OTTAWA (Reuters) - EnCana Corp , Canada's biggest natural-gas producer, said on Friday it plans to cut 2008 capital spending in Alberta by about $1 billion if a panel's recommendations to boost royalties and taxes in the western Canadian province are adopted in full.
Such a cut would represent about 30 to 40 percent of EnCana's $2.5 billion to $3 billion planned investment in Alberta, it said.
Reductions would largely affect its natural gas activity in areas where the proposed royalty scheme makes them uneconomical or uncompetitive. The company said it would reallocate capital to investments outside Alberta.
The report said the government's take from the oil industry should rise by 20 percent, or about C$2 billion, a year.
That has drawn sharp criticism from the industry, which has mounted a campaign to discredit much of the report.
"We will have no choice but to slow down our Alberta-based activity and move investments to other areas in Canada and the U.S. that are more economically attractive," Chief Executive Randy Eresman said in a statement.
"We do not want this to happen. This does not need to happen ...We are open to changes to Alberta's royalties - changes that reflect the economic realities of volatile commodity prices, higher costs and the appropriate risks and rewards of long-term capital investments."
EnCana says could cut Alberta spending by $1 billion
Moderators: sky's the limit, sepia, Sulako, lilfssister, North Shore, I WAS Birddog
EnCana says could cut Alberta spending by $1 billion
Are we going to see a pullback? Fewer charters this year in the patch? Or is it an oil industry bluff? I wonder how the new recommendations for provincial oil revenues are going to affect operators like cariboo and sunwest?
Fearmongering and bullying again by the multi nationals who are not accountable to anyone even their own shareholders never mind any Government .
Danny Williams called their roaylty bluff and won .
King Klein was too pissed to stand up for anything or anyone.
As the bumper sticker said "please god let there be another oil boom we won't piss it away next time"and yet drunks and stumble bums gave it away again .
Danny Williams called their roaylty bluff and won .
King Klein was too pissed to stand up for anything or anyone.
As the bumper sticker said "please god let there be another oil boom we won't piss it away next time"and yet drunks and stumble bums gave it away again .
None of the oil companies have said they will completely stop drilling (or mining as the case may be) for oil and gas in the province. If the royalty review's recommendations are fully implemented, you can expect things to slow down in AB a bit though. And some will move at least a portion of their money elsewhere.
Actually, this may help charters as a few may just move their money into BC and SK instead.
Actually, this may help charters as a few may just move their money into BC and SK instead.
I agree it is a bluff. They are making money hand over fist. I like the part about "volatile commodity prices". Volatile in that it keeps going up, and no one is predicting otherwise?
I'm not clear on what the SK royalty situation is - but I have heard it is/was prohibitive compared to AB. I am sure that BC could be a major frontier if they ever let them start drilling offshore. Gordo's definitely rubbing his hands together trying to figure a way to get that by the public and keep his seat.
I'm not clear on what the SK royalty situation is - but I have heard it is/was prohibitive compared to AB. I am sure that BC could be a major frontier if they ever let them start drilling offshore. Gordo's definitely rubbing his hands together trying to figure a way to get that by the public and keep his seat.
Except that natural gas prices are volatile and are pretty low right now and a good portion of the conventional drilling in the province is going after NG. As AB is a pretty mature basin, there isn't much shallow gas left, meaning the companies have to go deeper to find more. This is quite risky and pricey and is what companies will cut back on.Volatile in that it keeps going up, and no one is predicting otherwise?
A side effect of low gas prices and cutting back is that companies will spend less on land sales (that weren't included in the royalty review calculations). In 2006 AB made $3.43 billion from land sales. So far it looks like this is dropping to $1.4 billion for 2007.
As for SK., they're getting into the oil sands business too.
http://www.canada.com/nationalpost/news ... ae6ac544f9
BC isn't doing too bad either.
http://www.dogwoodinitiative.org/newsst ... -oilandgas
I couldn't resist, seeing the uneducated responses so far.
This is not a bluff, I can assure you. The costs of executing an integrated oil sands project (for example) have gone from $35,000 per flowing barrel to $120,000 or more per flowing barrel.
Add the loss of the federal capital cost depreciation.
Add the costs of meeting ever stringent environmental requirements, many of which have not been stricitly defined and could change at any time.
Money you are seing companies make now are coming from assets built years ago at lower cost. With the new royalty regime, the rate of return on oil sands projects like Petro Canada's which was 8% at $60 oil will now drop to 6%. They could put $20 billion in a GIC and get a better return.
Bottom line is that companies will put their dollars somewhere less risky. Albertans, me being one, enjoy benefits off the risks that companies take in gambling on building these large projects. I don't suppose we will see the province offerring to give back invested money if the price of oil drops, now will we?
This is not a bluff, I can assure you. The costs of executing an integrated oil sands project (for example) have gone from $35,000 per flowing barrel to $120,000 or more per flowing barrel.
Add the loss of the federal capital cost depreciation.
Add the costs of meeting ever stringent environmental requirements, many of which have not been stricitly defined and could change at any time.
Money you are seing companies make now are coming from assets built years ago at lower cost. With the new royalty regime, the rate of return on oil sands projects like Petro Canada's which was 8% at $60 oil will now drop to 6%. They could put $20 billion in a GIC and get a better return.
Bottom line is that companies will put their dollars somewhere less risky. Albertans, me being one, enjoy benefits off the risks that companies take in gambling on building these large projects. I don't suppose we will see the province offerring to give back invested money if the price of oil drops, now will we?
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SierraPoppa
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As uneducated as my view may be if they can't make money and lots of it at $83 US per barrel they shouldn't be in the business.really wrote:I couldn't resist, seeing the uneducated responses so far.
This is not a bluff, I can assure you. The costs of executing an integrated oil sands project (for example) have gone from $35,000 per flowing barrel to $120,000 or more per flowing barrel.
Add the loss of the federal capital cost depreciation.
Add the costs of meeting ever stringent environmental requirements, many of which have not been stricitly defined and could change at any time.
Money you are seing companies make now are coming from assets built years ago at lower cost. With the new royalty regime, the rate of return on oil sands projects like Petro Canada's which was 8% at $60 oil will now drop to 6%. They could put $20 billion in a GIC and get a better return.
Bottom line is that companies will put their dollars somewhere less risky. Albertans, me being one, enjoy benefits off the risks that companies take in gambling on building these large projects. I don't suppose we will see the province offerring to give back invested money if the price of oil drops, now will we?
If they want to take their money some place else, let them the oil isn't going anywhere and we could do with a little bit of a break anyway.
They'll be back after they've had a little sulk.
Don't get me wrong, I actually think it is time for a break from the hectic pace. Just don;t kid yourself about what these companies will and won't do with their shareholders money if the business fundamentals aren't there.
Making money at $83 oil is difficult in the current environment. You should see the "craftsmen" that show up every day. You obviously have no knowledge of what it takes to get one of these monster projects on the go. You start layng out your $20 billion and don;t see a penny for 5 to 6 years. By then, you hope the price of oil is still $83.
Bottom line: 50% royalty on $1 billion is actually less than 40% on $2 billion. That math is simple.
Making money at $83 oil is difficult in the current environment. You should see the "craftsmen" that show up every day. You obviously have no knowledge of what it takes to get one of these monster projects on the go. You start layng out your $20 billion and don;t see a penny for 5 to 6 years. By then, you hope the price of oil is still $83.
Bottom line: 50% royalty on $1 billion is actually less than 40% on $2 billion. That math is simple.
You know what? If you can't make money taking our oil then leave it in the ground. I, as a taxpayer do not feel obligated to subsidize multinational oil companies who take our resources for next to nothing and sell them back to us at world price.really wrote:I couldn't resist, seeing the uneducated responses so far.
This is not a bluff, I can assure you. The costs of executing an integrated oil sands project (for example) have gone from $35,000 per flowing barrel to $120,000 or more per flowing barrel.
Add the loss of the federal capital cost depreciation.
Add the costs of meeting ever stringent environmental requirements, many of which have not been stricitly defined and could change at any time.
Money you are seing companies make now are coming from assets built years ago at lower cost. With the new royalty regime, the rate of return on oil sands projects like Petro Canada's which was 8% at $60 oil will now drop to 6%. They could put $20 billion in a GIC and get a better return.
Bottom line is that companies will put their dollars somewhere less risky. Albertans, me being one, enjoy benefits off the risks that companies take in gambling on building these large projects. I don't suppose we will see the province offerring to give back invested money if the price of oil drops, now will we?
Why should British or Dutch or American companies get rich by selling us our own oil? These companies get up to 150% tax credits for exploration. http://feinstein.senate.gov/05releases/r-incentive.htm How the hell does that work? It's time the oil companies paid their fair share and stopped raping the consumer.
It is our oil and we should not be making non Canadian companies rich for taking it.
Canada has the largest "PROVEN" oil reserves in the world. Why do we let Saudi and the rest of the middle east set "World Prices"? Why do we have to pay them? Oh yeah, because we give our natural resources to multi national companies who don't give a rats ass about us. I agree that we should nationalize it. We could probably be paying $.30 per liter at the pumps..
Shit, now you've got me going and it's early..
Shit, now you've got me going and it's early..
Media dross in the back of my mind says that the Government has approved three new refineries in Alberta years ago .The oil companies would rather pipe it south of the border where they can pollute at will .None are brave enough in the land of the brave to speak against the oil companies as long as an ex oil executive has executive powers in the most powerful country .
Canada risks lossing it's independance by not having direct control over the exploitation of Canada's resources .As long as the oil policies of Canada are written at the Head Office in Houston .The Canadian resources will be used to maximise the benefit to those south of the border .
This is a direct result of years of electing spineless gutless politicians from one Province who put the interests of that province ahead of the interests of the rest of the country.Most countries would call them traitors .
Once the Mackenzie pipeline is approved the oil will flow from the Artic challenging the oil sands economic viabilty.It is no coincidence that whenever it looks like the Mackenzie pipeline deal looks close .Companies sell off oil sand stock quicker than you can say National Energy Policy.
Most of those royalty deals were made when light sweet crude was under 25 dollars a barrel now it is 83 dollars a barrel they could treble the royalties and most of the projects would still go ahead.All it would take for all the oil sands to stop would be for the Saudis to open their oil valves like they did in 1980 causing a major bust in the north.
Although the northern oil developement is more of a strategic oil development than an economic enterprise .Just in case the wars in the middle east get out of control affecting oil production .If peace was to break out and the price of oil fell to 14 dollars the northern oil exploration would stop overnight.
Canada risks lossing it's independance by not having direct control over the exploitation of Canada's resources .As long as the oil policies of Canada are written at the Head Office in Houston .The Canadian resources will be used to maximise the benefit to those south of the border .
This is a direct result of years of electing spineless gutless politicians from one Province who put the interests of that province ahead of the interests of the rest of the country.Most countries would call them traitors .
Once the Mackenzie pipeline is approved the oil will flow from the Artic challenging the oil sands economic viabilty.It is no coincidence that whenever it looks like the Mackenzie pipeline deal looks close .Companies sell off oil sand stock quicker than you can say National Energy Policy.
Most of those royalty deals were made when light sweet crude was under 25 dollars a barrel now it is 83 dollars a barrel they could treble the royalties and most of the projects would still go ahead.All it would take for all the oil sands to stop would be for the Saudis to open their oil valves like they did in 1980 causing a major bust in the north.
Although the northern oil developement is more of a strategic oil development than an economic enterprise .Just in case the wars in the middle east get out of control affecting oil production .If peace was to break out and the price of oil fell to 14 dollars the northern oil exploration would stop overnight.
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SierraPoppa
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Seeing as you claim to be knowledgeable about all this, perhaps you can answer this then.really wrote:Don't get me wrong, I actually think it is time for a break from the hectic pace. Just don;t kid yourself about what these companies will and won't do with their shareholders money if the business fundamentals aren't there.
Making money at $83 oil is difficult in the current environment. You should see the "craftsmen" that show up every day. You obviously have no knowledge of what it takes to get one of these monster projects on the go. You start layng out your $20 billion and don;t see a penny for 5 to 6 years. By then, you hope the price of oil is still $83.
Bottom line: 50% royalty on $1 billion is actually less than 40% on $2 billion. That math is simple.
When all the planning went into building these megaprojects what was the price of oil? $40, $50, $60, $70 per barrel?
Also what was the make or break oil price used to decide whether to go or not go ahead with the projects?
The price rising to $83 U.S. can only help reduce the payback period you speak of and please don't give us the crap about the costs of production going up have outstripped the profits made from the increase in price.
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sky's the limit
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- Location: Now where's the starter button on this thing???
All I can say is, you people in Alberta better get whatever you can out them now, because your province is being ruined, and when it's gone, you're going to have precious little to show for it. I've flown every square inch of the Tar Sands, the Gas Patch and beyond, and it's nothing short of a mess. Moose wandering around with growth's the size of basketballs, waterways ruined, and air quality that makes Hamilton look nice.
This must be the only place on Earth where half a dozen major Corporations can invest the BILLIONS they have, and there still isn't a decent road into the whole works... Well done Ralphy Boy.
stl
This must be the only place on Earth where half a dozen major Corporations can invest the BILLIONS they have, and there still isn't a decent road into the whole works... Well done Ralphy Boy.
stl
The situation in NFLD... Seems AB could take a lesson or two...
Albertans have been told by the oil industry and by their government for years that if anything was done to improve the deal we are getting on royalties or taxes, the oil companies would simply pack up and leave, leaving Alberta an economically depressed wasteland.
Newfoundland and Labrador Premier Danny Williams, however, believed otherwise, and events have proved that he was right.
The government of Newfoundland and Labrador has been working for the last few years to move forward on the development of the Hebron oil field—an off-shore field estimated to contain some 700 million barrels of oil.
Negotiations between the Williams government and a group of companies (which includes Chevron, Exxon-Mobil, Petro Canada and Norsk Hydro) for the development of the field broke down in April 2006 when the oil companies refused to accept Premier Williams’s demands.
In particular it was Williams’s insistence on an equity stake for his government in the project, a higher royalty rate when prices were high and his refusal to hand out tax credits and an exemption on fuel costs that the companies pointed to as they walked from the table.
When Chevron, the lead negotiator for the consortium, announced later that year that the consortium would be dissolved and there would be no further negotiations on Hebron, Williams did something that may seem completely foreign to those of us in Alberta, and which at the time was loudly ridiculed by the likes of the Canadian Association of Petroleum Producers—he let them go.
Actually, he did more than let them go. Williams told the oil companies that the oil was not going anywhere, and that the people of Newfoundland and Labrador were more than willing to wait for its development. “They won’t wait us out,” said Williams at the time. His government refused to sign a bad deal just for the sake of developing the resource quickly. The resource would only be developed in a way that would maximize the benefits received by the people of the province.
Williams was banking on the fact that, ultimately, these companies would rather deal with him than with the Venezuelas and Irans of the world, places where the terms would be much worse and the governments less friendly.
This June, Williams was proven right—the consortium was reformed and the companies came back to the bargaining table. And just last week, Williams got what he wanted. The consortium signed a letter of understanding in which they agreed to Williams’s key demands: a 30 per cent baseline royalty, an extra 6.5 per cent in royalties when the price of oil is over $50, and a 4.9 per cent equity stake in the project for the government of Newfoundland and Labrador.
The lessons Alberta can learn from the Hebron example are many. It is clear, for example, that oil companies are not extracting our oil as a favour to us. They recognize that there is value in our resources, and they are willing to pay for that value if need be.
It is also clear that threats to pack up and leave and abandon the development of resources are often just that—threats. When faced with the prospect of getting a little less profit than they wanted versus the possibility of getting no profit at all, the companies will choose to take what they can get every time. Just ask Danny Williams.
What is required to take maximum advantage of these lessons, however, is a government willing to call the oil industry’s bluff and walk away from the table if need be. That takes some courage.
More importantly, it takes conviction on the part of the government in the belief in long-term public interest overriding the short-term interest of oil companies. No government in Alberta has been willing or able to show that degree of conviction since Premier Peter Lougheed last raised royalty rates more than 30 years ago. Isn’t it time we demanded better of our leaders? If Canada’s poorest province can risk standing up to the oil industry in favour of the public interest, certainly the richest province can too.
Energy companies are smarter then pilots,they will never work for free,or better yet pay money for a training bond for the privilage of being exploited by a dirt bag operator.
And in the end if the cost to the oil companies goes up then guess who will end up paying more for fuel?
And in the end if the cost to the oil companies goes up then guess who will end up paying more for fuel?
Gentlemen:
The general public and media focus in on the price of oil as being the sign of the oil and gas industry making money. Accurate if you live in Saudi Arabia. but not true if you live in Alberta...
The reality is that in Alberta natural gas accounts for 80% of revenue. And natural gas isn't doing so well right now.
In January 2006 gas was US$9.00 per GJ. Taking into account the exchange rate that meant the companies saw close to CDN$11.00 per GJ for thier gas.
Today gas is US$6.50 which, as everyone should know, is about CDN$6.50.
Were companies making money hand over fist at CDN$11.00, absolutely. Are they making money hand over fist at CDN$6.50? Nope.
Even if the price improves over the winter to $8.00-$9.00 range, take into account the exchange rate and it is still 30% less than two years ago when things were running full tilt.
Heap an additional 20% on to royalty expenses (which boosts the average royalty cost from about 24% of the price to say 28%-30%) and you have an industry which is breaking even in the current price environment.
Encana's warning/threat is as real as it gets. You can't kill and roast the golden goose and still expect to get the golden eggs.
The general public and media focus in on the price of oil as being the sign of the oil and gas industry making money. Accurate if you live in Saudi Arabia. but not true if you live in Alberta...
The reality is that in Alberta natural gas accounts for 80% of revenue. And natural gas isn't doing so well right now.
In January 2006 gas was US$9.00 per GJ. Taking into account the exchange rate that meant the companies saw close to CDN$11.00 per GJ for thier gas.
Today gas is US$6.50 which, as everyone should know, is about CDN$6.50.
Were companies making money hand over fist at CDN$11.00, absolutely. Are they making money hand over fist at CDN$6.50? Nope.
Even if the price improves over the winter to $8.00-$9.00 range, take into account the exchange rate and it is still 30% less than two years ago when things were running full tilt.
Heap an additional 20% on to royalty expenses (which boosts the average royalty cost from about 24% of the price to say 28%-30%) and you have an industry which is breaking even in the current price environment.
Encana's warning/threat is as real as it gets. You can't kill and roast the golden goose and still expect to get the golden eggs.
Err...Encana is based in Calgary and is focused in North America. They actually sold off holdings in Ecuador and the North Sea to focus on North America.
2R wrote:Fearmongering and bullying again by the multi nationals who are not accountable to anyone even their own shareholders never mind any Government.
Twotter, couple of things:
a) Without the resource sector the Alberta government stops being a "have" province and starts looking like Nova Scotia. How happy are your going to be when the Provincial Treasury has to double the provincal portion of income tax and introduce a 10% sales tax? Its actually resource production that subsidizes government.
b) What nobody appreciates is that it is risky this business of drilling holes in the ground to produce oil. Sometimes you spend $1million dollars to drill a well and get $2million worth of reserves back. Sometimes you spend $1million and only get back $1million in which case you break even on paper and lose money when you factor in the cost of capital.
Unfortunately you occasionally spend $1million to drill a well and get nothing.
As a management consultant once said to me, the best way to make money in the oil and gas business would be to stop drilling dry holes.
[quote="twotter"]You know what? If you can't make money taking our oil then leave it in the ground. I, as a taxpayer do not feel obligated to subsidize multinational oil companies who take our resources for next to nothing and sell them back to us at world price. [quote]
a) Without the resource sector the Alberta government stops being a "have" province and starts looking like Nova Scotia. How happy are your going to be when the Provincial Treasury has to double the provincal portion of income tax and introduce a 10% sales tax? Its actually resource production that subsidizes government.
b) What nobody appreciates is that it is risky this business of drilling holes in the ground to produce oil. Sometimes you spend $1million dollars to drill a well and get $2million worth of reserves back. Sometimes you spend $1million and only get back $1million in which case you break even on paper and lose money when you factor in the cost of capital.
Unfortunately you occasionally spend $1million to drill a well and get nothing.
As a management consultant once said to me, the best way to make money in the oil and gas business would be to stop drilling dry holes.
[quote="twotter"]You know what? If you can't make money taking our oil then leave it in the ground. I, as a taxpayer do not feel obligated to subsidize multinational oil companies who take our resources for next to nothing and sell them back to us at world price. [quote]
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SierraPoppa
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Errr Encana is only one of many.JAHinYYC wrote:Err...Encana is based in Calgary and is focused in North America. They actually sold off holdings in Ecuador and the North Sea to focus on North America.
2R wrote:Fearmongering and bullying again by the multi nationals who are not accountable to anyone even their own shareholders never mind any Government.
