Considering our editorial Tuesday, Tomorrow's ALLIANCE MEET ALASKA conference may be the year's most important meeting for readers living in/visiting Anchorage. Agenda. |
Following Tuesday's editorial on the rating agencies' downgrades of Alaska's creditworthiness, see these reader comments by: an Alaska couple, an Alaska university professor, and our anonymous, Australian energy analyst friend (We hope his tough but realistic predictions are ameliorated by a successful TransCanada suit, as described below. -dh
Speaking of the Alliance (i.e. upper right), our Mid Atlantic anonymous energy analyst friend has this to say about the plight and the future of petroleum industry service companies. Hopefully, the better support industry environment in Alaska will sustain it!. -dh
Oil Voice by Tim Bradner. 'Our operations in winter are becoming increasingly complex,' Alyeska CEO Thomas Barrett (NGP Photo) said in a briefing. … 'The real solution for us is finding more oil on the North Slope and adding new production and throughput,' Barrett said.
TransCanada will sue the Obama administration…
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…for $15 billion for violating NAFTA because the President disapproved the Keystone XL pipeline by fiat, and because he overreached his authority on multiple occasions. (Read the Calgary Herald story here, and subscribe!)
Sound familiar? Hopefully this will be another defeat in the growing record of so-called executive actions that the courts reject. We are respectful of TC for standing tall, in the spirit of the old Peter Finch movie theme by saying, in effect: "I'm as mad as hell, and I'm not going to take this anymore!".
The administration's arbitrary and capricious acts have alienated it from the Constitution its executives are sworn to protect–as Alaska and others have learned only too well (Ref. 1, 2, 3).
During Obama's last year in office, Congress, companies and individuals experiencing harm by an unlawful administration should push back very hard, lest more freedoms become lost during these last few months. -dh
Calgary Herald/Canadian Press by Ian Bickis. TransCanada launched a double-barreled legal salvo Wednesday against the U.S. government over its rejection of the company's proposed Keystone XL pipeline.
The company said it intends to file a claim under Chapter 11 of the North American Free Trade Agreement in response to the decision, which it called arbitrary and unjustified.
… TransCanada alleges that, as a signatory to NAFTA, the U.S. government failed in its commitment to protect Canadian investors and ensure the company was treated in accordance with international law.
In its notice of intent to initiate the NAFTA claim, TransCanada said that the U.S. government concluded five times that the pipeline would not have a significant impact on greenhouse gas production, but still rejected the pipeline to appear strong on climate change.
"Stated simply, the delay and the ultimate decision to deny the permit were politically-driven, directly contrary to the findings of the administration's own studies, and not based on the merits of Keystone's application," TransCanada says in its notice of intent.
… TransCanada said it has also filed a lawsuit in the U.S. Federal Court in Texas asserting that President Barack Obama's decision in November to deny construction of Keystone XL exceeded his power under the U.S. Constitution.
… The White House and the State Department both declined to comment on the lawsuit or the NAFTA challenge.
… Adam Barratt, a spokesman for Foreign Affairs Minister Stephane Dion, had little to say on the matter Wednesday, although he noted the lawsuit is "not entirely unexpected" and falls within TransCanada's purview.
"We're aware of recent developments with this file and TransCanada," he said. "As this is a matter which is expected to go before arbitration, or before a court, we don't have a comment at this time."
… "This is about a foreign company trying to undercut safeguards that protect the American people," said Anthony Swift, director of Natural Resources Defense Council's Canada project. (Note: typical, non substantive outcry by a special interest activist. -dh)
Saskatchewan Premier Brad Wall, who supports the project, tweeted: "We support @TransCanada #KXL NAFTA challenge. Pipelines safest way to move energy in N. America, get more $ for SK oil."
Read full story here…, and subscribe!
Note from our anonymous Australian energy analyst following Tuesday's editorial:
Dave,
Firstly – thanks for promoting my blog again recently!
I presume you will already have seen the story below.
Point Thomson condensate will help TAPS. Beyond that though, things look tough. Exploration on the NS with current oil prices (and current Governor of AK…) will not be material. A likely Hilary win in the 2016 Presidential election will mean ANWR will remain inactive. Offshore is dead for a “generation”. AKLNG has great merits – but it is a tough LNG market and it is ~10 years away. Help!
Cheers,
PS – Happy New Year!
From an Alaska couple after reading Tuesday's piece:
A VERY HAPPY HAPPY HAPPY NEW YEAR, DAVE HARBOUR……… Stay safe and ENJOY 2016 . . . AND THANK YOU FOR CONTINUING TO INCLUDE US ON YOUR LIST OF INTERESTED ALASKANS!!!
An Alaska professor commented on Tuesday's editorial. He writes frequently and is extremely hostile to oil companies, the biggest benefactors of education in the state. When he retires, he will have free insurance for life and an extremely enviable defined benefit pension payment. I'm sure if I asked him what more the state could reasonably want of oil investors, he would say, "More".
"Dave: I agree that we have been very inconsistent with our oil tax policy, but if we would have taxed them more way back when, we would be really sitting pretty. Just saying."
(Our response: You know I couldn't let the last part of your statement stand without response.
If our elected officials had taxed oil more, 1) we would likely have seen less investment, less oil over time; and, 2) the government would have started new programs with the extra money, which would have been an additional anchor around the economy's neck during volatile, low price eras — like now.
We should be encouraging and not criticizing oil investors, because we want them to invest more and not less. To attract more investment, we should be a place where, "a deal is a deal".
More investment leading to more production is essential if the state is to meet its financial obligations. One of those obligations is eliminating the almost $10 billion unfunded liability of the PERS/TERS public employee/teacher retirement funds, of which you are a beneficiary.
Currently, there are not sufficient, available funds to both run our subsidized government for the next few years and make the retirement fund whole.
Accordingly, teachers should be among the most vociferous supporters of oil investment, not some of the industry's most hostile critics.
Happy New Year!
-Dave
From ALASKA SUPPORT INDUSTRY ALLIANCE General Manager, Rebecca Logan (NGP Photo):
"The Alaska Support Industry Alliance is once again proud to announce that our annual Meet Alaska Conference and Tradeshow is TOMORROW!
"As the largest one-day event of its kind in Alaska, Meet Alaska features more than 500 Alliance members including industry leaders from across the state. In addition to meeting fellow Alaskan industry leaders, attendees will be invited to hear a dozen presentations from economic authorities and Alaskan lawmakers on the industry climate in Alaska.
"Meet Alaska hasn’t disappointed in 33 years – and Friday will be no exception. If you are interested in joining us, click here to find registration information. Stay tuned this week to Headlamp’s blog and Twitter through #MeetAlaska16 for the latest.
"And for those joining Meet Alaska in person AK Headlamp will be on hand. Ever wondered how you and your business can stay engaged on key political and business issues facing Alaska? Need help signing up for Twitter? Come find us Friday at the AK Headlamp booth."
From our Mid Atlantic anonymous energy analyst friend:
Last night, as a closing preview, we said, “In the next few days, we will deal with another major evolution to the pricing mix: Major changes for the Oil Service Industry.” (Unnamed) immediately challenged us: “I'm going to be very interested in your next articles on the OFS industry.”
Anyone who follows this corner knows there are few, if any, better analysts of the Oil Service business than Unnamed. He was an excellent sell-side Oil Service Analyst with CIBC for many years, and serves on the board of several Oil Service companies. Also, we are quite confident he will cover the issue soon in his bi-weekly Musings (possibly next week). Unnamed's dive into any subject is always deeper than mine, and more informative (in fairness, we cover at least ten topics in a two-week period, compared to Unnamed’s four-to-six subjects). That is why we always pass along Unnamed’s great writings.
That being said, we have decided to get into the subject of the outlook for the Oil Service industry, with an eye to what it means for the longer-term outlook for crude oil and natural gas prices. But it will take several comments over the next couple of weeks; any note too long will not get read. So bear with us.
Our Thesis: Projected cash flow for the E&P industry will likely be bleaker in to 2016 than almost all analysts have been projecting. Further, most companies have vowed to live within their opex cash flow in 2016 (mostly because they have little choice), a dramatic change from prior years. In order for the E&Ps to survive (or in the stronger cases, muddle through), they will insist that the Service Companies work for what amounts to either 1) a fixed cost, or 2) a price contingent upon the rate of production. In short, the Oil Service business will have virtually no pricing power. Further, they will be subjected to the heightened credit risks associated with their customers. The good (?) news: There is likely to be another surge in innovative efforts to generate greater efficiency in field operations.
We have referred to our analogy of the Orlando Hotel Syndrome so often that many readers will skip past this section. But there is a specific reason for bringing it up again now. Briefly, when Disney announced it would build Disney World in Orlando, every developer, orthodontist and his brother invested in building hotels/motels in Orlando. Anyone could look up and down the streets and know it was being overbuilt. But almost no one wanted to give up his project and concede market share to the other developers. After all, the only real barrier to entry was money. As a result, by the time Disney World opened up, almost all of them were wildly overextended, and went bankrupt. Some of them went through bankruptcy twice. It was not until the cost of the projects (through forced sales) came down AND Orlando developed more attractions that the lodging industry stabilized. In the process of the overbuilding, many of the contractors were also subjected to extreme financial distress by the construction of the hotels/motels.
The point of bringing this up is that we are entering the bankruptcy phase of the Syndrome. And the Oil Service is going to feel the financial stress even more than is being projected. As a result, we have entered the bankruptcy phases for the E&Ps, but it should get much worse in the first six months of this year. In advance of this we will see many more outlooks lie this one from CONSOL Energy today:
CONSOL Energy (CNX/$8.53) reduces 2016 E&P capital budget by 40% and production guidance. Responding to challenged natural gas prices, CONSOL management significantly reduced its E&P capital budget. The E&P division budget was reduced to $205-325 million, down ~40% from previous guidance of $400-500 million and down ~67% y/y.
The Bottom Line: The Service industry will have almost no pricing power over their services. Quite the opposite; they have almost completely become price takers, to an industry teetering on the edge.
We will have more on this topic in the next few weeks. We will start with this article from Fuelfix about the ongoing shrinking of capex and opex budgets.
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