Economy heads in uncertain direction

For all the negative economic signs, there are also some positive indicators

ConocoPhillips Canada will cut up to 300 jobs this fall, while Encana Corp. expects to spend an additional US$200 million on capital later this year to drill more wells.

Oil prices slipped below US$45 a barrel on Friday, while Canada’s largest driller says it’s noticed a positive change in customer sentiment in the past six weeks.

Like a pendulum swinging back and forth, the Alberta economy seems like it’s moving in opposite directions on an hour-by-hour basis.

“Sentiment is quite unsure,” said economist Warren Kirkland of TD Bank, which issued a report this week on the state of Alberta’s recession.

“No one is really sure where the economy is heading.”

For those looking for negative news, there’s plenty of doom and gloom to be mined.

Oil prices dipped 56 cents Friday to US$44.19 per barrel on the New York Mercantile Exchange and have struggled since topping $50 a barrel in early June.

In Alberta, the wildfires around Fort McMurray cut oilsands production by more than a million barrels of day at one point, costing producers about $3.5 billion in lost output, according to the Conference Board of Canada.

In turn, the unemployment rate has jumped in Alberta. Employment Insurance claims in the province surged 70 per cent in May in the wake of the fire.

On the jobs front, it’s still tough times.

So far this year, the province has received 51 notices from companies of large-scale layoffs, affecting 7,345 employees.

Three quarters of the lost jobs were in the oil and gas sector.

On Thursday, Calgary-based AltaGas Ltd. confirmed it took a $7-million restructuring charge in the second quarter after cutting about 70 jobs.

And ConocoPhillips said Friday it will eliminate between 250 and 300 positions in Canada, mainly from its head office in Calgary.

It’s yet another indicator Alberta isn’t out of the woods yet.

TD Bank now predicts the province’s economy will shrink by three per cent this year before growing modestly at 2.5 per cent in 2017.

In the mid-term, the province faces other economic challenges than just volatile commodity prices: a budget deficit topping $10 billion; pipeline constraints; new carbon taxes; and fierce competition from U.S. shale producers.

But it’s not all negativity.

The blow is cushioned by low interest rates, a growing U.S. economy and a relatively low loonie. Oilsands production continues to grow, while the number of jobs in the professional, scientific and technical services sector is increasing this year.

Alberta has low debt levels compared to other jurisdictions, competitive tax rates and a young, educated workforce, TD noted.

On the positive side, secondquarter earnings from the oilpatch began Thursday with Encana reporting a reduced loss from a year ago, and operating earnings of US$89 million.

Chief executive Doug Suttles said with higher oil prices — crude bottomed out in February below $27 a barrel — and lower costs, the petroleum producer will boost its capital program during the back half of the year.

Just last month, Canadian Natural Resources Ltd. signalled it would spend $50 million more than originally planned this year to drill more wells. And Baytex Energy Corp. recently reactivated almost 7,500 barrels a day of heavy oil that was shut in for economic reasons.

At Precision Drilling Corp., CEO Kevin Neveu said the Calgary-based company is starting to prepare for a recovery.

“Whether this is a green shoot and an improving outlook or early signs of a rebound, it’s all predicated on commodity prices,” he said Thursday on a conference call.

“Clearly, the tone has changed, the sentiment has changed, but it’s fragile. If commodity prices were to take another leg down back into the 30s or 20s, any bit of this momentum we see right now could disappear very quickly.”

In the interim, most energy companies are focused on lowering costs, determined to hold on to efficiency gains, even if oil and gas prices increase.

Husky Energy CEO Asim Ghosh noted Friday that by the end of the year, the integrated producer’s overall earnings break-even point will be below $40 a barrel for West Texas Intermediate crude.

What emerges today is an industry, and an overall economy, pinballing in different directions.

For example, companies in the energy sector with solid assets, a disciplined strategy and stronger financial footing are eyeing their next growth steps and the prospects of stronger commodity prices in 2017.

Other firms struggling with heavy debt loads and less-efficient operations face difficult decisions.

Energy economist Peter Tertzakian calls it a “bifurcated industry.”

“There’s a certain constituency that is taking advantage of the downturn, and there’s another constituency that is still suffering from the downturn.”

ARC Financial’s chief energy economist notes it takes time for increased oil and gas prices to flow back into the economy, likely nine to 12 months.

“The market is still very nervous about the direction of the price of oil — that’s why there’s a rough bottom.”

A rough ride still awaits the province, as it goes through a period of repositioning and flux.

And there may be more bumps along the way before the recession finally moves along.

“It will be a gradual recovery,” TD’s Kirkland concludes.