Canada Pension Plan intentionally making $Billion Bad investments in frac’ing?

Williams and Canada Pension Plan Investment Board to form a US$3.8 Billion Strategic Joint Venture Partnership in the Marcellus/Utica Basins by Canada Pension Plan Investment Board, Mar 18, 2019, newswire.ca

The Canadians are coming! The Canadians are coming! Actually, they’re already here. Last summer we brought you the bombshell news that Encino Acquisition Partners (EAP) had purchased all of Chesapeake Energy’s Ohio Utica assets (see Stop Press: Chesapeake Sells ALL of its Ohio Utica Assets for $2B).

What’s not obvious in that headline is that the Canada Pension Plan Investment Board (CPPIB) is Encino’s joint venture partner and put up virtually all of the money, and owns 98% of EAP. CPPIB is doing it again, this time buying a significant stake in Ohio Utica (and Marcellus) pipelines. …

Williams and Canada Pension Plan Investment Board to form a US$3.8 Billion Strategic Joint Venture Partnership in the Marcellus by Bloomberg Business, March 18, 2019

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MUST READ! March 23, 2019 – Frack no: Canada Pension Plan moves full-steam ahead into Colorado’s fracking wars

The Canada Pension Plan has a track record of questionable investments – now it’s sunk $609 million USD in oil and gas drilling operations in rapidly growing suburban areas north of Denver despite a storm of local opposition

This scene has been repeated around the world; in Nigeria, Ecuador, Indonesia and elsewhere. In what economists call the ‘resource curse,’ countries with minerals or oil are exploited by foreign powers and end up with damaged land, poisoned waters and sullied air.

In a new twist to an old tale, however, the foreign power in this case is Canada, and the indebted nation is the United States. Specifically, Boulder County, Colorado.

It began in October 2015, when the Canada Pension Plan Investment Board (CPPIB), the $368 billion behemoth that invests payroll withholding taxes from Canada’s workers on behalf of 20 million contributors, announced a $609 million USD deal to purchase all of the oil and gas assets in the Denver-Julesburg Basin owned by Canadian oil and gas giant Encana.

Many of Encana’s holdings were located in rapidly growing suburban areas near homes and schools north of Denver astride the Interstate 25 corridor between Colorado’s capital and its fourth-largest city, Fort Collins. Others were in communities that had banned hydraulic fracturing, or fracking, such as Broomfield and Boulder counties. The oil and gas industry challenged those bans, and the legal fight reached the Colorado Supreme Court as the Encana deal was being negotiated. The fracking bans were overturned, and when the dust settled, CPPIB had picked up a chunk of sub-surface Colorado real estate and wells producing approximately 30 per cent less than had been announced just months earlier.

It was moving full-steam ahead into a Colorado firestorm of opposition. With all the investments in the world available to them, why would widows in Winnipeg, retirees in Richibucto and teachers in Toronto choose to invest in Colorado’s escalating fracking wars?

TOXIC ASSETS

It may simply be that the CPPIB was willing to go where other companies wouldn’t – the pension board thought they scored a deal from a distressed seller that would yield strong long-term results for their beneficiaries. [The Board would do much in under ware]

The fact that the CPPIB created a new oil and gas company in Colorado, the CPPIB-registered Crestone Peak Resources LLC, rather than simply investing in an existing Canadian-owned one added another quizzical twist to the deal.

… ‘I have to wonder if the beneficiaries of the pension fund’s investments understand what they’re investing in,’ says Boulder County Commissioner Elise Jones. As far as she knows, virtually every elected official in the county – including those from its municipalities – as well as the overwhelming majority of people who live here, oppose the kind of residential drilling plans Crestone is proposing.

Concerns range from the planned drilling around homes and schools, to negative health effects from the industrial facilities’ emissions, to the oil and gas industry’s impact on the Denver metropolitan area’s persistently poor air quality.

FOLLOWING THE MONEY

Along with its purchase of these controversial assets, Crestone was also invested in Colorado’s 2018 election.

Oil and gas issues figured prominently up and down the ballot, from the governor’s race to several ballot initiatives. And Crestone contributed $607,500 to support groups that directly or indirectly opposed Proposition 112, the failed initiative that would have required new oil and gas development to be placed at least 2,500 feet from homes and schools.

Crestone, for example, donated to the pro-industry group Protect Colorado, which campaigned to defeat 112, and other political groups backing Republican state legislature candidates that unswervingly support the oil and gas industry.

Austin Graham, legal counsel for the Campaign Legal Center in Washington, DC, reviewed Crestone’s contributions for their legality.

Federal law requires that foreign-owned companies’ contributions to state campaigns meet a two-part test: the contributions must be drawn from money made from U.S. operations; and the person making the decision to donate must be a U.S. citizen.

But since Crestone is a privately held, Canadian-owned company, it is not obvious where the money came from or who made the decision to contribute to the election.

Crestone states in an email that it follows all state and federal laws, and as a company operating in Colorado, ‘Crestone allocates a certain amount of funds each year to dedicate to organizations and initiatives that are important to our team. Crestone leadership ultimately makes the decision on which organizations these funds are donated to.’

Those organizations include ‘independent expenditure committees,’ which are also allowed to receive contributions from foreign-owned corporations.

‘Regardless of whether any laws were broken,’ says Graham, the CPPIB ‘spent a substantial amount of money trying to influence Colorado voters.’

… Erie’s experience with Crestone isn’t isolated. More than 1,000 complaints against Crestone’s operations were filed with the COGCC between November 2016 and February 2019 – almost twice as many as the next five oil and gas companies conducting business in Colorado combined.

… One flurry of complaints came after Crestone’s operations caused a release of toxic gases at a site in Erie just 25 yards from the Aspen Ridge Preparatory School playground in September 2017. Crestone was plugging and abandoning a set of wells, and had been venting large quantities of volatile organic compounds before a resident smelled noxious fumes and complained to the COGCC. Those toxic emissions wafted directly onto the school playground of the Kiddie Academy Childcare Center and the elementary school, according to the COGCC’s report on the incident.

The COGCC ordered Crestone to cease operations until the problem was fixed, but parents say they didn’t hear about the leak for months. Mark Kadlececk, who has three children who attended Aspen Ridge, found the ‘Notice of Alleged Violation’ posted on the COGCC website more than six weeks after the violation.

The COGCC fined Crestone $10,000, according to Mike Leonard, the agency’s community relations manager.

Christiaan van Woudenberg, one of Erie’s newly elected trustees, says that when companies like Crestone come into small communities such as Erie, dangling potential tax revenue and arguing (as Crestone spokesman Oates told a community meeting) that there are ‘no health impacts’ from fracking, it is almost impossible not to be steamrolled. He says local elected officials are also hamstrung by state laws that limit their ability to say no to new oil and gas development.

‘Erie is fracked,’ van Woudenberg says. ‘We lost. We’re the cautionary tale.’

… Crestone continues to face legal challenges that are increasing the cost of doing business in Colorado. The company has been involved in lawsuits, protests, leaks and alleged violations of state regulations in multiple communities. Crestone, in turn, has sued the state and at least one other oil and gas company, alleging interference in its operations.

While Crestone is private, there are several clues that the CPPIB’s Colorado investment may be problematic. As of last month, the CPPIB’s website stated that the value of the investment had dropped to $543 million from the purchase price of $609 million.

… CALLING EDMONTON

At a January 2019 conference hosted by the Rocky Mountain Mineral Law Foundation, Crestone’s Oates told the audience that the company had met all of the requirements laid out by the COGCC for its drilling plans, and Crestone would forge ahead into Boulder County despite resident and local governments’ objections. ‘It is how, not if, we are going to drill,’ Oates told the audience.

Sara Loflin, executive director of the League of Oil and Gas Impacted Coloradans, attended the conference and was taken aback by the ‘arrogance’ of Oates’ remarks. In response to multiple communities’ concerns ever since it started doing business in Colorado, Loflin said, Crestone has only proposed moving ‘closer to homes, in higher risk areas, in larger scale developments.'”

A Leader of America’s Fracking Boom has Second Thoughts. Pioneer Natural Resources once promised production to rival Libya. Now it’s pulling back

Early this year, Scott Sheffield realized he had a problem. Investors were cooling on Pioneer Natural Resources Co. , the company he built into one of the leaders of the
American fracking boom.

Like many shale companies, Pioneer was pumping a lot but making little. It was spending hundreds of millions more than budgeted as it strained to meet a goal Mr. Sheﬃeld set years back—producing a million barrels of oil and gas a day within a decade, enough to rival OPEC nations such as Libya. …

Mr. Sheﬃeld has since embarked on an extreme belt-tightening regimen at the Irving, Texas- based producer. Pioneer is cutting more than one-quarter of its workforce, including a cadre of senior executives, in part through layoﬀs and buyouts. Among those who are leaving is Mr. Sheﬃeld’s own brother, Thomas Sheﬃeld, the company’s vice president of health, safety and environment.

The million-barrel-a-day goal? It’s on ice as Mr. Sheﬃeld tries to convince skeptics that Pioneer is a shale company that can live within its means.

“We lost the growth investors,” he said in a recent interview. “Now we’ve got to attract a whole other set of investors.”

Shale drillers transformed the U.S. into the world’s largest oil producer, churning out roughly 12 million barrels a day, according to the Energy Information Administration. But after years of losing money, they are coming under intense pressure from investors and Wall Street financiers to boost returns. …

Companies long valued on growth prospects are seeing new capital dry up as many find it more expensive than anticipated to meet lofty production goals. Under pressure to generate positive cash flows, executives are slashing overhead and dialing back drilling plans. … Many older wells are falling short of expectations, and some operators acknowledge that they have fewer future drilling locations than they once predicted.

Over the past 10 years, 40 of the largest independent oil and gas producers collectively spent roughly $200 billion more than they took in from operations, according to a Wall Street Journal analysis of data from financial-information firm FactSet. During that time, a broad index of U.S. oil-and-gas companies fell roughly 10%, while the S&P 500 index nearly tripled. …

Former CEO Timothy Dove, who presided over cost overruns, stepped down in February.

Shale wells produce a lot of oil and gas early on, but taper oﬀ quickly, meaning drillers must continuously plow money back into the ground to maintain output. The Journal previously reported that thousands of wells drilled in the last five years are producing less oil and gas than companies forecast to investors. Pioneer is among the companies whose wells in some areas are on track to fall short of expectations, according to the Journal’s analysis. …

About a decade ago, Pioneer and other smaller operators in West Texas came to understand that new hydraulic fracturing and horizontal drilling technologies could be applied to the Permian’s oil-soaked layers of rock. The innovations led to a renaissance for the Permian, which has since become the chief engine of the American shale boom.

As “Permania” took oﬀ, Mr. Sheﬃeld emerged as its central pitchman. He made frequent television and conference appearances to talk up the basin’s abundance of oil. He developed a knack for using figures that forecast the scale of the coming boom, frequently comparing the Permian to prolific areas of Saudi Arabia.

Mr. Sheﬃeld began laying out an ambitious vision for Pioneer’s future. In 2014, he said the company had an inventory of wells to last as many as 150 years. That year he told Forbes he believed Pioneer could increase its output to one million barrels a day by 2024, from about 200,000 barrels.

Infusions of money from Wall Street, eager for a piece of the fracking action, fueled growth at Pioneer and other shale companies. Frackers tapped investors for more than $176 billion in financing from 2015 to 2018, using debt and sales of new shares to continue increasing production. Pioneer financed its expansion during that time with $3.57 billion in bond and equity deals, according to Dealogic.

… In August 2015, Mr. Sheﬃeld said Pioneer’s wells were expected to yield 45% to 60% returns on investment at the oil prices at that time, excluding costs such as administrative expenses and taxes. The company lost $218 million in the second quarter of that year.

The company acknowledged that capital spending exceeded operating cash flow in 2015, but said it is focused on changing that in 2019 and beyond. …

Pioneer ran into operational diﬃculties trying to produce as much oil as it had forecast. In a rocky conference call in August 2017, Mr. Dove disclosed it had drilled a series of “train-wreck wells” and said it would be lowering its oil production target for the year. The company’s stock fell 11% on the news.

… Pioneer said it didn’t drill shorter wells to accelerate production. “It is not unusual to drill shorter lateral wells for a variety of reasons, including to reduce the risk of operational challenges associated with longer lateral lengths,” the company said.

… By late February, Pioneer’s shares had declined about 40% from their 2014 peak. …

Frackers Face Harsh Reality as Wall Street Backs Away, Key lifeline for smaller operators fades, as losses pile up and prospects dim for big investment returns