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Today I provide some insights giving more evidence of Enbridge’s unnecessary Line 3 Tar Sands pipeline. At this point, I’m wondering if perhaps even Enbridge execs themselves might appreciate a verdict from the Minnesota Court of Appeal Judges to halt construction.  I mean: Quit while you’re behind, boys!!

To begin, Enbridge can’t keep paying 327% of profits to their shareholders in this losing game.

If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. Last year, Enbridge paid out 327% of its profit to shareholders in the form of dividends. This is not sustainable behaviour and requires a closer look on behalf of the purchaser. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Enbridge paid out more free cash flow than it generated – 172%, to be precise – last year, which we think is concerningly high. We’re curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

Cash is slightly more important than profit from a dividend perspective, but given Enbridge’s payouts were not well covered by either earnings or cash flow, we would be concerned about the sustainability of this dividend.”

We Wouldn’t Be Too Quick To Buy Enbridge Inc. (TSE:ENB) Before It Goes Ex-Dividend by Simply Wall Street 2/6/21

It looks like Enbridge is getting ready to fuck over not just Minnesota, but likely their shareholders too? Maybe that’s why they’re suing Minnesota for back taxes?  To help pay those shareholder dividends?

Looking at the industry, Canadian oil and gas extraction is circling the drain.

Capital expenditures (capex) for the Canadian oil and gas extraction industry have dropped a massive 73% since 2014. While this data includes tar sands as well as other conventional and offshore expenses, by far the largest sector in this industry is the tar sands. This indicates no need for a new tar sands pipeline. 

As these expenditures include not just those for new projects but also ongoing maintenance costs, the substantial decrease indicates a likelihood of little to no capital spent on new Tar Sands projects in 2020. #NoNeed4Line3 

As the global oil industry declines, some speculate new project capex will fall and cash available for maintenance may also fall, but not necessarily equally, as uneconomic and marginally economic companies would likely be those most likely to cut corners. [This dynamic may in part explain the Superior refinery explosion and its delayed reconstruction?]

So why is Enbridge pushing Line 3 and a new tunnel project for Line 5?

Some of the more humorous responses to this question include recognition of Enbridge management as unable to see their own future doom (bury your head in the sand theory) or curb their own incessant greed (making money as you doom children to a horrific future theory) both of which are based on the inane belief in perpetual growth and a fear of what will happen without it.

Meanwhile, Chevron is looking to drop their Canadian oil sands like a hot potato

Chevron CEO Mike Wirth signaled he would consider selling its 20% stake in a Canadian oil sands mine as its faces investor pressure to do more to curb emissions and fight climate change. …

“We’re not in the kind of fire-sale mentality,” Wirth said. “But if we got what we think is fair value for an asset like that, we’ve been willing to transact on things that are of that scale and kind of relative importance in the portfolio.”

Oil sands are among the most challenged energy assets because of the volume of emissions created when producing crude from mines and from underground wells that require steam injection.

Facing increased pressure to cut carbon emissions, multiple international oil companies including Royal Dutch Shell Plc and ConocoPhillips have divested of their Canadian oil sands holdings in recent years.

Those pressures have only intensified in the past week. Chevron shareholders voted on May 26 in favor of a climate proposal to include emissions from customers’ burning of fuels in future reduction targets, against the wishes of the board.”

Chevron open to sale of Canadian oil sands stake to meet green goals by Robert Tuttle 6/3/21

Speaking of going against the wishes of the board… Exxon just got two unwanted activist seats on their new board.  And some are saying the fossil fuels biz is in big trouble.

Things are looking decidedly murky at a granular level, with environmental activists taking advantage of the clean energy momentum and major policy changes by the world’s governments to turn the screw on Big Oil.

But what happens when you zoom out and look at the bigger picture—Entire nations that depend on oil to power their economies. How will economies that are heavily dependent on oil exports cope with the shift to low-carbon fuels?

In 2019, 40 countries across the globe exported crude worth $1 billion or more, with some like Iraq depending on oil sales to finance upwards of 90% of their budgets. Fossil fuel-dependent economies represent almost one-third of the world’s population and are responsible for a fifth of global greenhouse gas emissions.

And now the International Energy Agency (IEA) has warned that pursuing net-zero emissions target is likely to be catastrophic for many oil exporters. …

Global oil and gas companies cut their capex by a staggering 34% in 2020 in response to shrinking demand and investors growing wary of persistently poor returns by the sector.”

Rapid Energy Transition Could Doom Oil Exporting Countries by Alex Kimani 6/1/21

In an earlier piece, Kimani noted:

For the first time ever, the world’s largest investment banks are backing renewable energy investments more than their fossil fuel brethren.

According to Bloomberg data covering almost 140 financial-service institutions worldwide, at least $203 billion in bonds and loans have gone into renewable projects through May 14, compared with $189 billion to businesses focused on hydrocarbons.

That marks the first time in the history of modern fossil fuels that such a shift is occurring.”

Is The IEA Report A Tipping Point For Oil Investing? 5/20/21

We must admit much of the issue is because there isn’t enough oversight of the powers that be, or outcry against those forces not being accountable to the people… which I reported on last week with the Jessica Intermill piece. Though the outcry seems to be rising as we see today a Treaty People’s Gathering bringing many to the Corridor to express their opposition to this dumb idea.

Meanwhile, we still await a verdict from the Minnesota Court of Appeals on the challenge to the Minnesota Public Utilities Commission approving the project without a true demand forecast and while the Environmental Impact Statement remained clearly inadequate to show the impacts of a spill into Lake Superior (previously remanded by the MN Court of Appeals).

It would seem that verdict might be favorable, based on the comments and questions from Judges Jesson, Reyes, and Kirk. Judge Jesson mentioned that the data on Need appeared to look like a Supply forecast, not a Demand forecast (law requires a Demand forecast).  While Judge Reyes questioned if Enbridge created a situation of foregone conclusion that there would be no impact on Lake Superior by picking a site (Little Otter Creek) about 30 miles from the Lake… and only allowing 24 hours for the analysis.  I mean, if the water has to travel at more than 60 miles/hour to get to Superior… you gotta admit, Reyes has a good point!

Given the state of the dying Tar Sands industry, alongside increasing pressure on the oil industry as a whole, and the lack of financial viability of Enbridge as determined by the State of Michigan years ago, the State of Minnesota ought to be happy to have the project stopped and Enbridge forced to return the landscape to what it was.

Well, happy may be a bad word… as there is no way to return thousands of decades old trees to the clearcut corridor.  There is no way to remove the scars to the land that killed thousands of beings as Enbridge dug through wetlands.  But perhaps happy to put the bill on Enbridge instead of us taxpayers to clean up their pipeline mess as the industry goes the way of the buggy whip?