alberta advantage

Competitiveness Review

2010-02-04T11:09:00.000-08:00

Well it has been a long time since I posted to the blog. With the past six months being very busy with meetings and letters as well as trying to address so many different things it has left little time to keep things updated.

Since the last post there has been many changes in our industry. Gas hitting unreal lows, federal govt. changes regarding EI, and a cabinet shuffle in the Alberta Legislature. I had the opportunity to attend the Progressive Conservative AGM in Red Deer this year, at which time I manage to get some time with Minister Knight. Funny how after the drop off in our sector since the New Royalty Framework was announced, he could brush it off simply as low commodity prices.

The Competitiveness review that was announced in Banff by Premier Stelmach was promised to be completed by October of last year. Well it is now February and still we have no sign of it, nor a committed release date. It is vital that they get it right this time, however it is equally important to roll it out in a meaningful time frame. This years winter drilling season is coming to a close fast, and the activity in our province is lagging. We have suffered the massive layoffs in our sector, the revenue into the Government coffers has declined, and our equipment is leaving the province at an alarming pace. Dragging their feet is only multiplying these. As employees in the Alberta Oil and Gas sector we need our investors to feel confident in our government, and proof Alberta is still an attractive place to invest.

When I was working to get the employment benefits onto an equal playing field, I called the CFIB. My call was promptly returned by Danielle Smith and I set out to discuss the insurance program with her. Even though we are not a member of CFIB she took the time to look at the numbers with me to ensure they were correct. The point of this is last year she also became the leader of the Wildrose Alliance Party. I have listened to her speak of our industry numerous times and I am very impressed at how well she understands the importance to Alberta's future. Since she was named leader many good things have been in the works for our industry with the Government doing a competitiveness review, the Liberal Party of Alberta agreeing that the royalty formulas hurt our provincial prosperity, and the Wildrose Alliance fighting harder than ever for our industry. Like many of you who work in the industry, I never tied my job to politics. What has become apparent is that indeed our jobs depend on it, as well as thousands of others. Now I would never want to use this to promote one political party to another, but one thing you will want to look at the next time you vote is their energy platform.

I will be trying to get a meeting with the new energy minister Ron Liepert, to ensure that as workers we have a say as well. One thing that has gone on as of late is the Government has sat down with industry this time around, so I hope the new competitiveness review reflects what we will need to get back to work. There is more at our website www.grassrootsoilworkers.com

Incentive Plan Extension

2009-06-25T16:06:00.000-07:00

Another tweak to the drilling and royalty incentives was announced by the Alberta Govt. today extending the two current incentives for yet another year.

You would think that with this he is hearing what we are saying, but there is no truth to this at all. Nothing else has changed from the week before outside of the extension. Gas prices are in the toilet and look to remain there for some time, therefore drilling based on a one year extension on royalty breaks means absolutely nothing, albeit it seems they may have come to the realization there is a problem. Maybe dropping our ranking to the eighth best province to invest in the oil and gas sector had something to do with this.

The only way to help bring in investment dollars is to outright cancel the NRF. By the time prices stabilize enough to where the juniors have enough money to drill the incentive program may not benefit them at all. All of the production before the incentives release in November 2008 are paying the royalties under the NRF. In the price low environment they can not afford to drill and complete the wells and in a higher price environment the royalties are punitive. This leaves no upside for producers and meddling with royalties time and time again does not help bring a stable framework, but eliminates it. With oil at $70US and our dollar at .87 oil is profitable at the moment so why aren't we drilling?

The answer is simple, there are better places to invest.

The Need for Intelligence

2009-06-16T10:51:00.000-07:00

Once again nothing but disappointment from the Provincial PC Government.
The three day annual investment symposium kicked off Monday. The mood has changed considerably in the last year since oil and gas prices peaked in July. The investment community is naturally concerned with the low commodity prices and balance sheets more than the actual activity they want to pursue. This brings me to the point.
Why would CAPP invite Mel Knight to speak at such an important event? This investment symposium had a great amount of negativity regarding the the current royalty regime, as well as the impact which comes along with it being how and where to spend the money. Then we have our genius energy department trying to convince the audience that the government is in line with industry and focused on the same issues as the industry. Conversations overheard at the break confirmed this was viewed as false. Reported in the Calgary Herald was this "One industry exec said the current royalty structure doesn't take into account Alberta's geological characteristics and has put the province at a disadvantage relative to other jurisdictions".
As an industry we have all pleaded with our government to re-open the issue and listen to our concerns, of course Mel Knight made sure to point out at the symposium that they would not go back on the existing framework. It is this way of thinking that has damaged our reputation of being a favorable place to invest, causing billions of dollars in capital to flee. The fallout is NOT the oil companies continuing to make money in other jurisdictions, but the tens of thousands of job losses in our province our own government continues to show a lack of intelligence or remorse about.
http://www.calgaryherald.com/business/energy-resources/Pain+persists+among+Calgary+energy+bosses/1699455/story.html

Skewed Perception

2009-06-01T11:42:00.000-07:00

Our PC government in Alberta is now trying to paint the picture they are industry friendly. This could be further from the truth whether your looking at the royalty rates or the incentive program.
On the royalty issues they claim that it was planned to take very little when the commodity prices are low, and make it back when the prices recover. Unfortunately this puts the province in a peculiar position of not having the income they can budget with when prices are low. Oil and gas companies will definitely enjoy the lower rates. Unfortunately when prices recover the rates charged on oil and gas are punitive and the capital will still be spent in the more profitable areas. No company is going to move forward in a low price environment, therefore the break helps with existing production to the O&G producers. When prices recover the producers will look for the most profitable areas to commence their drilling programs. Drilling where it is only beneficial in a low commodity price environment is surely not one of the considerations made.
The incentive programs introduced are not bad. You would think it would spur on some additional drilling. Unfortunately the majority of juniors do not have the money available to take advantage of them in a low price environment. This is also coupled with the fact that Alberta is no longer a desirable or secure place investors are willing to place their money. The large companies and companies the good producing wells do not receive the full benefit of the incentive program therefore they are not looking to capitalize on them.
To sum it all up the only thing we can do as a province to attract investment dollars and increase activity in our province is to revert to the old royalty process. This of course is the minimum, cutting the red tape and introducing a flat rate royalty based on the net would be even better. This would ensure that Albertans would receive the share of royalties based on profit, which if done would build a partnership as well as take on reward for risk. This would generate thousands of jobs and provide a secure royalty system, attract investment, and provide the province with a more beneficial ownership in our resources.

Oilsands Royalty Drop

2009-05-14T11:25:00.000-07:00

Here we go again. Painted is the picture Alberta is not receiving it's 'Fair Share' for oil and gas. It is agreeable that the royalty charged in a low commodity price environment is not beneficial to the province, however when the price stabilizes at the higher rates the royalty charge will be punitive. This certainly proves how inept and how little thought the provincial government put into the NRF before implementing it.
When the new royalty regime was brought in the commodity prices were at an all time high, spurring the provincial government to try and collect more. Now prices are low and they are collecting way less on bitumen than they would have with the old royalty structure. This should solidify the fact that if the government can not budget with the new regime, then the investment community certainly has no chance. The new regime has cost the province to many millions of dollars to mention. We need to reopen the royalties and form a stable environment not only for Alberta but the investment community as well. The outcome of the regime has cost us thousands of jobs, millions of dollars, not to mention a reputation as a bad place to do business. Who's to blame this time??

One Big Increase !!

2009-04-29T14:59:00.000-07:00

Ouch. The number of Albertan receiving EI skyrocketed over 27% from January to February. For some reason I don't think we will be the envy of the rest of Canada anymore, especially since this is the biggest gain across the country.
This brings the amount of people in our province receiving benefits to 30,600. Fairly scary considering a large part of our province is not eligible to receive them. Iris Evans still is standing by her fiscal forecast of only 15,000 job losses and banking on the fiscal average for natural gas target about 30% higher than it is. Hopefully they really did not budget for this. We as a province need to create jobs through our Provincial govt. There is a huge opportunity through value added for oilsands, financing for junior O&G especially since the royalty fiasco eliminated cash flow to the province, lower royalties to regain confidence in our province, etc....
The other option is to stay the course run a high deficit, beat up on health care, education, and raise taxes (they left this one open, but the education tax increase is surely in the general revenues). If the government can't respond to the people or groups that ask the tough questions, I would have to assume they simply do not have any answers.

Alberta In Recession

2009-04-27T16:44:00.000-07:00

According to Canadian Statistics Alberta's Provincial economy sank into recession in 2008. Estimates had Alberta's economy set to grow between one and two percent in 2008 and then going into negative territory this year.

Funny that leading the economic growth was Saskatchewan which bolstered a 4.4% expansion last year. This being said we had quite a year in Alberta as well. This year we start to collect our fair share of an additional 1.7 billion in resource revenues and we eliminated health care premiums. The unfortunate part of this was the repercussions of this. Implementing the NRF we effectively eliminated investment in our energy sector costing too many thousands of jobs to mention as well cratered the provincial revenue. We will run a massive deficit this year, we have lost our gas rebates, chiropractic care is no longer funded, seniors have to fight and rally to retain drug coverage, and so on. But hey, we don't pay for Alberta health care, although it may have been cheaper the other way.

We contacted our Provincial government regarding the employment insurance issue and did not even receive an acknowledgement. This is all the while they took a huge pay increase last year, and gave 40 million in bonus to senior bureaucrats, meanwhile the rest of us struggle to succeed. Seems reasonable to me, no?

Saskatchewan Courting Alberta

2009-04-24T11:33:00.001-07:00

Well I am impressed to say the least.
This week the Saskatchewan Government had the foresight to see an advantage in the Alberta oil and gas industry. A letter from the minister of enterprise and innovation as well as the minister of energy and resources was sent to industry companies all across the province. Their intent is to welcome those unhappy with the Alberta climate to pursue opportunity in their province as well as presenting numbers in their economic growth. What a change this would be to have a provincial government that would support industry, and realize the rewards they would reap by employing their residents, collecting taxes, and royalties from the companies as well as the people they employ. A government intelligent enough to realize the economic benefits is only there right now because they have tried the route our province is heading. If we are not friendly to business not only do our employment numbers show it, but as our government is learning the fiscal revenues will feel it as well.
This is not to say whether or not Saskatchewan is the place to be, as I have spent my life in Alberta reaping the rewards it has offered, as has everyone else here. We need our government to take a proper approach to industry and the employment it creates, as the Saskatchewan Government has done, wanting our people, equipment and businesses to stay here, and not giving any reasons whatsoever in being open to the option of leaving. There is a reason we all moved to, or stayed here for. Hopefully we can get it back.

Alberta comes to aid of Precision Drilling

2009-04-21T15:39:00.000-07:00

Here is the title of the article in the Calgary Herald yesterday. Did the government have a simple investment or was this a bailout? Alberta Investment Management Corp bought 35 million trust units for gross proceeds of 105million, as well as $175-million in eight-year senior unsecured notes at 10% interest. The funds are managed by Leo de Bever, who previously ran the Ontario Teachers' pension fund, and gave him carte blanche to pursue a more aggressive investment style.
If indeed the Government was trying to do a bailout they have not succeeded. There is no doubt that the industry giant would weather the storm by selling more shares if necessary. As far as a healthy investment? I would say long term it is sure to be a solid investment. Could the money be put to better use? This depends on whether or not it was investment money or government injection. If this is the latter choice, injecting it into a single company does not help industry at all. If the Stelmach Regime wanted to help industry (ha ha) they would be wiser to invest in Junior producers or value added for the oilsands industry creating multiple jobs.
It does make one wonder if each rig creates 120 jobs per million dollars spent and the infrastructure creates 80 jobs per million spent why they would not invest their money where it would create the most employment for Albertans.

Employment Insurance

2009-04-16T18:05:00.000-07:00

Well today we kick off our first initiative of the new year, tackling the Employment insurance problem. Every day more and more Albertans are trying to claim for the policy they were forced to buy. The federal government makes thing very unclear on this, but one thing for sure it's an insurance policy designed for those that lose their job. We as Albertans have paid in huge surpluses over the years and in return we have the most unfavorable coverage when we finally need it. We are hoping that the provincial government will see the shortcomings in the system and go to bat for Albertans by challenging the issue in Ottawa. With our cost of living in this province being as high as it is, the massive amount of people being laid off depend on it!!! Here's hoping they move quick. for more info go to www.grassrootsoilworkers.net

Budget Time

2009-04-10T09:48:00.000-07:00

This week the Stelmach Government announced the new budget. It is safe to say that they have gotten a mixed review, albeit Ed publicly claims they have it right once again. The part which is scary is that the very same claim was made when the NRF was implemented which has indisputably cost us tens of thousands of jobs.
Every day jobs are being lost in our province, we have already exceeded the amount of job losses Iris Evans announced by 100%. They based their budget on gas prices which we will surely not see this year, which will make the first deficit we have faced in many years, way more than predicted since the natural gas accounts for an enormous part of our provincial income. Our government also announced it will increase the education tax, eliminate funding for chiropractic care, eliminate the natural gas rebate, apply a sin tax, as well as mentioned they will definitely increase taxes if they feel it is necessary. Any other business has to run within it's means, not having the option to just collect more if they need. Every day directors of banks and large public companies are being challenged on the fact they are taking huge wages and bonuses while the companies are being bailed out. Consider our government a huge business, which we as taxpayers have been providing money to. Compare the Alberta Government to AIG in the US. Even though the province is losing money at an alarming rate, they saw fit for a 35% increase in wage last year as well as paying out 40 Million in bonus to senior bureaucrats this year. Can you imagine doing all of this while eliminating benefits to the very people that pad their wallets.
The CFO (Iris Evans) would be wise to look at the reality of the numbers she puts out whether it is employment, taxes, or simply the commodity prices that provide the revenues for our province. If these are the numbers they are using for a budget we should all be concerned and prepare for increased taxes, as they will have to bring in enough income to cover the costs of business. Unfortunately we as Albertans are the only customers they have!!!

Government Incompetence

2009-03-26T14:15:00.000-07:00

As citizens in Alberta, we were very concerned about the economic implications of the enactment of the New Royalty Framework as recommended by the Alberta’s Royalty Review panel. In October of 2007, hundreds of fellow concerned Albertans stood at the steps of the Legislature building in Edmonton in an attempt to educate the Government of the dire consequences such a move would have on the oil service industry and ultimately all Albertans. Unfortunately, our voices fell on deaf ears and the consequences are now costing thousands of jobs in every sector of economy from hotels to restaurants to fabricators, and dozens of other business sectors. Those who criticized the royalty increases were written off by the Alberta Federation of Labor (AFL) and the media as a bunch of business owners who had paid their employees to take a day off work to help “Big Oil”. Nothing is further from the truth. Now tens of thousands of workers are suffering including AFL union workers who have lost their construction jobs in the oilsands.

Since announcing its intention to increase royalties in October of 2007, our government has not only ruined the Alberta Advantage, but has continued to erode investor confidence and chase investment capital our of our province. Instead of admitting the whole review was a mistake from the beginning, the government keeps making revisions and making changes, making it very difficult for an oil and gas company to plan a budget or be confident that investing money in Alberta would be beneficial. The latest incentives announced in March have again our businesses and employees’ livelihoods. By making the effective date April 1, rigs have been shut down until after the incentives take effect. Unfortunately this takes us into “spring breakup” which is essentially another shutdown for 2-3 months. This is the incompetence, coupled with low commodity prices, that is killing our industry. We are fighting just to survive with our Government beating us down further.

The government will try and say it is only low commodity prices which is hurting us. This could not be further from the truth. Read any economic report or talk to any oil and gas producer. Investment companies across the country have reported that Alberta is no longer a desirable place to invest. If this is what our “Fair Share” is, we would like to give it back. Respected oil and gas investment analyst, and new Chairman of Calgary’s Economic Development Wilf Gobert was quoted in the Calgary Herald as calling the royalty changes, “…the most disastrous economic decision the province has ever made”.We will be spearheading an advocacy group to speak for the thousands of Albertans whose livelihood has been negatively affected with the Stelmach regime’s actions and press for a complete reversal to the framework. It is impossible not to be outraged. If Governments would let business run without continuing to attack our industry, we would be able to continue rolling through the good times and bad. But when the government keeps pulling the rug out from under us, it is impossible to stand on your feet. It is very unfortunate they can not see the problems they have created. Updates and information will be available on the Grassroots Oilworkers of Alberta website. We urge all Albertans negatively affected to join our protest

Rise and Fall of Alberta’s Service Industry

2009-03-02T13:18:00.000-08:00

Looking back on the last few years as an Alberta based oil and gas service company, I can’t help but wonder how much more governments can stack the deck against you.

Until the third quarter of 2006 it appeared Alberta’s economic engine would be full steam ahead. Prices were good and it was near impossible to find enough labour to fill the positions Alberta had to offer.

Then Stephen Harpers Conservative government decided to break its election promise, reversing its decision not to tax income trusts, catching everyone completely off guard with the proposed changes removing $10 billion of market capitalization immediately. At this time we knew our industry in the service sector was definitely going to feel the effects, which indeed we did, but as the year progressed, commodity prices increased with a lot of junior companies’ activity softening the blowin our province.

Move to again the same time frame one year later, Alberta’s engine again appearing to be full steam ahead one more time. Prices were good and oil and gas producers were showing record profits. Our province was benefitting from massive land sales as well as the huge revenues from the royalties paid to Alberta. Jobs were plenty, and the only complaints were lack of skilled labour. One would think this would be good enough to keep our provincial government gleaming. Unfortunately our provincial governments’ greed convinced our Alberta residents we were not receiving our “Fair Share” and decided to collect an extra $2 billion in royalty revenue, putting our industry in “Shock and Awe”. Service companies immediately warned the Provincial Government that job losses would occur and our advantage would be eliminated. ‘BIG OIL’ warned the Alberta government they would pull billions in spending if the proposed changes were implemented, their response was these companies were greedy and had no where else to go. A year and a half and billions later I think it is safe to assume they weren’t bluffing and there is places other than Alberta to spend theirmoney..

Our Alberta based juniors; I was told by Alberta’s Energy Dept., would pick up the slack of ‘BIG OIL’ pulling back. In my mind I hoped they could be right.With land prices plummeting maybe they could bemore active in exploration, but as luck would have it the increase in the proposed changes lowered their profitability as well as taking out investor confidence in our province, making it difficult to raise capital. B.C. and Sask land sales soared to record levels; Alberta’s did as well, unfortunately in the wrong direction.We were as warned placed in the penalty box.

Let’s bring it again to the third quarter of the following year, not too long ago. After oil and gas peaked in July, but having no benefit in Alberta in the industry, the prices plummeted to levels not seen in some time. I am not too sure that the blame could be placed on any one thing as the world economy is in a recessive state. This has hammered the industry to a crawl, with layoffs in our sector, and the industries we contribute to, having tomakemassive layoffs to keep us on life support. Unfortunately the worst is yet to come.

I look back to 2005 when we rolled out our first rig, times were good, jobs plentiful, and our province was a good place to invest. Including the company I had prior to this started in 1999 I had never had to leave our province to stay busy. Within six months of the Stelmach’s royalty decision 60% of our revenue was coming from other provinces at huge additional costs. Blindly the Conservative Government told me the Alberta slowdown was only due to new findings in undeveloped areas.What I do know is if the government greed had not reared its head, we as Alberta based service companies would have been able to retain enough cash to weather the economic storm, now only time will tell.

It is next to impossible not to be outraged, if Governments would let business run without continuing blows to our industry, we would be able to continue rolling through the good and bad times.When they keep pulling the rug out from under you, they make it impossible to stand on your feet. It is indeed very unfortunate they can not see the additional issues they have created.