Two investment companies that had been negotiating a purchase of the Navajo Generating Station (NGS) outside of Page, Arizona, have decided to end talks without purchasing the coal plant. The 2.25 gigawatt (GW) plant is the biggest coal plant in the Western US, and it has been slated for a 2019 shutdown. That decision came in early 2017, when utility owners of the plant voted to shut it down, saying they could find cheaper, cleaner energy elsewhere.
The 47-year-old plant employs hundreds of people from the Navajo and Hopi tribes in the area. It is also served by Arizona’s only coal mine, the Kayenta mine, which is owned by the world’s largest private coal firm, Peabody Energy. After the news of NGS’ proposed shutdown, Peabody began a search for a potential buyer for the coal plant so as not to lose its only customer.
The Salt River Project, the majority-owner of NGS, published a press release on Thursday saying Peabody Energy retained a consulting firm to identify potential buyers of the massive coal plant. That firm came up with 16 potential buyers who had expressed some interest. Salt River Project says that it hosted numerous tours for prospective buyers and set up meetings with various regulators as well as the Navajo Nation. Ultimately, a Chicago firm called Middle River Power and a New York City firm called Avenue Capital Group (which invests in “companies in financial distress”) had entered into negotiations to potentially take over the coal plant and keep it running.
On Wednesday, Wyoming’s Land Quality Advisory Board voted to limit so-called “self-bonding” in the state, a practice that allows coal and other mining companies to avoid putting up any collateral to reclaim land when the company is done with the mine. The new proposed rules will go through a public comment period and then need to be signed by the governor of the state to take effect, according to the Casper Star-Tribune.
The board’s passage of the proposed rules is somewhat surprising in a coal-heavy state, because it could potentially raise the cost of coal mining in Wyoming for some companies. However, there is political support for more stringent environmental rules after a number of coal companies filed for bankruptcy in recent years. Although no companies ended up abandoning mine cleanup to the state, the specter of hundreds of millions of dollars of cleanup in the event of another coal downturn has left regulators eager to limit how much damage the state could be on the hook for. The five-person advisory board voted 4-1 in favor of limiting self-bonding. The board member who voted against limits to self-bonding works for Peabody Energy, a major coal producer in the state.
The limits wouldn’t do away with self-bonding in Wyoming. Instead, to qualify for self-bonding, a coal company would have to have a strong credit-rating and would be expected to run the mine for at least five more years. The Star-Tribune notes that credit ratings for coal firms also factor in the health of the market, so the state of Wyoming wouldn’t have to independently evaluate the larger economic risks to a mine going under.
Two nuclear reactors are under construction at Vogtle’s nuclear power plant in Georgia, and they are a lonely pair in a stagnating US nuclear industry. Now, leaders of municipalities and utilities that are on the hook to buy electricity from Vogtle’s new reactors are saying they want the project stopped to save their customers from having to shoulder the cost burden.
The three major owners of the construction project are expected to vote on whether to keep it or cut losses in the coming days.
Costs for Vogtle and its sister reactors at the Summer nuclear power plant in South Carolina ballooned to well over their roughly $7 billion estimated cost, and when reactor-maker Westinghouse went bankrupt last year, the projects faced a choice: end construction and move on or keep on trucking in the hopes that further construction costs could be limited.
French train-building company Alstom built two hydrogen-powered trains and delivered them to Germany last weekend, where they’ll zoom along a 62-mile stretch of track that runs from the northern cities of Cuxhaven, Bremerhaven, Bremervörde, and Buxtehude. The new trains replace their diesel-powered counterparts and are the first of their kind, but they are likely not the last. Alstom is contracted to deliver 14 more hydrogen-powered trains, called Coradia iLint trains, before 2021.
The trains are an initial step toward lowering Germany’s transportation-related emissions, a sector that has been intractable for policy makers in the country. But hydrogen fuel faces some chicken-and-egg-type problems. Namely, hydrogen is difficult to store, and making it a truly zero-emissions source of fuel requires renewable electricity to perform water electrolysis. The more common option for creating hydrogen fuel involves natural gas reforming, which is not a carbon-neutral process.
The European Commission said on Tuesday that it is opening an investigation into possible collusion among Volkswagen Group, BMW, and Daimler to avoid competition on developing state-of-the-art emissions control technology.
According to Bloomberg, EU Competition Commissioner Margrethe Vestager told reporters at a press conference that the investigation is not focused on price-fixing as much as it is focused on the allegation that the companies together “agreed not to use the best technology” in order to cut costs together.
The emissions control technology in question applies to both gas and diesel vehicles in the EU. A press release from the European Commission noted that it suspected the companies of agreeing to limit the development and roll-out of two types of emissions-regulating technology. The first is Selective Catalytic Reduction (SCR) systems, which are specific to diesel engines and reduce the amount of nitrogen oxides (NOx) emitted by the vehicle. The second are “Otto” Particulate Filters (OPF), which reduce the particulate emissions from gasoline vehicles. These emissions treatment systems are based on their diesel counterparts and started appearing in Daimler vehicles after 2014.
CALGARY — Craig Kolochuk has for the past 20 years contributed to building up small oil and gas companies, including WestFire Energy Ltd. and Midway Energy Ltd., and was once a vice-president at Cardinal Energy Ltd., which has grown into a TSX-listed intermediate with a market cap now of nearly $600 million.
But the mounting challenges in the junior energy sector have led Kolochuk to take his skills to a new industry — cannabis — and ambitiously rebrand Calgary-based oil producer Relentless Resources Ltd. into marijuana-focused SugarBud Craft Growers Corp. this year.
“The junior sector, for all intents and purposes, is really dead,” he said.
Kolochuk, who was president of Relentless and is now chief executive of SugarBud, said he and the company came to a “crossroads” earlier this year. Its survival required a transition out of an oil and gas sector where small companies are being completely frozen out of the public capital markets and debt financing from banks is increasingly difficult to secure.
Other oil and gas entrepreneurs have also been exiting the industry to look for more lucrative opportunities elsewhere, causing the number of junior energy companies to plummet in recent years.
There were 94 energy companies in 2006 with a market capitalization of between $50 million and $500 million, according to a recent National Bank Financial report. Today, there are only 27 companies in that category.
Similarly, TMX Group Ltd. data show that there were 403 publicly listed oil and gas companies in 2008 on either the Toronto Stock Exchange or the TSX Venture, but that number has fallen by more than half to 201 today.
The dramatic reduction in the number of energy companies is partly because of bankruptcies and mergers, but more recently it’s also because of business transformations in the junior and startup space such as the one Kolochuk undertook at Relentless to create SugarBud.
“If Relentless, in its old form, didn’t do this, it would probably be a penny and looking at being delisted, probably losing their line (of credit) from the bank and probably selling assets in a distressed situation,” Kolochuk said.
Since the transformation, the company’s fortunes have dramatically turned. Its stock price has jumped 125 per cent to 18 cents per share on the TSX-V from eight cents. And though it was previously unable to raise any capital from investors or bankers, SugarBud in early September announced $17 million in new funding.
Several other oil and gas producers have also made transitions.
For example, Calgary-based Iron Bridge Resources Inc. announced earlier this year that it was launching a cryptocurrency mining subsidiary called Iron Chain Technology Corp. and the company’s shares subsequently rose 35 per cent. The company has since agreed to a takeover offer by private-equity-backed Velvet Energy Ltd.
Another energy player, Calgary-based natural gas producer Synstream Energy Corp. has announced its intention to explore a potential change of business, but the company hasn’t said what type of business yet.
Craig Kolochuk, a longtime oil and gas entrepreneur, has left the industry transforming his latest company into cannabis grower SugarBud.
And Rainmaker Resources Ltd., which supplied frack sand to oil and gas producers, agreed in 2017 to a reverse takeover by medical cannabis supplier Indiva Corp. A handful of startup mining companies have announced similar moves this year to enter the cannabis business, including Icon Exploration Inc. and Canadian Mining Corp.
Brady Fletcher, managing director of the TSX Venture, said there have been 12 reverse takeovers or “change of business” processes on the public exchanges this year, led by distressed oil and gas and mining companies trying to transition into other industries, including cannabis and high tech.
But the ever decreasing number of oil and gas juniors is considered a sign of bigger problems facing the Canadian energy sector, said Gary Leach, president of the Explorers and Producers Association of Canada, which represents small- and mid-sized oil and gas companies.
In years long past, Leach said, Calgary prided itself on being home to more publicly listed oil and gas companies than anywhere else in the world, but “that tide has left for a number of reasons,” including poor access to capital and a lack of access to markets through new export pipelines.
“The most common thing I hear from our member companies is that capital markets have frozen out the Canadian upstream sector, particularly the juniors and intermediates,” Leach said.
This is a concern since oil and gas extraction has become increasingly capital intensive in recent years, as companies have moved en masse into shale and unconventional oil plays and as drilling and fracking costs have risen.
For a small company or startup, Leach said, “the amount of capital they need is many multiples of what it was a decade or so ago.”
Indeed, the rise of unconventional resources has caused “an enormous sea change for small capitalization companies,” Matco Investments Ltd. vice-chairman Michael Tims said.
“When I started in the business, we used to jokingly say we could start a company with a roll of maps, a box of pencils and $5 million,” said the former long-time head of Calgary-based, oil and gas-focused investment bank Peters & Co. “Now, obviously, you need a lot more capital — a nine-figure number generally — to get critical mass.”
But as the energy industry has become more capital intensive, the investment industry has become less willing to fund smaller companies as there are fewer active money managers.
“A much larger proportion of the investment capital is either indexed or in exchange-traded funds, so the bulk of the money in those funds goes into the top 10 companies in the sector,” Tims said. “And then there’s a number of other managers who, while they may be active managers, choose the larger-cap companies as well.”
Matco Investments has stakes in a number of small-cap energy players, but Tims said, “in terms of the value of the positions, (we) would be much more weighted to the larger-cap companies.”
SugarBud’s Kolochuk said he ran into this exact problem in late 2017 and earlier this year as he attempted to raise money to drill more wells and grow production at Relentless. Neither investors nor bankers were willing to provide capital.
”The whole purpose of doing the recapitalization was because this junior oil and gas company was stuck and they didn’t have access to capital,” he said. “The capital pool has been virtually zero, so there’s no way as Relentless we would have gotten the $17 million. It’s night and day as far as access to capital.”
Kolochuk said his company has been the “guinea pig,” but he expects others to follow suit since morale in the sector where he spent his career “is terrible.”
He said many former energy sector colleagues have been “sitting on the sidelines, some for as long as a year,” and are now looking at a career change.
“You had a very hard-working, ambitious, entrepreneurial type of environment here and everyone is deflated,” he said. “Our skillset is very transferable. We know how to protect a balance sheet. We know how to look at opportunities.”
Kolochuk said new pipelines and liquefied natural gas (LNG) projects are critical to restoring confidence in the energy sector and to ensuring that private equity, which is an increasingly important source of funding for juniors, is willing to invest in the industry.
“If we don’t do something as far as pipelines go in the next six months, the energy sector is going to be very stagnant here for the next, well, I don’t know, five to 10 years,” he said.
In SugarBud’s case, Kolochuk said the transition to cannabis was made easier because the banks viewed its oil and gas assets as collateral.
As the energy industry has become more capital intensive, the investment industry has become less willing to fund smaller companies.
“After talking to various bankers and potential financial backers, they really liked the hybrid model,” Kolochuk said. “They like that we’re the only pre-licensed (cannabis) applicant that is cash-flow positive.”
The company is currently building a 30,000-square-foot greenhouse in Stavely, Alta., and expects to start generating cash from marijuana sales in the second quarter of next year.
The difference between approaching bankers as Relentless Resources and approaching them as SugarBud, Kolochuk said, is “night and day.”
Meanwhile, other startup and micro-cap oil and gas companies continue to find themselves cut off from the public markets, while private-equity firms have become more selective about which companies they’ll invest in, Matco’s Tims said.
Even mid-sized intermediate oil and gas producers have struggled to access the capital they need to grow, said Raymond James analyst Jeremy McCrea, and stock valuations have been hurt as a result.
To compensate, he said, established oil and gas companies have turned their focus to cutting costs rather than growth. “It’s making sure that each well that they drill is going to be a good well that’s not going to put the company at risk.”
But in order to gain the attention of money managers, or to gain more presence on energy stock indexes, McCrea said he expects more mergers and acquisitions.
EPAC’s Leach said desperate times could also lead more startup oil and gas companies to transition out of the sector.
“If the industry you’re in is not attracting capital, maybe one of the most valuable things that a company still owns is a public listing,” he said.
Morocco has a lot of prime real estate for wind energy along its southern coast. But without robust transmission lines to move electricity from there to more populated centers, a traditional wind energy company might wait years for a grid connection before it could start making money.
But if you’re connected to the Internet, one option might be to build a grid-isolated wind farm and use it locally while you wait for a connection to the rest of the grid. In Soluna’s case, the money-making byproduct that makes local use worth it is mining Bitcoin.
Soluna, a bitcoin-mining company, is going to start construction on a 36 megawatt (MW) wind farm near Dakhla, Morocco, in January 2019, company spokesperson Yoav Reisler told Ars. The company has the rights to 37,000 acres of land, which could eventually accommodate up to 900MW of wind capacity.
Though economics might not favor nuclear power in the US, policy makers do.
Last week, the House passed a bipartisan bill that originated in the Senate called the Nuclear Energy Innovation Capabilities Act (S. 97), which will allow the private sector to partner with US National Laboratories to vet advanced nuclear technologies. The bill also directs the Department of Energy (DOE) to lay the ground work for establishing “a versatile, reactor-based fast neutron source.”
The Senate also introduced a second bill called the Nuclear Energy Leadership Act (S. 3422) last Thursday, which would direct the DOE actually establish that fast neutron reactor. That bill also directs the DOE to “make available high-assay, low-enriched uranium” for research purposes. The Nuclear Energy Leadership Act has not yet made it past a Senate vote.