Official (Alberta) Oil Discussion Thread

[Resolute 14]

Originally Posted by firebug

And again, as someone who has never voted NDP (nor liberal for that matter), the heat the NDP are getting for the current economic situation in the province is laughable.

The difference between investor confidence in Alberta and investor confidence in Saskatchewan is worth noting. And the difference is entirely on the backs of the respective governments.

Notley is taking a great deal of heat for the economic situation in the province because she deserves to.

[Frequitude]

Originally Posted by Slava

First, let me say that I agree and its crazy that they've let this drag out. But the question I have is how much capital we're really talking about here. With WCS in the teens and no indications of a sudden rebound to anything economical its not like companies are chomping at the bit to deploy cash here. I definitely see that the uncertainty they've caused by these delays is bad, and I don't love a lot of their policies. If people want to say the carbon tax is a problem for the oil patch I can totally see that angle. I just think that the issues around how much investment are taking place are really out of their hands. Maybe a couple percent is related to the uncertainty from the royalty review and what, 98% is due to the fact that the commodity is uneconomical at this point. That's obviously a made-up number on my part. As much as I would love to say "its their fault" the reality is something different, unless there are obvious things I am overlooking?

btw, thanks for your posts here Frequitude. Its great to get some of the industry views and info for those of us who are elsewhere!

I suppose there's two types of capital I'm thinking of. One is actual cash capex spent by companies (my world). The other is shareholder capital that invest in corporate equity (your world...might have described that incorrectly).

On first one, you are right. Not a lot of it today has to do with royalty uncertainty. The price of oil does. I would suggest that impact was higher back at $75 when more stuff was slightly economic.

Its the second one that I'm referring to. Shareholder capital waiting on the sidelines to figure out how to value Alberta oil and gas companies. It's a bit of a turn-of-phrase, but I am suggesting that there is a lot of shareholder capital sitting on the sidelines right now wanting to get back in to the oil & gas space but waiting for the new framework first. Again, that's way more your world than mine so I'm open to be educated on that.

[puckedoff]

Originally Posted by firebug

Sure is... until you need a nurse.

Its nice to have nurses and teachers, but if you have no geologists/engineers to generate tax revenue.... its tough to pay your nurses.

[Locke]

Originally Posted by Izzle

Should nurses and teachers become 'privatized'? Then they can be revenue generating.

Ha! Then they'd be 'filthy industry' and the NDP wouldnt want them!

Not to mention that I never even remotely tried to make that argument at any point, I merely pointed out the hard reality that public servants (teachers and nurses etc.) are paid for through the production and subsequent taxation of industry.

You cant have one without the other, contrary to the popular and inherently erroneous belief demonstrated in this thread. As such it is in the best interests of the public sector to have a strong and healthy private sector.

If you lean too heavily on the private sector you by definition will adversely effect the public sector unless...you run everything on deficit spending (ie. paying your credit cards with other credit cards) but no one would be stupid enough to do that...

Wait...

[Street Pharmacist]

Originally Posted by puckedoff

Its nice to have nurses and teachers, but if you have no geologists/engineers to generate tax revenue.... its tough to pay your nurses.

If we're playing that game, you have no engineers if you have no teachers. And productivity is pretty low without healthcare.



However, good thing were not living in a zero sum environment

[Slava]

Originally Posted by Frequitude

I suppose there's two types of capital I'm thinking of. One is actual cash capex spent by companies (my world). The other is shareholder capital that invest in corporate equity (your world...might have described that incorrectly).

On first one, you are right. Not a lot of it today has to do with royalty uncertainty. The price of oil does. I would suggest that impact was higher back at $75 when more stuff was slightly economic.

Its the second one that I'm referring to. Shareholder capital waiting on the sidelines to figure out how to value Alberta oil and gas companies. It's a bit of a turn-of-phrase, but I am suggesting that there is a lot of shareholder capital sitting on the sidelines right now wanting to get back in to the oil & gas space but waiting for the new framework first. Again, that's way more your world than mine so I'm open to be educated on that.

No, I wasn't really thinking of shareholders here because most people in Calgary at this point are too scared to invest in oil and gas. If they're still gainfully employed they have no idea how long that will last...could be gone any day, or at least that is the general feeling. So rather than invest in the same industry they would rather not. That could be construed as a royalty issue, but I think its the general market sentiment at this point.

The capex is clearly the bigger deal for the province. That is what keeps the economy flowing and creates jobs not only in oil and gas but other sectors. I just think that while the royalty framework is a concern, its kind of an "also ran" on the list of issues faced by the corporations here.

[Weitz]

I hear the Public employees who are non-union have to take a pay freeze for 3 years or something?

Who in their right mind would be a public employee and be non-union?

[Locke]

Originally Posted by Weitz

I hear the Public employees who are non-union have to take a pay freeze for 3 years or something?

Who in their right mind would be a public employee and be non-union?

I think thats technically 'management' isnt it?

[firebug]

Oh here we go... all the arm-chair economists trying to explain how an economy works. Am I the only one who was taught that the economic utility of an individual was independent on who/what was paying for it? Nurse, no economic value... dental hygenicist, economic value? Teacher, no economic value... tutor, economic value? Amirite?

Let's be frank, without some teachers, nurses, doctor's and other 'economic parasites' we'd have a lot fewer geo's, engineers and even rig-pigs.

What we are arguing is really about the optimum blend between these two types of workers and is what is best for an alberta citizen the same as what is best for a shareholder.

[CliffFletcher]

Originally Posted by firebug

Now maybe because of those changes, some day in the future the province will have less rig-pigs, geos or exploitation engineers, but we'll have more teachers, nurses and maybe some research scientists instead. Sounds like a decent trade in my books.

We don't have to speculate what that would like - just take a look at Manitoba or New Brunswick. You may want ask yourself why, even with the severe downturn in Alberta's economy, there are still more people moving here from those provinces than vice-versa. You may also want to consider why Alberta teachers earn $10-20K a year more than their counterparts in those provinces.

[polak]

Cause the NDP is getting rid of Oil and Gas? Jesus.

[Locke]

Originally Posted by firebug

Oh here we go... all the arm-chair economists trying to explain how an economy works. Am I the only one who was taught that the economic utility of an individual was independent on who/what was paying for it? Nurse, no economic value... dental hygenicist, economic value? Teacher, no economic value... tutor, economic value? Amirite?

Let's be frank, without some teachers, nurses, doctor's and other 'economic parasites' we'd have a lot fewer geo's, engineers and even rig-pigs.

What we are arguing is really about the optimum blend between these two types of workers and is what is best for an alberta citizen the same as what is best for a shareholder.

I think you've got your economic terms mixed up. You're confusing 'value' with 'cost.'

These are not the same things.

[firebug]

Originally Posted by Locke

I think you've got your economic terms mixed up. You're confusing 'value' with 'cost.'

These are not the same things.

And it would seem more are confusing 'value' with 'profit'

[firebug]

But maybe to short-circuit this diversion...

Let's agree that I'm not suggesting corporations should have no profits and that you're not suggesting we should have no teachers, nurses etc.

We are disagreeing on where each of us feel's the 'optimum' point of balance between corporate profits and the physical and social infrastructure for alberta citizens should be.

My opinion is that in the last boom corporate profits received too much of the rent taken and AB citizens too little. I'd trade truck nuts for better health-care and cleaner environment next time.

And to attempt to re-rail this 'Alberta Oil discussion thread'. My point was that, speaking as someone inside the capital deployment side of an E&P firm, it's not my experience that the royalty review is impacting capital spending in the current environment.

[Red]

Originally Posted by firebug

But maybe to short-circuit this diversion...

Let's agree that I'm not suggesting corporations should have no profits and that you're not suggesting we should have no teachers, nurses etc.

We are disagreeing on where each of us feel's the 'optimum' point of balance between corporate profits and the physical and social infrastructure for alberta citizens should be.

My opinion is that in the last boom corporate profits received too much of the rent taken and AB citizens too little. I'd trade truck nuts for better health-care and cleaner environment next time.

Now you've done it....here come the pitch forks...

[calumniate]

It's all supply and command!

[Harry Lime]

Originally Posted by Frequitude

The current structure for oil sands is already set up this way actually. Royalty rates fluctuate with the price of oil. Pre-payout they are 1%-9% of gross revenue (i.e. sales). Post-payout they are 25%-40% of net income (i.e. profit).

The oil sands structure is pretty great actually. It's a simple cash flow based system. It probably needs some tweaking though so that companies can't job the system to keep assets in pre-payout by doing things like "expansions" which are really just new projects.

What needs an overhaul is the royalty system for conventional oil and gas. I don't know it that well, but it's a complicated mess where your royalties depend on all sorts of things like quality, rates, types of wells and so on.

To be honest, I'm not scared much at all about what will be announced. I can't imagine they're going to actively kill anything. What sucks though is that it's taken this long to announce. Uncertainty keeps a non-zero amount of capital on the sidelines.

I appreciate the response. Unfortunately the cash-based system has proven to have too many loopholes to be effective. The chances of a project ever making 'payout', given even the most inept of financial planning, is pretty close to zero. The review could be done quickly based on the existing system, and closing these loopholes would probably be enough to satiate both sides of the argument. (One side not happily, but perhaps honorably).

Agree entirely about the destructive nature of each delay.

Originally Posted by DoubleK

Might suggest that you spend the effort to read the thread. Most of your questions have been answered 10 times over...

I've read from my post on this morning, and the combination of political fervor, combined with some questionable economic theory (I really hope university economic courses have been updated since the 90s) are suffocating some really fantastic posts. It's exhausting.

I hope that this doesn't turn into another 'I hate teachers thread'.

[Regorium]

Originally Posted by firebug

But maybe to short-circuit this diversion...

Let's agree that I'm not suggesting corporations should have no profits and that you're not suggesting we should have no teachers, nurses etc.

We are disagreeing on where each of us feel's the 'optimum' point of balance between corporate profits and the physical and social infrastructure for alberta citizens should be.

My opinion is that in the last boom corporate profits received too much of the rent taken and AB citizens too little. I'd trade truck nuts for better health-care and cleaner environment next time.

Consider AB citizens see a lot of that corporate profit as well in the form of big raises, big bonuses, lots of high paying jobs (including teachers and nurses), and low taxes.

I also agree that I don't know where the optimum balance of taxation is, but I would absolutely consider that just raising taxes does not directly lead to a different split of profits vs. health care. In fact it may mean that the split stays the same, but the pie gets smaller.

And to attempt to re-rail this 'Alberta Oil discussion thread'. My point was that, speaking as someone inside the capital deployment side of an E&P firm, it's not my experience that the royalty review is impacting capital spending in the current environment.

I would say it's not impacting the amount of capital spending, but absolutely is affecting the location of it. My company just spent a bunch of money in Mexico, southern US, and eastern Canada. The extra percentage points of tax and the risk premium based on the uncertainty royalty review are direct inputs to decide whether a project is prioritized or not.

[Locke]

Originally Posted by firebug

But maybe to short-circuit this diversion...

Let's agree that I'm not suggesting corporations should have no profits and that you're not suggesting we should have no teachers, nurses etc.

We are disagreeing on where each of us feel's the 'optimum' point of balance between corporate profits and the physical and social infrastructure for alberta citizens should be.

My opinion is that in the last boom corporate profits received to much of the rent taken and AB citizens too little. I'd trade truck nuts for better health-care and cleaner environment next time.

Fair enough. I would agree with that.

In previous threads I've stated, and still believe, that as Albertans we're doing this all ass-backwards.

We really could have used a more NDP model 10 years ago when money was being made hand over fist, but right now we need a more 'business-oriented' model in order to stop some of the bleeding. We are hemorrhaging red ink here.

I think that sticks in people's craw a little bit because theres an attitude that the businesses 'got theirs' already and now its 'our turn.'

But I totally agree, its about finding the optimal blend between public and private sectors that we can make work. Its not one or the other we need both.

The problem is that the NDP have effectively gone PC just in the opposite direction and at the worst possible time.

The PCs were too heavily focused on the private sector, the NDP are too heavily focused on the public sector, but what drives people crazy at the moment, myself included, is that the NDP are spending tons and tons of money and heavily favouring the public sector not only at a time when we really dont have the money for it but they are also actively doing it at the expense of the health of the private sector.

And thats something that crazy people do.

To characterize it: its racking up a huge debt load while simultaneously doing damage to your ability to earn the money to pay it back.

Thats crazy and incredibly short-sighted.

[OMG!WTF!]

Originally Posted by calumniate

It's all supply and command!

Well it's not rocket appliances.

Consider AB citizens see a lot of that corporate profit as well in the form of big raises, big bonuses, lots of high paying jobs (including teachers and nurses), and low taxes

Not to mention the only reason most people who still have jobs still have jobs is past corporate profits.