ED­MON­TON

Investment Executive - - CONTENTS - BY MIKE GANLEY

Al­berta’s econ­omy is do­ing quite well, thank you very much.

i was back east last sum­mer — in Ottawa to watch my kids play in an ul­ti­mate fris­bee tour­na­ment — when my aunt dropped by to watch a cou­ple of games. Talk turned to the Al­berta econ­omy, the lag­ging price of oil and on­go­ing con­flicts over pipe­lines. In par­tic­u­lar, she ex­pressed con­cern about Kinder Mor­gan Inc.’s Tran­sMoun­tain pipeline to Van­cou­ver, and what might hap­pen should the pipeline not be built.

Hav­ing watched Al­berta’s econ­omy pick up steam re­cently, I was sur­prised by her con­cern. The prov­ince is do­ing quite well, thank you very much, Aun­tie — even with­out the three ma­jor pipeline projects in the works: Tran­sMoun­tain, Key­stone XL and En­ergy East.

Canada’s big banks all pre­dict that Al­berta’s econ­omy will lead the coun­try this year, with eco­nomic growth of 3.1%4.2%. The Con­fer­ence Board of Canada pre­dicts 4.3%. If any­thing, that growth rate is a bit too fast and, if it keeps up, it might lead to an­other round of in­fla­tion — par­tic­u­larly in the price of labour.

The north­west of the prov­ince in par­tic­u­lar, around Grande Prairie, is ex­tremely busy with frack­ing ac­tiv­ity in liq­uids-rich nat­u­ral gas plays. And that’s hap­pen­ing even with Malaysia’s state pe­tro­leum com­pany, Petro­liam Na­sional Ber­had (a.k.a. Petronas), hav­ing pulled out of the Pa­cific North­west liq­uid nat­u­ral gas megapro­ject.

Now, oil­field ser­vices com­pa­nies in the re­gion once again are re­port­ing they can’t find enough work­ers. But, it seems, word hasn’t made it back East: one oil­field ser­vices rep­re­sen­ta­tive I spoke with re­cently said he has not yet seen the in­flux of work­ers from the East that ac­com­pa­nied the pre­vi­ous Al­berta boom.

The other sto­ry­line that has peo­ple won­der­ing about Al­berta’s fu­ture is the move by sev­eral global oil and gas pro­duc­ers to pull out of the oil­sands. Houston-based Cono­coPhillips Co. and Nether­lands­based Royal Dutch Shell PLC led the way, shed­ding more than $30 bil­lion in as­sets be­tween them.

How­ever, two firms have ex­pressed in­ter­est in both firms’ as­sets in place — Cen­ovus En­ergy Co. and Cana­dian Nat­u­ral Re­sources Ltd., both based in Cal­gary. These are com­pa­nies with some of the most ex­ten­sive ex­pe­ri­ence in the oil­sands, and they smell op­por­tu­nity de­spite lo­cal­ized op­po­si­tion to a ma­rine ter­mi­nal or pipeline.

By far, the most im­por­tant fac­tor af­fect­ing prof­its is the ac­tual price of a bar­rel of oil. Sun­cor En­ergy Inc. now states its breakeven price on oil is US$37 a bar­rel, and most of the other pro­duc­ers aren’t far be­hind — they’ve driven their costs so low that they’re now mak­ing a profit with oil at less than US$50 a bar­rel. What hap­pens when it gets to US$55, US$60 or even higher?

Tran­sMoun­tain, or any other pro­posed pipeline, would earn oil and gas pro­duc­ers a marginally higher price for their prod­uct. Pro­duc­ers also want bet­ter trad­ing prices, of course: they’d make more money.

But Al­berta is do­ing just fine right now, dear Aunt, even with­out Tran­sMoun­tain or $60 oil. Thanks for your con­cern.

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