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Originally Posted by Corral
O&G is hardly laissez faire here. If it truly were, the oil sands would be a fraction of its size. Government subsidies royalty breaks and other incentives fueled the boom post 1995 which now faces a transportation problem. True market economics would have factored in the risks but we all know externalities get overlooked when short term thinking is rosy.
Its really the privatize the gains socialize the losses ideology that turns me off. Just look at Fort Mac. For all the money generated up there, that town still looks like the 70s. Reap the wealth and let social and environment costs fall elsewhere. Thats big oil for you.
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One of the exercises I've been doing at our fund the last few months was looking where in the O&G supply chain you can actually make a return. Its abysmal in the E&Ps, the services, the refiners, and the retailers. The only guys that are investible are the infrastructure, the banks that finance it (if you want a diluted take) or if you're a decent credit analyst maybe the debt.
Its been like that for years...basically the majority of Canadian oil and gas is a food program, paying salaries, paying off debt, and returning nothing to shareholders. This has gone on for years and years. Like you mentioned, the whole thing is over banked, over subsidized and over capitalized. There is a future for oil and gas, but its smaller, more efficient, and focused on profitability, not unbridled growth. That's frustrating to hear I'm sure, as it means job losses, but its not just Quebec and BC holding folks down, you need less people to bring a well on these days and operate it, and its capital intensive the way they're doing it, so costs have to be cut further.
This story is being repeated outside of Canada as well. Add the political layer of not wanting fossil fuels and its a nightmare.
Also if you look around the world you can design away from fossil fuels and electrify, that will take time, but I can tell you now that an Australian home has a different energy bill profile to a Canadian one, but they'd match up nicely with electric furnaces in Canada instead of NG.