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Janice Price is Right


Christmas shopping actually can be good for you

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Attending A Christmas Carol is a holiday tradition in Alberta. Theatre Calgary and Edmonton’s Citadel Theatre put on heartwarming productions of Charles Dickens’ classic tale. Although it takes multiple visits from the ghosts of Christmas past, present and future, Scrooge is eventually transformed into a kinder and more generous man. He opens his heart and his pocketbook to embrace and celebrate the season with family and friends. The story is a timely and entertaining reminder of the spirit of the holidays.

Today, many people are finding it difficult to reconcile the spirit of Christmas with an increasingly materialistic and commercial holiday season. Retailers stock their Christmas sections as early as the summer months and the festive music loops begin early in the fall. As annoying as many people find “Christmas creep,” retailers are feeling intense pressure to perform during the holiday season. The average Albertan is expected to spend more than $2,000 on Christmas this year, including gifts, entertaining, decoration and travel. Our biggest retailers, from Walmart and Canadian Tire to Loblaws and Sobeys, are in a heated competition for those dollars.

As dependably as Santa puts presents under the tree, we will crowd malls, join long lines and spend hours surfing online for the perfect present. At the same time, headlines and coffee shop conversations will decry the rise of materialism. Just last year, the Pope used his Christmas homily to denounce consumption and warn us not to be intoxicated by possessions. But is materialism such a bad thing?

Actually, most research in this area tends to support the Pope. When consumers focus on buying things, they often pay a price, beyond the cash register, that is reflected in a lower overall sense of well-being. In some cases, excessive consumption even appears to be crowding social relationships out of our lives. One particularly interesting recent study, published in the Journal of Consumer Research, investigated the link between loneliness and materialism. The study examined 2,500 consumers over a six-year period and found that materialism does indeed make us lonelier. Moreover, when we are feeling lonely, we become more materialistic. This leads to a vicious cycle of buying more and feeling less connected to other people and then buying more and feeling even lonelier. The effect was particularly strong among young adults and seniors. Single people were more likely to pursue happiness through purchases than those in a relationship.

However, the same study found that not all types of materialism are the same. The impact of materialism on loneliness depends on why you are buying and accumulating things. If you are comparing yourself and your possessions to other people, then the impact is decidedly negative. Such comparisons tend to make us feel alone and cause us to focus on buying more. Similarly, if you are thinking about what you have relative to what you would like or expect to have, then you are also likely be lonelier. But if you simply enjoy shopping, buying and owning things, not relative to others or your ideal self, then materialism doesn’t have a negative effect. Consumption can be a positive part of the Christmas experience, whether that is the prize turkey Scrooge buys at the end of A Christmas Carol or the new TV you buy to watch hockey over the holidays.

Of course, we can consume too much and waste money on things that bring us neither utility nor pleasure, but the take-away from this research is that materialism is not in itself a bad thing. It depends on why we value material goods. If we feel caught in a cycle of materialism and loneliness, science tells us that, like Scrooge, we can make a positive change by connecting with others. Christmas doesn’t need to focus on competitive consumption. It can be a chance to take pleasure in material things and spend time with other people. Research in this area tells us to worry less about what we want or what others have and to focus more on the pleasure of what we are given, whether that is a new toy or a new pair of socks. Then, make an effort to connect and reconnect with friends and family.

Although often overlooked, part of Scrooge’s transformation is that he gives up his miserly ways and begins spending his money to celebrate Christmas. In fact, part of the message of A Christmas Carol is that money has little value on its own and buying things is not necessarily bad. One of my favourite lines from the play is spoken by Scrooge’s nephew, who says about Scrooge, “His wealth is of no use to him. He don’t do any good with it. He don’t make himself comfortable with it.” In the end, Scrooge does do something good with it and, as a result, he also makes himself more comfortable. Maybe a little Christmas materialism can be a good thing?

The post Christmas shopping actually can be good for you appeared first on Alberta Venture.

John Stanton was born to run

How to prepare for an upswing in oil prices

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“Lower for longer” isn’t just your game plan for winning the next limbo competition – it’s the mantra of the wilted oil and gas sector. Besieged by the multi-front offensive of low crude prices, creeping regulatory pressure and a public pillorying from activists the world over, with each passing earnings report the landlocked engine of wealth feels more like a V8 Chevy rusting in a junkyard.

“We’re seeing more accountability for results and a greater emphasis on accountability being driven from the top down.” – Paul Craig, Deloitte

But last we checked, Imperial Oil, Enbridge and Suncor all reported about $30 billion in revenue for 2015 and Albertans still outearn their Canadian counterparts by more than $20,000 every year. To its detractors, fossil fuel extraction has an expiration date, but today it’s still fresh – look out your window and chances are you’ll see gasoline-fueled vehicles, not Teslas.

The National Energy Board recently predicted that oil will hit $68 by 2020 and $90 by 2040 – but even the NEB regularly reneges on its predictions. And in the age of electric cars and renewables, 24 years is a long time to wait for a better oil price. Monitor Deloitte, the financial services company’s management consulting wing, just released a report on the future of Canadian oil and gas, and it stresses the ambient uncertainty. It also proposes some guideposts: optimize your place in the carbon value chain, focus on innovation and bolster your corporate social responsibility (CSR) efforts. Those are noble aims, but mere tweaks on the industry’s already-major talking points. So how should an oil and gas company prepare for the next oil boom when we’re not sure we’ll even have one?

That question has been on Bradford Goetz’s mind. The CEO of Volterra Oil and Gas has been through a rough patch of broken loan covenants, deepening debt and a frantic pursuit of valuable assets to buy while the iron’s hot. Now, Volterra’s balance sheet is finally in a respectable state and Goetz is confident in the company’s value proposition. But juniors don’t have the capital for revolutionary technological innovation like Suncor or Imperial might, nor can they embolden their CSR with fancy energy-is-life ad campaigns like their billion-dollar competitors. “Our future won’t be built on revolutionary carbon-sequestration technology or anything like that,” Goetz says. “We’ll build it by pumping oil.” So when it comes to positioning itself for the future – whatever that looks like – what’s a junior to do?

Paul Craig, senior oil and gas sector specialist with Deloitte, agrees that it’ll be a price-constrained environment for the foreseeable future. “From a pure economics perspective, it probably doesn’t make sense [for producers] to invest in building new infrastructure,” he says. Indeed, one of the only constants will be the need to get product to market, so Craig says smart companies will be “investing in some kind of midstream infrastructure.” But this is true for the entire oil and gas sector, too: “[Market access] has an impact on whether Canada remains an attractive value proposition for some of the global companies making choices about where they’re going to invest their capital,” Craig says. “Market access is one of the keys to remaining relevant.”

But there’s something to be said for having the right attitude, too. “When I look around at our clients, we’re seeing more discipline in terms of the decisions being made and the resources being allocated,” Craig says, remembering the glory days of soaring overhead costs. “We’re also seeing more accountability for results and a greater emphasis on accountability being driven from the top down.”

When there’s a price correction, then, there ought to be an attitude adjustment, too. Maybe the best way to prepare for the next oil boom is to pretend there won’t be one.

Editor’s Note: Volterra is a fictional company, but we’ve imbued it with real-world problems.

The post How to prepare for an upswing in oil prices appeared first on Alberta Venture.

Baytex Energy stock is a sleeper pick

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The Play

Baytex Energy has three core assets: Two of them are Canadian heavy oil plays located near Lloydminster and Peace River, Alberta, and the third is the Eagle Ford shale in Texas.

The Eagle Ford is capable of turning a profit at lower oil prices than the Lloydminster and Peace River properties. With a typical $15 differential between West Texas Intermediate pricing and Western Canada Select (heavy oil) pricing, $45 WTI equates to just $30 WCS for the heavy oil assets. To make money generating oil at $30 per barrel a field would need to have virtually no production costs.

Baytex’s operating cost for producing a barrel of Canadian heavy oil in Q1 of this year was $10.91. That compares to $8.17 in the Eagle Ford, and the heavy oil operations barely generated positive operating netbacks in the first quarter. That is bad considering that operating netbacks don’t include any of the cost of drilling the wells.

There is something else you need to know: The economics of heavy oil get better quickly as oil prices increase. If WTI prices were to recover to just $60 per barrel, the Canadian heavy oil wells actually generate better economics than the Eagle Ford. At $70 per barrel these wells generate world class returns on investment.

The reason for this is partially because these heavy oil wells have a much higher fixed cost component which doesn’t rise as oil prices do. The other factor is just how low the WCS differential drives heavy oil prices down. Just a $5 per barrel oil price increase is a 26 per cent increase in Baytex’s Q1 WCS sales price.

The Pick

Baytex Energy (TSX: BTE)

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Baytex Energy did well by shareholders for years as a reliable dividend payer with a focus on Canadian heavy oil. But being basically a pure heavy oil producer meant the company was fully exposed to WCS pricing.

With pipelines in North America overflowing with surging production, the pricing of WCS often suffered from huge negative differentials to WTI. What’s more, with environmental groups stifling progress on not just the Keystone XL but various Canadian pipelines, the future for WCS pricing looked ever worse.

That led Baytex to make the sensible decision to diversify its operations.

On February 6, 2014 Baytex announced a $2.8 billion acquisition of Eagle Ford focused Aurora Oil & Gas. The acquisition was funded by a $1.5 billion equity issuance, $800 million of debt (senior notes) and the sale of Baytex’s interest in the North Dakota Bakken.

While the idea to diversify away from Canada’s pipeline issues was likely a good one, the timing involved in adding debt to the balance sheet couldn’t have been worse. By the time the deal closed, the price of oil had already headed into decline.

Prior to the Aurora acquisition, Baytex’s balance sheet was pristine. After the acquisition, it had a significant but sensible amount of debt for a $90 per barrel environment. At sub-$50, that new debt load was not so sensible.

Despite an equity issuance in April 2015 and the elimination of its dividend, Baytex still finds itself with far too much debt for current oil prices. The good news is that the company has loads of liquidity and zero debt maturities until 2021.

While significantly overleveraged at current oil prices, this company has time to let oil prices rise.

The Postscript

With Baytex’s leverage on its balance sheet and the leverage to higher oil prices, the company’s debt structure could make it an interesting way to play a future oil price increase.

There is something else to be aware of: The operator of almost all of Baytex’s Eagle Ford acreage is Marathon Oil. As operator, Marathon gets to make all of the decisions about how much drilling to do.

This year, Marathon acquired a large position in the STACK play in Oklahoma. This is significant for Baytex because Marathon believes the STACK has better economics than the Eagle Ford. That could present a situation where Marathon chooses to greatly reduce how much it spends in the Eagle Ford to focus on the more profitable STACK.

If Marathon curtails Eagle Ford activity, Baytex has to as well. That would leave the company with only Canadian heavy oil as a place to invest new capital. At current oil prices, that is not a great position to be in.

This company needs oil prices to rise.

The post Baytex Energy stock is a sleeper pick appeared first on Alberta Venture.

Swimco is a family affair – with Lori Bacon at the helm

Should the oil industry drop acid?

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Illustration Marc Nipp

Todd Parker has a technology that improves the flow of oil from a well and is a safer, more enviro-friendly, lower-risk way of doing it than is currently used. His company, Blue Spark Energy, has developed a device that is sent down the well and emits brief, intense electrical shock waves to break up and dislodge the gunk that sometimes builds up. Blue Spark has developed a good track record for using the technology to improve the flow of oil and extend the life of wells.

The alternative to Blue Spark’s process is acidizing, a century-old practice by which hydrofluoric acid (usually) and other chemicals are poured down a well to dissolve the gunk (it can also dissolve sediments and mud to increase permeability). As Parker puts it, the production company hires a truck that carries several hundred gallons of acid along the highway, through the towns and across the fields to the well (in fact, the acid is often made on site). Then guys in hazmat suits pump the acid into the wellbore and wait.

There’s not much evidence that acidizing causes harm to the environment, but there’s not much that it doesn’t, either. Because nobody is gathering the information. Nowhere in Canada is anyone required to report when and where they acidize a well, nor how much acid they use in what concentrations. There’s no measurement of nearby groundwater before or after. Basically, there are no regulations surrounding it, despite the fact there is cause for concern similar to that shown toward hydraulic fracturing. A recent study out of UCLA found 200 chemicals used in acidizing, many of them similar to those used in fracking.

Parker says we’re picking and choosing environmental policies based not on science but on emotion. “If you want to have environmentally responsible hydrocarbon production, you have to look at a number of issues and not just the hot button issues,” he says, referring to greenhouse gas emissions, fracking and pipelines. “There’s a wide spectrum of things we could improve upon from an environmental perspective in the hydrocarbon production process. It’s just who has Twitter and a sign out protesting today that kind of steers public policy.”

Acidizing, on the other hand, has been flying under the radar. “We’re focused on greenhouse gases and not what we pump into the ground to help oil wells continue to flow,” Parker says.

California introduced the first regulations in the U.S. on acidizing in 2015. They require companies to obtain permits for every acidizing job (as well as every fracking job), and to disclose water and chemical use. Adjacent landowners and tenants are notified, and there are groundwater monitoring requirements before and after acidizing. Blue Spark has seen business growth in California and other U.S. markets where legislation is tightening, and in jurisdictions like the U.K., Denmark and Norway where transportation of hazardous materials is complicated.

But so far, nothing in Canada on the regulatory or legislative front.

What has happened in this country, Parker says, is that some producers have started to twig to the idea that, down the road, moving away from acidizing will be of value to their company, “something you can put in your quarterly report or on your web page saying you’re doing something different and green,” he says. “They should start walking down that road now, but mostly they haven’t.” And without prompting from regulations, many are unlikely to make the required leap of faith to invest in a new technology. “This is an industry where everyone is in a race to use technology, but the race is different from what everybody thinks,” Parker says. “Everybody wants to be the first to be second.”

This is the first in Alberta Venture’s new series entitled The Last Word, which focuses on the ideas of experts who are scheduled to deliver seminars in association with business schools in the province. Todd Parker will deliver the ConocoPhillips IRIS public seminar at the Haskayne School of Business at the University of Calgary on January 12, 2017 at 4:30 p.m.

The post Should the oil industry drop acid? appeared first on Alberta Venture.

Dan Balaban’s thoughts on renewable energy

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Balaban at Enbridge’s 300 MW Blackspring Ridge wind farm north of Lethbridge. Developed by Greengate, it’s the largest wind farm in Western Canada, with 166 turbines
Photograph Bryce Meyer

Alberta Venture: Renewable energy is a growth industry and the government recently announced 400 MW of new procurement. How is this going to affect the outlook for Greengate and for renewables?

Dan Balaban: The NDP government has put renewable energy in Alberta back in business. It started last year when the NDP announced the Climate Leadership Plan. That sends a strong signal to the market that this government is serious about improving Alberta’s environmental performance, and at the same time diversifying our economy by driving investments into renewables.

Then, a couple weeks ago now, the government announced it’s going to have its first round of procurement, where there’s going to be 400 MW of contracts auctioned off and all the various companies with renewable energy projects under development will be able to bid for these contracts. These contracts provide a predictable revenue stream for renewable energy projects to be built and financed. At the same time, they provide what I believe will be a low-cost, long-term source of power for consumers in Alberta. Under this structure we should see some of the lowest-price renewables in Canada.

Alberta Venture: And how does that bode for the future of Greengate and other renewable-energy companies?
DAN BALABAN:
We’re very excited about the future of renewables in Alberta. Alberta has some of the best renewable energy sources in the world – it’s probably not well known, but our onshore wind resources are among the best in the world, and our solar resources are as good as those in Florida.

Greengate has a number of projects we’re developing, both wind and solar, and I’m confident that we’ll be able to compete in this upcoming auction. But even if we’re not the successful bidder, I’m very confident that the outcome for Alberta consumers will be great – which is going to be a long-term source of power.

AV: Alberta’s electricity market is an outlier among the provinces. How does this change how you do business here?
DB:
We’re the only power market in Canada that’s a merchant power market, meaning the power generated is sold into what’s called the Alberta Power Pool, which has a volatile power price. It can go from zero to $999/MW in any given hour. That’s caused a lot of grief for consumers, and it makes the financing of power projects difficult. To finance a project of this size, it’s important to have a long-term offtake agreement, and the way the market is structured in Alberta, those have not been available.

AV: The public conversation around renewable energy can get surprisingly heated. What do Albertans get wrong about renewables?
DB:
I always hear that renewables are expensive. That’s simply not true. Technology has improved very dramatically over the last decade and it’s continuing to improve. Wind in Alberta is arguably lower cost than natural gas-fired generation, so renewable can absolutely compete on a cost basis.

Another thing I hear is that the technology is unreliable. That’s not true, either. Wind and solar technologies have been around for decades. They’re commercially proven technologies. They’re financeable technologies. And they can provide a reliable source of power.

AV: You come from an entrepreneurial background – is this a unique opportunity for entrepreneurs interested in renewables?
DB:
I see the world going through a pretty dramatic transformation right now in the way we produce and consume energy, moving away from fossil fuel-based energy to renewable energy. Like I said, Alberta has some of the best renewable resources in the world, and we have an “open for business” attitude from our provincial government, to our municipal governments, to local land owners. We have amazing resources, a relatively well-defined regulatory process and, now, we have a set of policies to encourage growth in the sector. You combine all those things and there are lots of exciting opportunities for entrepreneurs to participate in the sector in Alberta.

On the price of power in Alberta: “It can go from zero to $999/MW in any given hour. That’s caused a lot of grief for consumers.”
– Dan Balaban, Greengate Power

AV: What’s been holding it back?
DB:
The lack of policy support. Our provincial government previous to the NDP basically chose coal over renewables, dirty power over clean power. I think that was a mistake because it didn’t allow us to realize the potential we have in this exciting new industry, and I think it unnecessarily damaged our environmental reputation internationally and has affected our ability to get our product to market and build pipelines to where we need to build them to.

If we can demonstrate that we’re environmentally responsible, we’ll be encouraging economic diversification and, hopefully, getting the social licence we need to get our product to market and build pipelines. Because in Alberta, the two industries, fossil fuels and renewable energy, have to go hand in hand. I think they’re complementary to one another and we can help each other out.

But it’s certainly not helpful to have false information put out there, because sometimes [renewable energy] is perceived as a threat. It’s not. I think it’s going to help us all achieve our mutual goals. We should be having fact-based conversations.

AV: Does this go both ways? I’ve heard from environmentalists who’d have ­Alberta switch over 100 per cent to renewables right now, who say we shouldn’t even be considering pipelines. But I’ve also heard from oil and gas boosters who see renewable energy almost as a frivolous curiosity – “Sure, it’s neat, but we don’t need it.”
DB:
I certainly wouldn’t say we can move to 100 per cent renewables today. But I certainly would say that we can see a lot more on the grid than we currently have. The future is going to be a mix … I think we’ll see the mix change over time with more renewables in it, but it’s all about diversity. It’s not 100 per cent this or 100 per cent that.

Balaban has led Greengate, which developed the province’s two largest wind farms, since its founding in 2007. He worked for Ernst & Young and PwC before founding Roughneck.ca, which provided operations software to the energy sector, in 1999

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Royal Dutch Shell is the biggest player in LNG game

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The Play
“We’re more a gas company than an oil company. If you have to place bets, which we have to, I’d rather place them there.” – Ben van Beurden, CEO, Royal Dutch Shell, to Bloomberg Businessweek

I’m concerned about where natural gas prices are going to go over the next five years, and I don’t mean them shooting higher and pushing up my heating bill. If you have been paying attention, you will have noticed that the Montney formation, in northeastern B.C. and northwestern Alberta, is one incredible shale gas play. What pure-play Montney companies like Painted Pony, Advantage Oil & Gas and Crew Energy are doing and are capable of doing in terms of production growth is staggering.

But if we don’t get our liquefied natural gas (LNG) export ducks in a row, Canadian natural gas is going to be sold at rock bottom prices for years to come.

It isn’t like there won’t be plenty of demand for LNG globally. Exxon Mobil is forecasting that global consumption of liquefied natural gas will triple to 100 billion cubic feet per day by 2040. Asian countries with big populations and modest natural gas production will be relying on LNG imports to provide half of the natural gas they consume.

And those projections are based on how the world is currently viewed. I believe there is a strong possibility that China and eventually India will surprise us in how quickly they abandon coal to improve air quality. That would mean even more demand for LNG.

But, without new pipelines and LNG facilities on the B.C. coast, Canadian natural gas may end up being stuck. From an investors point of view, that could work well for other, more global, players in the market. The biggest in that game by far is Royal Dutch Shell. After acquiring BG Group for a cool US$54 billion, Shell has double the LNG capacity of its nearest rival, Exxon Mobil. In short, Shell has bet its future on LNG.

The Pick

Royal Dutch Shell (NYSE:RDS.A)

I mentioned the wave of Canadian Montney producers that are generating incredible production growth even with low natural gas prices. Ten years ago these companies didn’t even exist. Royal Dutch Shell has been around a little longer. The company was founded in 1833 by a man named Marcus Samuel. Originally, Samuel used his company to sell antiques before expanding into the importation of shells from the orient. It wasn’t until 50 years later that his two sons moved Shell into the oil and gas business.

It has grown into a blue chip company that is widely owned and widely followed. It might surprise you, then, to learn that this massive and durable company currently sports a dividend yield of 7.5 per cent. That kind of yield is extremely unusual and basically implies that the market believes the current dividend is unsustainable. Given the collapse in oil prices, that probably doesn’t seem surprising, but what we also need to consider is that Shell has not had a dividend cut since 1945. These oil and gas majors aren’t kidding when they say that they are committed to their dividends. Shell went through sub-$10 per barrel oil prices in both the 1980s and 1990s without cutting that dividend.

When I take a look at what Shell is planning to do in the coming few years, I have to say that it appears they can keep this dividend up. From generating free cash flow of only $12 billion per year from 2013-15 while oil was $90 per barrel, Shell is expecting to increase that to $20 billion to $30 billion in 2019-21 with oil at only $60 per barrel.

The key to achieving this is that annual capital spending, which peaked at $57 billion in 2013, will be dropping under $30 billion in the years going forward. The company will massively reduce spending by cutting back on enormous long-lead-time mega-projects and by squeezing every penny out of the money it does spend. There is nothing like necessity providing the incentive to create radical improvements in cost efficiency.

The Postscript

A big fly in the ointment of Shell’s long-term plans could be LNG pricing. There will be demand growth, but the problem could be how efficient Shell and its competitors continue to become at producing oil and natural gas.

LNG prices, which are linked to oil pricing, have taken it on the chin in recent years. That means that not only does Shell need to worry about massive amounts of natural gas coming from shale flooding the market, it also needs OPEC to stop overproducing to get oil prices up.

Having to rely on OPEC to do anything is not a comforting position to be in. At least for shareholders of Shell, you know that you are invested in a company that, having been around since 1833, has lived through a few challenges.

The post Royal Dutch Shell is the biggest player in LNG game appeared first on Alberta Venture.

The power of Trump’s personal brand

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On January 20th, the U.S. will swear in the country’s 45th President: Donald Trump. That is shocking to many people. How was a political neophyte with little support from his own party able to win a general election for the most powerful office on the planet? A complete answer to that question is complicated, but there is no denying that the personal brand of Donald Trump played a central role. Not the brand he built as a real estate developer or reality TV star, but the brand he invented as his political persona.
Personal branding is an idea that has become increasingly popular in recent years. Historically, branding was about selling products. Marketers quickly realized, however, that it was also important and powerful in many other endeavors. From government services to employee recruiting to charity fundraising – brands matter!

When it comes to personal branding, you can say whatever you want, but ultimately it’s what you do that matters.

At the core of a great brand is a value proposition that is compelling to the target audience. Trump’s success in this regard holds lessons for anyone interested in personal branding. As a starting point consider how Trump clearly and concisely promised to “Make America Great Again.” By doing so, he established how selecting him would benefit the voter. Explaining the benefits of whatever you are selling is the first stage of a strong
value proposition. It is relatively easy to do, requiring only that you identify the value you plan to deliver.

The second stage is differentiation. What is different and better about the benefits you are offering as compared to the competition? This is a little more challenging, as it requires not only that you understand what you are going to do, but also what your competitors are up to. Trump, for example, was faced with a lineup of competitors who were predominately experienced politicians. In response, he turned his neophyte status to his advantage and focused on his success in business to differentiate himself. He consistently talked about his wealth, pointed out that he was paying for his own campaign, and explained how being a tough negotiator meant he could bring back jobs and prosperity. Facing Hillary Clinton in the general election, he reinforced his outsider status, but also adopted a few traditional Republican positions that further differentiated him as fiscally and socially conservative. Throughout the campaign, Trump consistently and clearly established that he was unlike other presidential candidates.

The third stage of a strong value proposition – by far the most important and difficult – is ensuring that what is different about you is relevant to your audience. It also helps if you can be relevant to a large group of people whom others have overlooked. This is hard to do in a competitive environment because everyone is trying to connect with the segments that they believe are most important. Trump excelled at this and he found an eager audience: one that felt mistreated, underappreciated and underserved. He then made sure that he differentiated himself in a way that would resonate. Although many people strongly oppose Trump as president, many others saw him as the best available choice and more than 61 million Americans voted for him. Strong brands – from Apple to Harley Davidson to Marvel comics – can be successful without appealing to everyone.

In describing the value proposition, I may have made the process sound entirely rational. It is not. In fact, it is critically important that your brand connects on an emotional level. Many great brands are defined by the ability to bond with their target audience. That’s why we talk about the cult of Apple or the Harley Davidson community or Marvel’s fandom. What Trump accomplished was not driven by an intellectual argument for a better America; it was a promise to make the country great again. That is a powerful emotional appeal.

But this all comes with a big caveat: brands weaken and eventually break when behaviour consistently fails to meet expectations. You can promise greatness – whether that is exceeding your quarterly key performance indicators, turning your app into the next Facebook or growing your local coffee shop into the next Starbucks – but then you must deliver. It is much easier for Trump to talk about making America great again than it is to fix the complex problems facing the country. It is one thing to claim you are a strong negotiator who will build a wall and get Mexico to pay for it, and another to make that happen. Going forward, the power of Trump’s brand will depend on his ability to deliver as president. He doesn’t need to be perfect, but he will need to produce results. When it comes to personal branding, you can say whatever you want, but ultimately it’s what you do that matters.

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Questor’s Audrey Mascarenhas has a technology that can reduce pollution and generate emissions-free power

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Audrey Mascarenhas says she has a ready-to-go technology that can reduce the carbon and methane emissions from the thousands of oil and gas flare stacks that dot the province, generate emissions-free power from their waste heat and do it all cost-effectively. Her Calgary-based company, Questor, has long been in the business of selling and renting incinerators to burn waste gas from oil and gas operations. But the company is now taking the process one step further by using the waste heat to generate power onsite and, in the process, is delivering one of the small-scale, proven technologies that can help solve the climate-change dilemma.

Questor is most active in the U.S., where, in response to poor air quality, clean-air regulations force companies to incinerate waste gases to a 95 per cent efficiency rate. Here at home, the uptake of the company’s technology has been slower. “In Alberta right now we’re flaring and venting about 140 million static cubic feet of gas a day,” she says. “If we focused just on flaring, venting and the waste gas going through dehydrators, we could reduce Alberta’s greenhouse gas emissions by 60 megatonnes at a cost of less than $1.70 per tonne.”

Mascarenhas says there’s enough waste heat in the province to replace all the coal-fired power the province plans to phase out by 2030, and that it comes with no emissions. “We also don’t struggle when the sun doesn’t shine or the wind doesn’t blow, because waste heat is coming off so many industrial processes that are running 24/7.”

Questor’s technology is similar to a steam turbine, but runs at a much lower ­temperature. “The advantage of this cycle is it’s at low ­temp­erature and low pressure, so you don’t need a guy with a steam ticket,” Mascarenhas says. That works well at the small, isolated sites that are so common in the oil and gas industry, but it can be attached to any manufacturing or industrial site that is generates waste heat. Questor has, for instance, studied the cooling towers at Enerkem Alberta’s waste-to-biofuels facility in Edmonton. “On our preliminary work, we’re looking at three ­megawatts of power,” she says, enough to power 3,600 homes.

Mascarenhas says dealing with waste gas – much of which is methane – from the oil and gas industry is one of the biggest opportunities the world has to make an impact on climate change. “Methane is 25 times worse than CO2 as a greenhouse gas,” she says. “When I cleanly combust it, I actually reduce the tonnage of greenhouse gas emissions nine-fold, and that’s with today’s tech. That’s with no more R&D hoping for a magic bullet.”

Mascarenhas says governments have focused on mega-projects like Shell Canada’s $1.35-­billion Quest carbon capture and storage system attached to the Scotford refinery, and on moonshot technologies that have yet to be developed. She’s critical of the October announcement by the provincial government to invest another $33 million to advance methane-reducing technologies through Emissions Reduction Alberta (formerly the Climate Change and Emissions Management Corporation). “If we took that $33 million and said, ‘You know what, industry, we’ll incentivize you to take some early action, say 25 cents for every dollar spent,’ we would have been well on our way to meet the target on emission reduction,” she says. “Instead, we’re taking it to invest in technologies that haven’t been invented yet.” Better, she says, to support the simple, perhaps mundane options staring them in the face. “We’re missing the low-hanging fruit that would not only address climate change but would help with air quality in Alberta,” she says.

Mascarenhas would rather see government bring in the same kind of tough rules around emissions, methane, volatile organic compounds and hazardous air pollutants that have been introduced in the U.S. “Companies had to pay attention to what they were emitting and if they weren’t in compliance they were fined,” she says. The clear rules allow innovators and service companies to know what they have to design to and, most importantly, companies know the expectations.

The post Questor’s Audrey Mascarenhas has a technology that can reduce pollution and generate emissions-free power appeared first on Alberta Venture.

DIALOG’s Jim Anderson opens up shop in San Francisco

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Jim Anderson
Photo Ryan Girard

Alberta Venture: One of DIALOG’s projects – the new terminal at Calgary International Airport – has been getting glowing reviews (except from WestJet, which has complained about long walks between gates). Can you summarize the project in one sentence?
Jim Anderson:
The new terminal is stunning, it shows Calgary and Alberta really well, and it’s fantastic in the way that it’s been done in terms of the sustainability of the design. It also makes Calgary a regional hub. The whole point was to create regional connectivity so Calgary becomes the hub for travellers from around the world, whether it be Asia or elsewhere. With clearance to the U.S., it can really act like Chicago or Atlanta does as a destination in North America for people to come and hub through.

AV: That was more than one sentence, but OK. The big news for DIALOG is the opening of an office in San Francisco, your first in the U.S. Why do this, and why now?
JA:
There are all kinds of reasons for us to be in the U.S. We’ve established ourselves well in Canada, growing from Alberta [the firm started in Calgary in 1960] to Toronto to Vancouver. We have a lot of talent and experience under our belt. The world is coming to our backyard for every project, so why don’t we go play in theirs? And it gives us an opportunity to learn from that experience as well and bring that knowledge home.

We’ve been talking about this for about a year and looking at it seriously for the last eight months to broaden our markets and find other places we can do great work. We’ve settled on San Francisco because it’s a gateway city to the U.S., so it’s a way to be in the U.S. market, not just the San Francisco market. At the same time, it’s a wonderful city and it aligns with a lot of our values. It has a very purpose-driven culture. People there are serious about making a difference with what they do.

We’ll start out slow. We see building the San Francisco studio as building a little microcosm of DIALOG. It will be a handful of people that represent the diverse characteristics of our firm. We’ll have design talent. We’ll have technical depth. It’s important for us to start out with all of that. Being an integrated firm is one of the values of our firm so we want that diverse set of skills around the table right from the get-go.

AV: Will you populate the office with some of your 600 current employees?
JA:
It will be a balance of people from our current studios and hiring people locally. There’s an important aspect to being local: Each of our four studios has their own culture.

AV: Do you see it as an opportunity for growth?
JA:
I don’t know if growth is the right word. Our goal isn’t to get bigger, it’s to get better.
We do have a mantra that we want to be as big as we need to be to do the scale of projects we want to do and to compete with the other people who do those projects. But we also want to be as small as we possibly can be to preserve that small firm culture that we feel is important.

AV: Did the recent U.S. election cause you any pause?
JA:
The calculation didn’t change. This is a long-term commitment for us. We’ve been thinking about it irrespective of political concerns. Canada and the U.S. are sharing some of the infrastructure deficits and the need to develop some of the things that we
feel we have expertise in.

AV: You have said DIALOG has something to offer the U.S. market in terms of your firm’s experience with mass transit.
JA:
We’ve worked in Calgary with their system. In Edmonton we did a few stations going back 10 years. We’ve done some stations on the Canada Line in Vancouver and we’re doing some stations on the Eglinton cross-town line in Toronto, so we’ve been involved in the urban transportation systems of all of our cities.

We led the sustainable urban integration team for the Valley Line LRT in Edmonton. It’s a fancy way of saying, “Everything matters. Design everything so that it integrates into its neighbourhood and its surroundings, whether that’s the station or the landscape leading up to it, the sidewalk, the streetlamps, all those things that frankly take building an LRT system to building a city, building a community.”

There’s a need for transit development throughout the U.S., so that’s something we can take lots of places. We had a large delegation at a conference in San Francisco called Rail-Volution presenting some of the work we’ve been doing and showing that
off to the world.

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Vistra Energy deserves another look

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The Play

Even great investors make mistakes. Warren Buffett did just that in 2007 when he purchased the junk bonds of Texas power company TXU Energy. By 2015, when it was all said and done, Buffett’s company Berkshire Hathaway closed out this investment with a billion-dollar loss on a $2-billion investment.

“We believe our unique integrated business model will provide investors with an attractive, stable earnings profile.”
– Curt Morgan, CEO, Vistra Energy

He was far from the only big loser on TXU. In 2007, private equity heavyweights KKR & Co., Goldman Sachs Capital Partners and TPG Capital teamed up to acquire TXU for a whopping $45 billion. It was the single largest leveraged buyout (LBO) in U.S. history at the time. While Buffett lost half of his investment, these firms lost 100 per cent of their equity stake.

Where did all of these smart investors go wrong? Two things: using too much debt and getting the natural gas market very wrong. They loaded up a healthy company with a massive amount of debt and by doing so, bet on natural gas prices to stay high.

Of the $45-billion purchase price, $37 billion was financed with debt. Prior to being acquired, TXU’s annual interest expense was $830 million. After being saddled with the acquisition debt, it soared to $4.3 billion. That’s a heavy piano to drag around behind you.

If natural gas prices had stayed at the $6/mcf level that the private equity acquirers expected, this deal may have worked out. Instead, with cash flows crimped by low natural gas prices and massive interest payments, the company could not survive. In 2014, TXU Energy (renamed Energy Future Holdings at that point) filed for Chapter 11 bankruptcy.

The Pick

Vistra Energy (OTC: VSTE)

In October of 2016, the first lien bondholders of TXU/Energy Futures Holdings took control of the assets of the company and put them into publicly traded Vistra Energy.

Vistra has two operating units: Luminant and TXU Energy. TXU provides electricity to 1.7 million customers, 1.5 million of whom are residential and the rest industrial or commercial. It’s the largest retail electricity provider in Texas, with 25 per cent of the residential market. Luminant generates power. The businesses are run separately but are integrated. TXU buys electricity from Luminant and sells it to its customers at a small markup. TXU generated 53 per cent of the company’s EBITDA in 2016 and Luminant 47 per cent.

This is a utility, a stable business with predictable cash flows. Before TXU filed for bankruptcy, the company was carrying $34 billion of debt. Net debt for Vistra is now only $3 billion, an incredible improvement in the company’s balance sheet.

Against its peers, Vistra’s balance sheet has gone from worst to best. A case could even be made that the business is, for a utility, underleveraged.

And valuation-wise, the company appears inexpensive. Current enterprise value to EBITDA is 6.7 times. Competitors with three times as much debt trade at 8 to 9 times. At 8 times EBITDA, Vistra would trade for $20 per share. At nine times, that figure would be $22.52. You would think that the company that has one-third the debt would have a premium multiple, not a discounted one.

The Postscript

A discounted valuation is good. Having one-third the debt of similar companies is better. The cherry on top is that there are catalysts that should drive Vistra’s share price higher over the next 12 months. The first is that this $10-billion company trades on the over-the-counter market. When it moves to a larger exchange, a whole bunch of additional institutions are going to be able to buy shares.

Second, having just come out of bankruptcy, Vistra has yet to file any financial statements. That means it isn’t coming up on the stock screens of investors.

Third, analysts haven’t started covering the company. Once they do, more investors will get this attractive opportunity put in front of them.
Fourth, with $900 million of free cash flow expected in 2017 and no need to reduce debt, there is a good chance that a dividend will
be announced.

This isn’t a sexy business and you aren’t going to triple your money, but a 30 to 40 per cent upside is certainly possible while owning a company on solid financial footing.

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Retail therapy is a real thing…

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Are you in a bad mood? Has the dark and cold Alberta winter got you down? Would shopping make you feel better?

Even small changes to a retail space can improve shoppers’ moods and increase their willingness to spend

According to research published in the Journal of Psychology and Marketing, for many people the answer is, “Yes.” In the study, published in 2011, researchers found that people could significantly improve their mood when they spent an average of US$59 on a treat for themselves. A follow-up survey indicated that those shoppers did not regret the purchase and did not experience a downturn in mood after the purchase was made. The authors conclude that “retail therapy” is alive and well.

This fact is not lost on merchants. Indeed, many retailers believe that their best defence against losing revenue to online sales is an enjoyable in-store shopping experience. Although e-commerce currently represents a very small share of overall consumer spending in Canada, it is growing rapidly and many businesses are seeing a steady year-over-year decline in store traffic. As a result, the science of the shopping environment is quickly becoming an essential component of consumer marketing.

An important part of this emerging field is atmospherics research – that is, the study of the impact of lighting, colour, scent and sound on buyer behaviour. The goal is to ensure that the shopper feels good about visiting a physical store, even if it doesn’t result in an immediate purchase. Ultimately, the research tells us that when you are in a good mood, you tend to spend more time shopping and spend more money. When you are in a bad mood, you are more likely to rush through the store and spend less money. In addition, people who enjoy being in a store are more likely to put up with driving, parking and shopping, and less likely to shop online. More than ever, stores are being designed to provide environments that engage you and make you a happier shopper.

Leaders in atmospherics have been designing environments to appeal to their target customers for years. One example you are probably familiar with is LUSH cosmetics. Even if you have never been inside one of their stores, you have likely noticed the scent of the retailer’s freshly made bath and beauty products from well outside their front door. Take a moment to glance inside and you will likely see a store overflowing with customers. It might not be for everyone, but LUSH has designed an in-store experience that is not easily replicated online or by the competition. In a completely different category, Bass Pro Shops and Cabela’s have also used elements of store design that aim to appeal to a shopper interested in hunting or fishing. From the smell of Cabela’s fudge shop to Bass Pro Shops’ giant fish aquariums, atmospherics is less about what the retailer is selling and more about an environment that facilitates sales.

Grocery stores are masters at using the bakery and the produce sections to engage your sense of smell and to create colourful displays. In Alberta, Safeway has for many years been an atmospherics leader in the grocery business with innovative store designs that use lighting and colour to create a more comfortable shopping environment, even going so far as to add a Starbucks or Tim Hortons to make your time in the store a more pleasant experience. Recent entrants from Loblaws’ City Markets to Freson Brothers’ grocery stores have designed shopping environments that improve their competitive position.

The growing interest in retail atmospherics is supported by a series of studies that indicate a clear effect on sales and profitability. For example, in a study of two IKEA stores with different interior designs – that is, layout, interior colours, recent renovations, and furniture presentation – German researcher Kordelia Spies and colleagues found that when a store’s interior is seen by consumers as more pleasant to shop in, it affected their behaviour. The store with a superior atmospheric design stimulated positive feelings in its customers. More importantly, when the store’s interior made customers feel better, they spent more money. My own research, conducted with colleagues at the University of Alberta, has demonstrated that even small changes to a retail space – such as adding windows or skylights to increase the amount of natural sunlight in a store – can improve shoppers’ moods and increase their willingness to spend.

Could it be that our dark and cold winters are part of the reason why Alberta has such a high level of retail square footage per capita? If you are feeling like winter has been too long and spring is still too far away, maybe a trip to your favourite store will cheer you up. Research suggests you won’t regret it. AV

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Allison Grafton was destined for design


The Clean Tech Tsunami

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Illustration Mark Nipp

The Alberta government has launched a series of policies to reduce Albertans’ contributions to climate change. A carbon tax, the mothballing of coal-fired power plants, the capping of emissions from the oil sands and the tightening of regulations around methane are but a few of the initiatives that have put this province on a very different path from that which it had been on.

Whether this is good or bad for business is a matter of considerable debate. On the “it’s good” side – with caveats – is Jason Switzer, a former greenhouse gas engineer at Shell Canada and now executive director of the Alberta Clean Technology Industry Alliance (ACTIA). Switzer says the opportunity is there for a “clean tech” industry to thrive if the right policies are put in place. “The question is how to turn progressive environmental policy into successful industrial policy,” he says. “How do we create jobs and build companies that can help the country and, in particular, this province rebuild employment?”

Acknowledging that it’s a wooly term, Switzer defines “clean tech” as a technology or service that produces better environmental and economic performance than the default alternative. “Whatever the benchmark is today for how we do something, in the clean tech space you offer something better environmentally and economically,” he says. “It may have to do with reducing reliance on water or reducing the production of greenhouse gases or any number of things.” Companies in the field include those dealing with artificial intelligence, data crunching, alternative materials, advanced manufacturing and much more.

ACTIA recently wrapped up a survey of 220 clean tech companies in the province. The survey eschewed multinationals in favour of looking at smaller-scale and venture stage businesses. It found that the sector employs 1,800 people in the province and comes with an average wage of about $100,000, substantially above the province’s median of $58,000. Over half a billion dollars in investment has come into the province through these companies and they generate more than $300 million a year in revenue.

Switzer says good regulations will be a driver of further opportunity. “What we have to do is design the regulations as an enabler and not an impediment,” he says. “We have to figure out how we use our domestic market – in oil and gas, agriculture, forestry, fertilizers, specialty chemicals and so on – to help people commercialize stuff.”

He points to the government’s approach to methane reduction. Methane is a far more potent greenhouse gas than is carbon dioxide. “If natural gas is to be part of a low-carbon future, you have to make sure you’re capturing upstream methane emissions,” Switzer says. “If you’re venting due to leaks or a decision to burn or simply not capture – as Nigeria and Russia do – you may be making things worse rather than better.”

Alberta has committed to reducing methane emissions from oil and gas operations by 45 per cent by 2025. The province’s technology fund, Emission Reduction Alberta (formerly the CCEMC), has established a $40-million fund to support methane-removal technology. Both the U.S. and Mexico have adopted comparable goals, as has the federal government. The thinking is that the technologies developed in Alberta can then be taken to foreign markets.

Switzer would like to see government assistance focused on companies trying to progress from initial commercial demonstrations to large-scale production, rather than on startups. “It’s a whole different skill set and not something Canada has traditionally been good at,” he says. “We’re good at developing new technology, but what we haven’t been good at is commercializing them. We need to go from a pretty good idea to a globally dominant platform.”

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Social media marketing fails

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big part of marketing is getting attention. People are exposed to thousands of messages every day and breaking through all that noise is no easy task. Successfully engaging potential buyers takes creativity and a deep understanding of the customer. As challenging as that may be, it is the goal of many social and new media marketing campaigns. As proof positive, we look to the success of WestJet’s “Christmas Miracle” or Proctor & Gamble’s “Old Spice Man” and sing the praises of technology that allows us to communicate directly with the consumer.

McDonald’s #McDStories campaign went awry when the hashtag was swamped with negative comments

But, of course, not every attempt to break through all that noise ends well. In fact, big brand marketers regularly run aground on the rocky shores of new technology. Take, for example, the time that Daniel Korell used his phone to scan a QR code on a bottle of Heinz ketchup. That code was originally part of a promotion that offered personalized ketchup, but when Korell scanned the code he didn’t get his name on a bottle. Instead, he was directed to a porn site. It turns out that after the promotion ended, Heinz failed to renew the domain name. The company apologized and Korell was more bemused than offended. The error that Heinz made, however, is symptomatic of a general problem: Marketers do not appear to fully understand the risks of the technologies they are using.

Even the world’s most experienced and sophisticated brands have fallen prey to the siren call of social media. Coca-Cola had good intentions when it launched the “Make it Happy” campaign with a splashy Super Bowl commercial, designed to nudge the Internet towards a more positive tone. The company encouraged users to tag negative comments with #MakeItHappy and then it turned those negative comments into adorable ASCII images. In response, the now defunct website Gawker created a bot that tweeted out passages from Hitler’s Mein Kampf. When Coke’s website converted that text into cute images of dogs, cats and other characters, the company came under intense fire and was soon forced to discontinue the campaign.

Next example: McDonald’s serves millions of customers, and many of those customers have fond memories of time spent at McDonald’s. Following this logic, McDonald’s launched an online campaign asking people to share their #McDStories. Unfortunately for the company, that idea went wrong in a hurry as the hashtag was swamped by negative comments about the restaurant and its food. One of the kinder tweets read, “One time I walked into McDonalds and I could smell Type 2 diabetes floating in the air and I threw up #McDStories.”

The Coca-Cola and McDonald’s stories illustrate the dangers marketers can face even when they are trying to have a positive conversation. Other companies have brought the ire of the Internet on themselves when they use language and express opinions that many people find offensive. Kenneth Cole has on a regular basis used inflammatory tweets to gain attention, including such gems as “Black Pants Down – Our new looks are more slimming than a Somali diet!” and, when riots broke out in Egypt during the Arab spring of 2011, “Millions are in an uproar in #Cairo. Rumour is they heard our new spring collection is available online.” Meanwhile, Bud Light is spending a lot of money and effort on its #UpforWhatever campaign, even as it generates backlash from stunts like encouraging people to pinch others who are not “up for whatever” on St. Patrick’s Day. Undeterred, Bud Light went on to release a batch of bottles with labels that read, “The perfect beer for removing ‘no’ from your vocabulary for the night.”

Coming up with a great marketing idea and then implementing it in a way that grabs attention in an overcrowded marketplace is undoubtedly challenging. Campaigns like “Christmas Miracle” and “Old Spice Man” are difficult to replicate or even sustain. And it is probably a little naïve to believe that the online trolls and opportunists are going to go away anytime soon. But I do hope that more marketers will aim for the kind of success that WestJet had in 2016 with its “Fort McMurray Strong” Christmas message and that fewer will take the easy way out.

If the moral high ground is not incentive enough, consider the damage that can be done by a single poorly thought out social media post. For example, I suspect DiGiorno Pizza wished it had stayed off Twitter on Sept. 8, 2014. At the time, people were sharing stories of domestic abuse under the hashtag #WhyIStayed. Late that evening DiGiorno Pizza saw the hashtag trending and jumped on the bandwagon with “#WhyIStayed You had pizza.” Although they quickly realized their mistake and apologized, the brand damage was swift and substantial.

Clearly, there are worse things for a marketer than being ignored.

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Carrie Langevin sought inspiration from her grandmother in the creation of Mother Earth Essentials

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Carrie Langevin
Owner, Mother Earth Essentials; Council member, Métis Women’s Council on Economic Security

Photograph Ryan Girard

Alberta Venture: Your business, Mother Earth Essentials, is influenced by your grandmother and great grandmother, who was a medicine woman in the Lac Ste. Anne area. How did that happen?

“At 18, I knew I wanted to have my own business, but I didn’t have the knowledge or support or confidence or pride of culture, so I didn’t realize I could do it.”
– Carrie Langevin, Mother Earth Essentials

Carrie Langevin: My grandmother, who was Cree, really knew the plants. She grew up traditionally. She had 12 children, and she lost some of her children to residential schools. Mom was one of them. Growing up with my grandma in Hinton, there was a lot of fear of the residential schools because my mom and her sisters were not treated well. We did not talk about that part of our family.

But when my grandma got out in nature – and we went camping and picking berries a lot – you saw this whole different side to her. She would be smiling and happy. She would show me these plants and talk about them. It was beautiful.

Then, when I graduated high school in 1982, I loved the plants, but had no idea what to do with that. We were living in small-town Alberta. So I went to cosmetology school and worked over the years in all aspects of the cosmetic industry, from sales to merchandising and everything in between. I worked in merchandising for Procter & Gamble and in salon supply sales. I tried all of that but it wasn’t feeding my spirit.

So I went back to school and got an education degree from the University of Alberta in health and human ecology. I got my first teaching job at amiskwaciy Academy, the Edmonton Public indigenous high school. It was there that things really came together. They had beautiful gardens in the back and were growing some of the traditional plants. I taught career and life management, food, health and cosmetology, so I could incorporate some of those plants into my teaching and into some hands-on activities with the kids. I saw such a beautiful connection between these urban aboriginal kids and the plants. They would remind them of when they were young and using these plants as medicines at home. I found that inspirational and started creating products with them. We would make teas, we would make things in food and health classes.

Then, 10 years ago, I decided I had to pursue this business. I think I’m an entrepreneur at heart. I left teaching and it’s been an absolute blessing and stressful and fun and all those things.

AV: So how did you get going?
CL:
I started making products at home. We picked most of the plants ourselves out at Lac Ste. Anne. We use a lot of wild rose, berry seeds – which are rich in antioxidants. We use willow bark because of its anti-inflammatory properties and salicylic acid is an amazing natural aspirin. We use a lot of sweetgrass, sage and cedar.

The way I see it, our products became little teaching tools to teach people about the beauty of the culture and the contributions of aboriginal people. I grew up with so much shame around the culture, and saw so much racism. I thought, “Why isn’t this plant knowledge being appreciated and respected and acknowledged?” I wanted to be a part of making that better. Now, we sell to about 100 health stores and gift stores across the country and our products are in hotels – Sawridge, Great Eagle, Chateau Lacombe.
We sell from our website and have a storefront [in Edmonton]. My sister and I run things. Most days we’re rolling up our sleeves, packing boxes, preparing product and taking phone calls. We’re not out there with a sales and marketing team yet. I’m a teacher and I love the plants. Learning business has been an interesting challenge.

AV: You were on Dragons’ Den about five years ago. Did that experience help?
CL:
It gave us some credibility. If the Dragons like you, you must be OK. They offered us a loan but I never ended up taking it because the fine print was just ridiculous. But it increased our sales to the eastern parts of Canada.

AV: Now you’ve taken a role with the Métis Women’s Council on Economic Security. What are you hoping to achieve there?
CL:
The mandate for the council is to provide advice to the government on strategies that will help improve the lives of Métis women. Economic security is more than creating employment. We focus on access to resources and supports that contribute to our physical, mental, emotional and spiritual well-being. When those needs are met, then we’re in a good place to access opportunities to better provide for our families and communities.

A previous council provided two reports to the government. I’m still fairly new to the council, but some of the things government has done in response to these reports is they’ve created an indigenous services web portal to improve access to government services; they provided funding support for leadership for young indigenous women; they facilitated opportunities for indigenous women to sell their art in the Legislature’s visitor’s centre; and there was funding for an anti-violence campaign for men and boys called the Moose Hide campaign.

I’ll be looking at the role of entrepreneurship. I’d love to see young women having the confidence to start a business. It took me a long time and a lot of steps to become an entrepreneur. At 18, I knew I wanted to have my own business, but I didn’t have the knowledge or support or confidence or pride of culture, so I didn’t realize I could do it. So if I can help inspire an 18-year-old to say, “Hey, I have this idea,” to go for it, that’s the goal.

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From volunteer homebuilder to principal architect: Richard Isaac’s path to power

Vermillion Enery has strength in diversity

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The Play

Usually in this part of my monthly write-up I tell you about “the play” that the company I’m profiling is operating in. This month I can’t really narrow it down like that since I’m talking about a company with an extremely diversified asset base.

“When we started, we were drilling and casing those wells in 21 days. Now, we drill and case them in about nine days.”
– Anthony Marino, CEO, talking to Digital News Group about a play in Alberta’s West Pembina region

In investing, diversification is good. When it comes to running an oil and gas producer, I’m not sure that it is. This is an industry in which being a low-cost producer is critical for any significant level of long-term success. If you have spent any time investing in this sector, you will know this is the case.

Finding one good play to base your company around is hard enough, given what you are competing against. Trying to find several so you can offer a diversified asset base to investors is that much harder.

That makes the mid-sized company in focus this week a bit unusual. It has an asset base that is diversified in almost every way imaginable. In terms of plays, there is diversification since the company operates shale and conventional assets, and both onshore and offshore. By commodity there is diversification since the company sells both oil and natural gas, as well as hydrocarbons with different price points (WTI, Brent, Aeco, European natural gas). There is geographic diversification as the company’s assets are spread across not only countries but continents hitting North America, Europe and Australia.

Most importantly, all of this is diversification an investor should like.

The Pick

Vermilion Energy (TSE:VET)

This oil and gas producer is Vermilion Energy and it is a very well-run company. Vermilion has the kind of diversified assets that you might expect to find in an oil and gas major rather than a mid-sized producer. Vermilion receives significant portions of its production from Canada, France, Ireland, Australia and the Netherlands.

While diversified, Vermilion’s production combines for high after-tax cash flow netbacks. That is how much money each barrel of production generates after operating expenses. Having high netbacks means that you are generating a lot of cash flow from your production. On this measure, Vermilion ranks as one of the most profitable Canadian-listed producers.

That isn’t all there is to like about Vermilion’s production. It also has one of the lowest decline rates in the industry. Having a low decline rate means that you don’t have to spend as much cash drilling new wells to offset production declines. Put high netbacks with low decline rates and you can generate some serious free cash flow, something rather uncommon in this capital intensive industry.

Vermilion refers to its “effective” corporate decline rate as being at 13 per cent. Compare that to a pure-play producer like Raging River (a good company) which has a decline rate of over 40 per cent and you can appreciate
Vermilion’s advantage.

Vermilion’s effective rate of decline is lower than its natural rate because Vermilion creates the effective rate by restricting production in the Netherlands and Australia. By restricting production on those two properties (done to maximize long-term recoveries) the decline rate is zero.

Since good things come in threes, I’ll point out one more thing to like about Vermilion’s production: It doesn’t cost much to bring it online. In 2015, Vermilion’s finding and development cost was just $9 per barrel. That has come down from $35 per barrel in 2011 and is a level that Vermilion believes it can maintain due to reduced drilling times.

The Postscript

Add these three attributes together (high net­back, low declines, strong capital efficiencies) and good things are bound to happen. That is exactly the case at Vermilion, where free cash flow has surged in 2016 and will continue higher in 2017 and 2018.

By free cash flow I’m talking about cash left over after deducting all capital expenditures (including growth spending). Vermilion’s free cash flow will nearly quadruple this year from where it was in 2014, quite an achievement considering oil prices are about half what they were back then.

Vermilion shares provide a dividend yield of 4.7 per cent and the company expects to grow production by four to eight per cent in the years ahead. It will do this with a healthy balance sheet and its debt to cash flow should be under 1.5 by the end of this year.

After using free cash flow to improve the corporate balance sheet over the next six months I would expect that we could see Vermilion hike its dividend by up to 25 per cent near the end of 2017. That could be a welcome catalyst for Vermilion’s share price.

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