Just Say It Aint So!!

[trex]

Interesting topic.

I guess I am in for a nickle.

I am posting from a North Sea installation.

I work the European oil patch and live in Calgary.

 

Out here jackups and semisubs are running at high utilization.

Most of the offshore contractors are building new deepwater iron.

They are drilling both for oil and gas.

I think most of Western Europe is looking for as much "secure" gas as they can get.

They also have more storage available than we do.

 

On the Alberta front a few of my buddies in the Calgary glass towers are telling me that they are slowing down their conventional drilling.

The heavy oil boom combined with the conventional side create a bit of a "perfect storm" men and equipment wise.

I dont think big oil in Calgary likes to be told "take a number and in a couple of weeks we may get back to you" by the service companies.

And gas is dirt cheap right now........very limited storage in the US.

Somebody else mentioned LG terminals which the Americans are going to be building more of.

I looks like conventional gas industry in Alberta is going to have to get a wee bit more compeatative.

And thats what the big dogs are after.

Drilling and production cost inflation was outstripping potential profits in the gas industry.

Looks like its time for the service outfits to punt the slackers and sharpen up the pencils.

Hang on.

[Smitty]

Well Don:

 

Not sure what you mean by "ugly".

 

Albertans have one of the greatest opportunities in their lives right now to secure a bit of wealth and financial freedom. I happen to be doing it through property acquisition. I noticed that the writer of the article failed to mention some important differences compared to the 80's; one major factor being interest rates. No one's going to lose a mortgage due to climbing 16%-20% interest rates.

 

But yes, as far the oil/gas sector goes, it's like the article says; companies consolidate, drilling is cyclical, and there is going to be pain for smaller companies who don't have there cash flow figured out right.

 

But overall, Alberta is the place to be; I read that china is poised to build 30 cities - each the size of Toronto - in the coming decades. What does that take? Natural resources. Canada has got lots of those - lots. Freshwater too. Freshwater, oil, lumber, minerals, and small population makes Canada attractive. Add political and economic stability, and we're REALLY attractive. Add to that, RELATIVELY speaking - compared to the rest of the world, our regulations are fair.

 

Companies love Canada and those CEO's earning there millions don't generally spend the big corporate bucks without some foresight. Over 40 billion dollars is about to invested in upgrader alley; if that staggering sum was about to be invested in Toronto for the next 5 years, we'd hear nothing else in the Eastern media.

 

While conventional production is indeed dropping, oilsands production is posied to triple in the next 15 years. Conventional production is falling generally throughout the world. Canada will go from 11th to 4th in the world for oil production within 25 years. Where again is the majority of the oil?

Construction boom in Alberta is poised to peak 2010-2011. The real "boom" isn't even here yet.

 

Read between the lines in those articles - you'll see nothing long term that will bust this boom coming on. In other words, the factors in favor of a heated economic cycle outweigh those - in the long run for the next 5 to 20 years than those factors that cause it to pull back. Think there's a housing and labor shortage now? Just wait a couple of years.

 

So I disagree with the writer - I don't think he's looking at the big picture. India and China are in the midst of switching from agrian societies to 21st century industrial and technological societies. They have 1/3rd the world's population. They will consume. We have the resources. Alberta specifically has one resource that hybrid cars aren't even going to make a dent in demand. It's that simple.

 

No wonder Benjamin Tal, chief economic officer for CIBC, i.e. in other words, a fairly conservative 3-piece suit wearing banker, has predicted that average sfd housing prices in Calgary could reach $900,000 by 2020. Wow. Believe it or not, depite falling affordability in Alberta, according to RBC Alberta is still mostly affordable. As long as that continues, and 35,000 to 50,000 people continue to move here each year, the boom will continue, despite layoffs, despite some companies going under.

 

This sort of pain was easily predictable as the boom was in early 2001.

 

Now folks, those are just some observations. I'm trying to stick to the point and so I purposely tried to keep the observations (some fact, a lot of opinions) morally neutral. Whether this boom is healthy to our environment, to our fish, these are subjects for another topic. So don't jump all over me as some sort of capitalist pig. I am in favor of regulations, protecting the environment, and making sure Alberta (and Albertans) get their fair share of royalties. The Heritage Fund is a disgrace compared to what you could have got by adopting an Alaskan approach.

 

All I'm saying Don is that yeah, doom and gloom articles will always be written at the first sign of pain. It's the way the media operates, as I'm sure you know. But I believe we have a consderable amount of more steam left in this boom before it truly slows down. Of course it won't last forever, but I think we will enjoy "good" times for another decade overall.

 

Good topic.

 

Smitty

[reevesr1]

OK, I'll add my $0.02,

I think part of the pullback by the majors, aside from the low gas prices, is a lessening of the perceived volatility in the rest of the world. Outside of Venezuela, there has been no new major world event to shake up the industry in the past several years. Same old crap in Russia, Nigeria, Middle East, etc., but nothing really new. So when that happens, capital starts to look really attractive in area where margins are MUCH higher than in Canada. I think of Canada as a bond fund. Small but safe returns.When the stock market (in this case more politically unstable parts of the world) is booming, you take your money out of bonds (Canada) and put them in stocks. Wait until the next big scary event, and the money will roar back to nice, safe Canada.

 

All that being said, if gas stays in the $5.00 range all bets are off....

[Castuserraticus]

Encana is going crazy strong on their CBM project out by Hussar/Strathmore ...I have'nt seen the slow either..but you hear the rumors and I know some of the big companies had a decent number of lay-offs late last winter..every job ive done this summer has be a new well completion..and everyone i talk to seems to be flat out...

I was involved in the early part of that program. Encana has different economics there because they own the mineral rights (6% tax vs 20% royalty). Stay with the project fi you have the choice. It may be monotonous but job security is good and you're close to Carseland for after work activity.

[EdB]

No digity... I get to stop by Carsland and Mack on my way home every day if i want. Start early 6-7 ish and if we do only one well we are done by 11. GONE FISHIN...pick up the kids at 4 and the wife never knows.

[Guest rusty]

The real "boom" isn't even here yet.

 

EXACTLY.

 

Look at the amount of engineering going on right now in Calgary, then push it out a few years and figure in that a dollar spent on engineering means ten bucks in construction.

 

Work in some rough numbers based strictly on currently approved and funded projects and you'll see that there will be tens if not hundreds of millions of manhours of work required in the next 8-10 years here.

 

I haven't got a clue about gas, but heavy oil is going to keep our economy red hot for a long time yet. The only part that we aren't sure of is whether we can weather the storm of environmental and social problems that it's bringing with it.

[DonAndersen]

Guys,

 

Heavy oil is where it is @. No question BUT, it's located about 300>450 miles from Calgary. Do you guys really believe that your employer is going to have his workers commute that distance. In the longer term, you'd best pack your bags. The business is going north. Ft. Mac. + others with the heavy oil business will boom for all the reasons cited above but as conventional crude production drops, small town Alberta suffers. This is what I'm seeing all over Central Alberta.

And for your interest - the maximum # of people required for any resource exploitation is 2 seconds before it is shut it down.

Just to give your some comfort on gas prices. 1971 was $0.21/mmcf, process operator made $4.50/hr. A multiple of 21.4. Now gas price is $6.50/mmcf - same process operator makes $30/hr. A multiple of 4.6 Cost of most facilities is 60% labor. Tough to make a profit???

As far as resources, you bet - we got the tar sands left. Conventional gas is about gone. CBM is the only game left. Conventional crude is declining rapidly, southern Alberta is running outta water. But we got coal. Lots of it. All along the Eastern Slopes. And we're gonna do what we're gonna do it keep the good times rolling.

 

catch ya'

 

 

Don