Brian Zinchuk is editor and owner of Pipeline Online
This is a Rotoflex near Stoughton in 2016 belonging to one of the Villanova companies.
For E. Craig Lothian, president and CEO of Keystone Royalty Group, the actions of the federal government are indeed driving the current profitability of the industry they are trying so hard to choke off.
And while they are driving up prices, they’re making it hard to invest in this country.
Speaking to Pipeline Online on April 5, Lothian said, “My message is I’m extremely confident about the profitability of the Canadian energy industry over the next five to 10 years. And in no small part, it’s because of what Trudeau says, and his environmental minister, and the one before him, say on almost a daily basis. Everything they do, everything they signal, mostly virtue signaling, is creating an environment where companies are rightfully so very, very reluctant to spend a significant amount of capital. Especially if it’s a multi year or an offshore oil project, or oil sands projects where it’s not just multi year, it might be closer to a decade, certainly, before you get a pay out of capital on it. There’s just no willingness to step in front of the woke green train that the Liberals have created. And it was kind of a double benefit for those of us that are in the business, in that we now have a Biden administration that is seemingly hell bent for destruction, as well, in terms of creating an environment where oil companies are reluctant to reinvest despite current prices.”
E. Craig Lothian
He continued, “We don’t think in terms of days, months or weeks, or even quarters; it’s usually annually or three to five year business cycles. And you just have to be a little bit concerned about putting more money at play. What set up perfectly for Keystone, and for Topaz, if you look at the fairly dramatic increase in their share price over the last year or so, is that if you did have money in the market, if you were in the game, so to speak, you are realizing a significant price increase because of that. Biden wants to blame it on Putin’s price hike and the war in Ukraine, and certainly that escalated, or at least accelerated it, but our outlook has been that we were going to hit US$100 oil in 2022. We just didn’t think it was going to happen in February of 2022. We thought it would probably take until the end of the year. But we were going to get there, because we are short barrels, every day. And we’re really short with Russia being sanctioned.”
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Lothian feels that by saying oil is bad, and no one would want to put money into it, Biden and Trudeau created a scarcity where there otherwise might not have been one, driving up prices as a result.
“One hundred per cent,” Lothian said. He pointed out that former President Donald Trump got the United States to oil self-sufficiency, and they became a net exporter for the first time in decades. “You just see how quickly political will can impact that. Biden, the first thing he does is he cancels Keystone XL. Those are big signals to the market. And yeah, COVID created some demand destruction, but not as much as what we all thought. And really, the demand destruction part of it didn’t really last. COVID lasted a lot longer than the demand destruction part of it.
“Now suddenly you take the US, which was a net exporter, they start to make it more and more difficult to get a permit. They make it more and more difficult to get leases in anywhere that the Biden administration determined has any kind of environmental sensitivity like Alaska, offshore, those kinds of areas, and you start making industry think twice about making big capital investments. And then they had the other issue. In the US, they chased the shale dreams so hard.”
Shale isn’t all roses
On the shale oil revolution, Lothian can speak from deep experience. The first Villanova production company they built and sold focused on the Bakken. He said, “It’s great when you are fracking and getting massive production out of the gate, with quick payout. We were paying out wells in a month and a half that were costing two and a half million dollars to drill. It’s hard to do that anywhere else, legally anyway. So that’s great. But then the decline started to kick in. And they had that double whammy in the US, or maybe triple, where the declines were kicking in their big shale plays in the Permian and Bakken and elsewhere. And at the same time, they were using debt, massive debt, and junk debt, basically, to fund that. Suddenly, when the declines were hitting them hard, and the returns weren’t there and prices started to soften, all that debt became worthless. A whole bunch of people on Main Street and Wall Street lost money.
“Then Biden comes along and he says, ‘Well, we don’t want any more oil. We’re gonna phase it out.’ And industry went, ‘Okay, well, we’re just going to take capital out of the business, instead of putting it back into the business. And they’ve been doing that in Canada.”
To make shale plays work, Lothian said you need a sustained, long periods of high oil prices.
“If I’ve learned anything in 20 plus years, you build a company for the downturns, because you’re going to get it, sooner or later. I think I’ve had four, maybe five? I have selective memory on bad times. But it worked. It’s working really, really well. The industry is incredibly profitable right now. And we truly have the Liberals and the Democrats to thank for that in no small measure. So if Trudeau has done anything for us, he gave us a liquidity opportunity,” Lothian said.
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