Geothermal power plant in Iceland. Blue Lagoon.

Following the recent events in Israel, we would like to commend the management of Ormat Technologies for maintaining open lines of communication during this extremely stressful period. Ormat, a portfolio company based in Tel Aviv, entirely produces electricity from alternative sources located outside of Israel, which remain operationally unaffected by the turmoil. Although the company has a geothermal equipment production facility in Israel, it exclusively supplies international clients and equipment sales represent less than 12% of the company’s revenues.  

Economic factors and market dynamics

Major geopolitical events like we are witnessing in Israel certainly do not help the case for $40 oil. Add  in high levels of government spending, increased regulations and large wage increases and  inflation remains well-supported. As we await a downturn to counterbalance, we can expect volatility in commodities prices, especially with oil, as the Middle East conflict continues.  

As the developed world spends its way toward decarbonization, analysts are attempting to predict peak oil production. The International Energy Agency (IEA) believes we are nearing that point while OPEC expects global demand to reach 116 million barrels per day (bpd) by 2045, up from 99.6 million bpd in 2022. OPEC has also made clear the potential for a higher jump. Growth is likely to be fueled by India, China, other Asian countries, Africa and the Middle East 

North American oil consumption and supply-side economics

Local oil consumption in North America continues to be moderate, as the adoption of electric vehicles and other alternative fuels gain momentum. However, supply-side economics seem to support a buoyant environment for oil service companies. Shale wells in North America offer very poor long-term output performance, with decline rates for oil wells exceeding 35% and losing an additional 0.5% each year. To maintain supply levels, oil companies must continuously explore, plan and drill new wells. As a result, regions such as the Permian Basin in West Texas are likely to remain active hubs for drilling and completion activities, especially if oil prices make exports profitable. In addition, many oil service companies are diversifying into new sustainable segments within the broader energy market, areas such as hydrogen, renewable gases, recycled water, etc. This has led the industry to re-position itself as an energy services provider rather than focusing solely on oil and gas.  

Innovations in energy service companies

Global Alpha is invested in NOW Inc. (DNOW:US), a company that is using its extensive energy-industrial distribution network to launch its own carbon capture equipment. As well, its new Ecovapor technology reduces flaring while producing much cleaner gas.

Energy service companies are preparing for future market trends that are likely to garner investor attention. One notable event this year was the annual geothermal industry gathering in Reno, which attracted over 1,500 attendees. What set this year apart was the significant presence of oil & gas service industry professionals.  

Geothermal energy: the next frontier

The concept of “Geothermal Anywhere” or “Geothermal 2.0” is gaining traction. This involves leveraging inexpensive deep, high-temperature wells to operate geothermal plants beyond the Pacific Ocean’s “Ring of Fire” high-temperature zones.  

Estimates suggest that as much as 8% of the US’s entire energy production could come from geothermal sources, provided that feasibility and costs are optimized. Achieving this goal requires overcoming certain technical challenges, such as drilling into 250-degree rock three kilometres underground without causing significant equipment damage. Given the incredible advances in shale drilling technology over the last decade, chances are these issues will be solved.  

The addressable market is sizeable. Currently standing at $7 billion, geothermal capacity is 31 GW within a total 1,293 GW of US energy capacity. According to a 2019 publication by the US Department of Energy, the number of potential geothermal sites could exceed 5,000 GW. If the goal is to increase the share of geothermal energy from 2.3% to 8%, the market opportunity could surpass $25 billion in the US 

Investing in energy service companies

We have exposure to the oil service industry through our investments in Austria-based Schoeller-Bleckmann (SBO:AV), which specializes in advanced drilling solutions. We also own Helmrich and Payne (HP:US), a leading energy service company in North America. HP has already invested in six  geothermal startups that tackle complex technical issues related to deep geothermal energy.  

It’s important to note that, in the short term, oil and gas service companies remain sensitive to the cyclical nature of drilling activities. The Baker Hughes rig count index, currently at a low of around 600 rigs, suggests that we might be approaching a trough, as these levels are near historical lows. Together with growing decarbonization markets, the new energy service industry is certainly an interesting place to be. 

The future of geothermal and our investment outlook

As markets focusing on reducing carbon emissions continue to expand, the evolving energy services industry is worth watching. If venture capital continues to flow into the Geothermal 2.0 concept and becomes a reality, our long-term holding in Ormat, already the industry leader in geothermal energy production, stands to gain. At present, the company has a robust pipeline of geothermal projects that use its patented shallow-drilling, low-heat technology, known as binary exchange. Even without Geothermal 2.0 as a new market segment, geothermal energy is already experiencing rapid growth, thanks in part to its ability to provide stable, non-peak electricity, complementing the variable output of solar and wind energy. 

As we adapt to a transitioning energy landscape, the confluence of traditional drilling expertise and emerging sustainable technologies may not just redefine the energy sector, but also reshape how we think about long-term investment opportunities. 

The CC&L Foundation is pleased to announce a contribution to Canadian Blood Services, exemplifying our commitment to community and creating a positive impact. With the successful conclusion of our August blood drive, we extend our appreciation to participants who supported this important initiative, led by one of our own employees Mohammad Shakeri. 

Mohammad is a Specialist on the Corporate Actions team at Connor, Clark & Lunn Financial Group in Vancouver and is passionate about blood donation. He has been a blood donor for ten years, and like over half of Canadians, his close friends and family have been recipients of blood transfusions in the past. Mohammad championed the Partners for Life collaboration between the CC&L Foundation and Canada Blood Services, raising awareness of this service that can affect so many. This was the first blood donation activity at CC&L in recent years and the participation reinforces our firm-wide dedication to giving back to the communities we live and work in. 

Quick facts

  • Each blood donation can save up to three lives
  • It can take multiple donors to save a patient’s life.
  • Given that each process requires less than 30 minutes of each donor’s time, this an excellent investment.

There is a constant demand for blood and blood products. Rolling up your sleeves to donate at anytime is appreciated. As active participants in the Partners for Life program, our collaboration with Canadian Blood Services further strengthens our dedication to community support.

Learn more about the CC&L Foundation.

Lake surrounded by mountains.

In June this year, 3M was ordered to pay $10.3 billion for its contamination of US drinking water supplies with per- and polyfluoroalkyl substances (PFAS), also known as forever chemicals. In the US alone, there are currently over 15,000 open claims against PFAS manufacturers and users, with some experts estimating that payouts could exceed the $200 billion payout levels of tobacco companies in the 1990s.  

PFAS were invented in the 1930s and started to be widely adopted in the 1940s. These chemicals have been used in many industries for various applications since. In response to growing concerns about their side effects in humans, such as liver damage, obesity, fertility issues and cancer, many authorities around the world are considering strict regulations to limit their use.  

Per- and polyfluoroalkyl substances are synthetic, manufactured chemicals that are mostly used in products for their nonstick and repelling properties. They have a special type of bond called carbon-fluorine, one of the strongest bonds in chemistry. This explains why PFAS do not degrade easily in the environment and human body and instead tend to accumulate. Within usage and production, they migrate into soil, water and air. Long-term PFAS use has resulted in at least 45% of US drinking water supplies containing traces of these forever chemicals.  

Illustration/map showing Per- and Polyfluoroalkyl Substances (PFAS) in Select U.S. Tapwater Locations

The widespread contamination of US drinking water led the Environmental Protection Agency (EPA) to propose new limits of four parts per million, a drastic reduction compared to the limits set back in 2016 of 70 parts per million.  

For visualization purposes, four parts per million would be equivalent to a grain of sand in a football field! 

Though these limits have not yet been approved, many municipalities around the US have started testing their drinking water supplies. If the limits do become the standard, all municipalities will need to begin regularly testing their water supplies within three years from the adoption of the law.  

The clean up of PFAS is an expensive overhang for water utilities, especially because of the age of the infrastructure. Some US water treatment facilities are over 100 years old. The American Water Works Association, an international nonprofit founded in 1881 and dedicated to providing total water solutions assuring effective water management, estimates that PFAS clean up will cost between $2.5 and $3.2 billion annually for the next decade. 

Many companies currently have treatment technologies to facilitate the cleaning up of chemicals in water supplies. The three most widely adopted ones are activated carbon, ion exchange treatment and high-pressure membranes.  

Activated carbon is a porous element derived from organic materials that have high carbon content, such as wood, lignite and coal. It can trap various compounds including certain types of PFAS. The activated carbon is used as a filter through which water flows and the chemicals are captured. The activated carbon within the filters needs to be replaced every 6 to12 months depending on the frequency of use, volumes of water filtered and PFAS concentration.  

Ion exchange treatment involves resins. These resins are made of porous materials with positively charged ions. The negatively charged ions of the PFAS are attracted to the positively charged ions acting as magnets. This resin is then discarded typically through incineration, thus ensuring no further contamination occurs. 

High-pressure membranes such as nanofiltration use nanometer-sized holes or pores to trap particles. This technique is highly effective but also requires that the membranes be changed every few years.  

One of our companies, Kurita Water (6370 JP), is a leading water treatment company that manufactures and sells speciality equipment. The company operates throughout the world, but is focusing growth plans in the US market. Since 2015, the company has been acquiring in the US, EU, Korea, Canada and the Middle East to increase its global footprint.  

Due to the increasing regulations among public water supplies authorities and emerging concerns about contaminants, many clients are turning to Kurita for its expertise and speciality treatment facilities to address these concerns and adhere to regulations. 

Kurita is able to provide a large breadth of solutions to its clients. It offers both on-site and remote planning and support as most water systems are customized to customer specifications. For PFAS treatment, Kurita provides all three technologies mentioned.  

As PFAS regulations become more stringent, Kurita is poised to benefit from the vast adoption of advanced water treatment facilities. 

Oil pumpjacks in silhouette at sunset.

Much of the initial spike in inflation that the Federal Reserve (the Fed) is now working so hard to curb came from strong energy prices. After WTI crude crossed $120 a barrel, energy prices are back in the $70 range. Today’s bear case for oil is widely discussed – from an impending recession to China’s tepid economic rebound and the eventual transition to EV vehicles. These are sensible arguments, but the oil and gas industry has undergone some structural changes. The seeds of these changes can be traced back to the last big run up in oil prices in 2008 when oil peaked at close to $140 a barrel.

After the demand-driven boom that peaked in 2008, encouraged by the recent high prices oil, drillers in the US began exploring ways to reach previously untouchable deposits using fracking and horizontal drilling. While fracking and horizontal drilling had been around since 1998, the spike in oil prices incentivized US producers to leverage this technology. The result was a shale boom with US production that had been in terminal decline since the 1960s, doubling from about five million barrels per day in 2008 to 10 million per day over the next 10 years.

Line graph illustrating growth in US field production of crude oil, 1920 to today.

With OPEC unwilling to cede market share to a new generation of American drillers, elevated rates of supply eventually led to a fall in prices in 2014-15. In retrospect, this marked the beginning of the end of the US shale boom. Then came the one-two punch of slowing demand from China (the largest driver of incremental demand for oil) and COVID-related lockdowns that caused oil prices to hit lows of $20 per barrel in 2020 after a brief reprieve in 2018-19.

The two price shocks that occurred over a short period led to two changes in behaviour that we think has structurally changed the industry.

  • First, a new base of conservative investors replaced the more growth-oriented cohort from the shale boom. The new investor base now pushed for an end to risky new projects, instead focusing on debt reduction and returning excess cash in the form of buybacks and dividends.
  • Second, taking a cue from their investor base, management of companies that survived this boom-bust cycle vowed to be conservative with their capital expenditure programs and promised to divert their future capex to more renewable projects.

In the past, for every dollar of dividends and buybacks, oil companies would reinvest $3 to $4 back in the business. Now as we can see in the following chart, every $1 of reinvestment is matched by $1 of buybacks and dividends.

Bar graph illustrating decline in level of share buybacks by oil companies since 2008.

The result of this structural change in the market is that big oil producers will continue to be conservative with projects that take a decade or more to earn returns on investment. We are now in a situation where supply is tight due to both long-term factors, such as limited new exploration projects, and short-term factors like replenishment of the Strategic Petroleum Reserve (SPR) by the US, increasing from current levels of 350 million barrels to 650 million barrels. Adding to this, OPEC has committed to restricting supply until the end of 2023 by cutting 1.16 million barrels per day.

On the demand side, we are seeing record demand in 2023 at 101.9 million barrels per day, an increase of two million barrels from last year. While we anticipate an eventual transition away from oil, the combination of tight supply and persistent rising demand could lead to a messy transition with price spikes near-term volatility.

We think this new normal allows small and nimble players to quickly respond to a stronger pricing environment with ramped up spending. A good example of such a player is Parex Resources (PXT CN), which is part of our emerging markets portfolio.

Parex is the largest independent oil and gas exploration company in Colombia sitting on over 200 million barrels of reserves and exploration opportunities. In 2023, it added 18 new blocks and expanded its exploration land by four million acres over the last five years. Currently, it produces 60,000 barrels of oil equivalent (BOE) per day and its production has grown at an 8% CAGR over the last five years, as seen in the following chart. Absolute proved developed producing (PDP) reserves have registered a 10% CAGR over the same period.

Consistent growth in oil production (barrels per day)

Bar graph illustrating growth in CAGR of Parex Resources, 2013 to 2022.

If we were to sum up our thesis on Parex, it would be capital efficiency with best-in-class execution. All of this in a country that has faced its fair share of curveballs with natural disasters, political uncertainty and infrastructure bottlenecks. To elaborate further:

  • We like Parex’s transition from a single-asset operator to a countrywide operation, with new asset acquisitions and an MOU with state giant EcoPetrol.
  • This had led to product diversity, moving from heavy oil to adding light oil, gas and condensates.
  • Parex has a track record of using of proven exploration technologies from the West to tap into easy-to-produce reservoirs with low risk.
  • We appreciate the management team’s commitment to adding shareholder value while maintaining strict cost control.
  • Finally, Parex has shown consistent growth that has been self-funded, with zero debt on the balance sheet.

Parex has maintained a simple and consistent capital allocation framework. A full two-thirds of its funds from operations are reinvested into the business, while the remaining one-third is returned to shareholders. As seen in the chart below, Parex has reduced its free float of shares by 33% over last five years and returned $1.3 billion back to shareholders. In 2021, it announced a dividend policy to further reward shareholders, with the company offering a 5% dividend yield at current prices.

33% reduction in shares outstanding

Bar graph illustrating 33% reduction in free float of Parex Resources shares since 2017.

Parex also scores well on our ESG framework. It has reduced GHG intensity by 43% since 2019, linked executive compensation to ESG metrics and has a diverse and independent board. With a low cash cost, Parex has performed well even at today’s subdued oil prices. If a sustained period of high oil prices does materialize as we anticipate, we expect Parex to continue delivering shareholder value from a position of strength.

As Pride Month draws to a close, the CC&L Foundation and employees successfully raised $13,200 for Rainbow Railroad. Throughout June, CC&L Financial Group and its affiliates actively championed the cause of LGBTQ+ individuals, demonstrating our support for their safety and right to live authentically regardless of geographic boundaries.  

We encourage individuals and organizations alike to continue supporting LGBTQ+ equality. By amplifying voices, providing resources and advocating for change, we can collectively work towards building a society that celebrates the rights and identities of all people, irrespective of their sexual orientation or gender identity. 

About Rainbow Railroad 

Rainbow Railroad is a renowned Canadian organization dedicated to assisting LGBTQ+ individuals worldwide who face violence, persecution or discrimination based on their sexual orientation or gender identity. Through a network of volunteers and partners, Rainbow Railroad provides vital resources, support and safe travel options, enabling LGBTQ+ individuals to escape oppressive environments and rebuild their lives with dignity and freedom. Learn more about this important work at

Rainbow Railroad logo

Earlier this month, we attended a conference in San Francisco that focused on various carbon removal technologies, including direct air capture, land-based carbon removal and enhanced mineralization. The conference had over 650 participants, with 130 of them being corporates from both private and public companies that are working toward reducing carbon emissions. The number of start ups in this space has grown exponentially in the last couple of years and the United States is becoming a leading global carbon capture centre.

The Inflation Reduction Act (IRA), passed in August 2022, has created favourable conditions for carbon capture technology deployment in the U.S. The most notable provision is the 45Q tax credit for CO2 storage, which aims to promote carbon capture utilization and storage (CCUS).Companies providing direct air capture technologies have grown from only three start ups a couple of years ago to over 60 today. One of the reasons for this is the attractive credit of US$130 per tonne of CO2 captured and stored.

We also learned more about the Department of Energy’s Loan Programs Office (LPO), which grants debt capital to companies providing clean energy services and infrastructure. Over the last decade, this office has already issued over US$38 billion, with billions more available for future funding. The LPO is focused on providing capital in three main areas:

  1. Title 17 Clean Energy Loan Program to accelerate the commercial deployment of innovative energy technologies.
  2. Advanced Technology Vehicles Manufacturing Direct Loan Program to promote local manufacturing of more fuel-efficient and clean vehicles.
  3. Tribal Energy Loan Guarantee Program to support the investments into energy projects for federally recognized tribes.

Many companies that will benefit from the IRA are also eligible to receive additional debt financing if they meet any of the LPO’s three programs, unlocking capital to deploy into clean technologies. With the amount of capital pouring into clean energy sectors, it is definitely an exciting time to follow the sector.

Although carbon capture is a difficult area to gain exposure to in public markets, there are a few public companies that have internally incubated such technologies. One such company is Advantage Energy Ltd. (AAV CN), which we currently own and had the opportunity to meet at the conference. Advantage is an Alberta-based natural gas and light oil producer that has started a subsidiary clean-tech company, Entropy, providing modular carbon capture and storage technology. Advantage owns 85% of Entropy, with Brookfield Renewable being the other strategic owner.

Entropy’s carbon capture technology is already in operation at Advantage’s Glacier Gas Plant and has a capture rate of 90% to 95% of post-combustion flue gas. With the addition of the technology, Advantage’s carbon emissions at that specific plant have fallen by about 15%, resulting in a CO2 savings of about 47,000 tonnes annually. This helps make the company one of the lowest emission intense producers compared to its peers.

The carbon capture process involves capturing the CO2 from the flue gas stream emitted by the plant, processing it by scrubbing it with a chemical solvent and then storing the captured CO2 permanently deep underground. The process is illustrated in the figure below.

The post-combustion carbon capture technology is a strategic advantage for Entropy and the company is a key asset for Advantage Energy. Currently, there are only two operating post-combustion carbon capture projects in the world. The post-combustion technology can be retrofitted to existing energy-generating assets, which is the market the company aims to serve through its capital-light licence and support model, in addition to developing, owning and operating carbon capture units. Moreover, Entropy uses its proprietary solvent called Entropy23 that allows for lower input and operating costs due to its superior chemistry developed in-house. 

Currently, Entropy is benefiting from Canada’s investment tax credit of 50% for carbon capture equipment, but it is also expanding its team to focus its commercial efforts in the U.S. to benefit from the IRA. Recently, the company announced a first memorandum of understanding with California Resources Corporation, in which Entropy will provide technology, engineering and development services to decarbonize gas-fired boilers, avoiding about 400,000 tonnes of carbon annually. 

Aurubis AG (NDA GY), Europe’s largest copper producer and the world’s largest copper recycler is worth mentioning for its commitment to reducing its carbon footprint. Copper smelting is a heavy emitting activity but critical for the energy transition as we have highlighted in a previous note. The company has set Science-Based Targets with a goal of 1.5-degree alignment by 2030 and is piloting the use of blue ammonia in its production process for copper rods at its Hamburg facility. The carbon dioxide by-product from blue ammonia production is captured and stored underground. If successful, Aurubis will permanently switch to blue ammonia, potentially saving 4,000 tonnes of CO2 annually.

The opportunities in the carbon capture space are extremely attractive, with both policy and capital driving growth. We are confident that Advantage and Aurubis will benefit from them in the future while providing critical technology in helping it and other companies achieve net-zero goals.

Photo of the CC&L Private Capital team in Edmonton volunteering at Home for Dinner nights

Each year, the CC&L Foundation supports numerous not-for-profit organizations across Canada in support of:

  • promoting a better environment;
  • improving education;
  • advancing science and medicine;
  • creating stronger communities; and
  • encouraging the arts.

In particular, it aims to support organizations in which our employees or partners have a personal connection and have made financial or time commitments.

CC&L Foundation commits $125,000 to Ronald McDonald House Charities Alberta

In 2022, the CC&L Foundation committed $125,000 to Ronald McDonald House Charities Alberta. The Ronald McDonald House supports families who need to travel while seeking vital medical treatment for their seriously sick or injured child. They provide a home-away-from-home when those families are experiencing one of life’s most difficult times. Each year, thousands of families will stay at one of the four Ronald McDonald houses in Alberta, and stays can last anywhere from a few nights to several months.

Currently, Ronald McDonald Houses are only able to serve 14% of those who need to travel for pediatric care within Alberta. This results in some families being turned away to make their own arrangements, sometimes resulting in keeping families away from their children. To expand capacity and assist in meeting the high demand, Ronald McDonald Houses are in the process of doubling their capacity in Edmonton and Calgary. The CC&L Foundation’s donation is contributing to these expansion projects.

CC&L Private Capital volunteers at Home for Dinner

Jim Kapeluck is a Wealth Advisor with our CC&L Private Capital team in Edmonton. Earlier this year, Jim and the local team volunteered at one of the Ronald McDonald ‘Home for Dinner’ nights. The team prepared and served meals to families in need.

Find out more about the work of the CC&L Foundation.

Volunteer in orange vest gives a box of food donation to fleeing refugees from Ukraine.

The ongoing conflict in Ukraine has displaced over 12 million Ukrainians, with many seeking refuge in neighbouring countries and beyond. The CC&L Foundation has stepped up to provide vital humanitarian aid. Through two successful fundraising campaigns, the Foundation has raised $409,000 in support of eleven organizations such as Help Us Help and the Canada-Ukraine Foundation.

The impact of these funds has been far reaching, including:

  • Delivery of food boxes to almost 1 million people in 21 oblasts
  • Provision of bulletproof vests, food, shelter and assistance in relocating families
  • War Trauma Therapy program started for 9,900 children
  • Purchase of 1,000 new firefighting sets of personal equipment
  • Re-launch of the Canada-Ukraine Surgical Aid Program
  • Delivery of supplies and medicine to 78 hospitals across Ukraine
  • Delivery of 140 metric tons of buckwheat seeds for harvest in October, providing much-needed food security

The Foundation’s efforts have also extended to the Ukrainian-Canadian community, with the Displaced Ukrainians Appeal funding over 1,000 displaced children to attend summer camps in Canada.

Through its various charitable initiatives and the dedication of volunteers, the CC&L Foundation continues to make a positive impact in the lives of Ukrainians affected by the conflict, providing necessary help and hope for a better tomorrow.

Learn more about the work of the CC&L Foundation.