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It’s grim up north… and getting grimmer. Amid soaring suicide rates, Canada’s once-booming oil patch is rapidly accelerating its downward trajectory. “Canadians should be concerned in times like these,” warned Tim McMillan, president and chief executive of the Canadian Association of Petroleum Producers, noting that the oil and gas sector will see 100,000 job losses by the end of this year. Even if oil prices rise early and fast next year, Financial Post reports, it may take a while for Canadian oilsands to rebound as the industry has mothballed a number of long-term projects.

Over the past year, we have extensively chronicled the tragic story of Alberta – Canada’s once booming oilpatch – disintegrate slowly at first, then very fast, into an economic and financial wasteland:

And, in one of the latest articles of this sad series describing the Alberta “bloodbath”, we said that the worst casualty of Canada’s recession has been the local commercial real estate market, where office vacancies are about to surpass the aftermath of the (first) great financial crisis.

But, it turns out the biggest casualty of Canada’s recession, which unless oil rebounds strongly soon will follow Brazil into an all out depression, are people themselves. As CBC reports the suicide rate in Alberta has increased dramatically in the wake of mounting job losses across the province.

Sadly, as The Financial Post reports, the situation looks set to get worse… as policy uncertainty has exacerbated the pain of low prices…

…click on the above link to read the rest of the article…

Why Are People Cheering Alberta’s Climate Plan?

December 16, 2015

Why Are People Cheering Alberta’s Climate Plan?

Notley didn’t slay province’s CO2 dragon. She blinked, aiding pipelines and bitumen.

Albert Premier Rachel Notley: on close inspection, her NDP government’s plan is geared to warming public to new pipelines. Photo: Dave Cournoyer via Flickr. Creative Commons licensed.

I had to do a bit of a personal check in as I watched Alberta’s new climate plan being paraded before the public earlier this month. I found some aspects of the plan downright disturbing, but a lot of the quick-out-the-gate commentary talked up how great it was. Not sure if I was just nitpicking, I held my tongue.

But now, after seeing how the plan was debuted in Paris and framed in the media, I think there’s need for an honest talk about what just happened in Alberta. I’m afraid that once you strip off the accessories, Alberta’s plan is just a naked grasp at social license for new pipelines — and those pipelines remain as big a threat to our future as ever.

When the Orange Wave broke over Alberta, I felt a surge of optimism. However, just as President Obama failed to bring transformative change to the banking sector in the U.S. during a time of economic crisis and opportunity, NDP Premier Rachel Notley has failed to seize her opportunity for transformative change in the Alberta energy sector. In fact, her government seems to have dug in to support the status quo.

Below, my take on some of the highlights of the Alberta climate plan, and why it doesn’t justify a stand down in the fossil fuel export fight.

Ending coal fired power by 2030

Alberta’s climate plan calls for an end to coal fired power, a great move with widespread public support. Two thirds of the province’s coal plants would have shut down by 2030 under rules put in place by Stephen Harper, and by closing the rest Notley has hastened the end of the dirtiest form of electricity production in the province.

…click on the above link to read the rest of the article…

Suicides In Alberta Soar In Wake Of Canada’s Oilpatch Depression

December 8, 2015

Suicides In Alberta Soar In Wake Of Canada’s Oilpatch Depression

And, in the last article in this sad series describing the Alberta “bloodbath”, we said that the biggest casualty of Canada’s recession has been the local commercial real estate market, where office vacancies are about to surpass the aftermath of the (first) great financial crisis.

We were wrong: the biggest casualty of Canada’s recession, which unless oil rebounds strongly soon will follow Brazil into an all out depression, are people themselves. As CBC reports the suicide rate in Alberta has increased dramatically in the wake of mounting job losses across the province.

According to the Canadian media, the most recent data only goes to June, but according to the chief medical examiner’s office, 30 per cent more Albertans took their lives in the first half of this year compared to the same period last year.

That’s how bad Canada’s economic recession is: the real casualties are no longer metaphorical economic objects, but the very people who until recently enjoyed comfortable lives only to succumb to an unprecedented collapse in the local economy.

Here are the statistics as reported by CBC:

From January to June 2014, there were 252 suicides in Alberta.
During the same period this year, there were 327.

…click on the above link to read the rest of the article…

Don’t Tell These Ranchers Climate Change Isn’t Real

November 17, 2015

Don’t Tell These Ranchers Climate Change Isn’t Real

The push to make Alberta’s cattle ranges drought resistant.

Alberta cattle ranchers

Mac Blades (middle) fellow ranchers Frances Gardner and Gordon Cartwright recently won a long battle to have their drought-resistant heritage rangelands protected from coal bed methane and other energy developments. Photo by Ed Struzik.

Among the many pictures on the walls of the Rocking P ranch house is one of owner Mac Blades with singer Ian Tyson and other local ranchers riding their horses across a snowy hillside in the Livingstone Mountain range of southwestern Alberta. The photo made the front pages of both national newspapers in the fall of 2002, when Tyson, Blades and the Pekisko group of ranchers went public with their call for a moratorium on oil and gas development in the region.

Their call came on the heels of the worst prairie drought in more than 70 years.

Thirteen years later, Blades and his family are still ranching, running about 800 cows on 10,000 acres of land they own or lease. Drought slammed the region again this summer, but the Rocking P fared quite well this time. Part of it had to do with the relatively good spring moisture that carried them through the dry weeks. Most of it had to do with the grasslands Blades and others have been trying to protect.

“Even in years of drought, we do better than most because our native grasslands capture and filter water, build and protect soil, and protect us from drought,” says Blades. “And because the weather is warming, it’s got to the point where we can let our animals out to graze in winter rather than spend money on fuel and feed to get them through the cold months. We just don’t have the cold winters we used to have.”

…click on the above link to read the rest of the article…

Transcanada Just Killed The Keystone XL Pipeline

November 2, 2015

Transcanada Just Killed The Keystone XL Pipeline

In an ironic twist, just hours after we discussed the record capital outflow from Canada, resulting from the plunge in oil prices and the mothballing of Canada’s energy industry, Obama’s long-desired goal of killing the Keystone XL pipeline has finally come true.

Moments ago, the WSJ reported that Alberta-based Transcanada asked to suspend its U.S. permit application, “throwing the politically fraught project into an indefinite state of limbo, beyond the 2016 U.S. elections.”

Calgary, Alberta-based TransCanada Corp. sent a letter to the State Department, which reviews cross-border pipelines, to suspend its application while the company goes through a state review process in Nebraska it had previously resisted.
“In order to allow time for certainty regarding the Nebraska route, TransCanada requests that the State Department pause in its review of the Presidential Permit application for Keystone XL,” the company said in the suspension request reviewed by The Wall Street Journal. “This will allow a decision on the Permit to be made later based on certainty with respect to the route of the pipeline.”

The WSJ correctly notes that “the move comes in the face of an expected rejection by the Obama administration and low oil prices that are sapping business interests in Canada’s oil reserves.” Clearly the former was never an issue before, however the collapse in oil prices and the resultant plunge in CapEx spending means that the pipeline no longer made much economic sense.

Shell Scraps Oil-Sands Project, Points at Big Issue For Canada

October 30, 2015

Shell Scraps Oil-Sands Project, Points at Big Issue For Canada

On October 27, the Anglo-Dutch oil major announced that it was pulling the plug on its Carmon Creek oil sands project in Alberta, Canada. The project was expected to yield 80,000 barrels per day in oil sands production, which was originally greenlighted in 2013.

However, the markets have turned against Shell. In March, the company said that it would alter the design of the project to “take advantage of the market downturn to optimize design and retender certain contracts.” The logic was that low oil prices are forcing cost reductions up and down the supply chain, potentially allowing the company to lower construction costs.

Still, the company would need a rebound in oil prices to make the project viable, a rebound that never came. “After careful review of the potential design options, updated costs, and the company’s capital priorities, Shell’s view is that the project does not rank in its portfolio at this time,” the company said in a statement.

But that is not all. Shell also included a very intriguing justification for cancelling the project. They said that the decision to scrap Carmon Creek “reflects current uncertainties, including the lack of infrastructure to move Canadian crude oil to global commodity markets.”

In other words, the 80,000 barrel-per-day project will not be completed because Canada does not have enough pipelines. For years environmental groups have been protesting the Keystone XL pipeline under the premise that blocking infrastructure would force oil companies to keep their reserves in the ground. Such a strategy could also help stop greenhouse gas emissions from rising.

Supporters of the controversial pipeline, which would see Alberta oil sands travel to the U.S. Gulf Coast, argued that the project would have no effect on carbon emissions because the oil sands would be developed with or without Keystone XL. If the pipeline wasn’t built, the thinking goes, the oil sands would find another way to market.

…click on the above link to read the rest of the article…

River Supplying Water To Alberta Oil Sands Operations At Risk From Drought

October 16, 2015

River Supplying Water To Alberta Oil Sands Operations At Risk From Drought

A new study casts doubt on the long-term ability of the Athabasca River to supply the water Alberta’s oil sands industry relies on.

Water is allocated to oil sands operations based on river flow data collected since the 1950s, but that doesn’t necessarily represent an accurate assessment of the Athabasca River’s flow variability over the longer term, according to a report published this week in the Proceedings of the National Academy of Sciences.

Development of Alberta’s oil sands, the world’s third-largest crude oil reserve at an estimated 168 billion barrels, uses a lot of fresh water — more than 3 barrels of water for every barrel of oil produced. Currently, the oil sands industry is allocated 4.4% of the mean annual flow of the Athabasca River to meet that demand. In 2010, the oil and gas industry accounted for 74.5 percent of total surface water allocations in the Athabasca River Basin, the report says.

That allocation takes into account seasonal fluctuation, but not long-term climatic variability and change, the authors of the report write — even though the region has a history of droughts and future droughts are likely, suggesting the industry’s water use might be unsustainable.

Syncrude_mildred_lake_plant
Syncrude’s Mildred Lake oil sands operation in Alberta, Canada. Photo via Wikimedia Commons.

Researchers from the University of Regina and the University of Western Ontario, both in Canada, analyzed the measured river flow record for the Athabasca River Basin while accounting for the effects of climate oscillations that can confound attempts to spot long-term trends, like the Pacific Decadal Oscillation, the Pacific North American mode and El Niño.

Their analysis revealed declining flows throughout the river basin, which is consistent with the record of regional warming and the resulting loss of glacier ice and snowpack at high elevations in the Rocky Mountains, the origin of much of the Athabasca’s water.

…click on the above link to read the rest of the article…

Newfoundland’s oil ripple effect: As prices fall, commuting workers stay home

October 6, 2015

Newfoundland’s oil ripple effect: As prices fall, commuting workers stay home

The big paycheques from Alberta are drying up, and with them the economic good times

It was a tell-tale sign when East Coast Catering of St. John’s laid off 44 workers in September. The company supplies meals and housekeeping services to Newfoundland’s offshore oil rigs, two of which departed this year at the end of their contracts.

‘I am certainly not pushing the panic button, but I think we should have our hand hovering over it.’– Radio host Paddy Daley

“The majority of our business is not directly impacted by the recent drop in oil prices,” East Coast Catering said, but the subtle signs of a downturn are there.

“I am not worried yet. And I am certainly not pushing the panic button, but I think we should have our hand hovering over it,” said Paddy Daley a well known call-in radio host for VOCM in St. John’s.

Newfoundland’s offshore oil industry has been somewhat insulated from the shock of plunging oil prices over the last 16 months, but the long tail of job losses and cancelled contracts so clearly evident in Alberta is beginning to show, especially as the province’s “turnaround workers” come home for good.

Darryl Day worked in Alberta’s hydraulic fracturing industry. He was laid off in June, one of many Newfoundlanders who’ll no longer make the commute to the Alberta oil patch.

For years, thousands of Newfoundlanders commuted back and forth to Alberta’s oil patch, working three or four weeks at a time and bringing home plump paycheques. Many of them aren’t going back this fall.

Darryl Day used to fly from Gander to Alberta and back — 22 days out, 13 days back home. He was recruited at a job fair in Newfoundland six years ago to drive heavy machinery for a hydraulic fracturing company. Those were the “good times.”

“Different companies would run three or four job fairs in Newfoundland a week and they would leave with however many employees,” Day said. “Then if they ran short, they would come back again.”

…click on the above link to read the rest of the article…

Canadian Oil Trapped Without More Pipeline Capacity

September 24, 2015

Canadian Oil Trapped Without More Pipeline Capacity

Adding insult to injury for Canada’s oil industry, Democratic Presidential candidate Hillary Clinton came out against the Keystone XL Pipeline on September 22, ending several years of silence and waffling on the controversial issue.

That comes as a blow to TransCanada, the project’s backer, who wanted to connect Canada’s oil sands to refineries on the U.S. Gulf Coast. The 1,179-milepipeline would allow 830,000 barrels of oil per day to be exported from Canada. Clinton’s opposition will add some pressure on the U.S. President to reject the pipeline, which looks increasingly likely.

But if the pipeline is rejected, it won’t just be bad news for TransCanada, but also for Canada’s larger oil industry. Canadian crude trades at a discount to WTI, in part because of a lack of pipeline capacity. That discount has fluctuated over the years – ranging from $40 at a high point to around $15 today – but the bigger the discount, the more revenue is lost by Canada’s oil producers.

Now with oil prices less than half of what they were from a year ago, the discount that Canada’s oil sector must sell their oil for is even more painful. “At $100 a barrel it was a big concern. At $45 a barrel, that is a far larger percentage (of revenue) and is likely the difference between profitable and unprofitable on many of the assets,” Tim McMillan, president of the Canadian Association of Petroleum Producers (CAPP), told Reuters in an interview in early September.

…click on the above link to read the rest of the article…

Oil sands pipelines now back on the election agenda

September 24, 2015

Oil sands pipelines now back on the election agenda

Mulcair may have the most explaining to do in tonight’s French-language leaders’ debate

So now we know. The woman who wants to be the next Democrat to occupy the White House has made a decision that the president she hopes to succeed hasn’t, or won’t.

Hillary Clinton came out against the Keystone XL this week, the Canadian-backed pipeline that would carry Alberta bitumen — and some North Dakota crude — through the heartland of America to the giant refineries on the U.S. Gulf Coast.

“I think it is imperative that we look at the Keystone pipeline for what I believe it is — a distraction from the important work we have to do on climate change,” Clinton said at a meeting in Iowa, which just happens to be a key battleground state for Democrats in the lead-up to the presidential nomination race next year.

She used stronger language in a later tweet, saying “it’s time to invest in a clean energy future not build a pipeline to carry our continent’s dirtiest oil across the U.S.”

American progressives and environmentalists — key Democratic constituencies — immediately cheered her decision. Barack Obama likely did, too, from the privacy of the Oval Office.

After delaying his own decision, again and again, Clinton’s statement may well relieve him of having to make one at all.

Clinton, too, had delayed stating where she stood. And for good reason. She was Obama’s secretary of state when her department concluded Keystone XL would have no significant impact on oil sands development, support 42,000 jobs and generate billions in tax revenues in the U.S.

But these days, Clinton is more interested in burnishing whatever climate-friendly agenda she intends to roll out, especially now that she’s facing a real threat for the Democratic nomination from Vermont Senator Bernie Sanders.

…click on the above link to read the rest of the article…

For Canadian Oil Sands It’s Adapt Or Die

September 16, 2015

For Canadian Oil Sands It’s Adapt Or Die

That low oil prices are squeezing out oil sands producers is not breaking news. But in spite of a grim oil price outlook, production out of Calgary has continued to grow, defying both expectations and logic. The implications are serious, not just for the future of Canada’s energy industry and economy, but also North American energy relations.

In June 2015, the Canadian Association of Petroleum Producers (CAPP) revised down its 2030 production forecast to 5.3 million barrels per day (mbd). A year earlier the group predicted Canada would be able to produce 6.4 mbd by 2030. This is compared to the 3.7 mbd produced in 2014. Most experts agree that capital intensive oil sands projects are marginal – if not loss-making – in the $45 – $60 range. Yet production continues apace.

Of course, the nature of capital intensive operations such as the oil sands is that they are also prohibitively expensive to shut down. Producers are left in limbo, praying that prices will rise.

The implications for Canada should not be understated. Of the nation’s estimated 339 billion barrels of potential oil resources, oil sands account for around 90 percent. The Canadian dollar is at a decade low, which softens the blow for exporters in the short term but the long-term economic consequences are less rosy.

Projects are being delayed, and many experts wonder if the current oil sands model has a future. Peter Tertzakian of ARC Financial told Alberta Oil Magazine that the era of oil sands mega projects was over.

In Alberta, an estimated one in 16 jobs is tied to the energy sector. According to the National Energy Board, crude oil and bitumen brought in $70 billion for Canada in 2014. Perhaps, as Tertzakian noted, new projects will simply adapt, becoming more nimble, flexible, and focused on value rather than quantity.

…click on the above link to read the rest of the article…

Oil Price Increase Will Not Come Fast Enough To Save Alberta

September 13, 2015

Oil Price Increase Will Not Come Fast Enough To Save Alberta

“There’s just no cash.” That’s the Coles Notes from a senior banker describing the book of oil service loans he manages for one of Alberta’s leading lenders. There’s simply not enough cash flow to support current levels of debt.

Bankers and borrowers have kicked the can down the road about as far as they can as more oilfield service (OFS) and exploration and production (E&P) companies default on their loans and seek more relief on lending covenants. While a significant oil price increase to lift all the sinking boats will surely come, it won’t happen soon enough. More of the same won’t work.

Oil industry debt is everyday news. But the discussion is about the symptoms, not the ailment.

Companies cannot borrow their way out of debt. Equity capital is only available at distressed valuations. Specialized OFS assets will fetch only a fraction of replacement cost—if somebody actually wants them. Although oil and gas reserve valuations are down by half, borrowers are being forced to sell them anyway to repair balance sheets. The last four months of 2015 will be very difficult for any company with meaningful amounts of debt. Same for their lenders, the other signatories to the loan agreement.

As the banker said, “There’s just no cash.” Here’s what it means.

The foundation of global credit markets is based upon the borrower’s capability, obligation and commitment to pay the money back. The amount of money anybody can or should borrow is dependent upon free cash. Not forecast cash flow, not earnings before interest, taxes, depreciation, and amortization (EBITDA), not good intentions. Free cash. How much money is available to service debt after all the other bills are paid. This is the key factor behind every credit application, from a car loan or home mortgage to an operating line of credit or senior secured term debt. The more free cash you generate, the more you can borrow. When free cash drops, the opposite is true.

…click on the above link to read the rest of the article…

Alberta’s Oil Companies Warn Government On Taxes

September 7, 2015

Alberta’s Oil Companies Warn Government On Taxes

Big oil is taking no chances with the outcome of Alberta’s royalty review currently underway. In 2007, the industry was surprised when royalties were jacked up despite dozens of corporate presentations to the royalty review panel warning of the fragility of investment economics and the damage increased royalties would cause. Therefore producers and others with significant vested interest have already started the lobbying process.

Such is the case with Canadian Natural Resources Limited (CNRL) which made a slide presentation to the new NDP Alberta government on August 20. The industry has obviously learned never to assume politicians actually understand what makes the economy and oil industry work.

The presentation’s key messages were: CNRL is a responsible operator in every way; jobs are created by investment, supported by a positive return on capital; Alberta needs a supportive environment which creates jobs; Alberta is a high cost place to do business, and historically, returns on investment have been poor. That’s when prices were high. It is worse now.

CNRL has been very successful because it is all business. Any oilfield service contractor working for CNRL knows how much price matters to that operator. The company’s Mission Statement reads, “To develop people to work together to create value for the Company’s shareholders by doing it right with fun and integrity.” There is little confusion about why CNRL is in business and what it is trying to accomplish. The presentation ended with the message, “Share the contents of this presentation with your friends and family.” So here we go.

You hope when CNRL talks somebody listens. The company is a made-in-Alberta success story. The public corporate entity started life in Vancouver in 1973 as AEX Minerals Corporation, a junior miner which explored for zinc and lead in the Yukon. In 1975 it was renamed Canadian Natural Resources Limited and registered in Alberta 1982. The company has been on a breathtaking growth tear ever since.

…click on the above link to read the rest of the article…

What’s Coming Unglued Now in Canada?

September 5, 2015

What’s Coming Unglued Now in Canada?

Canada lumbered through the first half of 2015 in a “technical recession,” Statistics Canada confirmed this week, as GDP shrank in both quarters. Among the culprits: the swooning energy sector and an investment slump.

Now everybody is lining up behind the hope that a sudden acceleration will put the economy back on track in the third quarter, despite oil that has re-crashed and despite the ongoing collapse – and that’s what it is – of the all-important energy sector.

To get to this acceleration, the once booming residential and commercial construction sectors have to hold up, or else Canada’s economy is in real trouble. Alas….

“Canada is also in the midst of an ill-timed supply surge that caused vacancy rates to rise even in markets with positive absorption” in the second quarter, warns a new report by commercial real estate firm Colliers International cited by the Financial Post. It paints a picture of an epic office boom turned into an even more epic office glut, particularly in Calgary and Edmonton, Alberta, the epicenter of Canada’s oil patch.

This office glut comes on top of Calgary’s housing meltdown. For the first eight months, total home sales in Calgary plunged 25%, according to the Calgary Real Estate Board. Condo sales collapsed 39% in August and 30% year-to-date. Inventory sits a lot longer on the market before it sells, if it sells. And pressures are building on prices: the average condo price was down over 10% in August from a year ago.

Commercial real estate is heading in a similar direction. Only worse. Calgary was a boom town. Office towers have been sprouting like mushrooms. In recent years, commercial real estate costs downtown were “going through the roof” and “accelerating at a pace far beyond the Canadian average,” Calgary Chamber of Commerce director of policy and research Justin Smith told the Financial Post. But it takes years to plan and build office towers, and now no one can just turn off the flow.

…click on the above link to read the rest of the article…

Alberta has lost 35,000 oilpatch jobs, petroleum producers say

August 31, 2015

Alberta has lost 35,000 oilpatch jobs, petroleum producers say

With cuts more likely to come in the fall.

Less than a year ago, Alberta was still complaining of a labour shortage. Schools couldn’t find bus drivers, job vacancy rates were the highest in the country.

It’s no secret that the situation has changed.

The Canadian Association of Petroleum Producers says that 35,000 oilpatch jobs have been cut this year, 25,000 from the oil services sector and 10,000 from exploration and production. CAPP pulled the number together by canvassing its members, reviewing Statistics Canada numbers and working with the Canadian Association of Oilwell Drilling Contractors.

I have CEOs that have pulled free pop out of the office, because they can save $40,000 across the company and that’s half a job.”– Tim McMillan, CAPP

“This is tough, they’ve been struggling to get a workforce, that was always the challenge,” said Tim McMillan, chief executive of CAPP.

“Today they are laying off people that they view as very valuable. I have CEOs that have pulled pop, free pop out of the office, because they can save $40,000 across the company and that’s half a job.”

Meanwhile, other industries are picking up some of the slack. The monthly labour force survey shows that Alberta’s job growth has been largely flat this year, jobs that have been lost in the natural resource sector seem to have been created elsewhere.

“There are definitely a lot of people from the oilpatch looking right now,”– Murray Glass, Southland Transportation

School bus company inundated with applications

After years of struggling to find drivers, Southland Transportation, which provides school buses to Calgary schools, has been inundated with applications this year, including some from engineers and geologists.

…click on the above link to read the rest of the article…

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