by Stockwatch Business Reporter
West Texas Intermediate crude for January delivery added $1.85 to $44.91 on the New York Merc, while Brent for January added $1.80 to $47.86, both benchmarks' highest levels since March (all figures in this para U.S.). Western Canadian Select traded at a discount of $11.10 to WTI, up from a discount of $11.70. Natural gas for December added six cents to $2.78. The TSX energy index added 3.84 points to close at 91.81.
The oil patch had another reason to cheer today besides rising oil prices: Enbridge Inc. (ENB: $40.74) has received all of the remaining federal permits to build its $2.9-billion Line 3 replacement project, which carries Canadian crude from Alberta to the U.S. Midwest. Line 3 was originally built in the 1960s. It is running well below capacity because of age and corrosion, so Enbridge wants to replace it while doubling its capacity to 760,000 barrels a day. Eleven days ago, it got its state-level permits in Minnesota, which allowed it to approach the U.S. Army Corps of Engineers for the remaining federal permits. These permits were not expected for a few more weeks. Now they have arrived earlier than hoped, meaning Enbridge may be able to start construction before the end of the year. It is already moving construction crews to do just that. This would put Line 3 on track for start-up in the third quarter of 2021.
Alas, another of Enbridge's cross-border pipelines is facing a frustrating legal battle. Governor Gretchen Whitmer of Michigan is doing her best to shut down Line 5, claiming to be worried about a potential spill into the Great Lakes. Line 5 has operated safely in the lakes for 67 years and supplies over half of the heating needs of Ms. Whitmer's own state -- not to mention the line's importance to Wisconsin, Indiana, Ohio, Pennsylvania, Ontario and Quebec -- but if Ms. Whitmer is to be believed, it is nothing more than a dangerous menace. She has been trying to shut down the line for months. Recently she took up the tactic of threatening to void Enbridge's easement, prompting Enbridge to announce today that it has filed a federal court complaint to block this "improper and unlawful" action. "A federal agency, the Pipeline and Hazardous Materials Safety Administration (PHMSA), is Enbridge's safety regulator, not the State of Michigan," declared Enbridge. It added that the PHMSA evaluated Line 5 just three months ago and found it fit for service. Explaining that a shutdown of Line 5 would create propane shortages and economic hardships across the region, Enbridge demanded that the State of Michigan "stop playing politics" and stand down.
Here in Canada, Suncor Energy Inc. (SU) added $1.07 to $22.99 on 24.9 million shares, after signalling its confidence in the future of the oil sands. The company is planning to become the sole operator of the Syncrude oil sands mine by the end of 2021. Suncor is already the largest owner in the Syncrude joint venture, with a roughly 59-per-cent interest. The other owners are Imperial Oil Ltd. (IMO) and two Chinese heavyweights (Sinopec and CNOOC). While they all own interests, the facility is operated through Syncrude's separate governance structure. Now Suncor plans to change that. It estimated that switching to a Suncor-operated structure would "unlock significant value," including "synergies of $300-million annually."
Suncor's chief executive officer, Mark Little, headed to BNN to talk up the deal. He said the joint venturers all agree that Suncor's operatorship is "the best way to make Syncrude globally competitive." The idea is that Suncor will take a larger hand in "improving the reliability and the production associated with the facility," said Mr. Little. As well, Syncrude will benefit from what Mr. Little euphemistically called "trying to harmonize the work force" -- in other words, layoffs. He did not say how much harmonizing is planned, but suggested that it will mostly involve HR, IT and other positions that already exist at Suncor and will not require duplicates at Syncrude. The actual facility workers should be fairly safe. As well, Mr. Little noted that Suncor recently built an interconnecting pipeline between the Syncrude facility and Suncor's oil sands base plant, which should further hone Syncrude's competitive edge. All of this plays a role in how Suncor expects to achieve the above-noted $300-million in synergies. Mr. Little said he is "very excited" about the deal, as it functions as a type of consolidation without creating additional spending.
Speaking of consolidation, Mr. Little was eventually asked about the state of the oil patch and whether additional merger and acquisition activity is on the way, following the recent announcement of the merger of Cenovus Energy Inc. (CVE: $7.02) and Husky Energy Inc. (HSE: $5.78). Mr. Little said he could "understand the logic" of the Cenovus-Husky tie-up. "It's nice to see Canadian companies continue to invest and push forward in the oil sands," he added. Even so, he summed up Suncor's perspective on M&A in today's market as, "It's kind of hard to see that happening." He hastened to add that Suncor is still "very well positioned" and has been working hard to cut costs and restore production. He concluded cheerfully, "We're just going to get stronger and stronger."
Elsewhere in Alberta, Stephen Loukas's Cardium-focused Obsidian Energy Corp. (OBE) added three cents to 53 cents on 123,200 shares, after releasing the results of yesterday's special meeting of shareholders. It had asked shareholders for approval to issue up to 72.2 million shares of Obsidian in order to acquire all of the 33.3 million shares of Bonterra Energy Corp. (BNE: $1.72) through a hostile takeover offer. This offer has been rebuffed by Bonterra for months -- and little wonder, given that the proposed ratio values Bonterra's stock at $1.06, whereas today's closing price was $1.72. This misalignment has existed since Obsidian went public with its goal to acquire Bonterra in late August. When Bonterra showed no interest, Obsidian went ahead in October with a hostile exchange offer, which will stay open for Bonterra's shareholders' perusal until Jan. 4.
If nothing else, the battle for Bonterra has been a welcome distraction from a less pleasant bit of news for Obsidian. Its investors may recall that back in 2017, the Toronto-based Kernwood Ltd. (controlled by Ted Kernaghan, son of Edward Kernaghan of Bay Street lore) picked up a roughly 5.5-per-cent interest in Obsidian, which was then trading at around $9. Kernwood boosted its interest to 6.9 per cent in early 2018. Then followed a long period of silence from Kernwood, until last week, when it disclosed that its interest in Obsidian has dropped back down to 5.5 per cent. While this is a relatively minor withdrawal, institutional selling pressure is rarely welcome, and will undoubtedly raise questions as to whether Kernwood has more to sell.