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Falling oil-by-rail shipments could hurt Alberta’s plan to clear backlog

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The push by oil companies in Western Canada to ship oil by rail has lost its momentum, which could undermine the Alberta government’s attempts to clear the backlog of crude in the province.

The amount of oil transported by rail set records throughout much of 2018, but preliminary data for 2019 shows a noticeable drop in activity. 

Weekly shipping figures from both CN Rail and CP Rail show declining loads of petroleum products. Crude by rail likely hit another record high in December at about 340,000 barrels per day, but dropped by about 25 per cent in January, according to Martin King, an independent energy analyst.

« In January, they’ve ticked down a little bit and certainly the very last week of January, going into the start of February, they’ve come down very sharply, » said King in an interview.

The weekly data from the railways includes several different oil and gas products, but provides a rough idea about crude-by-rail volumes. Official figures from the National Energy Board won’t be known for a few months.

Data suggests crude-by-rail volumes could be falling since the start the 2019 in Western Canada. (Martin King)

The Alberta government’s decision to mandate a cut in oil production is cited as the main culprit for the drop. The curtailment has boosted prices in Western Canada to within $10 US of prices in the United States. Typically, shipping oil by rail costs between $15-20 per barrel from Alberta to refineries in the U.S., so Canadian oil prices need be much lower to cover the transportation cost.

« The differentials have narrowed so much, which is what the whole curtailment was about, but they’ve narrowed too much, » said King about companies wanting to use trains to export oil.

The independent energy analyst says the differentials between oil prices in Alberta compared to U.S. benchmarks are too narrow for companies who want to ship crude by rail. 1:13

Crude-by-rail shipments are expected to fall further this month, as Imperial Oil has said it could halt all of its train shipments because they’re no longer economical.

Imperial shipped 168,000 barrels per day on rails in December but cut the amount to about 90,000 on rails in January. The company said it plans to ship « at or near » zero barrels by rail in February.

The downturn you’re seeing now could be short-lived, but we don’t know how the Venezuelan situation is going to turn out.– Martin King, energy analyst

The Alberta government chose to cut oil production in the province to reduce the backlog of crude in the province and boost prices, which were trading more than $50 US below American prices near the end of 2018. However, the backlog may be harder to clear if crude-by-rail volumes continue to decline.

« Crude by rail should be helping to alleviate this situation in the province but because of the drastic, dramatic manipulation in the market, takeaway capacity is now being idled, » chief executive Rich Kruger said during a recent conference call with investors.

Imperial has staunchly opposed the government’s curtailment policy. So too has Suncor, which also blasted the policy for having the opposite impact to what the government wanted to achieve.

« If you look at what’s happened, the differential corrected — and over-corrected — very quickly and the unintended consequence of that is … rail economics are severely damaged and a lot of the rail movements are stopping or have stopped, » said chief executive officer Steve Williams during a conference call with investors.

Hundreds of oil tank cars are waiting to be loaded at a terminal near the border of Alberta and Saskatchewan. (Dave Rae/CBC)

The Alberta government estimated storage levels decreased by about one million barrels per week since the start of 2019. Clearing that much oil in the coming months may be more difficult since « nearly 65 per cent of January’s drawdown of [oil] was supported by crude-by-rail which will not be there in February, » said AltaCorp Capital in a research note on Wednesday.

Energy data group Genscape says inventories in Alberta climbed by about seven per cent between Jan. 25 and Feb. 1.

Alberta is easing back on its curtailment plan for February and if that continues in the months ahead, analysts say prices in Alberta could begin to lower and crude-by-rail volumes pick up once again.

« Last week, we eased oil production limits ahead of schedule, and we will continue to monitor this closely and adjust as necessary, » government spokesperson Mike McKinnon said in an emailed statement.

« We expect the differential to settle at a more sustainable level, and we continue moving forward with long-term solutions like our investment in rail and our continued fight for pipelines. »

An added wrinkle to the equation is how much refineries in the U.S. Gulf Coast will pay for heavy oil following American sanctions on Venezuela. The refineries that process heavy oil mostly rely on Canada, Mexico and Venezuela for their supply. With Venezuela out of the equation and production in Mexico slowly decreasing, refineries may pay a premium for heavy oil out of Western Canada.

That situation could reverse the sagging crude-by-rail numbers.

« The downturn you’re seeing now could be short-lived, but we don’t know how the Venezuelan situation is going to turn out, » said King, the independent energy analyst.

Oil exports by rail climbed in 2018 as oil production increased and pipelines operated at full capacity.

The Alberta government announced in late November it plans to purchase as many as 7,000 tank cars to meet its goal of shipping an additional 120,000 barrels of oil a day by train. The majority of the train cars are expected to arrive in 2020, although details about whether any contracts have been signed have yet to be announced.

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‘Business as usual’ for Dorel Industries after terminating go-private deal

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MONTREAL — Dorel Industries Inc. says it will continue to pursue its business strategy going forward after terminating an agreement to go private after discussions with shareholders.

« Moving ahead. Business as usual, » a spokesman for the company said in an email on Monday.

A group led by Cerberus Capital Management had previously agreed to buy outstanding shares of Dorel for $16 apiece, except for shares owned by the family that controls the company’s multiple-voting shares.

But Dorel chief executive Martin Schwartz said the Montreal-based maker of car seats, strollers, bicycles and home furniture pulled the plug on a deal on the eve of Tuesday’s special meeting after reviewing votes from shareholders.

“Independent shareholders have clearly expressed their confidence in Dorel’s future and the greater potential for Dorel as a public entity, » he said in a news release.

Dorel’s board of directors, with Martin Schwartz, Alan Schwartz, Jeffrey Schwartz and Jeff Segel recused, unanimously approved the deal’s termination upon the recommendation of a special committee.

The transaction required approval by two-thirds of the votes cast, and more than 50 per cent of the votes cast by non-family shareholders.

Schwartz said enhancing shareholder value remains a top priority while it stays focused on growing its brands, which include Schwinn and Mongoose bikes, Safety 1st-brand car seats and DHP Furniture.

Dorel said the move to end the go-private deal was mutual, despite the funds’ increased purchase price offer earlier this year.

It said there is no break fee applicable in this case.

Montreal-based investment firm Letko, Brosseau & Associates Inc. and San Diego’s Brandes Investment Partners LP, which together control more than 19 per cent of Dorel’s outstanding class B subordinate shares voiced their opposition to the amended offer, which was increased from the initial Nov. 2 offer of $14.50 per share.

« We believe that several minority shareholders shared our opinion, » said Letko vice-president Stephane Lebrun, during a phone interview.

« We are confident of the long-term potential of the company and we have confidence in the managers in place.”

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Anglais

Pandemic funds helping Montreal businesses build for a better tomorrow

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Many entrepreneurs have had to tap into government loans during the pandemic, at first just to survive, but now some are using the money to better prepare their businesses for the post-COVID future.

One of those businesses is Del Friscos, a popular family restaurant in Dollard-des-Ormeaux that, like many Montreal-area restaurants, has had to adapt from a sit-down establishment to one that takes orders online for takeout or delivery.

“It was hard going from totally in-house seating,” said Del Friscos co-owner Terry Konstas. “We didn’t have an in-house delivery system, which we quickly added. There were so many of our employees that were laid off that wanted to work so we adapted to a delivery system and added platforms like Uber and DoorDash.”

Helping them through the transition were emergency grants and low-interest loans from the federal and provincial governments, some of which are directly administered by PME MTL, a non-profit business-development organization established to assist the island’s small and medium-sized businesses.

Konstas said he had never even heard of PME MTL until a customer told him about them and when he got in touch, he discovered there were many government programs available to help his business get through the downturn and build for the future. “They’ve been very helpful right from day one,” said Konstas.

“We used some of the funds to catch up on our suppliers and our rents, the part that wasn’t covered from the federal side, and we used some of it for our new virtual concepts,” he said, referring to a virtual kitchen model which the restaurant has since adopted.

The virtual kitchen lets them create completely different menu items from the casual American Italian dishes that Del Friscos is known for and market them under different restaurant brand names. Under the Prasinó Soup & Salad banner, they sell healthy Greek options and their Stallone’s Sub Shop brand offers hearty sandwiches, yet the food from both is created in the same Del Friscos kitchen.

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Anglais

Downtown Montreal office, retail vacancies continue to rise

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Some of downtown Montreal’s key economic indicators are heading in the wrong direction.

Office and retail vacancies in the city’s central core continued to climb in the fourth quarter of 2020, according to a quarterly report released Thursday by the Urban Development Institute of Quebec and the Montréal Centre-Ville merchants association. The report, whose first edition was published in October, aims to paint a socio-economic picture of the downtown area.

The survey also found office space available for sublet had increased during the fourth quarter, which may foreshadow even more vacancies when leases expire. On the residential front, condo sales fell as new listings soared — a sign that the downtown area may be losing some of its appeal to homeowners.

“It’s impossible not to be preoccupied by the rapid increase in office vacancies,” Jean-Marc Fournier, the former Quebec politician who now heads the UDI, said Thursday in an interview.

Still, with COVID-19 vaccinations set to accelerate in the coming months, “the economic picture is bound to improve,” he said. “People will start returning downtown. It’s much too early to say the office market is going to disappear.”

Public health measures implemented since the start of the pandemic almost a year ago — such as caps on office capacity — have deprived downtown Montreal of more than 500,000 workers and students. A mere 4,163 university and CEGEP students attended in-person classes in the second quarter, the most recent period for which figures are available. Border closures and travel restrictions have also brought tourism to a standstill, hurting hotels and thousands of local businesses.

Seventy per cent of downtown workers carried out their professional activities at home more than three days a week during the fourth quarter, the report said, citing an online survey of 1,000 Montreal-area residents conducted last month.

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