Alberta slashes Alberta Oil Sands Royalty

Alberta Government reveals Royalty Slashing

The worsening financial crisis has hurt many industries including the Alberta Oil Sands and their related companies. The recent postponing of many of the billion dollar projects by companies including Suncor, Husky Energy, BA Energy, and Petro Canada to name a few are forcing Alberta politicians to review their Royalty policy. A recent shift in their Alberta Oil Sands Royalty from 15% - 20% down to 5% shows how much the Alberta Government is willing to give in order to save jobs in Alberta. Read more about this online at Financial Post http://www.financialpost.com/story.html?id=1349060. The Alberta Government is facing a dire deficit of more than 1 billion dollars, its first deficit for more than 10 years. Despite the recent increase in the percentage of Royalty payments in 2008 when oil price per barrel was well over $100, the Alberta Government is in a worst position if no new jobs are created. With fewer oil wells as a result of a postponement in projects, royalty slashing is the only alternative in creating the right environment for Alberta Oilsands companies to continue to invest in Alberta rather than in other areas. The new royalty slashing plan in Alberta applies to 5% of the first 500,000 barrels of oil in the next year or 500 million cubic feet of natural gas.

Alberta Oilsands Royalty rates and the Alberta Oilsands Companies

The royalty rates charged by the Alberta Government allow it to share in the profits of Alberta oil sands companies. When the economy is doing well, Alberta oil sands companies will continue to invest despite a high royalty payment to the Alberta Government. As long as profits remain high, and they were at record levels of a few billion dollars per quarter, everyone will remain in business. However, the global financial crisis has created a bad environment for the Alberta oil sands companies. In a global financial crisis, it is impossible to borrow money from any bank. The major banks around the world provide the credit facilities required to fund Alberta oil sands companies operations and lines of credit facilities to operate efficiently. Without the support of the global financial system, the Alberta Oilsands companies run a high risk of running out of needed capital and going bankrupt from a lack of financial resources. While the big companies such as Suncor have large financial reserves, it is still unlikely to invest in times that are this uncertain. The royalty rates are a financial incentive to provide Alberta Oil Sands companies to continue to take risk despite the possibility of lower financial support.

Will the Royalty reduction work?

The beginning of 2009 has already seen a decrease of 27% in drilling activity from the major Alberta oil sands companies. This drastic reduction in activity means a drastic reduction in employment and an increase in unemployment for the province of Alberta. A royalty reduction will provide the financial incentive for Alberta oil sands companies to take the risk now to invest rather than wait a year and have to pay a larger percentage of their profits to Alberta oilsands royalty payments. But arguments of whether this will work include the financial stability of the Alberta oil sands companies have not improved. Without providing the financial stability taken away as a result of a weakening in the global major banks, the small Alberta oil and gas companies are still not able to make any new investments despite having a lower royalty. The main benefits of this royalty reduction would actually to go larger producers who have the financial reserves to produce even more and will be able to take advantage of a saving in royalty payments.

Alberta oil sands project cancellations

Over 200 billion to be lost in Alberta oil sands investment

As more and more projects are halted on a daily basis in the Alberta oil sands, estimates of $97 to $241 billion will be loss in investment. (read article: http://www.financialpost.com/story.html?id=1258599) A loss of this magnitude will affect the investment environment in Alberta and the Canadian economy. With a big loss will also come a reduction in the amount of labour employed by the Alberta oil sands companies and loss revenue to the province of Alberta. The figure of 200 billion may seem arbitrary but this would represent 1/3 of the proposed investments in the Alberta Oil sands over the next decade. Imagine the loss in revenue to the Alberta and Canadian government and all the well paid Alberta oil sands jobs that will never be started. Alberta oil sands investments may seem to be risky in light of this figure and the potential of even bigger numbers to come. Depending on the severity of the global financial crisis and the ability of Alberta oil sands companies to survive the Alberta recession, we may see Alberta oil sands investments become the jewel once again in Canada.

Alberta oil sands project cancellations

BA Energy became the first Alberta oil sands company to file for bankruptcy in 2009. Imperial Oil and Exxon and Husky Oil are all slowing down existing projects or have project cancellations and postponements. If a project cancellation occurs there is an indeterminate amount of time before it may be started. The effect on labour is huge as many existing workers are laid off and no new labour is required or forecast. This will inevitably lead to an Alberta Recession as the Alberta oil sands projects account for a significant share of the labour demand. Alberta oil sands project cancellations are not a bad thing on the other hand. If you think about it, the Alberta oil sands have been running at near full capacity for the last five years. The impact can be felt by the labour force through increased injuries and WCB claims and increased job dissatisfaction as a result of over work and too much stress. The other big impact is the environment and Alberta oil sands negative image as dirty oil or tainted oil. With a slow down in production the Alberta oil sands companies including the Alberta government now have the resources to invest in improving the processes that are used in developing the tarsands. Perhaps we will not hear the word dirty oil or tainted oil in the following decade.

US Oil Prices and Alberta oil sands

US oil prices have a big impact on the Alberta oil sands. It seems that no matter how high the price of US oil we all need to drive. When the price of US oil reached $4 a gallon there was a revolt in many parts of the World including the US. But people still drove their SUVs and trucks still delivered their goods. The oil companies made record quarterly profits silently in the background of all the outrage. With low US oil prices we see a shift in production of the Alberta oil sands and a reduction in production and new projects. The Alberta oil sands companies must make a profit as like any other business and when the profits are low or negative then it becomes survival mode. The large Alberta oil sands companies have been around for up and down markets and realize that the prices will fluctuate 2 to 3 times during the expected life of their projects. These Alberta oil sands companies keep large cash reserves and tightly guard this as their strategic weapon in times such as these. It is sometimes a blessing for them to be in a global financial crisis as they get to pick up distressed junior oil and gas companies without the financial resources at bargain prices.

Alberta Oil Sands Bust – Is the end really over?

Alberta recession and the Alberta Oil Sands

What is happening in Alberta these days? With so much happening with the world including the global financial crisis, global credit crunch, and US $33 a barrel oil, it’s no doubt that Alberta would suffer along with the rest of the world. The Alberta Oil Sands was the best thing to happen to Canada in the last ten years. It gave Canada a national treasure that was poised to bring it to the forefront of being a global energy leader. With the high US oil prices at even $50 US a barrel, the Alberta Oil Sands could not have been a safer investment. The Alberta oilsands had many players and investors over the last decade. As with many of the Canadian Industries, Alberta oil and gas industry is also filled with a majority of junior oil and gas companies. The Alberta recession, or what may be just a few negative quarters of growth, may bring a halt to the boom of the last decade. Could we see an Alberta Oil Sands Bust in the near future??? With a global recession, anything is possible and speculation is everywhere. Many of the large Alberta Oilsands companies are finding this an ideal time to go bargain hunting and picking the jewels to add to their portfolio of Alberta oil sands companies and assets.

Global Credit Crunch and Junior Alberta Oil and Gas companies

A global credit crunch means that major financial institutions will not be as willing or able to lend money to fund company projects. Whether the project is to start a new franchise or fund the daily operations of a Junior Alberta oil and gas company, the decisions that are being made these days are quite dire. No major or minor financial institution has been unharmed by the global credit crunch due to the interrelated nature of the business. Junior Alberta Oil and Gas companies are tied to the global credit crunch as their financing is tied to one of the major financial institutions. Another source of their usual financing, the equity markets or stock markets have also been unavailable during this time of global financial crisis. It is for such a reason that the major Alberta Oil sands companies are shopping for the bargains that are starting to pile up as one after another Junior company starts to feel the crunch. Instead of filing for bankruptcy, the next alternative is to sell at a loss and lose all your equity. While some of the Alberta Junior oil and gas companies may make it with some federal and provincial government funding from Canada, this will not help many of them soon enough.

US $33 a barrel Oil and Alberta Oil Sands

With US $33 a barrel oil prices we are seeing a halt in any new Alberta Oil Sands projects. Alberta oilsands projects that are just started or announced to be started are now currently on hold until further notice. Of course no one knows when oil will go up so the timeframe can stretch longer than anyone is comfortable with. Current US $33 a barrel oil seems like an enigma in todays society. With the bustling growth in population in India and China alone, the price of US $33 a barrel oil would seem silly as the current supply of oil is insufficient to meet global demand. The current $33 US a barrel oil price is more of overreaction to the global financial crisis and once confidence builds up we should see a spike in oil prices again. With a spike in oil prices even to a stable $50 US a barrel oil we will see the commencement of a lot of projects overnight.

Alberta Oil Sands companies – BA Energy files for credit protection

Alberta oil sands and BA Energy

A major player in the Alberta Oil Sands projects, BA Energy Inc., filed for credit protection in early 2009. BA Energy Inc. was developing a $4 Billion Dollars Alberta Oil Sands Upgrader project near Edmonton in what is known as the Heartland Upgrader. These projects require significant capital in order to run its daily operations and would require funding from its credit facilities. Credit facilities for BA Energy Inc. are secured via a $507 Million US$ loan from Credit Suisse and due to the worsening financial crisis, this credit line is not guaranteed to be around for 2009. What this means for BA Energy Inc and its Alberta Oil Sands Upgrader projects is that there could be a callback of their loans in 2009 which would lead to credit protection. This has lead BA Energy Inc. to be the first Alberta Oil Sands developer to file for credit protection in 2009.

Financial crisis and BA Energy

How has the financial crisis affected BA Energy Inc. and other Alberta Oil Sands companies and what further developments will come in 2009? The financial crisis is a worldwide event that resulted from defaults in asset backed securities and the housing crisis in the US. Because there has been a dramatic default and loss as a result of the Financial Crisis and defaults of loans, the worldwide credit markets have literally been frozen. BA Energy Inc. and other Alberta Oil Sands Companies depend on vast amounts of credit to fund their daily operations. The funds that BA Energy Inc. require are provided by global credit facilities offered through banks such as Credit Suisse. Because of the mounting defaults in the US and the exposure that these global credit facilities companies including Credit Suisse has, the need to recall existing loans has been created. The global credit companies will recall loans with the highest risk first. Alberta Oil Sands projects including BA Energy Inc.’s Heartland Upgrader project are now considered high risk because of the drop in oil prices to sub $50. Not only have BA Energy Inc. filed for credit protection but it has also been one of many Alberta Oil Sands companies to postpone projects indefinitely. This will be a continuing theme while we are in the middle of the financial crisis and oil prices remain low.

Are more Alberta Oil Sands companies needing credit protection

Which Alberta Oil Sands companies will survive the financial crisis? Or more to the point which Alberta oil sands companies will have a strong enough balance sheet to weather out the financial crisis storm for 2009. Afterall, it is a result of the lower oil prices in Alberta that have created the lower profit expectations of all the companies. With Alberta oil sands companies projects being viable at a stable oil price of over $50, the current level is going to create significant problems for some of the smaller firms to survive. Large Alberta Oil Sands companies such as Suncor have significant cash reserves set aside to ride out rough patches including a short term lower oil price. However smaller companies such as BA Energy Inc. will need to file for credit protection. The forecast in 2009 will probably see a consolidation of the smaller Alberta Oil Sands companies with the larger ones and thus avoiding credit protection. However for existing shareholders of these smaller companies the outlook is poor that they will receive much value from their existing shares.

Canadian Oil Sands Trusts and Alberta oil prices

Dividends cut at Canadian Oil Sands Trusts in Alberta

Canadian Oil Sands Trusts invests in Northern Alberta and provides a regular dividend to its investors. Recently, Canadian Oil Sands Trust announced a cut in their regular distribution to its investors. In fact this cut in distribution to its investors was more than expected by the market. Canadian Oil Sands trusts slashed its regular distribution in response to Syncrude Oil’s cut in its quarterly distribution by 80% to 0.15 per unit. Canadian Oil Sands Trust is the largest investor in Syncrude Oil, a major oil sands player. This cut in distribution by the company may lead to increased selling pressure of the company’s shares as investors who are looking for higher yielding shares sell their stock. Canadian Oil Sands trusts has been a high yielding income play of the Alberta Oil Sands and has been able to deliver a high return to its investors. But with the recent financial crisis and the fall in Alberta oil prices to sub $50 levels, this has caused increased pressure for all Alberta oil sands company to slash their quarterly distributions.

Alberta Oil prices and Canadian Oil Sands Trusts

How linked are Alberta oil prices and the prices of shares of Canadian oil sands trusts? There is obviously a very close relationship between the level of Alberta oil prices and Canadian oil sands trusts. As the price of oil falls, the income levels of the companies that the Canadian oil sands trust invests in is significantly reduced. Companies such as Syncrude Oil is one of the companies that has had to aggressively slash its quarterly dividend in order to maintain its financial position. Other Alberta oil companies will surely follow suit and this will lead Canadian Oil Sands Trust to have less income to distribute to its shareholders. However, the price of oil is expected to stabilize around the $50 level with increases expected in 2010. Most analysts currently have a long term buy on Canadian Oil Sands Trust investment as this represents a cheap buy in the current market. However a short term sell is also recommended for this stock.

Canadian Oil Sands Trusts as Investments

Canadian Oil Sands Trust gives investors in Alberta Oil with a solid Oils Sands investment through its 36.74% interest in Syncrude Project. Syncrude Oil is a leader in the Alberta Oil Sands industry and has been in operation since 1978. Currently Syncrude Oil can produce Alberta light high quality crude oil at 350,000 barrels per day. Syncrude Oil operates oil sands operations in the northern Alberta region of Athabasca. By investing in Canadian Oil Sands Trusts as an investment vehicle, investors get a high quality Alberta oil sands investment and can take part in the growth of the oil prices. Canadian Oil Sands trusts provide a regular dividend that gets paid back to investors as a distribution and a return of their initial capital. By returning a larger percentage of an investor’s investment over time, the return on Canadian Oil Sands Investment is seen as a conservative investment.

Public views of Environmental impact of Alberta Oil Sands and Alberta Oil Sands Companies

What people think about Alberta Oil Sands

What do you think the public sees when they think of the Alberta Oil Sands? Is it that the Alberta Oil Sands image is one of only monetary gain at the expense of the environment? Or is it even worse and they believe that once the Oil Sands are without oil then the companies will leave a dirty oil legacy and not care about their environmental impact at all. Some people, especially the people who work in the Alberta oil sands, are working hard at dispelling any false beliefs and any wrong public opinions. Of course since the Alberta Oil Sands is so far north and only migratory birds get a birds eye view of the impact, this is a harsh uphill battle for the public relations people who work for these Oil Sand companies. Nevertheless, these Oil Sand firms will spend vast amounts of money documenting their success at reducing their carbon footprint while benefitting not only themselves but the communities and the great country of Canada. This article is about this view of the Alberta Oil Sands and firms that work in the oil sand fields.

What Alberta Oil Sands Companies are doing about their image

Whether we are in a recession or a market boom, Alberta Oil Sands companies are very concerned about what the public views of their operations and their environmental impact. Communities such as Fort McMurray in Northern Alberta are complaining that the big Alberta Oil Sand company is making their environment very dirty. These companies have changed the environment that they live in and will forever leave them with a legacy of dirty oil. This powerful environmental impact will be due to the greed of the Alberta Oil Sands Companies and will not benefit the communities at all. Of course when you talk with the Alberta Oil Sands Companies such as Imperial Oil or Shell you hear a whole different story. The large Alberta Oil Sands Companies’ opinions are that there is a large mistrust in their operations as a result of publics’ high dependence on the industry’s products but poor understanding of what it actually does. More importantly, they say people are viewing their companies from way up from space and only really see lights but not the real detail. In fact, the Alberta Oil Sands company has been doing a lot to counteract the effects of their operations on the environment and they would like to inform the public better of their actions on this front. Hopefully the future of towns such as Fort McMurray will have a positive attitude towards the growth and prosperity of their communities as a direct result of the Alberta Oil Sands companies. This is the image that public relations is working hard and spending a lot of money to achieve. Will it work or will it backfire on them, only time and perhaps the media can tell.

Recent poll of public’s opinion of Environmental Impact of Alberta Oil Sands

A recent poll taken by Alberta Oil Sands companies aimed at finding out public opinion on the environmental impact that the oil sands companies are having and what people really thought about this topic. The poll was a 60 question telephone poll and asked 425 people in Edmonton and an equal number in Toronto. The results of the poll drew similar conclusions including: the Alberta Oil Sands image problems are broader than any one company, that Canadians believe that it’s possible to develop the Alberta Oil Sands while protecting the environment, that they see technology as a large part of the solution, and that they are most concerned about the environmental impact of projects on the fresh water and greenhouse gas emissions.