Brian Zinchuk is editor and owner of Pipeline Online
Villanova field trip. Photo courtesy E. Craig Lothian
Pipeline Online has heard a narrative that goes something like this: despite high oil prices, many oil companies are not spending a lot on drilling. They are paying off debt as quickly as possible so that when they do want to do more drilling, they can do it out of free cash flow. This is because the ESG (environmental, social and governance) movement has so choked off capital, it’s been hard to get money from either banks or investors.
Asked if that was the case, Keystone Royalty Corp. CEO Craig Lothian said, “Oh yeah.”
He explained that when he was CEO of Lex Capital Management Inc., the last fund he did road shows for, “I did 75 presentations in seven states and three provinces. You kind of remember that. That leaves a lot of scar tissue. But five years ago, you didn’t have any of the environmental, ESG-type pushback. But we certainly saw it on the last raise. The university endowment funds, if they were taking your call for a meeting, you took the meeting, which was the worst, (because) then they kind of beat you up about dirty oil, and in particular, dirty Canadian oil. Or you know, they’ve been talking about tar sands, because they had been drinking the Kool Aid in the US that the Democrats had been spinning.
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“And we explained to them that we’ve never invested in the Canadian oil sands. But we would try hard to explain Canadian oil is the most ethical, most environmentally-friendly oil probably produced anywhere on the planet. And certainly, if you’re going to buy and consume oil in the US, it’s the logical place to get it. And it’s the right oil to be getting. And we made that case, but we didn’t win many of those battles, because the ESG movement was really strong.
He pointed out that interestingly enough, current Lex CEO Dean Popil is telling him those institutional investors are back again. He said, “I’m guessing it’s not the universities, because I think the woke movement is way too deep there. A number of institutional investors that have invested in earlier funds, passed on our LexIV fund, have now reached out and said, ‘Do you have another fund? We are very interested in investing.’”
Too attractive to ignore
Lothian explained, “I think the simple reality is they realize, like most people, but not all people, obviously, and the Trudeau government hasn’t realized this yet, that we’re not going to transition away from oil in years. We’re going to transition away, maybe, in decades. And two, they also look, and know that the return profile for investments in the energy industry in both in Canada and the US have outperformed the market for the last two to three quarters. So, there’s a lot of fund managers who are probably getting beat up by their shareholders and/or stakeholders saying, ‘Why is the TSX at X, or the Dow at Y, whatever proxy you’re using, and our returns are under that range?’ And the answer is, ‘Well, we didn’t have anything that’s in oil and there’s been a huge amount of money made in the energy space over the last six to eight months.’”
Oil has become too attractive to ignore, in other words.
Lothian said, “They’re being forced to get into it. And all commodities are always well-known hedges against inflation.
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“And so, if you if you are worried about seven and eight per cent inflation rates, which, if you’re a professional money manager, you better be worried about that. If you’ve got a bunch of pensioners and you’ve got to fund their pensions over the next 40 or 50 years, that’s a big hurdle to meet just to break even, not even to show any growth in your pension funds.
“So I think they’re starting to; unhappily so. You know, they’re probably some of those people that drank the Kool Aid for so long, and spewed the woke messaging, that it probably is a painful pill for them. But I think that they have come to the conclusion that they need to be realists instead of zealots. And that that means you should be invested in the Canadian energy industry.”
Editor’s note: This concludes the five-part series on Keystone Royalty. Watch for similar series coming on small modular reactors (SMRs), lithium development in Saskatchewan, and “The other end of the extension cord,” the transition to electrification of everything.
Do you want to know what’s really going on in the Saskatchewan energy sector? Do you like the in-depth stories like this, that you won’t find anywhere else? Follow Pipeline Online on LinkedIn, Twitter or Facebook.
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