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Big oil takes a big hit

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Last week was brutal for global oil majors with leading operators such as Chevron, EXXON Mobil, as well as others, including Total, Shell and Husky, reporting huge second-quarter losses with slumping oil prices and demand declines due to COVID-19.  Reports suggest Chevron and EXXON’s poor numbers reflect the biggest losses in U.S.-based petroleum in the more than 160 years the U.S. has been selling oil products.

Chevronamid huge write-downs, announced it will cut 5% of its global output during this quarter and will hold off on plans to ramp up production at its Permian Basin shale holdings. The company announced July 31 that it had lost (US)$8.3 billion in the second quarter. This compares to the (US)$4.3 billion it took home in Q2 profits at this time last year.

Exxon too has announced its expansion plans are on hold after reporting it generated no operational cash flow in Q2. The company reported its (US)$1.1 billion losses in the quarter were the largest since its merger with Mobil in 1998.

While demand and commodity prices have shown signs of recovery, they are not back to pre-pandemic levels, and financial results may continue to be depressed into the third quarter 2020,” Chevron offered in a statement.

Husky Energy is also reporting a large loss over the second quarter. Last week the Calgary-based major announced losses of $304 million. This contrasts with last year when the company reported profit of $370 million over the quarter. Behind the loss was the decline in crude pricing that fell from an average of $67.82 to $24.36 per barrel. Husky also suffered from an 8% decline in production as it tried to stem the damage from low oil prices.

France’s Total Energy joined the group with an $8 billion write-down of its assets of which many are in the oil sands region of Alberta. The company recently announced it would slice $5.5 billion in the value of its Fort Hills and Surmont Canadian oil sand projects.

Biggest Q2 losses were recorded by Royal Dutch Shell where losses were (US)$18.1 billion. Earnings were down 82%.

Massive losses aside, expectations are that the market is strengthening as the world seeks to normalize and move into new pandemic phases. Already companies, such as ConocoPhilips, have begun to reverse their Q2 curtailments and are ramping production upward across Canada and the U.S. markets.


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Forecourt Performance Report 2020

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Choice is now a greater option for both Canadas motoring public and retail fuel operators with more independent petroleum brands and fewer refinery controlled sites coast to coast to coast. This was a key finding in this years National Petroleum Site Census, a watershed study that is done each year by The Kent Group Ltd.

 Based in London, Ontario, The Kent Group Ltd. is a data-driven consultancy that is a leading authority on fuel sector marketing, economics, performance measurement and benchmarking, as well as price/margin reporting/analysis, regulation, and industry economic research and analysis. Since 2004 The Kent Group Ltd. has been the go-to organization for the latest and most complete set of data that describes Canadas retail fueling sector.

Download the full report here

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Parkland teams up with Amazon Web Services to ramp up digital transformation

UnknownParkland Corporation is collaborating with Amazon Web Services to use analytics in order to improve its logistics and enable frictionless commerce.

“We are excited to be teaming up with AWS to advance our strategic priorities and support our ambitious organic growth targets,” Ian White, SVP strategic marketing and Innovation at Parkland, said in a release. “AWS is a renowned global technology leader who is laser-focused on customer experience and innovation.”

The goal, adds White, is to uncover valuable insights into “customers’ needs and preferences to provide enhanced services, products and personalized offers.”

The company says it has been building its internal capabilities to leverage digital technology trends for some time and has identified several technologies and customer-centric opportunities that support organic growth. These include:

  • Loyalty program data optimization (including the Canadian JOURNIE rewards loyalty program) and personalized customer offers;
  • Real-time price optimization using enhanced data feeds and machine learning;
  • Progressing a vision for the convenience store of the future.

Next steps include “monitoring fuel inventories in real-time and optimizing routing and distribution, harnessing digital to help scale the business without adding significant cost and complexity, and improving the speed and efficiency of M&A integration.”

White says that by embracing digital to focus on the customer experience, Parland aims to drive organic revenue growth and margin expansion. “Digital services are changing constantly and teaming up with AWS helps us channel those developments to elevate our customer focus and enhance our core competencies of retailing, customer loyalty, pricing, supply and distribution.”


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Suncor CEO signals caution about restarting oil output as economy recovers

The CEO of Suncor Energy Inc. says the company won’t quickly ramp up oil production despite recent higher crude prices as the North American economy begins to reopen following the easing of lockdowns from the COVID-19 pandemic.

Mark Little says he won’t “bet the financial health” of the company on the nascent recovery, listing a host of risks including the possibility of a second wave of virus outbreaks.

On a conference call to discuss second-quarter results, Little reiterated his contention that the energy sector recovery will be led by consumers of its refined products, with higher demand for fuel translating into more demand for oil.

Little says Suncor’s refinery utilization rate of 76% in the three months ended June 30 (allowing crude throughput of 350,400 barrels per day), was well ahead of industry averages, and credited that to its ability to assess customer needs through its wholesale and retail networks, including its Petro-Canada service stations.

Suncor’s total production was 655,500 barrels of oil equivalent per day during the second quarter, 18.5% less than the 803,900 boe/d in the prior year quarter, as it took measures including shutting down one of the two production trains at its 194,000-bpd Fort Hills oilsands mine in northern Alberta.

Little said putting the second train back in service depends on oil prices, the ongoing Alberta oil output curtailment program which has prevented full production at Fort Hills and Suncor’s ability to control costs.

“During the second half of 2020 we see continued strengthening of downstream (refining) demand in gasoline and diesel to more seasonal levels by the end of the year,” said Little.

“Given the high level of global crude inventories and the return of production which was shut in during the second quarter, we expect (oil) pricing and crude spread volatility to remain through 2020, although obviously not as extreme as we saw in the second quarter.”

It reported a second-quarter net loss of $614 million or 40 cents per share, down from net earnings of $2.73 billion or $1.74 per share in the same period of 2019, but ahead of analyst expectations of a net loss of $1.28 billion, according to Refinitiv.


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PrairieSky Royalty reports lower second quarter crude oil production

Oil production is beginning to recover after it was curtailed by an average of 30% in the second quarter due to low crude prices, PrairieSky Royalty Ltd. said Tuesday.

The Calgary-based company, which earns revenue by sharing in production from lands for which it holds the petroleum mineral rights, said it produced 18,670 barrels of oil equivalent per day in the three months ended June 30, down 16% from the first quarter.

No new wells were started on its properties in the three months ended June 30 but there are signs that activity will pick up later this year as oil pricesstrengthen, said CEO Andrew Phillips on a conference call.

“We do expect greater activity than we would have two months ago… I don’t know that will show an effect for us in the back half of this year, but it certainly will improve in 2021,” he said.

PrairieSky’s production shortfalls are expected to be a common theme as larger oilpatch players including Suncor Energy Inc. and Cenovus Energy Corp. roll out second quarter results later this week.

Producers in Western Canada are estimated to have shut down wells producing more than 800,000 barrels per day of oil at times in the second quarter due to plunging prices amid the economic downturn associated with the COVID-19 lockdowns.

Crude oil production at PrairieSky fell by 30% to 6,035 barrels per day over the quarter from 8,740 bpd in the year-earlier period as its average realized price fell to C$24.31 per barrel from C$65.48.

PrairieSky says as much as 40% of its oil output was curtailed in May.

Natural gas output was down 7.5% from the second quarter of 2019 despite the average price rising from 74 cents per thousand cubic feet to $1.39.

The company’s second quarter production revenue was $25.1 million, off by 39% compared with the first quarter of 2020 and 60% from the second quarter of 2019.

PrairieSky reported a net loss of $400,000 or zero cents per share in the quarter, compared with a net profit of $44 million or 19 cents in the year-earlier period, largely matching analyst expectations.

Its stock rose by as much as seven% to $8.90 on the Toronto Stock Exchange on Tuesday.

The company reported completing $6 million in royalty interest acquisitions in northeastern B.C. during the quarter and added it is continuing to look for expansion opportunities.


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Stirring in the oil patch, Chevron buys Noble for $5 billion

Chevron will take over Noble Energy for $5 billion in the first big deal announced since the coronavirus pandemic shook the energy sector.

Chevron has been shopping for assets since last year and with crude prices down more than 30% this year, it jumped Monday with its all-stock offering for the independent Houston oil and gas driller.

Based on Chevron’s closing price on Friday, Noble Energy shareholders will receive 0.1191 shares of Chevron for each Noble Energy share. But with the list price comes a lot of debt.

Energy companies had been taking on enormous debt even before the pandemic with energy prices have bouncing all over the place. Noble is no exception.

The total enterprise value of the deal is $13 billion, with Chevron assuming Noble’s debt.

Other big players, seeking to cut costs and load up on assets, will likely follow Chevron’s lead, said Gianna Bern, a finance professor at the University of Notre Dame’s Mendoza College of Business.

“This is the first wave of acquisitions,” Bern said.

Last year, as it pursued potential buyout targets, Chevron lost out when Occidental Petroleum made a $38 billion deal for one of them, Anadarko, even though Chevron is five times the size of Occidental.

While Occidental’s valuable holdings in the Permian Basin of west Texas and New Mexico appeared to be a good match, Chevron said at the time that it favoured discipline over “winning at any cost.”

It’s found another match in Noble Energy.

The acquisition brings to Chevron low-cost, proven reserves in addition to cash-generating offshore assets in Israel, strengthening the company’s position in the Mediterranean. Noble’s portfolio will also add to Chevron’s U.S. acreage in the Permian Basin and in Colorado’s DJ Basin.

“Noble Energy’s multi-asset, high-quality portfolio will enhance geographic diversity, increase capital flexibility, and improve our ability to generate strong cash flow,” said Chevron Chairman and CEO Michael Wirth. “These assets play to Chevron’s operational strengths, and the transaction underscores our commitment to capital discipline.”

That discipline is mandatory for any company in the energy sector this year.

On Monday, energy services company Halliburton reported a quarterly loss of about $1.7 billion, and that was better than industry analysts had expected. The 57% plunge in revenue was not.

Energy demand has bounced back as economies reopen globally. U.S. crude prices that fell for first four months of the year are gaining ground, and have been positive since May. It appears prices may remain positive for July, but prices are seesawing and the longest positive streak this month has been two days.

Surging cases of COVID-19 in the U.S., the world’s largest economy, now threaten to hamstring an industry already hit hard by layoffs.

Chesapeake Energy, a shale drilling pioneer that was once one of the largest natural gas producers in the world, filed for bankruptcy protection last month.


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Forecourt’s new normal

COVID-19 has created tremendous change in the marketplace

Screen Shot 2020-07-16 at 2.20.39 PMCanadian convenience, car wash and gas businesses worked hard to keep staff and customers safe during COVID-19. Behind the effort has been a push from major retailers to enhance operational practices and from equipment manufacturers that sped design and production to meet the public health challenge.

Canadian Tire was an early adopter of PPE for customers. When the virus hit, Canadian Tire sites used disposable glove dispensers to help customers stay safe at its gas bars. At Petro-Canada and 7-Eleven sites, they didn’t offer gloves, but fuel dispensers came with a placard that asked customers to use paper towels to keep hands from touching gas dispenser nozzles. At 7-Eleven operators also changed how they handle cash. Certainly, customers can utilize the pay-at-the-pump features at the dispenser, but in-store, customers are asked to place cash on counters so that hands do not touch. When the sale is complete, staff sanitize the area ahead of the next customer.

Shell is another major that has taken action to safeguard staff and customers. According to Shell Canada spokesperson Kristen Schmidt, the company has installed plexiglass at payment counters, added floor signage to maintain physical distance, and enhanced cleaning procedures. “We also have the Shell app, available in the Apple app store and Google Play store, which includes Shell EasyPay. This is a secure and touchless way for customers to pay for their purchases at the pump or in-store. We recognize that customers may wish to limit interactions at this time and practice safe social distancing, which can easily be accommodated through Shell EasyPay.”

Other Shell initiatives include recommendations laid out by the World Health Organization and the Public Health Authority of Canada. Schmidt points to six key items.

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At Esso and Mobil stations the company worked alongside its independent branded retailers to ensure the customer experience was safe and convenient. Imperial Oil is present in the market with 21 fuel terminals and more than 2000 Esso and Mobil sites across Canada.

Screen Shot 2020-07-16 at 2.19.38 PMAccording to Jon Harding, public affairs advisor, Imperial Oil, Esso and Mobil service station personnel have been tasked to make sure sites in Canada are frequently cleaned and sanitized – from fuel nozzles to store countertops to door handles. “When at the pump, we encourage customers to leverage the mobile payment option through the Speedpass+ app to reduce contact with surfaces.  We also recognize the importance of and, where appropriate, are striving to provide services to essential service providers, such as truck drivers. Specific to cardlock sites, we enhanced our online Esso cardlock locator tool for truckers and made it easier to identify cardlock sites and call ahead for information about facilities.”

Help at hand

Like retailers and fuel distributors, equipment manufacturers have been quick to come forward with much-needed innovation. These products have greatly helped retailers keep up their guard on cleanliness and site performance.

Fixture fabricator Gorrie RCP, a frontline company that designs, develops, and builds tailor-made waste and recycling management products as well as amenity fixtures and merchandising displays, got to work early on a range of personal protection equipment (PPE) for staff at c-store, car wash and gas bar. According to Gorrie’s business development manager, David McLean, the company had to speed up production to meet the sudden demand.

“Normally we take about four weeks to design, engineer and manufacture a product. We cut that down to two weeks. Many of our customers are essential services and we had to get products to them to keep them safe,” says McLean mentioning that face shields were the first offering followed by hand sanitizing stations. “At first people were looking for temporary solutions, but as the challenge grew it could be seen that more permanent solutions were necessary. The COVID-19 crisis is one that will be with us for the next couple of years at least. We are seeing that consumer behaviours have changed and retailers need to offer a higher level of safety to make customers feel secure. Our teams are actively looking at not only what is needed now, but we have to look to the future for products that will be needed tomorrow as well as we continue to face great change in our society.”

Gorrie RCP offers a range of PPE that includes distancing signage, clear plastic partitions, sanitizer gels and hand washing stations as well as masks and face shields.

RTS Retail is another manufacturer that came forward quickly with protective equipment during COVID-19. According to Darren Norley, national accounts manager, RTS Retail, the company has been making protective gear for years before the novel coronavirus made itself known. One example is Citrus Wirx a line that has been helping grocery and convenience shoppers keep carts and baskets virus-free for years. Now, this product is at the front lines during the COVID-19 pandemic. “In the last three months we have seen demand soar for sanitary wipes and other items,” says Norley remarking that sales for things like Citrus Wirx have climbed 700% over the past three months. “We have been able to supply our regular customers with PPE, but even with three factories (Canada, US, China) demand was so great we had to step up production and it was a challenge to fully meet this increase.”

RTS Retail also offers Grab Wirx, a protective glove system that is ideal for gas stations where dispenser and windshield wiper handles can carry COVID-19. Grab Wirx dispenses up to 200 gloves in a touch-free environment. 

“We are seeing sectors such as grocery retail now preparing for future health crisis scenarios similar to the current COVID-19 problem,” says Norley. “They don’t want to get caught empty-handed again without proper PPE.  The cost is small compared to the size of the problem to business.”

McCowan Design and Manufacturing, a Canadian leader in-store fixtures and displays for convenience, gas bar and foodservice as well as a range of other retail environments, quickly added new virus safety-related products to their lineup. Helping staff work safe McCowan now offers acrylic screens for retail and service desk personnel as well as stands and supports for hand sanitizers.

The new hand sanitizer stands can accommodate a variety of hand sanitizer bottle sizes and can be set up as a freestanding or wall-mounted unit. Stands can also handle dispensers or bottles and stands come with the ability to lock sanitizer into place to prevent thefts. The acrylic screens are made using 1/4-inch acrylic sheets and come with a solid metal base. Overall size is 40” X 23” X 12” with a large 8.5” X 12” pass-through.

“The ways that convenience store and gas bars offer safety and protection to their customers tell people volumes about the overall service at hand,” says McCowan VP Anthony Ruffolo. “Having a prominently displayed hand sanitizer during these challenging times is a simple way to tell customers you value their business and you are a responsible community member. It’s not an expensive service add on and it says you care.”

Originally published in the July/August issue of OCTANE. 


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BG Fuels to trade as Greenergy following merger

Fuel supplier Greenergy continues to make news. The company entered the Canadian market in 2013 as a price and service-based supplier that offered a unique approach to distribution. This year (February) Greenergy merged with gas and retail operator BG Fuels as they sought to expand in the national market. Now, the company has announced that together they will trade as Greenergy.  

Christian Flach

Christian Flach

“Over recent months our priority has been to support our customers through the challenges associated with COVID-19, while also moving swiftly to integrate our combined Canadian operations into one team,” says Christian Flach, CEO of Greenergy.  “As a fully integrated downstream fuels business, we are now best-placed to extend our presence across Canada and deliver on our ambitious growth strategy in the years ahead.” 

Altogether, Greenergy’s combined Canadian business now has significant capability and expertise spanning the whole supply chain, from fuel origination, infrastructure, and supply to gas and convenience retailing. The retail brand portfolio includes both company-owned and independent retailer sites, operating under the Mobil, Mr. Gas, Waypoint, Breakaway, and Inver brands.

 


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Oilpatch optimism expected to rise as difficult second quarter finally ends

A rebound in oil prices as consumer demand for gasoline rises will buoy energy companies as they give quarterly results starting next week, but analysts say there are still too many uncertainties to expect any new spending in the sector.

The second-quarter reporting season for Canadian major oil and gas producers begins July 22 with results from Calgary-based Suncor Energy Inc.

The three months ended June 30 were marked by depressed oil prices blamed on a glut of oil from members of the OPEC-plus group, followed by a severe decline in fuel demand as pandemic lockdowns kicked in.

The price impact led to about $8.6 billion in announced capital budget cuts by producers of Canadian oil.

The average price of benchmark West Texas Intermediate crude fell to about US$27.85 per barrel in the period, less than half of the US$59.82 registered a year earlier _ a slide that included closing for the first time at a negative level on one day in April amid fears that North American crude storage was nearing its limit.

The price has been above US$40 per barrel for most of June.

“While three months ago we would have proclaimed Q2 results to likely be a complete writeoff in terms of relevance for investors, we no longer feel that way,” said analyst Michael Dunn of Stifel FirstEnergy in a report.

He predicted upside surprises in second quarter cash flow from operations for Suncor and Canadian Natural Resources Ltd. and higher-than-expected oilsands bitumen production from MEG Energy Corp. and Cenovus Energy Inc.

Investors will be keenly interested in progress in cutting costs and in forward guidance for the rest of 2020 and 2021, he said, adding concerns about financial liquidity have largely dissipated thanks to recent successful debt financings.

Canadian energy companies are taking heart from falling crude storage levels and ample export pipeline capacity to bring back oil output voluntarily shut down over the past few months, said Phil Skolnick, an analyst for Eight Capital.

He said the second quarter will be the worst this year for most energy companies.

“They’re going to be impacted by very low oil prices in March, and then that was offset partially by the increase in oil prices but, nonetheless, this (quarter) will basically be the bottom for earnings and cash flows for this year,” he said.

He says his sources indicate that about 500,000 barrels per day of Canadian oil production has been returned to service from the total of about 800,000 bpd taken out as prices reached their lows.

Optimism will be offset by fears of more economic disruption if there’s a major second wave of the pandemic, along with the growing risk of more pipeline headaches after recent U.S. court setbacks for projects including the Keystone XL, Line 5 and Dakota Access pipelines.

Companies with refining assets are expected to report very low utilization rates due to the economic slowdown but their profit margins will be bolstered by the low price of oil feedstock, Skolnick said.

He said demand is up in North America for gasoline and diesel but remains depressed for jet fuel.


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Federal government commits funding for N.L. electric vehicle charging network

The federal government is giving a funding boost for a network of electric vehicle charging stations across Newfoundland and Labrador.

Ottawa announced it would add $770,000 to the $1 million set aside by the province for a network of 28 electric vehicle chargers.

The province aims to build the stations along the Trans-Canada Highway between St. John’s and Port aux Basques, with a charging site included in Gros Morne National Park.

Construction is set to begin in September.

The project is designed to increase electric vehicle use in the province, using surplus electricity from the Muskrat Falls hydroelectric dam that’s set to begin powering the island during the next year.

Federal Natural Resources Minister Seamus O’Regan says electric cars are part of Canada’s plan to achieve net-zero greenhouse gas emissions by 2050.