Oil Prices and its Effect on Calgary

[gladaki]

Most of the big financial groups are betting low price of oil in future.
If Intermediate is near $85 per barrel, and a $90 for Brent how much should we expect for canada oil ?...

Also Will it affect the Calgary housing market ?

Recent articles
Forget the loonie, Canadians, and worry about oil instead on Globe and Mail

http://www.cnbc.com/id/101335686

Thought it will be a interesting discussion.

Thanks

[Handsome B. Wonderful]

Are you new to Calgary or something? $85 oil is a non-story.

[oilyfan]

http://www.theglobeandmail.com/globe...shboard/alerts

While many of the problems remain unresolved, today there’s a new sense of optimism in the oil patch and profits are on the rise. The drop in the Canadian dollar has been a big contributor to the bottom line since oil and gas sales are in U.S. currency. But there’s more to the story. The price differential for Western Canada Select crude has narrowed significantly. The bitter winter was a boon for natural gas producers, pushing prices up by more than 70 per cent. Although the Keystone XL pipeline remains stalled by U.S. politics, oil producers have found other ways to move product to market including a big increase in rail shipments.

[gladaki]

Originally Posted by Handsome B. Wonderful

Are you new to Calgary or something? $85 oil is a non-story.

Nope. I am not new. I know about these up and down. But my question is more related to housing market and oil prices. Houses prices started going up from 2006 when cost of Canadian oil goes went up by 58%. if Future Canadian oil trade for 70 how it will effect housing market.

US landed cost of Canadian oil
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
26.69 20.72 22.98 26.76 34.51 34.73 53.90 60.38 90.00 57.60

2011 2012 2013 2014
72.80 89.92 84.24 84.46

[gladaki]

Originally Posted by oilyfan

http://www.theglobeandmail.com/globe...shboard/alerts

Thank you for sharing it.

[GaiJin]

The question is, what is our break even pricing on our current production in Alberta? Most of our production seems to be oilsands based now, which is more expensive that conventional recovery. Oil can be high, but not high enough for our production to make decent returns, and that will affect the Calgary economy as it has in the past. If the Americans bring on a large supply of cheap to produce oil, the world price could remain high, but production will shift to the American fields for profiteering, and investment/spending will suffer here, and I think we are already starting to see that.
Personally, I think its a good thing to happen every once in awhile. It brings everyone back to a more grounded economic reality, it teaches a generation to live below its means, and puts overspending politicians out the door.

[oilyfan]

Where are you getting that the Americans have cheap to produce oil? All new production coming on in the US is shale or tight oil, that is not cheap by a long shot. Break even for a lot of that oil is close to $90, combined with high decline rates.

Canadian oil, while not cheap, is hobbled mostly by the tranortation spread. But companies have already made a lot of other plans to get oil to the coasts.

While the decline in oil prices might hurt the oil patch, it's nothing like going down to $50 or south of that.

[GGG]

A bigger concern might be the natural gas price. Gas is one of the main operating inputs into SAGD and mining operations so the spread between gas and oil greatly affects profitability.

[GaiJin]

Originally Posted by oilyfan

Where are you getting that the Americans have cheap to produce oil? All new production coming on in the US is shale or tight oil, that is not cheap by a long shot. Break even for a lot of that oil is close to $90, combined with high decline rates.

Canadian oil, while not cheap, is hobbled mostly by the tranortation spread. But companies have already made a lot of other plans to get oil to the coasts.

While the decline in oil prices might hurt the oil patch, it's nothing like going down to $50 or south of that.

http://www.albertaoilmagazine.com/20...-to-oil-sands/

[oilyfan]

That article confuses me because, despite it's headline, nowhere does it say how shale oil is cheaper to produce than oilsands.

This article is clearer. http://http://mobile.bloomberg.com/n...ale-costs.html

[lorenavedon]

shale oil isn't cheap, the US is recovering a lot less than originally though, Canada is 1st on a list of many that the US imports oil from. While more expensive, there is no replacement for the political stability and national security factors involved in making sure Canada keeps oil production high and ships it down south.

[Hack&Lube]

Originally Posted by GGG

A bigger concern might be the natural gas price. Gas is one of the main operating inputs into SAGD and mining operations so the spread between gas and oil greatly affects profitability.

A lot of SAGD companies were also gas producers which wound down gas production when prices were too low. If gas prices increase, they can spin it back up to offset this problem.

[DownhillGoat]

Originally Posted by GaiJin

The question is, what is our break even pricing on our current production in Alberta?

Sub-$20/barrel.

[DownhillGoat]

Originally Posted by fotze

Ya, weird thread. I have a field where it is $8, another at $24. Varies hugely.

I just kinda threw an average out there. Most of the big companies can still make money at $20, but you're right, it varies from place to place.

[ThePrince]

Originally Posted by fotze

Ya, weird thread. I have a field where it is $8, another at $24. Varies hugely.

Where the hell is your OPEX and royalties less than $8??

[GGG]

Anything old is low cost. To make investment returns economical on new contruction you need high 50s long term.

[Barnes]

That's cheaper than a six pack of Pilsner.

[ThePrince]

Originally Posted by fotze

Sask.

Oh so wait a couple years until the royalty holidays run out, then you're not going to be close to $8.

[peter12]

Originally Posted by Barnes

That's cheaper than a six pack of Pilsner.

This is excellent.

[Cowboy89]

Breakeven prices and opex aren't really good barometers of oil price impact on the Alberta / Calgary economy. What's drives the economy is investment in future projects. New development hires and employs a lot more people than operating. Ideally a healthy oil patch economy has growing operations and new development spending to keep people working. Oil prices on the margin are what drives this spending. So if the forward strip pricing moves up, company's might anticipate new wells and new projects being more profitable and it will likely lead to increased spending, the opposite is true for lower prices.

If oil prices dropped into the 70s on an on-going basis it very well could lead to a local recession despite much lower break-even costs on existing producing assets. Reason being is new projects being delayed or cancelled and the ensuring layoffs of the many layers of people involved in new development.