the KIC well in the eastern part of the 19.2 million-acre refuge. The Arctic Slope Regional Corporation (ASRC), one of the native corporation partners, has continued to aggressively push for opening ANWR.

ASRC declined to comment, but Richard Glenn, a geologist with the group, told Congress in 2017 that ANWR holds “significant potential for onshore oil and gas development.”

ASRC and Kaktovik Inupiat Corporation (KIC) own 92,000 acres of surface and subsurface in ANWR. For decades, the federal government kept those lands off-limits to exploration, despite the potential economic benefit to local tribal members.

“I know for a fact it’s an oily area,” Herrera said. “The clue is really contained in the rocks that occur above the surface in the tundra. Those exposures will more or less tell you what’s going on in general.”

The big question is whether or not ANWR’s oil and natural is trapped in large or small reservoirs by the region’s underground geology. However, even good seismic data doesn’t give the full picture and test wells are needed to truly understand the geology.

“There’s a very good expectation under the 1002 area that there are going to be reservoir and source rocks for oil or gas, no one is quite sure which,” Herrera said, adding he believes there are probably “trapping mechanisms” under ANWR. “I’m very confident I’m right.”

The last resource assessment of ANWR conducted by the U.S. Geological Survey (USGS) in 1998 estimated technically recoverable oil reserves at 10.4 billion barrels. That was a two-dimensional seismic survey using 1980s computing power, and the technology has drastically improved since.

Three-dimensional seismic surveys can give geologists a more accurate picture of what lay underneath ANWR, but environmental activists fought hard to keep further tests from being carried out.

Seismic testing in ANWR was scheduled to take place over the winter but had to be delayed because the company contracted to carry out tests did not get a special permit from the U.S. Fish and Wildlife Service in time.

The prolonged government shutdown may be partly to blame for that, and the company, SAExploration, plans on carrying out seismic testing in December 2019. That could complicate things for drillers looking to bid on leases in late 2019.

ANWR still lacks updated seismic data, however, signficant oil and gas finds have been made to the west.

“One of the largest fields in Alaska is in development within a stone’s throw from ANWR,” said Jon Katchen, former senior counsel to Alaska Department of Natural Resources Commissioner Dan Sullivan.

Sullivan, now a GOP U.S. senator, supports oil and gas exploration in ANWR. He’s not alone — Alaska’s entire congressional delegation, and most other elected officials in the state, support drilling in the refuge.

Katchen is referring to the Point Thomson field, which is 60 miles west of the village Kaktovik, which lies on ANWR’s coastal plain. Exxon brought the reservoir online in 2016 and aims to eventually produce 10,000 barrels of natural gas condensate per day.

To the west of Point Thomson sits Prudhoe Bay, Alaska’s most iconic oil field. The 1968 oil discovery there completely reshaped Alaska’s economy and drastically raised standards of living for Alaskan residents and tribes.

However, it almost never happened. BP and Sinclair Oil drilled six wells in the early 1960s that all turned up dry. More wells were drilled by other companies, but by 1967 the oil and gas industry had basically given up on the North Slope.

“It’s not uncommon for wells to be drilled with disappointing results, then another well to be drilled and ‘whoa,’” Katchen told TheDCNF.

That “whoa” moment came just before Christmas 1967 when ARCO and Humble Oil, with the last drilling rig left on the North Slope, hit paydirt, NPR reported. Months later, a second test well confirmed the oil discovery was massive — about 10 billion barrels.

“That’s the sort of process that happens when you’re looking for oil,” Herrera said. Test wells are about the geological information, not just striking oil and gas.

The Times did note, however, that one of the few people outside of BP or Chevron to see the results of the KIC well was geologist Mark Myers. Myers was allowed to examine the geological data from the well in 1988, but not allowed to take notes. All he reported were “the findings were significant,” The Times reported.


About the Author

Mike Bastasch writes about energy and the environment at the Daily Caller News Foundation.

Carbon tax is a hit to business competitiveness

Contrary to Justin Trudeau’s claim of just a few years ago, budgets don’t actually balance themselves: revenues have to equal expenditures for that to happen.  Given that, it is not surprising that after running up an enormous deficit in less than four years the Trudeau Government is looking to put its hands in our pockets with the Carbon Tax. Though presented as revenue neutral, the reality will be handouts to some and hidden risen costs for all.

Of particular note will be the hit to business competitiveness. Or at least the competitiveness of some businesses: one wonders how many large corporations have exemptions of one kind or another.  Why do we say that? Well why else would a group like the Business Council of Canada – made up of some of Canada’s largest corporations – repeatedly make clear their support for carbon taxes? And why do various trade associations feel compelled to do the same thing?

How many people realize that there are industry groups out there declaring their support for carbon taxes, and then working out special exceptions because they are “energy-intensive industries” who compete in international markets with players who don’t pay carbon taxes.  So in other words, they say “we’re for carbon taxes but we don’t want to pay them”.

Any hypocrisy there?

So who will pay them? Well this is the ongoing trick with the carbon tax – it is hard to tell. But let me tell you that we know small to medium sized businesses will be hit hard. This tax is going to be devastating to the competitiveness of these companies – and that is really, really bad for Canada. If I belonged to any association that supported a carbon tax I would resign my membership immediately, full stop.

Large companies need to remember that while they are negotiating exemptions they are throwing small to medium businesses under the bus: they are decimating their supply chains, killing the entrepreneurialism that ultimately provides talent to them, and hurting the innovation that flourishes in small enterprises – innovation from which they eventually benefit.

Carbon taxes are not revenue neutral – the BC case shows that. They do not change behavior –European case studies show that. They do not have an impact on emissions – all kinds of cases prove that. What they do is drive up costs, subsidize ineffective alternatives, and give government another pool of money to pay for their pet projects.

The time has come for Canadian business to come together, to realize government is trying to divide and conquer us to advance their interests, and to realize our trade associations do us no favours by bowing before government to get access instead of calling them out when their actions are against our interests.


About the Author

Jocelyn Bamford is the president and founder of the Coalition of Concerned Manufacturers and Businesses of Canada.

Rethinking energy, rethinking industry – who’d have thought pucks would take centre stage?

It is very easy to get bogged down in energy wars. Conversations, even macro-type ones, often degenerate into debates about trees and not the forest – is this/that pipeline needed, is there a market for bitumen, etc. Energy talk devolves into these bite size pieces, and fixates on them, because that’s how Canada’s energy industry is attacked, so we must deal with the disinformation.  There is a whole internet that needs convincing. But when that happens, it gets harder to think outside the box.

Sometimes something wonderful happens that, virtually speaking, slaps us right off our barstool (thanks for the visual Eminem – for whom the metaphor may be part of his daily routine). Lately, I’ve been fortunate to interact with people who are working outside the spotlight in ways that cause a complete mental reset.

One instance occurred recently in a conversation with Jeff Paquin, CEO of Wapahki Energy Ltd. Wapahki is a 100-percent-owned First Nation company, and has an attitude that is desperately welcome – they want to create jobs, build an industry, and solve problems in a way that is, unsurprisingly, beneficial to the environment. Wapahki is developing CanaPux, a new method of transporting bitumen by blending and encasing it in plastic. (Side note: this is a bit of a fanboy exercise, but not intended as some sort of weird product promotion (I am not a paid shill for anything, and will not receive a single bitumen puck as compensation). Also, I unfortunately can’t discuss all the other brilliant ideas going on to help solve energy problems (because there are too many of them), but I will get to them as I can. There is a point to the story beyond starry-eyed adulation (though there is an element of that for sure).

When I first heard of CanaPux in the news, my battle-weary brain simply interpreted it as a new way to transport bitumen, and I mentally filed it as a new subsection in the “crude-by-rail” category.

As it turns out, my initial reaction was sort of symptomatic of the problems with the whole energy dialogue. I lazily framed the new technology in a limited way – that lack of transportation is our biggest problem, because that’s what we’ve become fixated on.

CanaPux, as it turns out, is the tip of an iceberg, a multidimensional development that goes far beyond the issue of “moving oil.” I don’t know if that developed by design or accident, and it doesn’t matter; what does matter are the possibilities that unfold.

What’s so special here? Well, from one end to the other, fresh thinking is obvious. First, the project is primarily a development between a First Nation entity and a railway company, who in conjunction set out to create a better future for the community, in a greener way, by building a business that isn’t designed or defined singularly as “moving product.” Moving bitumen is one aspect of the business, but there are others, and each is a value-added component in one way or another.

The entire process doesn’t just get something to market, it in a way creates new markets. For starters, rather than focusing on getting bitumen to refineries, this system will take product to Asia – China and India as a considerable start – where huge demand exists for bitumen in the textile, roadbuilding/asphalt, and petrochemical industries. Both these massive countries require bitumen in locations not served by pipeline, so plasticized block transport is perfect.

Next, recycled plastic can be used to create the pucks, and, as you can imagine, the opportunities for plastic recycling are staggering. The world is begging for a productive use for waste plastic. At the other end of the chain, the plastic is separated from the bitumen and can be reused.

Further along the value chain, biomass material that would otherwise go to landfills can be sourced in Alberta or even backhauled on empty trains. This last part has value not to be underestimated; empty trains coming back from either coast could create a sub-industry whereby other First Nations (or anyone, for that matter) along the way can sign on to provide waste organic wood material that is of no value, or has negative value as forest fire fuel, but is valuable as biomass feedstock.

The benefits of this project are all over the place. First Nations ownership is a great thing from any perspective, and the project will create hundreds of local jobs. The bitumen pucks serve non-combustion markets in Asia that are not served by pipelines, and are huge – millions of barrels per day. The project has not just railway support, but participation. Greenhouse gases are reduced. The danger of transport spills is eliminated, since a spill would be cleaned up like Lego is cleaned up in the living room. The bitumen will command a higher value than as simple refinery feedstock. The plastic used the process can be reused in manufacturing. Sourcing plastic itself is an exciting aspect (as exciting as plastic recycling gets anyway), because, well, just look around. Waste plastic is, to put it mildly, plentiful. Who wouldn’t like to see all that crap find a home? The list of positives is so large it sounds crazy, but they are all real. What is worth remembering though as an overarching comment is that this is a First Nations initiative from people that are fed up with substandard living and want to do something constructive about it. That line of thinking is as noble as it gets.

If this whole idea had been initially screened by someone who was thinking like myself, as simply another way to move bitumen to refineries, maybe it would never have gone anywhere. There are always a million reasons why something won’t work, if one chooses to see things that way. Luckily, some people do not.

Wherever these people come from that dream up these new visions, we need more of them. Maybe there’s plenty of them under our noses, grinding away and muttering to themselves that no one will listen to fresh thinking. Rise up and be heard, you nerds. Not every long shot idea works, but some will, and the payoff can be revolutionary and huge.

Here’s another way to look at it, from the flip side. A few years ago, plus a bit, I had a summer university job at a small-town “dehy plant” as they were known in Saskatchewan. Dehy plants were an agricultural sub-industry in Saskatchewan whereby freshly-cut alfalfa was process into pellets by harvesting and quick-drying the alfalfa with natural gas heat, rather than baling it when bone-dry. Most of the pellets were shipped to Japan, which never ceased to amaze us, that alfalfa could be dried, processed, and shipped around the world to fetch many times the value that it would have in conventional hay bales. The industry was, however, largely wiped out when natural gas prices skyrocketed in the 1990s. So…we are now in a prolonged period of low natural gas prices. If the alfalfa processing business can’t/doesn’t make a comeback, what else is there that could be a proxy? Nothing? I find that hard to believe. The world as we know it was built on cheap energy, and you don’t get cheaper than near-free natural gas.

From one aspect, western Canada has a problem, the lack of access to energy markets. From another perspective, western Canada has profound opportunity – product that the world wants, needs, and has increasing demand for; a phenomenal workforce that is used to change and adaptive to technology; and square miles of untapped opportunity. We may not have supportive politicians, we may have to battle energy ignorance at every turn, and we may be the target of unfair attacks. But that doesn’t mean it is game over.


About the Author

Terry Etam is an independent senior consultant for small and midsize oil and gas companies. His website Public Energy Number One is dedicated to energy education and he is the author of The End of Fossil Fuel Insanity.

Iran and Iraq will work together to develop two oilfields

According to a report on Iran’s oil ministry website, Oil Minister Bijan Zanganeh Iran and Iraq have come to an understanding regarding development of the Naft Shahr and Khorramshahr oilfields, though without details of the plan.

Iranian President Hassan Rouhani called for Iran and Iraq to expand their gas, electricity, and oil dealings and boost bilateral trade to USD $20 billion despite difficulties caused by U.S. sanctions against Tehran. Iranian media reports have put the current level of trade at about $12 billion. In remarks carried by state television, President Rouhani said, “We hope that our plans to expand trade volume to $20 billion will be realized within the next few months or years,” after a meeting with visiting Iraqi Prime Minister Adel Abdul Mahdi.

In November, American President Donald Trump re-imposed sanctions on Iran’s energy exports citing its nuclear program and meddling in the Middle East, but he granted waivers to several buyers to meet consumer energy needs. In March, the United States granted Iraq a 90-day waiver exempting it from sanctions on buying energy from Iran.

According to comments published by the oil ministry’s news site SHANA in February, Minister Zanganeh criticized Iraq for not agreeing to develop shared oilfields because of sanctions fears. The energy industries in the two countries have close ties, and Iraq relies heavily on Iranian gas to feed its power stations. Iraq imports roughly 1.5 billion standard cubic feet of gas per day from Iran via pipelines in the south and east of the country. Zanganeh noted Iraq owes Iran approximately $1 billion for gas supplied in the past.

After a trip to Iraq last month by President Rouhani and Minister Zanganeh, Iran had agreed to help Iraq with technical and engineering services in the oil sector. “Given the lack of development in the petrochemicals and gas industries in Iraq, there is a bright perspective for cooperation between the two countries,” Minister Zanganeh said, also without further detail.

According to SHANA, Iran’s deputy oil minister for trade and international affairs Amir Hossein Zamaninia said Iran also agreed to help with the development of mutual fields, rebuilding old refineries, and helping build a network for gas delivery.