I wanted to post a representative sample of the responses to my article - The Big Picture on Alberta Royalties. It will be interesting to see what the ACTUAL new royalty structure will look like. The industry currently feels betrayed by one of its own.
On average, the Alberta political landscape changes every 25 years or so. Alberta has seen only four parties form governments, none of which has returned to power after a single incumbent defeat.
I just love your Big Picture Newsletter; Thanks for sending it to me!
Now a thought on the initial impact of the full implementation of all of the Alberta Royalt Review's
1. Two billion dollars ($2*10**9) are taken from the oil patch.
2. Half of this is then spent by the Alberta Govt on Alberta Infrastructure Projects.
3. The average salary of a Canadian oil patch employee = $75*10**3.
4. The average salary of a non-oilpatch Albertan employee = $60*10**3.
5. There will be no additional PUNITIVE cuts in spending by Can. oil patch companies (ie. the only $
removed will be the 2 billion $).
a. Then an estimate of the initial, direct jobs lost over the next year(+/-) to the Canadian OIL PATCH is:
$2*10**9/$75*10**3 = 26,667 ~ 27,000 jobs.
b. Initial, direct, new jobs gained in Alberta through new, Govt, direct Infrastructure spending:
$1*10**9/$60*10**3 = 16,666 ~ 17,000 jobs.
c. Approximate net loss of jobs in Alberta:
(27000-17000) ~ 10,000 (almost all in the Oil Industry).
A simple calculation; but in 1985-1986 an analogous estimate I made proved to be pretty good in hindsight, 4 years later! I concede that oil industry employment will rebound, but how fast I do not know.
So we oil industry peons should brace ourselves; a blow is coming, for most Albertans want higher
I am a third generation Albertan who has been employed in the oil industry for almost thirty years. Like you, I was concerned but not dismayed by the Royalty Review findings, and watched bemused as the two sides faced off in the typical rhetorical corners. And as an investor, I thought there would be opportunities created by the turmoil.
...what is clear to me is that share prices have not been adjusted for the 2,000 m plus natural gas drillers if you believe the rules will be enacted as proposed. But I do think the government is more interested in the oil sands changes and there is a good chance they will not kill natural gas exploration.
We have had very good success in Alberta drilling for tight gas even with today’s prices. With the royalty changes we would spend a fraction of the $ we spent in the past even at $8.00 gas. We would concentrate on our BC plays. The problem is the cost and risks of drilling deeper wells. Even @ $8.00 the math does not work when you take 50% of the revenue and it cost $2.5 million + to drill, complete and tie-in. That is why I think these proposals will change, maybe not in the next few weeks but at least in the next few years, it’s just a math thing.
The reason the Abu Dhabi bot the trust was there is a rush for all Arab cos to get rid of US $ & acquire assetts which wont depreciate!!!!!
Appreciated your report. Of course there are conflicting interests. Each 'side' would like to see as much of a return as possible. At the same time we also should want to see everyone receive an equitable and fair share.
"Albertastan?" This I am sure is a premature or so-called "knee-jerk" reaction and those who make such comparisons may later apologize. Maybe they should consider the recent visit and comments of President Nazarbayev of Kazakhstan to and in support of the Varvarinskoye project (EPM). Maybe we can even learn from this example how govermnent and commerce can work together for the benefit of all in the community.
Thanks for your helpful and detailed summary.