The glow is off the boom. Time to move.

[photon]

Originally Posted by Biff

No....I'm not going to write another economic dissertation. There is one thing, and one thing only, which can derail Alberta's economy at this point. As long as Oil stays above $50/barrel the Alberta economy will continue to grow. Labour costs, housing availability, infrastructure challenges, real estate costs, simply don't exert enough of a dampening effect against the revenue momentum of our Oil-driven economy.

In fact, I would guess that Oil could move to as low as $30/barrel before it would trigger a recession cycle in Alberta. As long as Oil stays where it is, and God help us as it advances as expected, the Alberta economy as a whole will only fluctuate between strong growth and super-heated growth. It's literally a case of the irresistable economic force.

Interesting, where are you getting those numbers of $50 and $30 a barrel?

[Dion]

Originally Posted by McG

Well, I am in IT and I disagree with this article.

We have never been busier, never been looking for more people, and never had more work. And others in my industry agree with me.

yes, things have to slow down. or they could speed up.

I have zero problem with this growth or the revenues in this province.

how could anyone be unhappy with opportunity?

How about those people on permanent disabilities like AISH and CPP? Should they be happy that they can no longer afford the rent increases?

I'm happy that you're doing so well and thriving in this economy. Not everyone is benefiting from the Alberta advantage.

[CrusaderPi]

Originally Posted by Dion

How about those people on permanent disabilities like AISH and CPP? Should they be happy that they can no longer afford the rent increases?

I'm happy that you're doing so well and thriving in this economy. Not everyone is benefiting from the Alberta advantage.

Ahhh damn . You cause a river of tears in my basement. And this damn world's smallest violin won't stop.

Tell me, under what set of economic conditions to fixed income people do well?

[Biff]

Originally Posted by photon

Interesting, where are you getting those numbers of $50 and $30 a barrel?

http://www.vivelecanada.ca/article.p...70526122247132 is an article that breaks down some of the oil money margins. It quotes an Oil Sands Discovery Centre number of $13.21 production costs per barrel of oil. I'm assuming a 10 - 15% target price safety margin for most exploration / recovery / infrastructure projects. i.e. If Oil is currently at $60/bbl, then prices could fall 6-9 dollars before much would change in terms of going forward with Oilfield projects. Hence the $50.00 price point. With production costs at $13.21, a $30.00 / bbl price still gives decent return BUT I would expect the industry would be getting pretty nervous about anything that might increase their costs and would, consequently, likely severely limit their activities and even mothball existing projects and rig activity. This would result in layoffs and changes in the investment climate and could trigger recession.

Given the spread between production costs and revenue per barrel, I would think I'm probably pessimistic about where the first blink level is set. For all I know, exploration and infrastructure may be tied to a target price much lower than $50/bbl. Needless to say, Oil at $60.00/bbl and above is virtually a license to print money and, IMO, there just ain't much of anything gonna stop this train. Interestingly, commentary on the loonie's strength against the greenback, in many sources, talks about how the dollar is being fueled by incredibly strong commodities....chief amongst which is oil. In terms of total economic impact, over time, think Saudi Arabia / Brunei. It makes the previous Oil booms seem like pop guns.

[photon]

Originally Posted by Biff

http://www.vivelecanada.ca/article.p...70526122247132 is an article that breaks down some of the oil money margins.

Nice post, and thanks for the link. That jives with other things I've read from Shell and others that have said as long as they're around $18 and $25 a barrel (depending on who's talking) then they're ok.. As you say if it did go down that low it would definately have a big impact, at the very least pushing out their timelines for new developments.

[Flames in 07]

Originally Posted by photon

Nice post, and thanks for the link. That jives with other things I've read from Shell and others that have said as long as they're around $18 and $25 a barrel (depending on who's talking) then they're ok.. As you say if it did go down that low it would definately have a big impact, at the very least pushing out their timelines for new developments.

Funny you say that, I believe one of the major projects said that they get their target return at 18 WTI. However a couple very important points

Those economics were in a different day with a different cost structure. Now these projects are much more expensive to run, however a long run price of $25 would work, if the price went down, in the long run so would all the costs.

The other thing is that many projects in N AB don't produce a WTI grade. They produce a WCSish grade after some upgrading. WCS prices at about TI less 20 nowadays but in a 25 dollar world probably more like 6 to 8. Therefore these companies don't get TI netbacks, they get something much smaller. However a few years from now when pipeline capacity is rightsized for the level of production we have that WCS discount will decrease significantly. Like from 20 to 8 or 9, so nothing but sunny skies ahead for producers.

[Flames in 07]

Originally Posted by Biff

http://www.vivelecanada.ca/article.p...70526122247132 is an article that breaks down some of the oil money margins. It quotes an Oil Sands Discovery Centre number of $13.21 production costs per barrel of oil. I'm assuming a 10 - 15% target price safety margin for most exploration / recovery / infrastructure projects. i.e. If Oil is currently at $60/bbl, then prices could fall 6-9 dollars before much would change in terms of going forward with Oilfield projects. Hence the $50.00 price point. With production costs at $13.21, a $30.00 / bbl price still gives decent return BUT I would expect the industry would be getting pretty nervous about anything that might increase their costs and would, consequently, likely severely limit their activities and even mothball existing projects and rig activity. This would result in layoffs and changes in the investment climate and could trigger recession.



Given the spread between production costs and revenue per barrel, I would think I'm probably pessimistic about where the first blink level is set. For all I know, exploration and infrastructure may be tied to a target price much lower than $50/bbl. Needless to say, Oil at $60.00/bbl and above is virtually a license to print money and, IMO, there just ain't much of anything gonna stop this train. Interestingly, commentary on the loonie's strength against the greenback, in many sources, talks about how the dollar is being fueled by incredibly strong commodities....chief amongst which is oil. In terms of total economic impact, over time, think Saudi Arabia / Brunei. It makes the previous Oil booms seem like pop guns.

A few years ago in Brunei I believe one of hte year end perks to its citizens was that all mortgages would be taken care of by the govt.

[OracleOfCalgary]

I heard from a client in the drilling business that rig hands are leaving the oil biz to try to work as framers and construction labourers etc.. Something is wrong with that equation. If oil were driving the current economy the flow of labour should be in the other direction.

[Flames in 07]

Originally Posted by OracleOfCalgary

I heard from a client in the drilling business that rig hands are leaving the oil biz to try to work as framers and construction labourers etc.. Something is wrong with that equation. If oil were driving the current economy the flow of labour should be in the other direction.

Maybe a little less stress and better hours, not sure, but ya in the long run the dog should wag the tail, not the other way around.

However I think you need to consider if your contact knows a representative sample of people, there is probably chrun between both industries.

[Azure]

You can get a VERY good paying job in the construction industry...with better hours and everything. Maybe thats why they're leaving.

I know a lot of people who have moved to Calgary in the last 5 years, and the majority go to the rigs for 6 months, quit, and get into construction. 2 of them have their own companies now.

[BlackArcher101]

Originally Posted by OracleOfCalgary

I heard from a client in the drilling business that rig hands are leaving the oil biz to try to work as framers and construction labourers etc.. Something is wrong with that equation. If oil were driving the current economy the flow of labour should be in the other direction.

That happens every year at this time and isn't really a state of the econonmy.

[I-Hate-Hulse]

Originally Posted by OracleOfCalgary

I heard from a client in the drilling business that rig hands are leaving the oil biz to try to work as framers and construction labourers etc.. Something is wrong with that equation. If oil were driving the current economy the flow of labour should be in the other direction.

Anyone that thinks Alberta is still going gangbusters needs to get into the field. Rig servicing fleets are at about 60-70% utilization right now, and I don't think drilling rigs are much better. Go by the Trican yard by the new SPCA, it's jam packed with idle trucks. I've also heard CBM is quiet.

Everyone's banking on a strong fall comeback but if it doesn't.... I think we'll see something not heard of in a while... layoffs.

While places like Regina might be booming, it's without fundamentals. I'd hate to be holding the bag when the music stops...

[Flames in 07]

Originally Posted by I-Hate-Hulse

Anyone that thinks Alberta is still going gangbusters needs to get into the field. Rig servicing fleets are at about 60-70% utilization right now, and I don't think drilling rigs are much better. Go by the Trican yard by the new SPCA, it's jam packed with idle trucks. I've also heard CBM is quiet.

Everyone's banking on a strong fall comeback but if it doesn't.... I think we'll see something not heard of in a while... layoffs.

While places like Regina might be booming, it's without fundamentals. I'd hate to be holding the bag when the music stops...

Not sure if you are suggesting that Cgy growth is without fundamentals, but in case you are:

WTI average for May07: $63.50. No need to research fundamentals any further.

rig rates need to come down, and worker salaries will have to come down. But I can think of few things that are more insane than the fundamentals for growth in Calgary are not there.

If you are referring to Regina, or anywhere else in Sask, I agree, their houseing costs will come down as the Cgy market flattens out.

Overall I'd guess that house values in Cgy in the burbs can only grow at a modest rate, however high end homes and or centrally located residence have a fair amount of room yet.

[Biff]

I believe the comment was that Saskatchewan may not have the fundamentals to sustain the current jump in housing prices. I'd have to agree. I think being left holding the bag / without a seat when the music stops sums up my feelings exactly. At some point, the Saskatchewan market is going to ask the question "Why are we paying these prices" and there isn't going to be a good answer.

[guzzy]

Originally Posted by OracleOfCalgary

I heard from a client in the drilling business that rig hands are leaving the oil biz to try to work as framers and construction labourers etc.. Something is wrong with that equation. If oil were driving the current economy the flow of labour should be in the other direction.

Not to sound ignorant, but a lot of rig hands (some not all) are those with very few or at the very least, less skills. They are often just laborers. If unskilled or less skilled people are making great money as rig hands it is often easier for them to take less money to work at home doing general labor like framing etc. They can stay home and still put in 60 hour weeks for a few dollars less an hour and provide very well for their families. I know if I was a laborer I would want to be close to my family not in a camp or a cheap hotel with a bunch of men. I don't see anything wrong with the equation at all. The flow of labour will almost always be spread out and sometimes away from the oil because most can make good money at home. There will always be a labor shortage up north until the economy takes a down turn. Then there won't be high paying laborer jobs in the cities so people will have no choice but to go work the rigs and laborer jobs up north, and possibly start getting their trade papers from production companies up north.

[Flames in 07]

Originally Posted by Biff

I believe the comment was that Saskatchewan may not have the fundamentals to sustain the current jump in housing prices. I'd have to agree. I think being left holding the bag / without a seat when the music stops sums up my feelings exactly. At some point, the Saskatchewan market is going to ask the question "Why are we paying these prices" and there isn't going to be a good answer.

the only fundamental right now is people who have made their money in AB and it is time to go home. There are only so many of those kind of people.

[BlackArcher101]

Originally Posted by I-Hate-Hulse

Anyone that thinks Alberta is still going gangbusters needs to get into the field. Rig servicing fleets are at about 60-70% utilization right now, and I don't think drilling rigs are much better. Go by the Trican yard by the new SPCA, it's jam packed with idle trucks. I've also heard CBM is quiet.

Everyone's banking on a strong fall comeback but if it doesn't.... I think we'll see something not heard of in a while... layoffs.

While places like Regina might be booming, it's without fundamentals. I'd hate to be holding the bag when the music stops...

There already are layoffs. I don't see it picking up enough in the Fall to overcome this summers (& last winters) slump. It's too pricey drilling new holes in Alberta now. Either companies lower prices (and layoff people) to lower costs, or you will see more companies place focus elsewhere, especially the USA, sask, BC.

I know of a few companies that had there market based entirely in Alberta, and are now providing elsewhere, even overseas.

[McG]

Originally Posted by oilers_fan

People who are in rental situations are in tough spots right now. This one guy I work with has two kids, and a wife who is disabled and doesn't work. He moved out of his 700 dollar a month apartment last year, and into a house for 900 a month because it was better for his family. Now the owner is selling the house, and he's looking at renting an apartment for around 1400 a month. On a take home salary of 2000 a month, that's below the poverty level.

This economy is all well and good for people with good paying jobs, or no mortgage, but for some, it's hell. I've said it on here before and I'm not looking to complain, but I'm not long for this province anymore because it doesn't make economic sense for me to stay.

there is nothing that can be disagreed with here. it is really tough when you have the numbers that you put up...i agree with you.

realistically speaking as well, when jobs are tough to find it doesn't matter what the rent is either.

for me though...it is amazing that people are taking 40 or 50 year mortgages as well. but people do what people have to do i guess.

[McG]

Originally Posted by OracleOfCalgary

In 1990, the Globe and Mail's Career section would typically have 5 pages of IT jobs in Toronto. In 1991, there wasn't even half a page.

In 2000, you could get a good job in Vancouver if you knew how to spell "Java." In 2002, you couldn't even get a volunteer position writing Java.

Things can change very fast, my friend... don't be too c ocky.

i'm not c ocky in the slightest. i am simply stating the facts as i know them with respect to Alberta today. I cannot find qualified IT people for the work that the company that i work for could do. that's the fact i live with. i don't mind that one bit as it is a good opportunity for my team to learn, train, and stretch their skills.

i have been through the NEP, through the high and low points of IT in Vancouver and Calgary, and through a number of recessions/slowdowns. Alberta will slow down at some point, and it will speed up at some point.

Growth is neither good nor bad...its just growth. its an economic indicator drawn from a number of variables.

but i agree with other posters on this thread about the price of oil and gas. the current price is an indicator...sure.

but the real question for alberta is about the long term, likely price of a barrel of oil. i don't think it is $65 or $20. is it $40? and if it is $40...what does that long term price look like for alberta?

[JD]

Being in the service industry myself, I can attest to the fact that whatever boom was taking place is no longer a part of the oilpatch. Our utilization rates are low, in fact, much lower than predicted. Q1 revenue was about half of what was predicted. Layoffs have happened twice in the past 3 months in my company. Office staff too (engineers, sales), not just field workers. Salaries have been frozen and bonuses aren't being awarded.

Our sales dept has been working hard to find out what the operators' price point is... they all want lower costs as fotze points out, but we're trying to figure out how low we need to be, it's murky right now! Certainly an environment of tough competition among the service companies has been created... night and day from 2 years ago.

However, construction is still booming in Calgary, and that sucks for us because we're competing with that industry for supplies such as cement and related chemicals.

Calgary's still a really strong economy, but things are starting to show a bit of a slowdown for all.