Why the media coverage of the Tim Hortons boycott is a double double failure

The headline on Thursday’s CBC.ca coverage of the sudden controversy over a boycott  in British Columbia of Tim Horton’s over the Enbridge ads sums up everything that’s wrong about media coverage not only of the boycotts, but of northwest energy and environment issues overall.

“Tim Hortons yanks Enbridge ads, sparks Alberta backlash.” The anger at Tim Hortons across northwest British Columbia over those Enbridge ads, the calls for a boycott have been building for more than two weeks but no one in the media noticed despite widespread posts on Facebook and other social media.

CBC.ca

As usual, the concerns of the northwest didn’t really become a story until Alberta got involved and  the story has become the “Alberta backlash.”  Now, there’s a backlash on social media to the Alberta backlash, with northwestern British Columbians tweeting and posting their displeasure, angry at the usual blinkered views of Alberta-centric coverage of energy issues.

Let’s make one thing clear– despite the outraged cries of the usual suspects like Defence Minister Jason Kenney, Conservative MP Michelle Rempel, who represents Calgary Centre-North and Kyle Harrietha, the Liberal candidate for Fort McMurray-Cold Lake that the boycott was aimed  at Alberta’s entire energy industry and the province’s views of a manifest destiny as an energy super power, the doughnut boycott was really aimed specifically at Enbridge, and the company’s arrogance and incompetence.

This morning Wildrose party leader Brian Jean has joined the Alberta boycott and is demanding the Enbridge ads be reinstated. “I’ll pick up my Tim’s coffee again when they decide to apologize for taking jabs at our industry, which is so important to Albertans,” Jean is quoted on CBC.ca.

Of course Jean, like most Albertans, isn’t  looking at the bigger picture. The question that Jean should really be asking, is the continuing unquestioning support for Enbridge actually harming the rest of the Alberta energy industry by increasing the resistance in northwestern BC to other energy projects? When are Alberta politicians, whether federal or provincial, ever actually going to show even a Timbit of respect for the issues in northwestern British Columbia?

Look at what Enbridge is doing

There is strong support (with some reservations) for the liquified natural gas projects. There is a level of support for pipelines that would carry refined hydrocarbons to the coast, something that the new premier of Alberta, Rachel Notley is seriously considering.  But it is so typical of Alberta, the Alberta media and most of the Canadian media, to believe that the boycott was an attack on the entire energy industry.

Ask any executive of an energy company that wants to do business in northwestern British Columbia and they’ll come  up with the a joke that is now so old and so often repeated that it’s become a cliché, “We look at what Enbridge is doing and then do the exact opposite.”

timmysamos

The fact is that Enbridge has been dealing with northwestern British Columbia for more than ten years and they still can’t do anything right. Shell, Chevron, Petronas (and before them Apache) and even TransCanada make more efforts to listen to the people, First Nations and non-Aboriginal residents alike, than Enbridge ever has or ever will (despite their claims in their PR campaigns).

While these energy giants may not agree with what they hear, they are respectful and depending on their corporate culture are making genuine efforts to come up with ways to make their projects work. After a decade of blunders, however, Enbridge still hasn’t shown that much respect for anyone here. Those touchy feely ads that appear on television and at Tim Horton’s are just another example of how not to run a public relations campaign.

There are those who oppose any bitumen sands extraction who signed the online petition, but the core of opposition, as always, comes from northwestern BC and the issue is an ill-conceived pipeline.

Enbridge has been successful in one area of its public relations strategy. They’ve convinced Albertans that Enbridge and the Northern Gateway pipeline is an essential part of not only the Alberta economy but Alberta culture. Any attack on Enbridge becomes an attack on Alberta. Hence the unreasoned anger when after Tim Hortons pulled the ads.

The big blame America lie

The other Big Lie we keep hearing from the Harper Government, is that this all orchestrated by American NGOs and activists. Again this shows Alberta-centric contempt for British Columbia. It’s very easy and convenient to keep believing that everyone in northern British Columbia are dumb and stupid and are being led by the ear by those nasty green Americans who have it in for the efforts to make Canada an energy superpower. That idea, promoted by the more conservative Canadian media has always been animal waste. The battle to protect the environment of northwestern British Columbia while at the same time attracting resource projects that have recognized and obtained social licence to operate has always and will always in BC on a case by case, community by community basis.

Macleans

The only media that so far has managed to get it half right is Jason Kirby writing in MacLean’s who notes that the trouble began on May 18 when Enbridge put up the Tim Hortons ad on their own website. (Did I mention that Enbridge is both incompetent and arrogant?) and it was immediately noticed by those individuals and activists that monitor the Enbridge website.

A morning shock with your morning coffee and Timbits

Social media across northwestern British Columbia, mostly Facebook, began spreading the news within hours of the ads appearing in the local Timmys. There were angry posts from individuals who had walked in Tim Hortons and saw the ads.

Post in the Kitimat Politics Facebook group.
Post in the Kitimat Politics Facebook group.

Why didn’t the media get the story?

So why wasn’t the story covered by the media at least ten days ago?

That’s because in this age of tight budgets, it’s considered easy and economical to try to all of northern BC cover from either Vancouver or Calgary; that means covering from far away both the coast where the pipelines and tankers may or may not operate to the east near the Rockies where the natural gas extraction is on going

If you look at map of northern BC, and the two federal ridings Skeena Bulkley Valley and Prince George–Peace River–Northern Rockies, the population is about 200,000 spread over an area about half the size of Europe. Both ridings in this region are supposedly vital to the future of the Canadian economy, but you wouldn’t know it from most of the media. (The Globe and Mail is an exception, with more ongoing coverage of northern BC than you will find in either The Vancouver Sun or The Province).

Elections Canada map showing just how big the two northern BC ridings are.  (Elections Canada)
Elections Canada map showing just how big the two northern BC ridings are. (Elections Canada)

As for CBC, there are just eight radio staff, two in Prince Rupert and six in Prince George to cover all the apparently vital issues across half the province. ( Almost all the staff work mostly for the Daybreak North morning show which dominates the regional rates but it looks like with the latest CBC cutbacks that at least one of those positions will be eliminated). CBC TV and Global cover the region from Vancouver.

At least the Vancouver based media make efforts to cover the north from time to time. The Alberta media, however, especially the Calgary Herald, is hopeless, and so biased against British Columbia and so dismissive of the issues here, that the coverage across Alberta is completely unreliable about 90 per cent of the time—it’s no wonder that the majority of Albertans have no understanding of British Columbia culture and issues.

Then there are the punditi, pontificating from their cubicles in Ottawa and Toronto without a clue, without doing the basic journalism of picking up the phone (or writing an e-mail) to actually find out what’s going on.

coyne1

coyne2

Andrew Coyne, for example, made these rather silly two tongue-in-cheek tweets Thursday night. While Coyne’s tweets do often exhibit a sense of humour, his excellent coverage of the decline of our democratic parliament has to be compared with his blind, unchecked ideological assumptions about the issues of the northwest, which are simplistic, cubicle bound and far off the mark. The same can be said for Jeffrey Simpson in his occasional writing about this region. Neither the view from the Hill, where you can see as far as the Queensway, nor from Bloor Street, where you can see part of the Don Valley, are vantage points to understand what is going in northern British Columbia.


Update: Rex Murphy, writing in the National Post,  has now joined the fray, no longer making a secret of his absolute disbelief in climate change and support for Enbridge. However, if you read his column, it is scathing in its contempt for the working men and women of British Columbia who want sustainable environmentally safe resource projects. It appears that to Murphy the only people in this country who actually work for a living in Canada are in Alberta and Newfoundland and no where else.   Kitimat has been an industrial town since it was founded in the 1950s, Kitimat rejoiced when former Mayor Joanne Monaghan succeeded in bringing a Timmys to Kitimat and the majority of Kitimat residents voted in the plebiscite against Enbridge.  But, of course, all those facts are irrelevant to Murphy and the other conservative pundits who never come within a thousand kilometres of northwestern BC, who believe we can’t think for ourselves and are easily misled by American environmentalists.  No wonder journalism is in a death spiral.


Error checks

So let’s look at the specific errors in the media coverage of the Tim Horton’s story.

globetimmys

Both Shawn McCarthy in the Globe and Mail and Kyle Bakyx on CBC.ca seem to accept without question that SumofUs, was the instigator of the petition. Like many issues in northwestern BC, the Lower Mainland or US based activist groups follow the lead of northwestern BC and jump on the bandwagon, not the other way around. Jason Kirby in MacLean’s says the boycott movement began a week ago. Here in Kitimat, it began within hours of the ads appearing in the local Timmys and was picked up on activist social media groups before the SumofUs petition site.

McCarthy repeats the conventional wisdom: “The Conservatives and oil industry supporters have been waging a public relations war with the environmental groups that oppose expansion of the oil sands and construction of new pipelines.”

When is the media ever going to learn that opposition to Enbridge is widespread across most of northern British Columbia, from First Nations to city and regional councils to a plurality of residents? When is the media going to drop the stock phrase “First Nations and environmentalists”? Does anyone remember the vote in Kitimat last April against the Northern Gateway project?

CBC.ca quotes Alan Middleton of York University “Enbridge, of course, is not just pipelines and oilsands; they are a whole range of products including heating people’s homes. Tims should have thought about that.” Again a mistake. I lived in Toronto for many years. A company called Consumers Gas supplied natural gas to homes until it was taken over by Enbridge, so Enbridge does heat the homes in Toronto. But what has that got to do with northwestern British Columbia? Why didn’t CBC.ca call the University of Northern British Columbia? Easier to call York (which by the way is where I got both my BA and MA)

McCarthy quotes Rempel as saying, “One has to wonder whether head office talked to their franchise owners in Alberta before making the decision. I imagine those calls are being made this afternoon – certainly there are a lot of people voicing their displeasure.”

The question that should have been asked whether or not Tim Hortons consulted their franchise owners in British Columbia before ordering them to play the ads. People here were “voicing their displeasure” from the moment the first Kitimatian walked into the local Timmys for an early morning coffee and had to stand in line while being told how wonderful Enbridge is.

Of course, if Albertans force Tim Hortons into reinstating the ads, that will only trigger a bigger boycott in British Columbia.  As Maclean’s asks, “what were they thinking?”

Jason Kenney, flying in, flying out

As for Jason Kenney, who is quoted by the CBC as tweeting:  “I’m proud to represent thousands of constituents who work for Enbridge & other CDN energy companies,” if Kenney aspires to be Prime Minister one day, he had better start thinking about representing more Canadians than just those employed by the energy industry—a mistake that his boss Stephen Harper keeps making.

Jason Kenney did visit Kitimat for a just a few hours in February 2014  for a tour of the Rio Tinto modernization project and an obligatory and brief meeting with the Haisla First Nation council. If Kenney had actually bothered to stick around a few more hours and talk to the community, everyone from the environmentalists to the industrial development advocates, he might not have been so quick on the trigger in the Twitter wars.

Not one of the major media who covered this story, not The Globe and Mail, not CBC.ca, not MacLean’s, no one else, once bothered to actually call or e-mail someone who lives along the Northern Gateway pipeline route in British Columbia, the area where the boycott movement actually began to ask about Enbridge’s track record in this region. The media still doesn’t get it. This morning’s stories are all about Alberta. As usual, my dear, the media doesn’t give a damn about northwestern British Columbia.

That is why the coverage of the Tim Hortons boycott is a double double failure of the Canadian media.

timmyskpoljune4




Where else the media is failing northwestern BC

Full disclosure. Since I took early retirement from CBC in 2010 and returned to Kitimat, I have worked as a freelancer for CBC radio and television, Global News, Canadian Press, The National Post, The Globe and Mail and other media.

However, largely due to budget cuts, freelance opportunities, not only for myself, but others across the region have dried up. The media seems to be concentrating more on the major urban areas where there is larger population base and at least more of the ever shrinking advertising dollar. I am now told more often than I was a couple of years ago that “we don’t have the budget.”

Now this isn’t just a freelancer who would like some more work (although it would be nice). If the media these days actually had environmental beats for reporters the boycott of Tim Hortons in northwest BC would have been flagged within a couple of days, not almost two and half weeks and later only when Alberta got hot under its oily collar.

So as well as the Tim Horton’s boycott here are two major ongoing stories from Kitimat that the media haven’t been covering.

100 day municipal strike

-Kitimat’s municipal workers, Unifor 2300, have been on strike since February 28. Three rounds of mediation have failed, the union has refused binding arbitration, the pool, gym and community meeting halls have been closed since February, the municipal parks and byways are now returning to the wilderness. Only essential services are being maintained (but residents still have to pay their property taxes by July 2, taxes that are skyrocketing due to increased assessments for home values based on LNG projects that haven’t started) By the time most people read this the strike will have been on for 100 days. There is no settlement in sight and both sides, despite a mediator ordered blackout, are fighting a press release war on social media. Can you imagine any other place that had a 100 day municipal workers strike with no coverage in the province’s main media outlets, whether newspaper or television? Local CBC radio has covered the strike, as has the local TV station CFTK.  (Update: District of Kitimat says in a news release that the mediator has now approved the DoK news releases.)

Of course, in the bigger picture the media concentrates on business reporting. There haven’t been labour reporters for a generation.

Kitimat air shed hearings

-The environmental hearings on the Rio Tinto Alcan proposal to increase sulphur dioxide emissions in the Kitimat Terrace air shed, after two weeks in Victoria, where there was no media coverage, are now continuing in Kitimat, where again there is little media coverage. CFTK is covering the hearings; otherwise the main coverage comes from the activist group DeSmog, hardly a credible or unbiased source. I made the decision not to cover the hearings either. I can’t afford any longer to sit around for two weeks, unpaid, no matter how vital the hearings are to the community.

So if most Canadians were surprised that there was a boycott of the unofficial national symbol, Tim Hortons, it’s because of that double double media fail and as the media continues to decline, as budgets are cut, as “commodity news” disappears, expect more surprises in the future. Oh by the way Kitimat is vital to the national economy but we can cover it from a cubicle in Toronto.

Final disclosure: I am not a coffee drinker. When I go to Timmy’s I prefer a large steeped tea and an apple fritter.

Woodside, new Kitimat LNG partner, borrows $1 billion in new bonds

Woodside PetroleumWoodside Petroleum, the new partner with Chevron in the Kitimat LNG project is raising US$1 billion through the issue of corporate bonds into the U.S. market “to fund its capital and exploration expenditure program.”

A news release from Woodside says “the bonds will be issued by Woodside Finance Ltd, a wholly owned subsidiary of Woodside Petroleum Ltd, and will consist of US$1 billion of 10 year bonds with a coupon of 3.65 per cent. The bonds will be guaranteed by Woodside Petroleum Ltd and its wholly owned subsidiary, Woodside Energy Ltd.”

Bloomberg notes that Woodside paid $2.75 billion to Apache for its stakes in the Kitimat LNG and the Australian Wheatstone LNG project.

Woodside agreed in December to pay $2.75 billion to Apache Corp. for stakes in two natural gas projects, and it expects to spend about $6.2 billion in 2015.

Even after its agreement with Apache, Woodside has a strong balance sheet that may allow the company to make another acquisition and take advantage of low crude oil prices, according to a Feb. 18 report from Goldman Sachs Group Inc. Woodside has $6.8 billion in cash and available debt facilities, the energy producer said in a presentation that same day.

Woodside said last week that full-year net income rose 38 percent to $2.41 billion, helped by its Pluto project. Brent crude oil prices have tumbled 44 percent over the past 12 months.

In January, Australian Mining reported that Woodside had reached an “non-binding contract…  as an agreement between Woodside Petroleum and Adani Enterprises to cooperate in developing commercial initiatives for long-term supply of gas to the Indian market.”

Moricetown band joins Pacific Trail Partnership, Kitimat LNG now has all First Nation councils on board

Chevron,  the lead corporation in the Kitimat LNG project announced on January 23 that the Moricetown Indian Band had agreed to join the First Nations Limited Partnership, in effect, approving the Pacific Trail Pipeline that would take natural gas to the project in Kitimat.

Here is the news release from all parties involved.

First Nations Limited PartnershipVancouver, British Columbia, January 23, 2015 – The First Nations Limited Partnership (FNLP) today announced that Moricetown Indian Band (Moricetown) has joined the FNLP. The FNLP is a commercial partnership that, with the addition of Moricetown, now includes all of the 16 First Nations whose traditional territory is located along the proposed 480 kilometre Pacific Trail Pipeline (PTP) route from Summit Lake to Kitimat, B.C.

“The decision of the Moricetown First Nation Band Council to join the First Nations Limited Partnership is one that we warmly welcome,” said the Honourable Bob Rae, Chairman of FNLP.

“It means all 16 First Nations along the proposed Pacific Trail Pipeline route are partners in a unique approach that combines environmental stewardship, extensive job, procurement, and other economic benefits, and direct financial transfers on a regular basis to each First Nations community.”

The FNLP is without precedent in the Canadian energy industry and the Pacific Trail Pipeline is the only proposed natural gas pipeline for a liquefied natural gas (LNG) facility in B.C. with such a benefits agreement. The proposed PTP and Kitimat LNG Facility projects are owned by Chevron and Apache through a 50/50 joint venture and are operated by Chevron.

“This agreement is unparalleled in balancing strong economic growth measures with preserving our cultural heritage and the environment. There is, quite simply, no other deal that comes close to what we’ve been able to achieve in this partnership,” said Chief Dan George of Ts’il Kaz Koh (Burns Lake).

The commercial partnership ensures that FNLP Nations receive immediate and long-term benefits from the PTP project. These include up to $550 million in direct financial benefits over the life of the PTP project, including a recent enhanced benefit of $10 million a year operating life of the PTP project from the Province of British Columbia. The FNLP Nations also receive substantial economic development, skills training, employment and contracting benefits from PTP under the terms of the agreement.

Chevron Logo“Chevron Canada wishes to commend all parties for creating a partnership between industry and First Nations based on mutual respect, trust and economic self-determination. We welcome Moricetown as the 16th member of the FNLP, and look forward to building the Pacific Trail Pipeline with First Nations in a manner that places the highest priority on protecting people and the environment,” said Jeff Lehrmann, President, Chevron Canada Limited.

Measures that reflect environmental protection, vitality of traditional cultural values, protection of aboriginal rights and title, economic self-determination and a sustainable future for First Nations are also part of the FNLP agreement. Members of the FNLP have already received significant benefits to date from the agreement, including $17 million in financial payments.

“We have already seen over 1,600 First Nations members receive skills training through the PTP Aboriginal Skills to Employment Partnership, better known as PTP ASEP. Over 900 of these trainees have found jobs,” said Chief Karen Ogen of the Wet’suwet’en First Nation.

First Nations employment currently accounts for 54 per cent of all early works construction workforce hours to date on the Pacific Trail Pipeline. To date, FNLP members have also been awarded over $245 million in PTP construction contracts, and over 65 per cent of construction contract expenditures have been made to member First Nation businesses.

The agreement also facilitates joint ventures between FNLP and companies engaged in the PTP Project. As such, the FNLP Nations not only have a clear financial interest in the pipeline construction but, just as importantly, also have a strong voice in ensuring the preservation of environmental and cultural integrity.

“The FNLP is an innovative model for how industry and First Nations can cooperate effectively with respect to major economic development projects,” said the Honourable Bob Rae.
About First Nations (PTP) Group Limited Partnership (FNLP)

The First Nations (PTP) Group Limited Partnership (FNLP) is a limited partnership of 16 First Nations whose traditional territories are located along the transportation corridor between Summit Lake and Kitimat, British Columbia.

FNLP was formed to secure significant, reliable and long-term economic benefits for its limited partners from the proposed PTP Project.

FNLP member Nations are:

* Haisla Nation
* Kitselas First Nation
* Lax Kw’alaams Band
* Lheidleh T’eneh First Nation
* McLeod Lake Indian Band
* Metlakatla First Nation
* Moricetown Indian Band
* Nadleh Whut’en First Nation
* Nak’azdli Band
* Nee Tahi Buhn Indian Band
* Saik’uz First Nation
* Skin Tyee First Nation
* Stellat’en First Nation
* Ts’il Kaz Koh First Nation (Burns Lake Indian Band)
* West Moberly First Nations
* Wet’suwet’en First Nation
About PTP and the Pacific Trail Pipelines Limited Partnership

The proposed 480-kilometre Pacific Trail Pipeline Project is jointly owned by Chevron Canada Limited (Chevron) and Apache Canada Ltd. (Apache) through the Pacific Trail Pipelines Limited Partnership (PTPLP). The PTP is intended to deliver natural gas from Summit Lake

B.C. to the proposed Kitimat LNG facility on B.C.’s north coast. The Pacific Trail Pipelines Limited Partnership (PTPLP) acquired the project in February 2011 from Pacific Northern Gas.

 

The fact that the Moricetown Band had held out for so long was seen as one of several factors that was holding up a Final Investment Decision by Chevron and its soon to be new partner, Australia’s Woodside Pretroleum, which is currently finalizing a deal to buy Apache’s stake in the project. Chevron vice chairman, George Kirkland was asked about it during an investor conference call in August, 2014 At the time,  Kirkland hinted at the potential problems with the Pacific Trails Pipeline, where there is still a dispute with members of the Wet’suwet’en First Nation. “We’re going to focus on the pipeline and the end of the pipeline corridor. That’s important and we’re putting some money into that to finalize the pipeline routing, get all our clearances and then we’ve got work going on.”

The Unist’ot’en Camp group which opposes energy development in the traditional territory of that House has not yet commented on the announcement. However, earlier Friday at a protest in Winnipeg, Freda Huson, Spokesperson for the Unist’ot’en People and Hereditary Chief Toghestiy of the Likhts´amisyu Clan, issued this statement.

¨The Hereditary Chiefs of the Wet´suwet´en People will stop all attempts from Pipeline Companies, Colonial Governments, and their sell-out employees from bringing Tar Sands Bitumen or Fracked Gas onto our lands. We have ancestral integrity which guides us and will help us ensure that we make the right decisions to protect our lands for all of our unborn generations. We will hold ALL those accountable for attempting to enable destructive agendas to take hold on our sacred lands. We will use our traditional governing systems, the colonial courts, grassroots Indigenous Peoples, and our media savy to make everyone associated with Pipelines, Tar Sands, and Fracking activity from affecting our unceded lands. We are armed with our indomitable spirit and 2 Supreme Court of Canada decisions and will use them against any more aggressors on our unceded lands. Consider this a warning for attempting to trespass on our homelands. We have defended our lands for countless generations and we will stand up like our ancestors have to ensure that we never are viewed as weak in the eyes of our ancestors or children.

Apache sells Kitimat LNG stake to Australia’s Woodside Petroleum

Apache CorporationApache Corporation today announced it has agreed to sell its interest in two LNG projects, Wheatstone LNG and Kitimat LNG, along with accompanying upstream oil and gas reserves, to  Australila’s Woodside Petroleum Limited for a purchase price of $2.75 billion.

The news release says:

Apache will also be reimbursed for its net expenditure in the Wheatstone and Kitimat LNG projects between June 30, 2014, and closing which is estimated to be approximately $1 billion.

Under the terms of the agreement, Apache will sell its equity ownership in its Australian subsidiary, Apache Julimar Pty Ltd, which owns a 13-percent interest in the Wheatstone LNG project and a 65-percent interest in the WA-49-L block which includes the Julimar/Brunello offshore gas fields and the Balnaves oil development. The transaction, which has an effective date of June 30, 2014, will also include Apache’s 50-percent interest in the Kitimat LNG project and related upstream acreage in the Horn River and Liard natural gas basins in British Columbia, Canada.

Woodside PetroleumBased on current estimates, Apache’s net proceeds upon closing are expected to be approximately $3.7 billion. Receipt of proceeds from this transaction will trigger an estimated $650 million cash tax liability, approximately $600 million of which is associated with the income tax due on Apache’s Overall Foreign Loss account balance. Upon incurring this income tax liability, Apache estimates that it will have the flexibility to repatriate cash generated from foreign operations and/or future international strategic transactions with minimal U.S. cash tax impact.

“Today’s announcement marks the successful completion of one of our primary strategic goals of exiting the Wheatstone and Kitimat LNG projects. Apache recognizes the contribution of our employees who have worked so diligently on these projects since their inception, and we sincerely thank them for their tremendous effort. I would also like to thank Woodside’s CEO and Managing Director, Peter Coleman, and his entire staff for their hard work and professionalism in bringing this transaction to a successful conclusion. I am proud of Apache’s legacy in advancing the Wheatstone and Kitimat LNG projects, and I am confident that Woodside’s participation will have a positive impact in seeing these world-class LNG facilities through to first production. We look forward to the redeployment of the proceeds from this sale, which may be used to reduce debt, repurchase shares and to pursue other opportunities that enhance our asset base and drive profitable production growth,” said G. Steven Farris, chairman, chief executive officer and president.

Upon completion of the transaction, Apache will continue to hold upstream acreage offshore Western Australia in the Carnarvon, Exmouth, and Canning basins along with related hydrocarbon reserves and production. Apache will also retain its 49-percent ownership interest in Yara Holdings Nitrates Pty Ltd and 10-percent interest in the related ammonium nitrate plant.

The transaction is expected to close in the first quarter of 2015 and is subject to necessary government and regulatory approvals and customary post-closing adjustments. The sale of the Kitimat LNG project is subject to certain operator consents.

Aussie energy company eyeing Apache stake in Kitimat: media reports

The Australian Business Review is reporting that Woodside Petroleum, a cash rich Australian energy company, has its eye on Apache’s 50 per cent stake in the Kitimat LNG project. As part of any deal, Woodside would probably also have to buy Apache’s stake in the Australian Wheatstone LNG project, which is also up for sale.

The months-long process by Apache to find a new home for its West Australian domestic gas business and its stake in the under-construction Wheatstone LNG project — as well as its stake in the Kitimat LNG project in Canada — has drawn plenty of interest from parties in that neck of the woods.

The cashed-up, project-hungry Woodside Petroleum has been interested from the outset in the Kitimat stake, but is also said to be prepared to make an offer on Wheatstone if Apache is determined to sell the assets together


WoodsideEarlier,  another Australian newspaper, The Age reported that Woodside’s petroleum and LNG operations had “revenue of $US5.3 billion for the first nine months of 2014. Compared with the corresponding period in 2013, revenue was 28.7 per cent higher for the 2014 period.”Part of the money came from selling natural gas assets in the United States.

According to The Age:

Woodside’s LNG production rose to a record 5.1 million tonnes for the first nine months of Woodside’s fiscal 2014. The record production represents a rise of 17.6 per cent on the same period for 2013. Behind the result was the operational performance of the Pluto LNG facility (Woodside’s interest is 90 per cent). Pluto lifted LNG production by 24.3 per cent on the corresponding period in 2013, to 3.1 million tonnes. Pluto also produced 2.2 million barrels of condensate for the first nine months of 2014. Oil production rose by a mammoth 33.3 per cent on the same period in 2013, to 8.8 million barrels.

On November 6, according to the Sydney Morning Herald, Woodside’s CEO Peter Coleman warned that the Asian customers for LNG who are holding out for cheaper prices could face a  “supply crunch” and “By holding out for a cheaper price, customers are potentially exacerbating project FID [final investment decision] delays and may unwittingly help bring on a supply crunch.”

He called on suppliers and customers to work together to  ensure supply projects went ahead.

The Woodside website describes the company as  “Australia’s largest independent dedicated oil and gas company and one of the world’s leading producers of liquefied natural gas.​​​​​​”

It goes on to say

As we aspire to become a global leader in upstream oil and gas, we are guided by the Woodside Compass. The Compass links Woodside’s core values – respect, integrity, working sustainably, working together, discipline and excellence – with our vision, mission and strategic direction.

Woodside has an extensive portfolio of facilities which we operate on behalf of some of the world’s major oil and gas companies.
We have been operating the landmark Australian project, the North West Shelf, since 1984 and it remains one of the world’s premier liquefied natural gas (LNG) facilities.

With the successful start-up of the Pluto LNG Plant in 2012, Woodside now operates six of the seven LNG processing trains in Australia.

Apache still looking for buyer for Kitimat LNG stake

Apache Corp is still looking for a buyer for its stake in the Kitimat LNG project,  company CEO Steven Farris told investors Thursday as the company reported its third quarter results. Farris gave no details, just telling an investor conference call, that as he reported during the second quarter call, that company intends to “completely exit” both the Kitimat LNG project and the Wheatstone LNG project in Australia.Apache Corporation

 

All Farris would say is, “We have lots of people working on the projects to do just that.”

At that same time, Apache is still spending money on the Kitimat project. The quarterly report says that Apache spent $151 million on the project in the third quarter, and a total of $498 million so far this year. That includes an equity investment in the Pacific Trail Pipelines $15 million in the third quarter and $44 million so far this year.

Chevron, Apache’s partner continues to work on the Kitimat project.

Glencore: The great white shark stalking Rio Tinto

The world’s business media are paying rapt attention to Glencore’s  now stalled attempt to take over Rio Tinto.
glencore_logo_11652

Late Tuesday, the company issued a news release which says

Glencore announces that in July 2014 it made an informal enquiry by telephone call to Rio Tinto, seeking to gauge whether there might be any interest at Rio Tinto in investigating some form of merger between the two companies. Rio Tinto responded that it was not interested in pursuing these discussions.

Glencore confirms that it is no longer actively considering any possible merger transaction with, or offer for the shares of, Rio Tinto.

As a consequence of this announcement, the Panel Executive has determined that Glencore is for a period of 6 months from the date of this announcement subject to Rule 2.8 of the City Code on Takeovers and Mergers in relation to Rio Tinto. Glencore however reserves its rights to make an offer in the future with the consent of the Takeover Panel, either with the recommendation of the Board of Rio Tinto, in the event of a third party offer for Rio Tinto, or in the event of a material change in circumstances.

Rio Tinto released its own statement saying:

The board of Rio Tinto notes the recent press speculation regarding a possible combination of Rio Tinto and Glencore.
The Rio Tinto board confirms that no discussions are taking place with Glencore.
In July 2014, Glencore contacted Rio Tinto regarding a potential merger of Rio Tinto and Glencore.
The Rio Tinto board, after consultation with its financial and legal advisers, concluded unanimously that a combination was not in the best interests of Rio Tinto’s shareholders.
The board’s rejection was communicated to Glencore in early August and there has been no further contact between the companies on this matter.

According to Bloomberg,  Glencore’s secretive CEO  Ivan Glasenberg made a verbal stock offer to Rio Chairman Jan Du Plessis in July. The Rio Tinto board rejected the offer in August, which means under that UK law, Glencore must wait six months before making another bid.

Glasenberg’s informal July bid carried no significant premium, said the person, who asked not to be identified as the information is private.

Bloomberg’s television arm reports that the Glasenberg’s offer was in stock, an attempt, apparently,  to get Rio Tinto “on the cheap.” Earlier Forbes reported that there were rumours of an offer  from Glencore to Rio Tinto of  a “share-swap merger”

Bloomberg goes on to report that.

After being rebuffed by the board, Glencore has reached out to Rio’s biggest investor, Aluminum Corp. of China, to gauge its interest in a potential deal in the next year, according to people familiar with the matter.

After the initial report on the takeover Monday, business writers used epic analogies.

Forbes says of Glencore “Patient Stalking Of A Target Is A Glencore Hallmark” while the Globe and Mail reports Glencore  “The great white shark of the global commodities industry” is looking for a blockbuster deal.

Meanwhile, behind its premium paywall Lex, the Financial Times is comparing the Glencore bid for Rio Tinto to the Game of Thrones.

The analysts are saying there are two main factors, Rio Tinto’s balance sheet has been weakened by a downturn in the iron ore market while at the same time Glencore aims to overtake Rio Tinto rival BHP Billiton. If it acquires RT, then Glencore will become the world’s largest mining and resource company.

The business media all say Glencore is already the world’s biggest trader in commodities.

The Guardian has called Glencore, the Biggest Company You Never Heard of.

China is  a major force behind this corporate Game of Thrones. China  wants more access to world resources for its increasingly hungry industry and population,while at the same time it has apparently all the iron ore it needs and iron ore is Rio Tinto’s biggest asset.  The key player is a giant Chinese aluminum company now under investigation as part of the country’s corruption crack down.

Glencore is already huge, listed as Number 10 on the Fortune Global 500 list . Rio Tinto is far down at number 201. (Walmart is number one. Companies involved with Kitimat are Shell in second place, Sinopec in third and the China National Petroleum Corporation in fourth. Chevron is in 12th spot.)

Glencore is a major player in the aluminum business with assets around the world, some in partnership with the Russian giant aluminum group Rusal . According to Wikipedia, Glencore owns 8.8 per cent of  a joint venture with Rusal, and the Sual Group (Siberian-Urals Aluminium Company) . That joint venture, Wikipedia says, has created  the “World’s largest aluminium and alumina producer with 110,000 employees in 17 countries.”

Glencore along with Rusal has an undisclosed interest in Rusal’s Windalco alumina operation in Jamaica. Glencore also has an undisclosed interest in the Alumina Partners of Jamaica. It owns 44 per cent of Century Aluminum in Monterey California. Glencore has also undisclosed interests in idle aluminum smelters in Washington State and Montana.  It has an undisclosed interest in Kubikenborg Aluminium AB in Sweden, Aughinish Alumina in Ireland and Eurallumina in Sardinia.

Glencore Brochure Canadian Operations  (pdf)

In the northwest, Glencore, through its agricultural subsidiary Vittera, is a partner, along with Cargill Ltd. and Richardson International in the Prince Rupert Grain Terminal. In Vancouver, Glencore owns  Vittera’s Cascadia grain terminal in Vancouver.

 located on the south shore of Burrard Inlet. Vittera Inc. owns and operates Canada’s largest grain handling network. The terminal handles wheat, durum, feed barley, malting barley, canola seed and specialty products, with storage capacity of 282,830 tonnes of product, handling loading from its 244 metre berth with a depth of 14.6 metres. –

Glencore is also developing a metallurgical coal mine near Chetwynd.

A Glencore stock photo of  lag tapping at the Sudbury Smelter. (Glencore)
A Glencore stock photo of slag tapping at the Sudbury Smelter. (Glencore)

 

Glencore, through the earlier 2013 take over the mining company Xstrata owns the famous Kidd  copper and zinc mine near Timmins, Ontario. The operation has 1300 employees. (Xstrata earlier took over the well-known Canadian mining company Falconbridge). It also operates the Horne copper Smelter in Rouyn-Noranda, Québec, which employees 700 and the CCR copper Refinery in Montreal, Québec which employees 650.

In Sudbury, Glencore is reviving the Errington-Vermillion Project, two deposits were that were previously mined in the 1920s and 1950s. It says the project has potential for approximately nine million tonnes, polymetallic- zinc, lead,copper, silver, gold or a rate of  2,900 tonnes per day.

The other factor for Kitimat with Glencore is that, unlike Rio Tinto, which is mostly a mining and smelting company, Glencore has interests in natural gas, oil and shipping and it is reported that the company wants to expand its hydrocarbon business from extraction to shipping.

According to Forbes, many Rio Tinto shareholders are not happy about the costs of the takeover of Alcan

Rio_Tinto_LogoThe chairman of Rio Tinto, Jan du Plessis said the board was happy with the leadership of managing director, Sam Walsh, and finance director, Chris Lynch.
Interestingly, that might not be a view shared by all Rio Tinto shareholders who are still smarting from the $40 billion written off after the ill-timed acquisition of the Alcan aluminium business, followed by a $3 billion write-off after an equally poorly executed coal asset deal in Africa.

(It should be noted that Walsh was not the CEO at the time of both acquisitions, but was brought in to put Rio Tinto back on track after those huge losses)

The Rio Tinto news release says it’s business as usual:

Rio Tinto remains focused on the successful execution of its strategy, which the board of Rio Tinto is confident will continue to deliver significant and sustainable value for shareholders….

The board believes that the continued successful execution of Rio Tinto’s strategy will allow Rio Tinto to increase free cash flow significantly in the near term and materially increase returns to shareholders. Rio Tinto’s shareholders stand to benefit from the very considerable value that this will generate.

The Guardian says, echoing Forbes’s talk of a patient stalking.

RBC Capital Markets analyst Timothy Huff said: “A potential merger with Rio would enable Glencore to get hold of the lowest-cost iron ore business in Australia. This is likely just a shot across the bow from Glencore and we expect Glencore to play the long game with any highly desired acquisition target. While asset divestments may have to play a larger part in a Glencore/Rio tie-up, we think the broader strategy for an enlarged group makes sense.”

The Globe and Mail Report on Business says

It is an open secret that Mr. Glasenberg, a multibillionaire South African, has every intention of using mergers and takeovers to greatly extend Glencore’s reach along the commodities value chain. Glencore’s strategy is to control the mines, the warehouses, the ports, the ships and the trading networks that produce and distribute commodities.
The question is whether Rio’s management and shareholders would endorse a deal that could come with no takeover premium. Some analysts think not.

One problem with Glencore’s approach to Chinalco is that the company is part of the wider probe by the Chinese government of corruption. As Reuters reported 

Aluminum Corp of China general manager Sun Zhaoxue is suspected of “serious violations” of the law, a euphemism for corruption, according to a notice published by China’s Central Commission for Discipline Inspection.
Sun is also the vice chairman of Chinalco’s listed subsidiary, Aluminum Corp Of China Ltd. He is the former president of China National Gold Group Corp, the country’s biggest gold producer.

Sun resigned the next day . Other company executives had resigned earlier.

Some business analysts say even if Rio Tinto shareholders are not happy with current management they may not want their holdings affected by a possibly corrupt Chinese company.

On the other hand, as the Telegraph points out, it is really the Chinese government that will make the decision, not the company itself.

China’s government holds the key to a deal despite Rio Tinto’s public rejection of Glencore’s interest. State-owned Aluminum Corporation of China is the largest shareholder with around 10 per cent and Glencore reportedly started talking to the Chinese in the summer to sound out their interest in an exit. Although China is the world’s largest consumer of iron ore and owning such a significant stake in one of the world’s biggest mining groups is strategic now could be a good time to exit. The world is flooded with iron ore and securing supplies for steel mills is no longer an issue for the Chinese government. Now is a good time to cash in.

The man behind the so-far  failed deal, who is likely “patiently stalking” Rio Tinto is the highly secretive and private Ivan Glasenberg.

The Telegraph described his role in the Rio Tinto takeover as a “dark art.”

Pounce, leak and wait.
It is a classic strategy in the shadowy world of mergers and acquisitions and Ivan Glasenberg, the chief executive of Glencore, is a master of this dark art.
Although a potential $160 billion mega takeover of the world’s largest shipper of seaborne iron ore, Rio Tinto, was flatly rejected in August, don’t bet on Glasenberg walking away for good

Glasenberg was born in South Africa in 1957, and apparently now holds four passports, South Africa, Australia, Israel and as of 2011, Switzerland.

When Glencore  went public on the London Exchange in 2011, which the Guardian called “the biggest stock exchange float in British history,” the British media received a letter from a London law firm warning the normally aggressive media not to probe into the private lives of the company executives.

Glencore executives, the letter said, “are extremely private individuals”, who expected scrutiny of their business activities, but not their personal lives. A warning followed about the “security risk” that could be posed by any reports about their homes or private lives.

It appears that for the British media the royal family and missing school girls are fair game but not Glencore’s executives.

Should Glencore ever takeover Rio Tinto, the Wall Street Journal says Glasenberg told the paper Glasenberg: We Don’t Do Work-Life Balance  may be a indication of the future, especially for management.

Although he was referring mainly to the company’s main business, commodity trading, the interview is enlightening.

Asked in an interview with The Wall Street Journal if the company has a work-life balance, the 57-year-old billionaire, a former coal trader, says: “No. We work. You don’t come here to take life easy. And we all got rich from it, so, you know, there’s a benefit from it.”

This competitiveness, he says, is smart business. “If I’m not pulling my weight and setting an example” and “traveling 80% of the time”, his charges would complain to the board and try to get him fired….

Mr. Glasenberg says the phenomenon is still at play. “I see it happening. Some guy suddenly decides: ‘I want to take it easier, I want to spend more time with the family’… an attack will come.”

Mr. Glasenberg, who had been CEO of Glencore since 2002, says he is insistent on instilling this culture at Xstrata, a mining company. Glencore had amassed a portfolio of mines over the past decade. “I thought if we could put our hard-working culture as traders into the asset management it will be a great combination and we did do that,” he says.

But according to the Huffington Post, an employee who wants to be a traders is welcome to try.

One area where Glasenberg does get soft however is on worker mobility, noting that blue collar miners can work their way up to earning the eight-figure salaries enjoyed by his squadron of commodities traders. Just try him.

“You want to be a trader, come be a trader,” he told Wall Street Journal. “You want to travel six days a week, you want to travel the world, the door’s open. I earn more than you. Come be a trader. Please, the door’s open.”

If the Glencore news release is correct, that means in six months, on April 7, 2015,  the next move in the future of Rio Tinto will come, unless, as the Glencore news release states “if there is a material change in circumstances”

One thing is clear, Kitimat can now add Rio Tinto and Rio Tinto Alcan to the mix of uncertainty along with Shell, Chevron, Enbridge, Apache and the rest of the corporate movers. In other words, we are all extras in the corporate Game of Thrones.

Chevron sticks with Kitimat but no final investment decision until customers sign

Chevron is sticking with the Kitimat LNG project but won’t make a Final Investment Decision until it has signed sales and purchase agreements for between 60 and 70 per cent of the natural gas, Chevron’s vice-chairman and executive vice-president of upstream operations, George Kirkland told investment analysts in a conference call Friday.

Kirkland said that decision will happen “irrespective of what happens with Apache,” which has decided to completely exit the project.

Chevron Logo“We need to get partnership resolved and Apache has to move through the issues s and we need to get a new partner in. That needs to happen. That’s quite obvious,” Kirkland added.

Other factors, Kirkland told the call, are final test results from the Liard and Horn River natural gas play in northeast British Columbia and finalization of the “pipeline corridor.”

Kitimat-Liard-Horn package

Although the residents of Kitimat are focused on the LNG terminal at Bish Cove, remarks both by Kirkland today and by Apache CEO Steve Farris Thursday, it appears that energy industry views Kitimat LNG as part of a “package” (a term used by both) that includes the Liard and Horn River gas fields and the connecting Pacific Trails Pipeline.

Kirkland also said Chevron has no interest in any further investment beyond the 50 per cent it already holds. “We have 50 per cent of the interest in Kitimat-Liard-Horn River assets. That’s right in the middle of the sweet spot where we like to be where we’re committing people to run the projects and operations. We don’t want more than 50 per cent but we do have available some small amount of working interest that we would provide to a LNG buyer.

“There’s always been a plan for us and Apache to have some working interest that could be sold down to buyers, so they would be part of the development and they would be in the value chain. That has not changed.”

Kitimat LNG’s rival project LNG Canada, run by Shell, has buyer partners in KoGas, Mitsubishi and PetroChina.

Bish Cove
Kitimat LNG under construction at Bish Cove, September 2013. (Robin Rowland/Northwest Coast Energy News)

Final Investment Decision

One analyst asked Kirkland if the Final Investment Decision would come at the end of 2014, as previously announced, or in 2015. Instead, Kirkland said, “We will reach FID shortly after having 60 to 70 per cent gas committed to an SPA- a sales and purchase agreement. That is the critical decision maker and for both timing and the investment decision, irrespective of what happens with Apache. We’re driven, once again, by having a sales contract or sales contracts that gives us 60 to 70 per cent of the gas committed at an economic price.”

On the Kitimat terminal, Kirkland said, “We’ve got work going on, FEED [Front End Engineering and Design] work on the plant itself.

“We have to understand cost and schedule on that plant… We’re not spending huge money but it is a lot of money in terms of  hundreds  of millions of dollars.  Now that is critical for us to have all that so we can deal knowledgeably with buyers. We have to understand cost. We have to understand resource,  so we can deal with the particulars of pricing.

“We are not going to do a project unless it’s economic. We’ve always told you we’re not going to build that project unless we have 60 per cent of the gas sold. If you understand the project it makes sense.”

“I am not concerned if Apache leaves,” Kirkland said. “I think we could easily step in and be the operator of the upstream. I am confident there. Apache has been very good to work with in the early stages of the assessment of Liard.

“I think we’re in good shape but we need clarity, we need to get closure on the partnership and as I mentioned we have to do the work where we deal with buyers and understand costs and understand economics. We are very value driven, we are not going to go FID until we understand the economics of that sale.”

Confident on assets

Kirkland said that the company is confident about the assets in the Liard and Horn River regions but is waiting for final results from some test wells in the Liard.
“We can check off our confidence level on the Horn River. Resources are already high. We’ve already done that appraisal. So the focus on the resource sector is on the Liard,  with some appraisal there and getting some production work. The wells where we need to get some production data  will be complete by the end of the year. So that’s a really important step forward.”

Kirkland also hinted at the potential problems with the Pacific Trails Pipeline, where there is still a dispute with the Wet’suwet’en First Nation. “We’re going to focus on the pipeline and the end of the pipeline corridor. That’s important and we’re putting some money into that to finalize the pipeline routing, get all our clearances and then we’ve got work going on.”

Chevron slide
Slide from the Chevron second quarter results presentation showing other LNG projects (Chevron)

Overall Kirkland was enthusiastic about other liquified natural gas projects in Australia and elsewhere in the world. Chevron Corporation reported earnings of $5.7 billion for the second quarter 2014, compared with $5.4 billion in the 2013 second quarter. Sales and other operating revenues in the second quarter 2014 were $56 billion, compared to $55 billion in the year-ago period.

Company CEO John Watson said a news release, “In Australia, our Gorgon and Wheatstone LNG projects continue to reach important interim milestones. Gorgon remains on track for expected start-up in mid-2015. We are also advancing the development of our liquids-rich, unconventional properties in the United States, Canada and Argentina.”

Apache to “completely exit” from Kitimat LNG as company refocuses

Apache will “completely exit” the Kitimat LNG project, company CEO Steven Farris told investors Thursday as the company reported its second quarter results.

The pull out from Kitimat is part of a plan by Apache to spin off assets that are not part of its “base business” so it can concentrate on its “North American onshore assets.”

“We have said for some time that Canada is part of our North American onshore portfolio,” Farris told analysts in a conference call.

“Certainly we have two businesses up there. [in Canada]  We have a business which is a base business with respect to the Duverney Shale and Monteny shale and some of the other things we working on there. We also have the Kitimat-Horn River- Liard. Kitimat -Horn River -Liard is part of our LNG project which we reindicated today that we intend to exit.”

Bish Cove Kitiamt
A long view of the Kitimat LNG project at Bish Cove, Sept. 14, 2013. (Robin Rowland/Northwest Coast Energy News)

The Horn River and Liard natural gas fields would have served the LNG project. The divesture could either be as a complete package or sold separately perhaps through the capital markets.  The Duverney Shale and Monteny shale plays are considered North American assets, while the Horn RIver Liard plays are considered international because the product from there would be sold in Asia via an LNG terminal.

Chevron, the 50 per cent partner with Apache in Kitimat LNG, said it would have no comment on the Apache move until its own investor conference call Friday morning.

Apache also intends to divest its stake in the Australian Wheatstone LNG project, where Chevron is also a partner.

It was about 18 months ago,  Farris said, that Apache changed its focus to “enhancing its North American onshore resource base… We’ve also made it clear that there are no sacred cows as our efforts continue.”

Change in company strategy

Steven Farris
Apache CEO Steven Farris. (Apache)

Farris and other executives repeatedly emphasized on the call that the Kitimat and Wheatstone sales were part of an overall change in company strategy.

“I have to honestly say that the complete exit by Apache will not have an impact on Kitimat going forward one way or another,” Farris said.

“Whether we’re in it or not, they will contact with world class reserves and frankly Chevron and Apache are way a head of anybody else in that arena. We’ve always been in a position that we felt we could not be in these LNG projects. I think it’s important that we state that.”

Apache has been under pressure from a giant New York based hedge fund called Jana to get out of the international market and concentrate on proven North American markets.

Some other financial analysts on the call seemed a little skeptical about the move, with a couple of questions focused on whether Apache was giving up long term investments.

“In terms of business and priority of capital and time frame of LNG specifically Kitimat it make sense for someone to own it who has a different timeline,”  Farris said.

As for the timing of the sale, both Farris and Chief Financial Officer, Alfonso Leon, would not give specifics. “We haven’t decided on a specific timeline, we are working on a number of different opportunities,” Leon said. “Each of them has a different timeline associated with it. So we will make decisions as we reach decision points. Specificaly on the separation work flow…it is not something that will be executed on an imminent basis. Work has been underway but there is still significant work ahead of us.”

The executives would not say how much Apache has spent on Kitimat LNG so far, but it has been estimated at $2 billion just this year.Upgrading the old forest service road to a modern highway capable of supporting heavy truck traffic was estimated to cost $25 million Kitimat LNG officials said late last year.

Fair price Apache Corporation

As for the selling price, Farris said that company will hold out for the best deal, saying that Apache has got a “fair price” for international assets that is has already sold, adding that when it comes to Kitimat and Wheatstone. “We won’t sell at prices that don’t make sense,” whether that comes from a package deal with the northeast BC shale assets or through the capital markets.

Overall, Apache Corporation is making money, announcing second-quarter 2014 earnings of $505 million Net cash provided by operating activities totaled approximately $2.3 billion in second-quarter 2014, compared with $2.8 billion in the prior year, with cash from operations before changes in operating assets and liabilities totaling $2.2 billion, compared with $2.6 billion in second-quarter 2013.

In the quarterly report news release, Farris said, “Record-setting performance by our Permian Region continues to drive strong results for the company… Apache’s onshore North American liquids production increased 18 percent on a pro forma basis in the second-quarter 2014 compared with the same period a year ago”

Although some enviromental groups and First Nations are claiming victory in the Apache divestiture, it is clear that those activities had negiligble impact on the decision, which was driven in part by the demands of a New York hedge fund and by the growing uncertainty in the LNG market as Asian countries seek natural gas at much lower North American prices. As the old Godfather movies often said, “It’s not personal, it’s business.”

Apache’s exit, however, does increase the uncertainty in both the short term and long term development of LNG export terminals in northwestern BC, and clearly shows that Premier Christy Clark made a mistake in promising that the provincial economy will boom thanks to LNG.

Both Premier Clark and LNG Minister Rich Coleman were unavailable to the media Thursday. Coleman’s office did send an e-mail tothe media saying, “With 16 LNG proposals involving over 30 partners, we recognize partnerships will change over time, as companies make decisions that make commercial sense for their business. It’s the nature of the business and the energy sector.”

Shell reports

Little noticed in the media attention over Apache, was the fact Royal Dutch Shell also issued its quarterly report early Thursday. Unlike Apache, Shell is still investing in LNG projects around the world, and getting returns from existing LNG projects, while divesting under performing natural gas assets both upstream and downstream. There is no mention of LNG Canada and Kitimat in the report. In a statement issued with the quarterly report Royal Dutch Shell Chief Executive Officer Ben van Beurden commented in part:

I am determined to get a tighter grip on business performance management in the company, and improve thebalance between growth and returns. Our financial performance for the second quarter of 2014 was more robust than year-ago levels but I want tosee stronger, more competitive results right across the company, particularly in Oil Products and NorthAmerica resources plays….

Sharper accountability in the company means that we are targeting our growth investment more effectively,focusing on areas of the business where performance improvement is most needed, and driving asset sales innon-strategic positions….

We see attractive growth opportunities there such as natural gas integration and liquids-rich shales. We are taking firm actions to improve Shell’s capital efficiency by selling selected assets and making tougher project decisions. We have completed some $8 billion of asset sales so far in 2014. This represents good progress towards our targets to focus the portfolio, and to maintain the financial framework in robust health.

Dump out of Kitimat, New York hedge fund tells Apache

A New York hedge fund, also known as an aggressive activist investor, which just bought a huge stake in Apache, is urging the company to get out of the Kitimat LNG project.

Numerous media reports say that Jana Partners recently bought a one billion dollar stake in the Houston and Calgary based oil and natural gas producer. Jana Logo

Bloomberg reports that Jana is a $10 billion hedge-fund firm run by Barry Rosenstein “known for pushing corporate managements to make changes”

According to both Bloomberg and the Wall Street Journal, Jana wants Apache to get out of LNG projects in both Canada and Australia and concentrate on the United States. Bloomberg says

Jana said it has “engaged in discussions with management” and urged Apache to sell its international businesses to focus on U.S. shale opportunities, exit its investment in liquefied natural gas, and be more forthcoming about how much oil and gas lie beneath its holdings in West Texas’s Permian basin, among other demands.

The Wall Street Journal says Jana believes that Apache should free up cash flow:

by exiting two major projects in Canada and Australia that aim to export natural gas, which will take years and billions of dollars to fully develop. If the company doesn’t take further steps to increase its value,

“Investors are unimpressed by [Apache]’s global diversification and have voted with their feet,” Jana wrote in a letter to investors on Monday that was reviewed by The Wall Street Journal.

Investors apparently consider the Kitimat project a drain on Apache’s capital, so far costing $2 billion in 2014. Apache CorporationThe hedge fund said the company had poor performance compared with rivals, several of which are pure-play companies that drill exclusively in U.S. shale formations such as the Permian Basin. Jana also wants Apache to consider selling itself.

According to the Wall Street Journal,  Apache raised $10 billion from selling assets around the world. In both February and May Apache said it is looking for a buyer for some of its stake in Kitimat LNG.

In Australia,Bloomberg says Apache is in early discussions with potential buyers for its stake in the $27-billion Wheatstone LNG project in Western Australia, which like Kitimat LNG it operates in partnership with Chevron. First LNG deliveries from Wheatstone are expected in 2016.

Bloomberg quotes a Jana newsletter as saying that selling Wheatstone and its stake in Kitimat would free $3 billion to $4 billion cash to fund share buybacks and reduce future spending risks.

A Calgary-based spokesman for Apache told the Financial Post said joint marketing efforts for LNG by the company and Chevron on the project are progressing, but did not offer detail. It is well known that Kitimat LNG has had a problem finding customers for the project, due to the increasing volatility of the LNG marketplace.

The Shell-led LNG Canada project has customers in the partners, KoGas, Mitsubishi and PetroChina but is also under pressure due to growing costs.

Barron’s quoting a Deutschebank analyst says Apache stockholders will likely welcome Jana’s demands.

Apache management has been active over the past 12+ months managing the portfolio. Since the February 2014 analyst meeting where the baseline expectation was that the LNG business would be retained (selling down the 50% interest in Kitimat has been a consistent goal), there has been a change in Apache’s messaging on the topic. Recent investor presentations and press articles have suggested all or part of Wheatstone could be monetized (we remove LNG capex from our EV/DACF target multiple valuation as a result). From this perspective, Jana’s proposal is likely to reach more sympathetic ears at Apache (today relative to 6 months ago), in our view. The good news for current shareholders is that the substance of the activist proposal has likely already been substantially evaluated by management and a process to this end could already be underway, if not nearing completion.

According to the Hedge Fund Letters, Jana is a very aggressive investment company

Jana Partners’ core investment strategy is primarily based upon a value-oriented (interestingly towards both value and growth stocks) and event-driven investment methodology with the ever-present tagline being “ignore the crowd”. Mr. Rosenstein…is often an activist investor, using Jana Partner’s capital (sometimes combined with others’, most famously with Carl Icahn) infusion into a company to promote change against management directives that he perceives as detrimental to shareholders.

LINKS

Wall Street Journal
Jana Partners Wants Changes at Apache: Activist Investor Wants Oil Producer to Exit Some Projects to Free Up Cash Flow

Barron’s
July 22, 2014, 10:28 A.M. ET
Apache: Not a ‘Hard Conversation’ With Jana, Deutsche Bank Says

Calgary Herald
Hedge fund Jana invests $1 billion in Apache Corp. Bloomberg

Financial Post
Apache faces breakup in Jana’s US$1-billion activist stake

Bidness Etc
Jana Partners call for Change’s in Apache’s Strategy