by Stockwatch Business Reporter
West Texas Intermediate crude for July delivery added 88 cents to $38.84 on the New York Merc, while Brent for August added 80 cents to $41.51 (all figures in this para U.S.). Western Canadian Select traded at a discount of $9.05 to WTI, up from a discount of $9.20. Natural gas for July was unchanged at $1.64. The TSX energy index lost a fraction to close at 77.66.
Calgary's gleaming office buildings continued to empty out, as ever more energy employees packed up their desks. Two additional companies have announced work force reductions, including Enbridge, which was able to steer clear of the dread word layoffs by declaring that hundreds of workers have accepted voluntary buyouts. Enbridge explained to CTV News that it gave the option for workers to choose early retirement, severance, educational or personal leaves of absence, or downgrading to part-time work. "About 800 employees have participated in this program," said the company, adding proudly, "As a result of these actions, we won't need to pursue company-wide layoffs at this time." Whether it will continue with voluntary buyouts, on the other hand, was not specified.
Separate marching orders were issued by U.S.-focused shale producer Ovintiv Inc. (OVV), up $1.09 to $14.56 on 4.46 million shares. The company confirmed rumours that it is laying off office and field workers across North America. "It is deeply unfortunate, but we had to right-size the organization to align with expected future activity levels," spokesman Cindy Hassler told Bloomberg. She declined to specify numbers, but said the layoffs would come equally from the company's offices in Calgary, Denver and The Woodlands (Texas), as well as field staff.
For the Calgary workers, this will be the latest blow to morale, following Ovintiv's earlier decision to move its headquarters from Calgary's iconic Bow tower to a new address in Denver. That happened in late January. A mere six weeks later, the stock -- already suffering the effects of its washout from Canadian stock indexes -- staggered under industry-wide supply and demand shocks, prompting it to cut its budget by $500-million. It is thus no surprise that the spectre of layoffs has been hanging over Ovintiv for months. These rumours gained ground this week as posters in on-line investment forums claimed that Ovintiv was officially moving forward with job cuts, with some going as far as to use the word "bloodbath." Until recently there were no numbers to support this claim, but after today's close, Reuters said it had learned from Ovintiv that it has laid off 25 per cent of its work force, taking its head count down to 2,100. There was no word on what divisions were hit hardest. Given the stock's dreadful performance lately -- if one excludes the last three months due to special circumstances, the stock is currently trading at all-time lows -- there has been no shortage of on-line suggestions as to whose heads should roll.
Interestingly, some on-line posters grumbled that the layoffs contradicted what they had heard earlier from Ovintiv's chief executive officer, Doug Suttles, who apparently said layoffs were not something to worry about. If this is true, Mr. Suttles seems at least to have been astute enough to avoid making this promise publicly, which is more than can be said for a different energy CEO, BP's Bernard Looney. "Job security is a big worry at this time, so we have taken the decision that for the next three months, no BP employees will be laid off as a result of virus-related cost cutting," stated Mr. Looney on April 1. On June 8, after barely two months, Mr. Looney said he was "really sorry," but the layoff freeze was coming to an end. BP expects to shed 10,000 employees (about 15 per cent of its work force) by the end of the year. It is not the only big name in the industry making such grim announcements. Chevron is letting go as many as 6,700 workers (also about 15 per cent of its work force), while major service companies Halliburton, Schlumberger and Weatherford have also announced significant layoffs. Still holding on are ConocoPhillips, ExxonMobil and Shell, which have not announced layoffs, although Exxon has cut about 1,800 third party contractors and Shell is using Enbridge's trick of offering voluntary buyouts.
Back in Canada, oil sands giant Suncor Energy Inc. (SU) edged down 22 cents to $23.81 on 7.45 million shares. It has found itself the next target of credit ratings agency DBRS Morningstar, which announced last month that it was embarking on a busy review period for oil and gas issuers, having previously put them all "under review with negative implications" in March. So far it has updated its ratings on Canadian Natural Resources Ltd. (CNQ: $23.44), Cenovus Energy Inc. (CVE: $6.05), Husky Energy Inc. (HSE: $4.72) and Imperial Oil Ltd. (IMO: $22.43). All of those companies were assigned "negative" trends and three of them (all but Canadian Natural) had their credit ratings downgraded by one notch. Now it is Suncor's turn. "All trends are negative," declared DBRS, unsurprisingly. The agency is forecasting "extremely weak" credit metrics for Suncor throughout 2020. Suncor has taken several steps lately to shore up its balance sheet, from chopping its budget by about one-third to cutting its dividend roughly in half. Even so, DBRS expects Suncor to generate a "modest free cash flow deficit" in 2020. Fortunately for Suncor, it has "sufficient liquidity to navigate through the current weak price environment," in DBRS's view. The agency spared Suncor the indignity of a downgrade and left its rating at an investment-grade A (low).
Elsewhere in the oil sands, MEG Energy Corp. (MEG) stayed unchanged at $3.48 on 4.05 million shares, after making some changes to its board of directors. At the company's annual meeting, 10-year director Harvey Doerr -- who briefly served as MEG's interim CEO in the summer of 2018, until Derek Evans arrived -- chose not to stand for re-election to the board. His vacant seat was snagged by Susan MacKenzie. Ms. MacKenzie has had a long career in heavy oil and the oil sands, having spent 14 years and then 12 years, respectively, at Amoco Canada and then PetroCanada, prior to the latter's merger with Suncor Energy in 2009. These days, she keeps busy as a director of various companies, including Enerplus Corp. (ERF: $3.96), TransGlobe Energy Corp. (TGL: $0.74), Freehold Royalties, Precision Drilling and now MEG.
Another excerpt from Ms. MacKenzie's resume has to do with her brief but interesting stint in 2010 at a failed oil sands junior called Oilsands Quest. This company once dreamed of building the first oil sands project in Saskatchewan. Another way of saying this could be that the company was so small as to be shut out of the sweet spots on the Alberta side of the border, but in any case, for a brief period in the late 2000s, all of Saskatchewan was gripped by oil sands fever; former premier Brad Wall even waved a sample of homegrown bitumen at a fundraiser in 2007 (he was not premier at the time, rather opposition leader). Oilsands Quest and other ambitious juniors spent millions researching how to extract bitumen from the early-stage play. Alas, all they found was problems. Like Alberta's oil sands, most of the Saskatchewan oil sands are too deep for mining, but unlike Alberta's oil sands, shallow steam-assisted extraction is not an option either. The glacial till that tops Saskatchewan's oil sands is very different from the shale that tops Alberta's and is not strong enough to form a cap or barrier to contain the steam. This is not to say that extraction is forever impossible -- as recently as 2015, scientists at the Saskatchewan Research Council were mulling the use of electricity and solvents as a solution -- but given persistently weak oil prices, companies and investors are just not interested.
Getting back to Oilsands Quest, it enjoyed a flash of success in 2006 after making the Axe Lake discovery -- which contributed the sample waved aloft by Mr. Wall -- but it ran out of cash at exactly the wrong time, its fundraising ability cut off by the 2008/2009 financial crisis. It was already in its death throes when the above-mentioned Ms. MacKenzie arrived in 2010 as chief operating officer. She left after just six months. Oilsands Quest declared bankruptcy in 2011, and in 2012 it sold Axe Lake and its other assets to Cenovus Energy Inc. (CVE: $6.05), which has long since stopped talking about them. Yet this was not the end of Oilsands Quest's sad story: A securities-fraud class action erupted, accusing the directors of deliberately inflating the value of the company's assets and "creating a modern-day gold rush for what [they] knew to be largely worthless mining rights." The company denied all allegations. It settled the lawsuit in August, 2013, for $10.2-million, giving claimants about 36 cents on the dollar.