NOVA SCOTIA LNG PROJECTS HAVE ROOM TO BLOOM Who would have thought Nova Scotia’s dwindling population could be a positive attribute for future industrial development? But it seems that may be the case. Having a sparse population isn’t attractive in all situations, but when it comes to building certain types of plants, such as liquefied natural gas export facilities, having fewer people and deep harbours are just what is needed. The lack of population density means there is little or no resistance from people concerned about a major gas plant operating near their homes, and the deep harbours allow the huge ships that will carry the liquefied gas to navigate the local waters with ease. Ever since fracking technology has allowed companies to recover gas that was trapped within underground shale formations, particularly in the United States, entrepreneurs have been trying to figure out ways to export that product to markets around the world. In Canada, most of the attention has been on British Columbia because of its close access to western Canadian natural gas and its proximity to China, but carrying out those plans has been hampered by opposition to LNG projects on the West Coast. In Nova Scotia, it seems there has been little opposition to such plants, and although there have been some doubters, including myself; it appears that at least one of the companies is getting ready to build. In fact, two firms with plans to build LNG export facilities in the Strait of Canso area were recently awarded import and export licences from the National Energy Board, clearing a major obstacle to them becoming a reality. Bear Head LNG Corp. seems to be the closest to construction of a $4-billion plant in Point Tupper, Richmond County that would be capable of exporting 12 million to 14 million tonnes per year. Bear Head, a subsidiary of Australian company Liquefied Natural Gas Ltd., still has to figure out how it will get all the gas it needs. www.oilfieldnews.ca Published By: NEWS COMMUNICATIONS since 1977 Saturday August 22nd, 2015 Sign Up with the Oilfield News Online Weekender To receive our Online Publication, please fax back with your email in the space provided to 1(800) 309-1170: _____________________________
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Nova Scotia LNG projectS have room
to bLoom
Who would have thought Nova Scotia’s dwindling population could be a positive attribute for future industrial development? But it seems that may be the case.Having a sparse population isn’t attractive in all situations, but when it comes to building certain types of plants, such as liquefied natural gas export facilities, having fewer people and deep harbours are just what is needed.The lack of population density means there is little or no resistance from people concerned about a major gas plant operating near their homes, and the deep harbours allow the huge ships that will carry the liquefied gas to navigate the local waters with ease.Ever since fracking technology has allowed companies to recover gas that was trapped within underground shale formations, particularly in the United States, entrepreneurs have been trying to figure out ways to export that product to markets around the world.In Canada, most of the attention has
been on British Columbia because of its close access to western Canadian natural gas and its proximity to China, but carrying out those plans has been hampered by opposition to LNG projects on the West Coast.In Nova Scotia, it seems there has been little opposition to such plants, and although there have been some doubters, including myself;
it appears that at least one of the companies is getting ready to build.In fact, two firms with plans to build LNG export facilities in the Strait of Canso area were recently awarded import and export licences from the National Energy Board, clearing a major obstacle to them becoming a reality.Bear Head LNG Corp. seems to
be the closest to construction of a $4-billion plant in Point Tupper, Richmond County that would be capable of exporting 12 million to 14 million tonnes per year.Bear Head, a subsidiary of Australian company Liquefied Natural Gas Ltd., still has to figure out how it will get all the gas it needs.
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The company has reportedly been investigating several sources, including Nova Scotia’s offshore, U.S. shale gas and western Canadian gas shipped through TransCanada Corp.’s main west-to-east pipeline.The other company to receive energy board approval is Pieridae Energy (Canada) Ltd., which has plans to build a multibillion-dollar, 10-million-tonnes-per-year LNG export facility in Goldboro, Guysborough County.Pieridae, however, is hedging its bets and is holding back on committing to building the Goldboro plant until sometime next year.It also faces the same supply challenges as Bear Head.H-Energy of India is considering building a 4.5-million-tonnes- per-year LNG export facility in Melford, Guysborough County, but it has
not yet received the same level of approval from the energy board.The big payoff for Nova Scotia from the development of these projects is during the construction phase. Hundreds of workers will be employed during the building phase, but only 25 to 75 workers will work at the terminals post-construction.Is Nova Scotia doing all it could to leverage the development of LNG export facilities here, beyond just acting as a conduit for gas exports?There is talk by LNG companies about creating proprietary technology. Could there not be an opportunity to encourage Nova Scotia research into that kind of expertise?Rather than seeing all the natural gas imported, liquefied and then exported, there must also be opportunities for the local gas market
to tap into a new supply source.These are more than just construction projects. They have the potential to become important business opportunities.
NorweGiaN fuNd GiaNt putS premium
oN ethicaL iNveStiNG
Canadian fund giants invest in companies that some funds exclude for ethical reasonsNorway’s $1.15 trillion Cdn sovereign-wealth oil fund announced this week that it will sell its stakes in four Asian companies over environmental concerns, underlining yet again how willing it is to take an activist approach to companies that fail to meet its ethical standards.
The mammoth fund, which is financed by profits, taxes and fees from Norway’s offshore oil and gas sector, said it would divest from South Korean steelmaker Posco, its subsidiary Daewoo International Corp., and two Malaysian companies, Genting Berhad and IJM Corporation Berhad.
The sell decision came from the fund’s ethical council. It said the four companies may be responsible for environmental damage linked to the conversion of tropical forests in Indonesia into palm oil plantations.The four companies are the latest to join a blacklist of more than 60 companies that have been excluded from the fund’s portfolio for a variety of environmental, social or governance reasons.
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Two Canadian companies have made the list: Potash Corporation of Saskatchewan and Barrick Gold.Barrick was added in 2008 following a recommendation from the fund’s ethics council because of “an unacceptable risk of contribution to ongoing and future environmental damage” at a mine in Papua New Guinea. PotashCorp was excluded in 2011 because it imported phosphate from occupied territory in Western Sahara.The Norwegian fund’s position is more activist than that of most big Canadian pension funds, which say they do evaluate companies for their environmental, social and governance performance, but stop short of refusing to invest in firms solely because of ESG concerns.
The Canada Pension Plan Investment Board (CPPIB), for instance, has a $13-million stake in Genting Berhad and a $5-million stake in IJM Corporation Berhad — the two Malaysian companies that Norway’s fund is excluding from its portfolio.A spokesperson for the CPPIB pointed to its mandate to maximize returns without undue risk of loss. But the board’s website indicates that that does not mean that it does not take ESG factors into account in its $268-billion CPP Fund. “We believe that organizations that manage ESG factors effectively are more likely to create sustainable value over the long term than those that do not,” the CPPIB says. “Given our legislated investment-only mandate, we integrate ESG into our investment analysis, rather
than eliminating investments based on ESG factors alone. As an owner, we monitor ESG factors and actively engage with companies to promote improved management of ESG.”In other words, the pension giant uses its shareholder voting clout to nudge management into being more responsible and providing more disclosure to company investors.Other big pension funds in Canada appear to have much the same strategy.A recent report from the Responsible Investment Association (RIA), a
Canadian umbrella group that represents fund companies, financial institutions, asset managers, research firms and advisers who specialize in responsible investing, shows that most of Canada’s biggest pension funds, including the CPPIB, now routinely report on their responsible investing activities. According to its data, the value of assets in Canada being managed using one or more responsible investing strategies increased to more than $1 trillion by the end of 2013. RIA chief executive Deb Abbey
says the CPPIB’s focus is mainly on shareholder engagement and proxy voting. She acknowledges that they have been “actively engaged” on a number of issues. “They do what they can do and ... what they can do is evolving at a pace,” Abbey says.Should they be doing more? “Absolutely,” she tells CBC News. “All investors should use their rights as shareholders to reduce risk and increase shareholder and stakeholder value. The CPPIB has more resources to do that than most.”Abbey also notes that the Ontario government has brought in legislative changes that will require all pension plan administrators as of 2016 to spell out whether environmental, social and governance factors are taken into account in the plan’s investment policies and procedures, and if so, how.
“This could be a game changer in Canada,” she says.The demand for such ethical accountability is growing. Last week, financial research company Morningstar announced it would launch the fund industry’s first environmental, social, and governance scores for global mutual funds and exchange traded funds.The scores will be based on ratings from Sustainalytics, an Amsterdam-based provider of ratings and research based on a variety of environmental, social and governance factors.Sustainalytics’ ratings rank 4,500 companies against their peers — a best-of-sector approach to rating their ethical behaviour. Why the growing interest in ethical accountability? It
appears to pay dividends.In Canada, the Jantzi Social Index, which tracks 60 Canadian companies that pass a number of environmental, social, and governance rating criteria, has outperformed the main Toronto Stock Exchange benchmark over the past one, three, five and 10 years. A 2015 study from the Harvard Business School found that “firms with good performance on material sustainability issues significantly outperform firms with poor performance on these issues.”
The clear implication, the authors say, is that investments in companies that take sustainability or ESG issues seriously boost shareholder returns.B.C. gas drilling a relative bright spot in collapsing Canadian energy sector
iNfraStructure SpeNdiNG ShowS
coNfideNce iN propoSed b.c. LNG
iNitiativeS
Natural gas drilling in British Columbia’s Peace River region in
the first half of 2015 fell by 23 per cent compared with last year’s activity, although you wouldn’t know it by the amount of construction going on around the boom towns of Fort St. John and Dawson Creek.While drilling activity is down, companies are making up the difference by spending hundreds of millions of dollars to build pipelines, compressor stations and gas plants, continuing to hedge bets that liquefied natural gas developments will proceed.And despite the decline in drilling, activity levels in B.C. make the province a bright spot in Canada’s
overall energy sector, which has been ravaged by plummeting oil prices.“B.C. is holding steady,” said Mark Salkeld, CEO of the Petroleum Services Association of Canada. “(Drilling activity) is not great compared to previous (years), but in this day, and all things considered, it’s pretty impressive.”Drillers punched 311 new gas wells in B.C. by the end of July this year, compared with 392 in the same months of 2014, activity reports from the B.C. Oil & Gas Commission show.And the count of rigs at work in B.C. in July was 27 out of 83
available, a utilization rate of 33 per cent, compared with 48 out of 77, or 62 per cent, in the same month of 2014, figures from the Canadian Association of Oilwell Drilling Contractors show.B.C.’s utilization rate was higher than Canada’s as a whole, which was 24 per cent of available drilling rigs.Salkeld said that while Alberta has underperformed compared to his organization’s forecast from earlier this year, “northeastern B.C. has outperformed our forecast,” albeit modestly. The association now estimates B.C. will drill 559 wells by the end of this year, compared
with 555 in its earlier forecast.“There’s a reasonable amount of confidence that B.C. LNG initiatives will go ahead,” Salkeld said.No company has made a final investment decision on one of the multi-billion-dollar projects, but how much drilling the industry’s big players are doing does appear contingent upon whether a company is attached directly to a proposed LNG project.Current prices are in a still-glutted market for gas, hovering at historically low levels offer little incentive to produce the fuel.Progress Energy Canada Ltd.,
for instance, is in the midst of a plan to spend $2 billion in B.C. on drilling and building associated infrastructure, said David Sterna, director of external affairs for the company. However, that is more because it is hedging that its parent company, Malaysian state-owned Petronas, will make a final decision to proceed with an $11-billion LNG plant at Prince Rupert.“We expect to drill in the neighbourhood of 200 wells this year, which is consistent with prior years,” Sterna said, with between 18 and 20
rigs at work at any one time under long-term contracts for the company.The Petronas-led consortium proposing the Pacific NorthWest LNG plant in Prince Rupert said in June that the project makes economic sense, but a final go ahead would depend on regulatory approval by the federal government.It also needs to reach an accommodation with the Lax Kwa’alaams First Nation, which remains opposed to the plant’s proposed location in sensitive salmon habitat in the Skeena River estuary.
Sterna said Progress’s drilling plan now is to gear up for a production level of two-billion-cubic-feet of gas per day by 2019/20, the tentative commissioning period for that plant, if Petronas and its partners proceed. (Before this year, drilling was done to establish whether the company had sufficient reserves to support the plant.)“Our drilling activities are driven more by the timing and schedule of the downstream facility,” Sterna said.Among other companies, Energy giant Encana finished drilling its most
recent set of wells in the Montney shale formation west of Dawson Creek in May and completed hydraulic fracturing operations in June.“At this point, we may drill a few wells later in the year,” said Brian Lieverse, a senior community relations adviser for Encana in Dawson Creek, “(but) our (well) completions just wrapped up for the year as well, and all of that is due to the economic pricing of gas and oil.”However, Encana continues to forge ahead with construction of two major gas compressor stations
in the region and the expansion of a $100-million water-treatment hub to serve its operations in the Montney shale formation.“Those (construction) programs are going to be ongoing, coming on line later in 2016 or 2017,” Lieverse said, “and we’ll need to increase our drilling again as those facilities are closer to (completion).”Despite the decline in drilling, B.C. continues to pump out increasing amounts of natural gas.Over the first four months of this year, wellhead production in the province increased 8 per cent to 16.8 billion cubic metres (before field losses to flaring and venting are counted) compared with the same period a year ago, according to the latest figures from the Ministry of Energy and Mines. B.C. consumption was almost 2.83 billion cubic metres for the same period.The province also extended its royalty tax break to the industry in July, granting $115 million worth of deductions to royalty payments for companies building 14 industry infrastructure projects, roads or pipeline projects.
brace for more divideNd cutS aS
caNada oiL-patch caSh fLow fadeS
Dividend cuts among Canadian energy producers are poised to accelerate as cost reductions fail to boost shrinking cash flow.Companies from Canadian Oil Sands Ltd. to Baytex Energy Corp. are in line for deeper payout decreases,
according to analysts, after Crescent Point Energy Corp. slashed its dividend for the first time last week as crude sank to a six-year low.Just 38 per cent of the 63 energy companies in Canada’s Standard & Poor’s/TSX Energy index had positive free cash flow, defined as operating cash flow minus capital expenditures, as of Aug. 17. That’s down from 43 per cent in 2013, data compiled by Bloomberg show. The dwindling cash flow comes even after Canadian companies joined some $180-billion (U.S.) in global cutbacks this year, the most since the oil crash of 1986, according to Rystad Energy AS, an Oslo-based energy consultant.“There’s so much cash being spent on dividends,” said Greg Taylor, a fund manager at Aurion Capital Management in Toronto, whose firm manages about $7.2-billion (Canadian). “You can get increased cash flow by cutting costs but that’s not a sustainable model. The idea dividends are a sacred cow, that’s being put on the backburner.”Companies most likely to cut their dividends include Canadian Oil Sands, Baytex and Pengrowth Energy Corp., said Sam La Bell, an analyst at Veritas Investment Research Corp. in a telephone interview in Toronto.All three have already cut their dividends, though Baytex and Pengrowth will become more vulnerable if oil prices remain low as their hedges begin to roll off as soon as the second half of this year, Mr. La Bell said. Canadian Oil Sands, which chopped its payout by 86 per cent in January, may be better off
canceling the dividend altogether as it struggles to generate cash, he said.“We know the dividend is important to our investors, but even more so is protecting the long-term value of their investment,” said Siren Fisekci, a spokeswoman at Canadian Oil Sands, in an e-mailed response. “We will continue to consider dividends in the context of crude oil prices and Syncrude operating performance.”Spokesmen for Baytex and Pengrowth didn’t respond to multiple phone and e-mail messages seeking comment.The prospect of more dividend cuts comes as oil producers have plunged 34 per cent over the past
y e a r , the worst-performing industry on the main S&P/TSX Composite Index amid a supply glut and concerns of slowing global growth. Canadian energy firms have already eliminated thousands of jobs and shelved projects to conserve cash.Twenty-three percent of firms in the energy index had reduced their dividends at the end of the second quarter, Bloomberg data show. That compares with almost 40 per cent in the same period in 2009 after oil slumped in a global recession, according to the figures.West Texas Intermediate oil has slumped more than 30 per cent from this year’s peak in June,
tumbling to $41.87 (U.S.) a barrel in New York Monday, the lowest close since March 2009.Meanwhile, the drop in share prices has pushed the average yield among dividend-paying energy stocks to 7.6 per cent, the highest among 10 industries in the S&P/TSX.“For sure we’ll see more cuts, they will come in the next two to three quarters,” said Andrey Omelchak, chief investment officer at Montreal-based LionGuard Capital Management. The firm manages less than $100-million (Canadian). “There will be negative earnings revisions across the board so it’s not a trade you want to do today.”
Crescent Point slashed its monthly dividend 57 per cent to 10 cents a share Aug. 12 after its yield ballooned to 16 per cent. Baytex, which still yields 14 per cent, cut its payout by more than half in December while Trilogy Energy Corp. eliminated its dividend entirely in the same month.“When you get into double-digits it’s a very big warning,” said Craig Fehr, Canada market strategist at Edward Jones, in an interview at Bloomberg’s Toronto office. “Every company has a unique approach to their dividend strategy, which means there’s not a hard line in the sand. You won’t see the big heavyweights in the patch want to pay 5-per-cent-plus dividend yields over long periods of time.”
Some companies, such as Suncor Energy Inc., have a healthy enough balance sheet that they’ve increased their dividend, said Geoffrey Pazzanese, a global equity fund manager at Federated Investors Inc.The Calgary-based producer raised its quarterly dividend 3.6 per cent to 29 cents a share July 29. Suncor yields 3.2 per cent.“They think they can kick the can down the road and hope for higher prices next year,” Mr. Pazzanese said on the phone from New York.When reached for comment Erin Rees, a spokeswoman at Suncor, reiterated chief executive officer Steve Williams’ remarks in a
second-quarter analyst call.“As we grow the business and the cash flow grows you will continue to see our dividend grow,” Mr. Williams said at the time.While energy companies juggle costs and spending, the ultimate dividend decider will be global energy prices, which are out of their hands, said Paul Taylor, chief investment officer, asset allocation at BMO Asset Management Canada in Toronto.“If oil stays at this level there will be cuts: It’s just gravity,” he said. “While you want the stability of the dividend you have to look at the oil environment.”
