Ed Stemlach is on Channel 52

[photon]

From an economic point of view, there's what, $150billion of committed money just into oil sands development in the next 15 or so years. Does this $1.4 billion really amount to that much of an impact?

Maybe just spreading things out more and slowing things down (which is good, not bad)?

[Slava]

Originally Posted by photon

From an economic point of view, there's what, $150billion of committed money just into oil sands development in the next 15 or so years. Does this $1.4 billion really amount to that much of an impact?

Maybe just spreading things out more and slowing things down (which is good, not bad)?

Well the growth can't go at the pace that it has forever. Eventually we need the growth to slow and become more manageable. If the royalty increase causes that, I think its a good thing. When business cannot get employees, and employees cannot find places to live the growth is too much, too soon.

When the growth is more manageable we'll just collect more in royalties with a better plan....and that is a good thing.

[vodafone_b]

Originally Posted by Slava

Well the growth can't go at the pace that it has forever. Eventually we need the growth to slow and become more manageable. If the royalty increase causes that, I think its a good thing. When business cannot get employees, and employees cannot find places to live the growth is too much, too soon.

When the growth is more manageable we'll just collect more in royalties with a better plan....and that is a good thing.

Yes, that is true sustaining the growth is very imporant. But has anyone thought about the possibility that, what if Oil is no longer the main stream of resources in the world? What if 10 years down the road an alternate fuel replaces Oil? People often overlook this fact, that technology is often advancing at such a quick pace that, replacing an existing technology/resources takes a matter of second.. if an alternate fuel comes along and replace oil, what is the use of all the oil we are saving for now?

looking back, this is just like the spermwhale oil back in the 1800s. People thought the whale oil is going to the main commodity for a long time, oil prices were at an all time high, until someone struck crude oil. and thats the oil we have today.

[Slava]

Originally Posted by vodafone_b

Yes, that is true sustaining the growth is very imporant. But has anyone thought about the possibility that, what if Oil is no longer the main stream of resources in the world? What if 10 years down the road an alternate fuel replaces Oil? People often overlook this fact, that technology is often advancing at such a quick pace that, replacing an existing technology/resources takes a matter of second.. if an alternate fuel comes along and replace oil, what is the use of all the oil we are saving for now?

looking back, this is just like the spermwhale oil back in the 1800s. People thought the whale oil is going to the main commodity for a long time, oil prices were at an all time high, until someone struck crude oil. and thats the oil we have today.

All the more reason to make hay while the sun shines!

[Azure]

I seriously doubt we will switch away from oil as main fossil fuel within 10 years.

Maybe 20-30 years from now.

[Flames in 07]

Originally Posted by OracleOfCalgary

By Christmas you will start to hear stories of layoffs in the O&G industry and in housing. Starting next week, it will be impossible to sell a house in this city. Full housing sector collapse next spring when the spring market fails to materialize. So predicts the Oracle.

OK, that's a little too drama queen, but it wont help the economy, that's for sure.


Some points that nobody seems to understand or recognize.

Throwing out WTI as a benchmark for the price of oil is naive and / or disingenious. a growing portion of production and a vast majority of the growth is in heavy oil, which is discounted about 31 - 27 USD below WTI right now, further the decay in CAD has reduced netbacks to the proportion that the CAD has appreciated. ie if CAD is up 20% vs USD, producer n/b has gone down by the same proportion.

So people talk about $85 WTI, which is an alltime high, but it is $55 USD which is about $53. And that is against costs of all kinds that are at all time highs.

Further this heavy requires diluent, and dilent is trading many dollars over TI, depending on the density of the produced oil this can reduce the $53 n/b to something in the high 30's or low 40's.

Some large scale heavy oil production facilities are simply treading water and will now lose money, there will not be much incentive to develop unconventional if they have to pay a large % of revenue pre payout.

Many people who don't understand the oil industry but have a strong opinion are some of the most damaging humans in the province, and country. If you don't really understand how the industry works take some of the energy you have towards building your opinion and redirect it to learning for awhile.

[Flames in 07]

Originally Posted by vodafone_b

Yes, that is true sustaining the growth is very imporant. But has anyone thought about the possibility that, what if Oil is no longer the main stream of resources in the world? What if 10 years down the road an alternate fuel replaces Oil? People often overlook this fact, that technology is often advancing at such a quick pace that, replacing an existing technology/resources takes a matter of second.. if an alternate fuel comes along and replace oil, what is the use of all the oil we are saving for now?

looking back, this is just like the spermwhale oil back in the 1800s. People thought the whale oil is going to the main commodity for a long time, oil prices were at an all time high, until someone struck crude oil. and thats the oil we have today.

Well it's not quite as simple as that, but yea at some point there will be alternatives. I'd say 25 years from substantial substitution is a best case scenario.

[BlackEleven]

Originally Posted by Thunderball

You can bet your ass there will be layoffs. Whether the oilpatch needs to or not, they are going to send a real message to the government.

I think this is a deplorable situation of which the victims will be individuals.

The government and the big oil companies are like two pigs with lipstick chomping at a trough. The government didn't do this cause they need infrastructure money... they got it. This was political. This was also to take control of the economy to a degree and prematurely cool it. The Oil companies are teflon... its not a lot of money to them, but its going to cost them anyway. They'll cut projects and staff and make damn sure that the province regrets this.

Way to go Stelmach.

I seriously doubt the big Oil companies are going to cut jobs to prove a point. Big multinational corporations are all about the bottom line, not acting like spoiled children who didn't get what they wanted. They'll still make a lot of money in Alberta, as you pointed out. They won't sacrifice their bottom line, just to send a message.

[Ducay]

You guys are clearly overestimating the impact this will have on the sector. An extra 1.5B is peanuts. Sure there may be a slowdown in smaller operations, but in the grand scheme of things, the economy will keep on trucking.

So with the labour market as it is, you guys are fearing layoffs?

[Azure]

Well wouldn't you fear layoffs if your job was on the line?

I certainly don't think the economy will crash.

It could help us though....all the extra workers creates more infrastructure projects that won't be put on hold because there is no one to do the work.

[mrdeeds]

There may be layoffs and I do not begrude those working in the industry fighting to protect their interest. Overall this is good deal for Albertans.

[urban1]

Problem is there is no market price for bitumen.

Originally Posted by Flames in 07

OK, that's a little too drama queen, but it wont help the economy, that's for sure.


Some points that nobody seems to understand or recognize.

Throwing out WTI as a benchmark for the price of oil is naive and / or disingenious. a growing portion of production and a vast majority of the growth is in heavy oil, which is discounted about 31 - 27 USD below WTI right now, further the decay in CAD has reduced netbacks to the proportion that the CAD has appreciated. ie if CAD is up 20% vs USD, producer n/b has gone down by the same proportion.

So people talk about $85 WTI, which is an alltime high, but it is $55 USD which is about $53. And that is against costs of all kinds that are at all time highs.

Further this heavy requires diluent, and dilent is trading many dollars over TI, depending on the density of the produced oil this can reduce the $53 n/b to something in the high 30's or low 40's.

Some large scale heavy oil production facilities are simply treading water and will now lose money, there will not be much incentive to develop unconventional if they have to pay a large % of revenue pre payout.

Many people who don't understand the oil industry but have a strong opinion are some of the most damaging humans in the province, and country. If you don't really understand how the industry works take some of the energy you have towards building your opinion and redirect it to learning for awhile.

[Byrns]

Originally Posted by Ducay

You guys are clearly overestimating the impact this will have on the sector. An extra 1.5B is peanuts. Sure there may be a slowdown in smaller operations, but in the grand scheme of things, the economy will keep on trucking.

So with the labour market as it is, you guys are fearing layoffs?

+1

No way any of these big companies will be gone for long if they do leave. Canada's too stable of a country for them not to be here, and we're one of the last places where oil reserves can be still privately held. Most other places the oil is controlled by the government.

Even if they do go, someone else will gladly come and take their place. (China)

[the-rasta-masta]

I can't believe I voted for this clown.

[Leeman4Gilmour]

Originally Posted by Ducay

You guys are clearly overestimating the impact this will have on the sector. An extra 1.5B is peanuts. Sure there may be a slowdown in smaller operations, but in the grand scheme of things, the economy will keep on trucking.

That's the attitude which is driving costs up to an unmanageable point whether it's construction or production.

It's the same attitude which can split families if one member of that family wins a lottery or a rich uncle dies. "Look at all the money - give me some."

I fear this could be the straw.

Admittedly, $1.5 B would not break the oil companies back, but at some time they will have to implement measures to control the rising costs of trying to make a dollar. Until they have to resort to trying to make a cent.

This seems like the perfect opportunity - because it won't appear to be greedy oil companies trying suppress the common man, it will be a necessary reaction to an uninformed new government.

[kremb]

Originally Posted by Ducay

You guys are clearly overestimating the impact this will have on the sector. An extra 1.5B is peanuts. Sure there may be a slowdown in smaller operations, but in the grand scheme of things, the economy will keep on trucking.

So with the labour market as it is, you guys are fearing layoffs?

Well said. By having the announcement after market closes it also eliminates any emotional sell off. Savvy move by Ed.

My hunch is the market hardly skips a beat tomorrow morning. These companies now know where they stand for the long term and have a year to adjust. Who knows, maybe our dollar will fall a bit and it will be good for the whole country.

Like Ducay says, 1.5 billion is a drop in the bucket for these guys and more than worth it for access to these natural resources.

1.5 billion / year is cheap considering what we are encouraging these companies do to our environment, but I would be considered a lunatic in Alberta if I said that out loud. A barrel in the ground is going to be worth a hell of a lot more in the years to come. Hopefully they will figure out a better way to exploit the sands, seems like such a smash and grab job at the moment though. Destroying that land may seem pretty stupid in 100 years when a warmer planet makes Northern Alberta one of the most habitable places.

Something I found out about the sands yesterday is that only the center of the reservoir is good to develop at the moment. Apparently by 2020 the 12% grade will be done with only the 8% grade remaining. Does this info make a difference concerning royalties? My gut tells me it makes the royalties harder to swallow for the companies.

[Thunderball]

Originally Posted by BlackEleven

I seriously doubt the big Oil companies are going to cut jobs to prove a point. Big multinational corporations are all about the bottom line, not acting like spoiled children who didn't get what they wanted. They'll still make a lot of money in Alberta, as you pointed out. They won't sacrifice their bottom line, just to send a message.

First off.. prepare to be surprised. Its not about being spoiled children. They just lost a lot of money, so they'll want to recoup it.
For example, say you just lost $14,000, and you're in the position where it hurts...but it won't bankrupt you. However, its gonna affect how you spend and where you donate money. Suddenly, you have to cut your spending down to make back what you lost. Is that acting like a spoiled child, pouting that you can't buy a new car so you're shafting the mustard seed, or is it simply acting in a way most responsible to your stakeholders?

Best way to do that for the oilpatch is cut overhead... aka jobs. Most of these companies could easily make do with substantially less employees. In fact, cutting them might improve their bottom line. Something they didn't have to do when they were making their acceptable rates of return. They aren't sending a message to be callous... its the ramifications of their logical response that sends the message


Second, I never said they'd still make a lot of money in Alberta. I said they could absorb it. That's gonna be through layoffs and increased investment in more lucrative areas. Are they gonna stop drilling here? Not on your life. But even a 15% reduction in activity is gonna hurt an awful lot of people.

[Thunderball]

Just my educated guesses...

1) Will we see layoffs? Just in the oilpatch or more widespread effects?

Absolutely. Anyone tells you otherwise is lying, dreaming or not informed. They were already happening quietly throughout 2007, but they'll likely increase between now and January 2008. My conservative guess is most companies will be reducing their staff by 10-15%. Doesn't sound like a lot, but figure 10-15% of the 20 odd percent of Alberta's workforce directly employed by the oilpatch works out to be 2-3% of the workforce knocked out and that is a significant number of people. The widespread effects will be felt primarily by the retail and service sectors. Less oilpatch jobs = less disposable income. Less disposable income = less retail spending, less sales commission, less gratuities, less dining at restaurants, etc.

2) Will Albertan's at large see the benefits of the increase? (what I've read is that we'll be getting a larger portion of a smaller pie; I guess there has also been no announcement about where this money will go).

I genuinely believe there are benefits to this besides more money to the province. This will cool off the economy quite nicely and will drag housing prices down. However, there are significant negatives to that which may prove more costly than the symptoms it endeavored to treat. It truly is a larger portion of a smaller pie. The money will disappear into the province's general revenue, perhaps diverted to a white elephant like HSR.

3) The first home I bought last year "after" the boom -- am I screwed? (maybe not NEP type stuff with foreclosures left and right, but I'm guessing this will negatively affect housing values down the road)

Housing values will drop, but not like NEP levels. Simply, people won't be chomping at the bit to move to Calgary/Edmonton/Ft. Mac anymore and no longer willing to pay $300k for a hovel in Forest Lawn. That will stabilize the market and send it towards where it probably should be. I will not be surprised to see some foreclosures though with some people biting off more than they could chew.

4) Related to #1 -- if there is a downward spiral of layoffs, will we start seeing an influx of laid-off employees seeking jobs in the service industry currently held by grossly underqualified teenagers (I'm stereotyping, I know)?

Generally speaking, oilpatch labour (be it white or blue collar) is skilled labour. They will likely have no problems getting jobs for lesser pay than they are receiving now. You won't see a middle manager of oilsands development hocking Nike sneakers at Athlete's World, but you might see a mail room clerk or clerical assistant there. Essentially, in these situations, there's kind of a step down for a lot of people, even those not affiliated with the industry. Therefore, yeah, the bottom end is going to get hurt, as they become that 2-3% of the workforce that get bounced out of jobs. While a lot of that bottom end are "grossly unqualified teens", many are relying on their low end job to support their families and pay the rent.

5) If you've got the cashflow... good time to invest?

My opinion is to be cautious right now and wait to see where the chips fall. It very well could be a good time if you have it though, I'm not knowledgable enough to say definitively. However, a lot of investments could stand to lose significant value in the wake of this. 2009 might be a great year to invest cause that could very well be when rock bottom (whatever degree that may be) is hit and the bounce back begins.

[Wookie]

Originally Posted by Thunderball

5) If you've got the cashflow... good time to invest?

My opinion is to be cautious right now and wait to see where the chips fall. It very well could be a good time if you have it though, I'm not knowledgable enough to say definitively. However, a lot of investments could stand to lose significant value in the wake of this. 2009 might be a great year to invest cause that could very well be when rock bottom (whatever degree that may be) is hit and the bounce back begins.

Depends where?

International O&G companies, Jr's operating in Africa and the middle east, offshore.

High Tech, Other resources, mining, exploration... Depends where the money flows.

[IHATEOILERS]

Originally Posted by Slava

The oil companies don't have a reason to lay off employees....oil prices are at historical highs, and most companies make piles of money with oil at $50/barrel. How they can justify lay-offs is disgraceful.

(1) natural gas prices suck
(2) costs, while pulling back, still remain inflated from a period of excessive drilling
(3) the rise in the Canadian dollar largely offsets the rise in oil prices and must be factored in....