Calgary Economy

[Ramsayfarian]

Originally Posted by lubicon

I wonder if Halliburton might be regretting their offer to purchase Baker Hughes right about now. Or if they can use this as an opportunity.

Or start another war. Cheney almost ran Halliburton into the ground when he was CEO largely in part because of bad acquisitions. The fixed no-bid contracts they and KBR were awarded during the second Iraq war saved their bacon.

Luckily for us, we're on the brink of another war and another Bush in the White House.

[Full Mountain]

Originally Posted by Chadillaccc

All of these layoffs, but yet several companies are still increasing their production. Over the next year, oil sands production will increase by 300 000 barrels. So why all the layoffs?

Originally Posted by flipstah

Businesses got top-heavy and just cleaning?

Service businesses are the first to crash, they have they least ability to re-purpose people if the rigs aren't drilling.

Upstream players have the ability to move people from expansion projects to maintenance & optimization projects. The layoffs in the upstream business are likely primarily contractors who were working on large expansion projects in the early phases of development.

[milomilo]

Also, service companies (well, at least the one I work for) are very happy to layoff people every year regardless, only to rehire some of them and train up new employees in the Summer/Fall. Less of a headache for them than firing people, I guess.

[Chadillaccc]

Not that it personally effects me, but I'm getting a little scared of the implications on development in this city due to this crash. Most forecasts are looking really bad. I wish there was some kind of quick fix

[DarthMalgus]

/\Well, with all the doom and gloom in the media, you would think we were in the midst of the Great Depression. But amongst the price slide, there is plenty of evidence that this will be a short term blip...most of the facts support this. Production WILL decline globally, as not everyone will be content to continue drilling while losing tons of money doing it. Fortunately the oilsands are more of a long-term investment so most of the companies active there are content to ride out the storm. And the "glut" represents a small fraction of global supply, so once production decreases eat into that glut we may quickly end up in a shortage situation. There are plenty of analysts suggesting that reaction to the glut could lead us to $200/barrel oil in the fairly near future...

[DoubleK]

Originally Posted by DarthMalgus

But amongst the price slide, there is plenty of evidence that this will be a short term blip...most of the facts support this.

This is dead wrong. The Saudis can pump 2M more barrels/day that they currently are. Their costs of production are $4~5 a barrel. They can do this for a really long time to displace higher cost units.

Nobody can understand or predict what the long term prospects for crude are until the Saudis decide what they are doing.

IMO, this is really going to hurt Alberta.

[onanewday]

Originally Posted by DoubleK

This is dead wrong. The Saudis can pump 2M more barrels/day that they currently are. Their costs of production are $4~5 a barrel. They can do this for a really long time to displace higher cost units.

Nobody can understand or predict what the long term prospects for crude are until the Saudis decide what they are doing.

IMO, this is really going to hurt Alberta.

While I agree with your assertion that we have to wait for the Saudis to decide what they are doing, they can't produce oil at $4 to $5 per barrel. That may have been the figure 20 years ago. They are estimated to be in the $10 to $30 range. However, there is no reliable data on them. Even on how much they can really produce.

What is getting them through this is their willingness to use the cash reserves. However, a factor truly is that Saudia Arabia needs around $80 plus dollars a barrel to balance its finances. So this is where the real rub ends up being. How long do they want to hold out and draw down on their nest egg.

[Spring2008]

Bruce Graham, CEO of CED is stepping down in June.

[DarthMalgus]

Originally Posted by DoubleK

This is dead wrong. The Saudis can pump 2M more barrels/day that they currently are. Their costs of production are $4~5 a barrel. They can do this for a really long time to displace higher cost units.

Nobody can understand or predict what the long term prospects for crude are until the Saudis decide what they are doing.

IMO, this is really going to hurt Alberta.

My point was more that the level of supply is going to be reduced soon. Not necessarily by the Saudis but by others (possibly the Americans, Russians or Brits in the North Sea) who are likely to cut production, thus bringing the market back into balance. Yes it will hurt Alberta, but I still think this is short term pain, and the worst will be over by year end.

There are a bunch of possibilities but I still think the likeliest scenarios start to bring the market back into balance sooner rather than later.

[suburbia]

Originally Posted by onanewday

What is getting them through this is their willingness to use the cash reserves. However, a factor truly is that Saudia Arabia needs around $80 plus dollars a barrel to balance its finances. So this is where the real rub ends up being. How long do they want to hold out and draw down on their nest egg.

Their new king just gave all pensioners, government workers, as well as students, a bonus of two months pay. If you don't understand the 'students' part, basically kids are paid to study, as without that, they become rather lazy choosing not to study given no taxes and the like.
http://www.reuters.com/article/2015/01/29/us-saudi-reshuffle-idUSKBN0L22K920150129

Anyway, while I have zero love for the Saudis and their extremism, an honest review of the oil situation needs to highlight that the change in Saudi production from five years ago pales in comparison to the change in US production over the same period. I think the US marketing machine has been very successful in placing the oversupply situation on anyone other than themselves, but the reality is the reality.

Here is a chart. Can you really honestly look at this chart and claim it has nothing to do with the USA?
http://www.aei.org/wp-content/uploads/2013/10/saudi.jpg

With the above said, no matter what the Saudis do (within reason) will not change the north american glut, especially given US production has continued to rise off the right end of that chart.

[Surrealplaces]

I agree. I don't know if anyone knows the true cost of oil production in Saudi except that it's low.
One thing is certain however, and that's that the Saudis won't keep the price low forever. They still need money to keep rolling, and without lots of oil money Saudi Arabia is nothing more than the world's largest sand dune.

They'll hang in there for a while, but their greed will get to them. They won't want to give away their oil for too long...especially seeing as they know they have a short window to take advantage of their oil.

Originally Posted by onanewday

While I agree with your assertion that we have to wait for the Saudis to decide what they are doing, they can't produce oil at $4 to $5 per barrel. That may have been the figure 20 years ago. They are estimated to be in the $10 to $30 range. However, there is no reliable data on them. Even on how much they can really produce.

What is getting them through this is their willingness to use the cash reserves. However, a factor truly is that Saudia Arabia needs around $80 plus dollars a barrel to balance its finances. So this is where the real rub ends up being. How long do they want to hold out and draw down on their nest egg.

[geotag277]

Considering that Saudi Arabia is facing a 40 billion dollar deficit due to the price of oil, I think the discussion over their extraction costs is a bit academic.

http://www.forbes.com/sites/nathanvardi/...0-billion-bet-drives-brent-oil-below-54/

[DarthMalgus]

In news related to above discussion, oil prices rose 8% today because of evidence US drillers are curtailing production...

[joe498]

Lovely, it appears Nenshi is once again in discussions to subsidize new Flames Arena because you must keep up with the Joneses building new arenas when:

- the oil patch is issuing layoffs
- we are in discussions of wage rollbacks
- in discussions of higher taxes and service cuts
- in need of 50 new schools right away $2B
- people want a $1.6b Cancer Center
- $5B ring road is potentially delayed further and when we miss the time frame for it to be built as per contract terms pay an even higher price
- day to day infrastructure that is already behind is lacking money
- other cities sports team owners pay the price themselves
- low Canadian Dollar

[suburbia]

Originally Posted by geotag277

Considering that Saudi Arabia is facing a 40 billion dollar deficit due to the price of oil, I think the discussion over their extraction costs is a bit academic.

http://www.forbes.com/sites/nathanvardi/...0-billion-bet-drives-brent-oil-below-54/

$750B in reserves must have required some sweet premiums. They have a deficit (which they will eat) because they are building cities where there should not be cities, and 2000' buildings like the ones we are. Oh wait. We don't even have 1000' buildings.

Anyway - the article is quite interesting.

[DarthMalgus]

Originally Posted by joe498

Lovely, it appears Nenshi is once again in discussions to subsidize new Flames Arena because you must keep up with the Joneses building new arenas when:

- the oil patch is issuing layoffs
- we are in discussions of wage rollbacks
- in discussions of higher taxes and service cuts
- in need of 50 new schools right away $2B
- people want a $1.6b Cancer Center
- $5B ring road is potentially delayed further and when we miss the time frame for it to be built as per contract terms pay an even higher price
- day to day infrastructure that is already behind is lacking money
- other cities sports team owners pay the price themselves
- low Canadian Dollar

Actually I believe the mayor has been pretty cold to the idea of the city subsidizing an arena.

That said, while i agree that other priorities should come first such as the cancer centre, I do think we need a new arena more than, say, the SW ring road - in fact that particular $5 billion project could go towards LRT extensions AND still have loads left over for a share of the arena cost.

[joe498]

Originally Posted by DarthMalgus

Actually I believe the mayor has been pretty cold to the idea of the city subsidizing an arena.

That said, while i agree that other priorities should come first such as the cancer centre, I do think we need a new arena more than, say, the SW ring road - in fact that particular $5 billion project could go towards LRT extensions AND still have loads left over for a share of the arena cost.

I also agree the money would be better spent on the LRT but I don't see the province being persuaded otherwise.

[Ramsayfarian]

Originally Posted by suburbia

With the above said, no matter what the Saudis do (within reason) will not change the north american glut, especially given US production has continued to rise off the right end of that chart.

I'm no economist, but I suspect a prolong downturn will severely hamper US production. Companies got into these plays at $100+ prices and have not only based their spend on these numbers but have also borrowed expecting to oil to continue to rise. This will bankrupt a lot of the junior players and kneecap the rest.

Hard to keep producing when your costs are greater than what you can sell it for. As far as we go, some of the older plays will be fine, but new construction and increased production will be shelved.

There's an old saying, "Pigs get fat, hogs get slaughtered."

[geotag277]

Originally Posted by Ramsayfarian

I'm no economist, but I suspect a prolong downturn will severely hamper US production. Companies got into these plays at $100+ prices and have not only based their spend on these numbers but have also borrowed expecting to oil to continue to rise. This will bankrupt a lot of the junior players and kneecap the rest.

Hard to keep producing when your costs are greater than what you can sell it for. As far as we go, some of the older plays will be fine, but new construction and increased production will be shelved.

There's an old saying, "Pigs get fat, hogs get slaughtered."

US rig counts are falling fast, and the wall street narrative is that is largely why the price of oil gained so much today (the most it has gained % wise since 2009).

http://www.reuters.com/article/2015/01/30/markets-global-idUSL1N0V92OO20150130

Apparently this was the sharpest weekly US oil rig drop in 30 years.

[DarthMalgus]

Originally Posted by joe498

I also agree the money would be better spent on the LRT but I don't see the province being persuaded otherwise.

Yes, agreed. Which is a pity - $5b is an arseload of money to spend on something that will be of minimal benefit IMO.