EnCana threatens to withdraw $1BB investment
neopundit @ Fri Sep 28, 2007 2:24 pm
$1:
Premier Ed Stelmach appeared unmoved today by EnCana's threat to shift $1 billion in capital investments from Alberta next year if the province accepts recommendations to hike royalties.
"My message to everyone is let's just calm down. Take a deep breath," Stelmach told reporters after a University of Alberta digital library opening.
"We're analyzing all of the recommendations... if somebody has factual good hard evidence that may challenge any of the recommendations, we'll certainly look at it."
"My message to everyone is let's just calm down. Take a deep breath," Stelmach told reporters after a University of Alberta digital library opening.
"We're analyzing all of the recommendations... if somebody has factual good hard evidence that may challenge any of the recommendations, we'll certainly look at it."
Does anyone think that Stelmach will actually back off?
What a joke. Who are the huge oil companies to threaten to withdraw investment that is making them an absolute killing? Of course, it's their right, but it's not like there aren't more companies that would love to get at the oilsands. I don't see how this can be taken seriously.
This isn't like manufacturing investment, that can be moved anywhere. The resources are there, so if you want them you have to come get them.
PluggyRug @ Fri Sep 28, 2007 2:32 pm
neopundit neopundit:
From the Edmonton Journal:
Does anyone think that Stelmach will actually back off?
What a joke. Who are the huge oil companies to threaten to withdraw investment that is making them an absolute killing? Of course, it's their right, but it's not like there aren't more companies that would love to get at the oilsands. I don't see how this can be taken seriously.
This isn't like manufacturing investment, that can be moved anywhere. The resources are there, so if you want them you have to come get them.
$1:
Premier Ed Stelmach appeared unmoved today by EnCana's threat to shift $1 billion in capital investments from Alberta next year if the province accepts recommendations to hike royalties.
"My message to everyone is let's just calm down. Take a deep breath," Stelmach told reporters after a University of Alberta digital library opening.
"We're analyzing all of the recommendations... if somebody has factual good hard evidence that may challenge any of the recommendations, we'll certainly look at it."
"My message to everyone is let's just calm down. Take a deep breath," Stelmach told reporters after a University of Alberta digital library opening.
"We're analyzing all of the recommendations... if somebody has factual good hard evidence that may challenge any of the recommendations, we'll certainly look at it."
Does anyone think that Stelmach will actually back off?
What a joke. Who are the huge oil companies to threaten to withdraw investment that is making them an absolute killing? Of course, it's their right, but it's not like there aren't more companies that would love to get at the oilsands. I don't see how this can be taken seriously.
This isn't like manufacturing investment, that can be moved anywhere. The resources are there, so if you want them you have to come get them.
I hope Stelmach sticks to his guns.
Another example of "big oil" attempting to bulldoze. Encana's threat should be treated with the contempt it deserves.
camerontech @ Fri Sep 28, 2007 2:34 pm
if stelmach wants to play hardball the oil companies will do the same. don't expect them to just take it without a fight.
I heard of a story the other day that can compare to this. major oil exploration companies in alberta were getting fed up with the prices of renting vacuum pump trucks. before you could get them for 150$ and hour and they were now paying 450-500$ an hour. The people who owned the vacuum trucks could do this because people were obviously paying them, well the companies got together and stopped exploration for a couple months, just like that.
all of a sudden you had a whole fleet of really expensive vehicles just sitting in the lot, prices went down and work resumed shortly after.
the point of the story is, don't think the oil companies are simply bluffing. If they want to make their point heard, they might just do it. not saying I agree with it, if anything I think royalties are due to increase...but that's how the world goes round
neopundit @ Fri Sep 28, 2007 2:44 pm
camerontech camerontech:
I heard of a story the other day that can compare to this. major oil exploration companies in alberta were getting fed up with the prices of renting vacuum pump trucks. before you could get them for 150$ and hour and they were now paying 450-500$ an hour. The people who owned the vacuum trucks could do this because people were obviously paying them, well the companies got together and stopped exploration for a couple months, just like that.
That's a bit different, methinks. If the rental of the trucks made the exploration unprofitable, then it makes sense to stop.
But companies like EnCana and Exxon are in the business of extracting natural gas and oil. These are limited resources. Vacuum trucks are not. If they want oil, they have to get it from a place that has oil. I'm sure Stelmach has some fine economists working on this plan, and the oil companies will still be very profitable, enough so that there will be no point in moving.
There's a Businessweek article somewhere that says EnCana's profit margin is something like 20%. That's crazy.
sandorski @ Fri Sep 28, 2007 2:56 pm
hehe, right.
If they pull out, others will rush in.
Alta_redneck @ Fri Sep 28, 2007 2:57 pm
camerontech camerontech:
I heard of a story the other day that can compare to this. major oil exploration companies in alberta were getting fed up with the prices of renting vacuum pump trucks. before you could get them for 150$ and hour and they were now paying 450-500$ an hour. The people who owned the vacuum trucks could do this because people were obviously paying them, well the companies got together and stopped exploration for a couple months, just like that.
all of a sudden you had a whole fleet of really expensive vehicles just sitting in the lot, prices went down and work resumed shortly after.
the point of the story is, don't think the oil companies are simply bluffing. If they want to make their point heard, they might just do it. not saying I agree with it, if anything I think royalties are due to increase...but that's how the world goes round
all of a sudden you had a whole fleet of really expensive vehicles just sitting in the lot, prices went down and work resumed shortly after.
the point of the story is, don't think the oil companies are simply bluffing. If they want to make their point heard, they might just do it. not saying I agree with it, if anything I think royalties are due to increase...but that's how the world goes round
Actually this happens every year, it's called spring break up, like when the frost is coming out of the ground and there's road bans in place. They can't move rigs during this time, this past spring it lasted a couple of weeks longer because of the cold wet weather we had. There's nothing stopping the oil company's from buying their own vacum trucks if this was the case.
bootlegga @ Fri Sep 28, 2007 3:04 pm
neopundit neopundit:
From the Edmonton Journal:
Does anyone think that Stelmach will actually back off?
What a joke. Who are the huge oil companies to threaten to withdraw investment that is making them an absolute killing? Of course, it's their right, but it's not like there aren't more companies that would love to get at the oilsands. I don't see how this can be taken seriously.
This isn't like manufacturing investment, that can be moved anywhere. The resources are there, so if you want them you have to come get them.
$1:
Premier Ed Stelmach appeared unmoved today by EnCana's threat to shift $1 billion in capital investments from Alberta next year if the province accepts recommendations to hike royalties.
"My message to everyone is let's just calm down. Take a deep breath," Stelmach told reporters after a University of Alberta digital library opening.
"We're analyzing all of the recommendations... if somebody has factual good hard evidence that may challenge any of the recommendations, we'll certainly look at it."
"My message to everyone is let's just calm down. Take a deep breath," Stelmach told reporters after a University of Alberta digital library opening.
"We're analyzing all of the recommendations... if somebody has factual good hard evidence that may challenge any of the recommendations, we'll certainly look at it."
Does anyone think that Stelmach will actually back off?
What a joke. Who are the huge oil companies to threaten to withdraw investment that is making them an absolute killing? Of course, it's their right, but it's not like there aren't more companies that would love to get at the oilsands. I don't see how this can be taken seriously.
This isn't like manufacturing investment, that can be moved anywhere. The resources are there, so if you want them you have to come get them.
Something tells me that if Encana and Exxon don't want to invest here, someone else will. Hell, we sent the Chinese packing when the Americans got worried that we would sell all the oil to them. Just the other day, the Journal carried a story about a British company that was interested in getting into the oilsands. If they want our oil, they have to pay for it. If they don't like it, they can try investing in Iran or Venezuela.
camerontech @ Fri Sep 28, 2007 3:08 pm
neopundit neopundit:
camerontech camerontech:
I heard of a story the other day that can compare to this. major oil exploration companies in alberta were getting fed up with the prices of renting vacuum pump trucks. before you could get them for 150$ and hour and they were now paying 450-500$ an hour. The people who owned the vacuum trucks could do this because people were obviously paying them, well the companies got together and stopped exploration for a couple months, just like that.
That's a bit different, methinks. If the rental of the trucks made the exploration unprofitable, then it makes sense to stop.
But companies like EnCana and Exxon are in the business of extracting natural gas and oil. These are limited resources. Vacuum trucks are not. If they want oil, they have to get it from a place that has oil. I'm sure Stelmach has some fine economists working on this plan, and the oil companies will still be very profitable, enough so that there will be no point in moving.
There's a Businessweek article somewhere that says EnCana's profit margin is something like 20%. That's crazy.
it was still profitable to rent the trucks, just the margins weren't as good as they were before.
again, I'm not arguing with stelmach's point, just stating the fact that the oil companies have a right to bitch and moan about this, nobody takes a pay cut and says "well, I guess I was getting paid too much anyways" you know what people say when they get pay cuts? "fuck this, I can work elsewhere you know" if they can make more money elsewhere, they will. If they can't, they stay. I'm sure they will stay, but I'm also sure they'll fight for every dollar, that's how you make it big in the first place, penny pinchers are always the richest.
Toro @ Fri Sep 28, 2007 6:34 pm
neopundit neopundit:
Does anyone think that Stelmach will actually back off?
He will not implement all of the recommendations from the report.
From Deutsche Bank this morning
$1:
The panel’s task was to assess the position of the royalty regime relative to other
global regimes “taking into account project returns”. This was the first point
outlined in the list of issues to be addressed. Yet we read this report as
positioning a new regime almost entirely based on “government take” of cash
flow, regardless of returns or value. Inherent risks such as CO2//global
warming/Kyoto are not factored into the required return; nor are discount rates,
Canadian dollar costs vs US$ revenues, nor barely the issue of the huge discount
of Canadian crudes to WTI. Indeed, the proposal is to base an additional escalating
“severance tax” on WTI prices, which have disconnected from local heavy oil
prices to record highs even as the report is released. Above all, the oil sands have
some of the lowest returns of any geographic regime, with a Pre-Take NPV10/boe
of only $11/bbl at $75 WTI, or 91st out of 105 regimes examined in value under its
current terms. When examined in terms of govt take relative to value of reserves,
we see the current regime as fairly positioned: relatively “low-take” for “low
value” reserves, with currency, oil price, local cost and environment risk.
The oil and gas industry in Alberta, already struggling to cope with escalating costs
and labor issues that have dramatically pressured oil sands project economics and
reduced natural gas drilling, are now faced with a proposal that will knock over
10% off of upstream valuation and 1% off of project returns.
global regimes “taking into account project returns”. This was the first point
outlined in the list of issues to be addressed. Yet we read this report as
positioning a new regime almost entirely based on “government take” of cash
flow, regardless of returns or value. Inherent risks such as CO2//global
warming/Kyoto are not factored into the required return; nor are discount rates,
Canadian dollar costs vs US$ revenues, nor barely the issue of the huge discount
of Canadian crudes to WTI. Indeed, the proposal is to base an additional escalating
“severance tax” on WTI prices, which have disconnected from local heavy oil
prices to record highs even as the report is released. Above all, the oil sands have
some of the lowest returns of any geographic regime, with a Pre-Take NPV10/boe
of only $11/bbl at $75 WTI, or 91st out of 105 regimes examined in value under its
current terms. When examined in terms of govt take relative to value of reserves,
we see the current regime as fairly positioned: relatively “low-take” for “low
value” reserves, with currency, oil price, local cost and environment risk.
The oil and gas industry in Alberta, already struggling to cope with escalating costs
and labor issues that have dramatically pressured oil sands project economics and
reduced natural gas drilling, are now faced with a proposal that will knock over
10% off of upstream valuation and 1% off of project returns.
From Westwind Partners last week.
$1:
One of the obvious shortcomings within the report is the cost structure assumptions incorporated
within. For example, the highest per-unit cost conceived for a gas well in this report is $3.72/mcf
($22.32/boe). According to an Iradesso survey of the Domestic Juniors, the median Q2 operating
cost was $9.58/boe; deducting this operating cost implies F&D of 12.74/boe. The average cost in
the review is $2.90/mcf (or $17.42/boe); Deducting $9.58/boe for operating cost leaves
$7.57/boe for F&D.
Simply put, Domestic Juniors had F&D costs averaging in the mid to high-$20s. Admittedly, that
level of cost is unsustainable if the business is to attract future investment but the cost assumptions
being used in the report are simply out of touch.
This provides an opportunity for the industry to attack this report. A more realistic
reflection of costs would show that the government is receiving a much greater share
of the income than is being suggested.
within. For example, the highest per-unit cost conceived for a gas well in this report is $3.72/mcf
($22.32/boe). According to an Iradesso survey of the Domestic Juniors, the median Q2 operating
cost was $9.58/boe; deducting this operating cost implies F&D of 12.74/boe. The average cost in
the review is $2.90/mcf (or $17.42/boe); Deducting $9.58/boe for operating cost leaves
$7.57/boe for F&D.
Simply put, Domestic Juniors had F&D costs averaging in the mid to high-$20s. Admittedly, that
level of cost is unsustainable if the business is to attract future investment but the cost assumptions
being used in the report are simply out of touch.
This provides an opportunity for the industry to attack this report. A more realistic
reflection of costs would show that the government is receiving a much greater share
of the income than is being suggested.
So, yeah, investment is at risk.
Istanbul @ Fri Sep 28, 2007 6:54 pm
I read a column by Buzz Hargrove who said Alberta royalties were 1%.
That seemed absurdly low so I dismissed it out of hand.
Later I saw an article where the government take was at least 47%.
Kyoto accords if implemented would shut down the oil sands. The warming gas mongers are gathering steam. Soon extracting the oil will be unprofitable unless oil goes to $100 a barrel.
So investors are getting antsy. I was going to set up my RRSP around Alberta oil.
Now I have diverted the $58.76 to Woolworth shares.
Canadian_Mind @ Fri Sep 28, 2007 7:11 pm
heh, whatever. If they leave someone else will surely be willing to take their place.
neopundit @ Fri Sep 28, 2007 7:15 pm
Toro Toro:
So, yeah, investment is at risk.
Hey Toro. Have to say I always enjoy reading your insights on the forums.
Question for you: Is there any incentive for two investment banks, both with energy interests, to state that the government can take a bigger cut?
I understand what they have stated, but I also only have their numbers to go on.
Toro @ Fri Sep 28, 2007 7:26 pm
Oh yeah, investment banks are whores.
But that doesn't mean they're wrong.
Toro @ Fri Sep 28, 2007 7:28 pm
Of course, its in the government's best interest to paint the companies in as bad a light as possible to rationalize an increase in taxes.
neopundit @ Fri Sep 28, 2007 7:37 pm
Toro Toro:
Oh yeah, investment banks are whores.
But that doesn't mean they're wrong.
But that doesn't mean they're wrong.
True.
I'm really not sure what to think here. While I'm intently pro-market, I think limited natural resources should be dealt with differently. If we can squeeze out more money, why shouldn't we?
With headline after headline talking about Stelmach "standing up to the oil companies", I think he'll have a tough time backing off.