Royalty Review

[DonAndersen]

Rickr,

 

If you think it's good now - you should have seen it before you could cut the air into chunks in the city of Calgary. As far as it could be worse - Beijing any one.

 

 

Don

[Weedy1]

Well it all sounds like doom and gloom. Time to pack up and move to Texas.

[Weedy1]

Suncor is apparantly down 6% since the announcement. (54 minutes)

[Castuserraticus]

Well it all sounds like doom and gloom. Time to pack up and move to Texas.

 

It's cheaper there. A friend sent me links to real estate listings in Edmonton and Dallas. You can get a 1080 ft2 3BR bungalow in Edmonton and a 3800 ft2 5BR mansion on 1 acre in Dallas.

[Weedy1]

It's cheaper there. A friend sent me links to real estate listings in Edmonton and Dallas. You can get a 1080 ft2 3BR bungalow in Edmonton and a 3800 ft2 5BR mansion on 1 acre in Dallas.

 

Yah but a guy would then have to learn a second language, maybe Spanish too..

 

 

This house looks nice.

$444,000, about what mines worth in Edmonton. Makes me want to puke... and you can write your payments off in the States..

http://www.viprealtyinfo.com/featured-listings.php

 

[bigbowtrout]

Na just move to PEI http://www.mls.ca/PropertyDetails.aspx?vd=...pertyID=6127302

[Guest Sundancefisher]

http://www.canada.com/nationalpost/story.h...6c-dc152d884f51

 

Initial reaction looks negative... I am curious how the numbers will crunch out tomorrow. I suspect a significant drop in stock prices on some fronts tomorrow with Stelmach being the principle cause of some peoples RRSP's now taking a hit.

 

I too am amazed at the total lack of understanding regarding this business and the consequences of it's destruction!

[126barnes]

Yah but a guy would then have to learn a second language, maybe Spanish too..

This house looks nice.

$444,000, about what mines worth in Edmonton. Makes me want to puke... and you can write your payments off in the States..

http://www.viprealtyinfo.com/featured-listings.php

 

 

 

Yeah but don't forget the property taxes and insurance in urban Texas that would double your morgage payment.........................plus you'll have a house that you can't get rid of if needed.

[rusty]

Looks like everything is riding out OK for now...certainly not the economic apocalypse everyone said it would be.

 

What's the reaction like out there? At the EPC company I work at there hasn't been too much noise.

[Guest Sundancefisher]

Hard to say quite frankly since the information provided was vague and unquantifiable. We are in the process of collecting all the numbers and rerunning economics to see what projects are still viable. All the borderline prospects for sure have failed. Now to see what it all means in terms of 2008 and 2009 budgets.

 

Worse case scenarios are that some drop off, service companies costs come down and they get put back on. Hard costs like steel pipe and equipment are slower to drop if at all.

 

I would not like to be working for a service company and I certainly feel for them. Hopefully employers will be cautious about layoffs.

 

Big problem in this industry is people getting laid off, finding other employment and then the cycle starts anew with lack of bodies.

[Weedy1]

Was part of the intent within modifying the royalty scheme to slow the economy down? I have heard reference to this from analysts but have yet to here that this was part of the governments intent. Anyone know?

[LynnF]

The numbers guy in my co. said that there are still some crucial numbers that haven't been released but to a chosen few such as the "sliding scale" formulas. Companies are not going to do anything until the crunching is done. Give it a couple of weeks for that to happen. Calm before the storm I think. Not if you're Petro Can though, I guess with their announcement yesterday.

[Castuserraticus]

Was part of the intent within modifying the royalty scheme to slow the economy down? I have heard reference to this from analysts but have yet to here that this was part of the governments intent. Anyone know?

 

Absolutely. Ed and other political types made mention of too much activity, leaving some in the ground for future generations, unsustainable development, and similar comments. It doesn't matter if you're a company or an individual - a 20% pay cut means your life slows down. If the Liberals and NDP got their way we could stop the industry completely. They like the Ecuador model where the government takes everything over $23/Bbl. Of course their costs are considerably lower than Alberta and they are a perrenial third world country but why let economics stop a great idea.

[rusty]

From what I'm reading now the hit in the oilsands won't be near what it is in the NG and conventional sectors.

 

Obviously NG is our bread and butter now, but what about ten or twenty years down the road?

 

Totally agree with Sundancefisher though - you'd really hope that some of these companies will see the error of their past ways and will think twice before laying everyone off just to complain about being short people in another few years.

 

Lynn - what Petro-Can announcement are you talking about?

[LynnF]

Petro Can announced they are proceeding with $15 BILLION dollars worth of projects on Friday. That's a confidence booster for sure.

[Nick0Danger]

Hey rusty there is almost NO natural gas drilling in Alberta right now. 98% of wells in Alberta and Saskatchewan being drilled are oil.

[Badger]

...

[Taco]

Well Stelmach kinda chickened out I see...too bad but 1.4 is a decent political compromise I'd guess.. time will tell if he can shake loose some of that shallow gas them deep well guys are sittin' on.

 

One thing I kinda missed in this discussion about shootin' cannons down 8th Av and energy companies movin' to Timbuktu.. an extra billion or two could mean another 20 'r 30 million per yr shot down the line to Fish and Feathers... someone coulda mentioned it, musta missed it

[Guest Sundancefisher]

.. an extra billion or two could mean another 20 'r 30 million per yr shot down the line to Fish and Feathers... someone coulda mentioned it, musta missed it

 

I would not hold your breath on the government giving any more money to fish and wildlife. They have had opportunities in the past and failed to deliver anything.

 

The sad thing is a lot of the money going into various programs were as a result of generous donations from oil companies, service companies and oil and gas employees. That most likely will dry up for about a year or two or until the full effects of the new royalties are felt.

 

Companies will still finalize initial scoping projects since the completion of them will save money should the projects fail to get started but the design and engineering work gets completed. To stop now would mean all the money spent to date would be forfeit and just have to start over again completely. Looks like people are starting to buys houses now in Calgary. It will be interesting to see where prices go.

 

In reflecting the differences between Alberta and other foreign countries that comparisons have been made, I noted one super important difference over looked by many.

 

Oil companies in Alberta and strongly focused on reinvestment (outside oil and gas trusts). Pretty much every dollar earned was drilled back into the ground. In other countries, the money just flows out back to Europe, China or the US. Our oil patch is extremely rich in employment which secures a huge portion of the windfall stays in Alberta. Wages are high and the trickle down enormously beneficial. In places like Africa, minimal staff is kept with very few locals and wages are low and reinvestment spotting. Those cash cows pump money back to the US in bucket loads. Sad to see the panel never really cared about the spin off jobs, taxes generated etc.

 

I would also like to go on record to say to the panel to stop vying with the Premier for power. They were hired to do a job and did it and now their constant beaking off and disagreement with the government that hired them is very annoying. They would be fired if working for an oil company.

[reevesr1]

Totally agree with Sundancefisher though - you'd really hope that some of these companies will see the error of their past ways and will think twice before laying everyone off just to complain about being short people in another few years.

 

No chance of that happening. This is one of those cases where history is a perfect predictor of future performance. Any publicly traded company that sees a significant time period of low activity will lay people off, or transfer them out. No political way to do otherwise. Everyone realizes there may be lost opportunity costs later when the activity comes back, but there is no way to calculate that and managers are judged on what they do today, not 2 years from now. Harsh, but almost unfailingly true.

 

Also, there is certainly still NG drilling happening in Alberta.

[Gary]

here is link to the report for anyone that is interested royalty review

[Guest Sundancefisher]

here is link to the report for anyone that is interested royalty review

 

It doesn't say much. Looks like for some companies there is no change and for others up to 29% decrease in cash flow. Oil sands would go from 47% of revenue to 66% of revenue. That after all the risk and capital is spent by industry.

 

Investment will definitely be harmed. We have seen projects fall off the table now. That means no engineering contracts, drilling, completions etc. Less money spent at hotels and restaurants in drilling areas etc.

[Glenbow]

Glad I yanked my RRSP's last week.

[reevesr1]

CAODC 2008 Forecast

 

CAODC's well forecast for 2008. Rig utilization at 34% for the year, compare with 69% this year. Number of wells in the 13,000 range, lowest since 1993, I think.

 

Royalty review did not contribute directly to this, I don't think, as these numbers would have been compiled before the announcement. Just gives you an idea of how weak 2008 was going to be BEFORE the royalty review. Does not bode well for 2009. Don't go spending those Ed Bucks just yet.

 

Doom and gloom enough?

[skiff]

Its interesting to note that production dropped about 6% from 2006 to 2007 even though rig utilization was at 63%. At current prices and rig utilization rates that drop is going to accelerate rather quickly next year (even before the Royalty tax grab) unless we have an abnormally cold winter (not likely given the weather predictions so far & recent experiences).

 

Given that: significant new gas is coming on stream from the offshore Gulf of Mexico next year; several LNG re-gassification plants are already under construction in the US and comming onstream in the next 1-2 years (they're economic at $4-$5 gas; Canada needs $7 so they have economics on their side); and that US Rockies gas will be de-bottlenecked also in the next year, any decline in Western Canada's production could very well be nicely offset (hence keeping prices low) and that $1.4B in extra revenue is never going to materialize for Albertans. Personally, I think Government should be doing everything possible to help the industry keep production flat in a high cost/low price environment so that they maintain rather than loose Royalty revenue and keep the 25-75 people/rig employed and contributing to our tax base.