Separate names with a comma.
Discussion in 'Canada' started by Steve G., Nov 12, 2012.
I think Steve is close to the mark.
The Canadian oil industry is about to be stood on its ear the same way the natural gas industry was several years ago. Its due to evolving technology in this case its fracking (spell it how you want). Fracking enables gas producers to produce gas from shale deposits at a much lower cost than from conventional gas plays. Thats why gas is going for less than $4/mmBtu compared to $8-10 about 4 years ago.
The shale oil producers in the Bakken area (North Dakota, Montana) are bringing shale oil into production far faster than Albertans expected, and far faster than the oil sands are being developed. E.g. shale oil production increased by about 400,000 bbl/day last year thats huge. If the drilling rigs currently in use in the Bakken area continue drilling at the same rate (I believe there are about 200 drilling rigs currently doing their thing) the U.S. will be substantially oil self-sufficient by around 2020. The produced oil is light and easy to refine.
Compare this to Albertas oil sands. There is a discount of about $30/bbl at the gate for bitumen produced from the oil sands (based on West Texas Intermediate, WTI) due to the additional processing (and transportation costs) that is required to upgrade the bitumen into a synthetic crude which can then be refined in more-or-less the usual manner. If you assume $90/bbl WTI, that means the producer gets about $60/bbl (currently it is more like $50/bbl if you're lucky). Most producers have an at the gate cost of $30-50/bbl so they are marginally profitable. The lowest production cost is around $10-15/bbl. Last week it was announced in the Calgary Herald that a producer was being offered $38/bbl. Im aware of a major producer that is being offered even less than that for bitumen delivered in 2013.
Why the low offers to purchase bitumen? Biggest reason is shale oil its coming into production so fast that there is little incentive to buy bitumen when shale oil production is ramping up so fast.
Pipelines, especially to the south, will help Canadas oil producers tremendously since it will enable bitumen to be shipped to the Gulf where there is less of a discount (about $10/bbl discount). However, transportation costs are currently outrageous they are in the range of $30/bbl to get bitumen to a refinery in the Gulf states (e.g. Louisiana). The Gulf refineries are almost begging for Canadian heavy oil since they are geared up to process it due to their primary feedstocks typically being from Mexico an Venezuela. Production from both countries has declined over the past several years.
The amount of money spent on oil production in Canada is almost incomprehensible the Calgary Herald stated it was $1B per week.
I think people are going to be stunned when they hear whats happening in the oil patch in early 2013 when the spending taps are turned several turns toward Closed.
Prior to any lease sales , resources on crown land are the sole property of the Province where they are located , resources on or under private property belong to the land owner, any and all royalties are paid to these owners. The only resource royalties the feds receive is from those derived from offshore or the far north
Resources under all property belongs to the Crown, including under private property. Real estate transactions make this very clear.
Oil companies purchase permission from the Crown to extract resources (lease sales). The lease sale gives the oil company permission to extract the resources but does not pass title of the resources to the oil company.
Another agreement must be made with the landowner to secure permission to occupy a portion of the landowner's land for locating surface equipment such as wells and processing equipment. The landowner does not receive royalties for resources that are extracted since he has no title to them - royalties flow to the Crown.
Leasing land to oil companies has become a good source of income for many farmers in Alberta and Saskatchewan. I believe the going rate is around $10,000 per year per lease. 50 years ago you could see a grain elevator on the horizon regardless where you were on the prairies. Now you see oil tanks.
The writing has been on the wall for the last 5-6 years where gas is concerned, there is a glut in North America.
The only way to recapture the prices of the "good old days" is to send it overseas to areas were availability is not readily available.
Raw logs, raw metals/unrefined, unrefined petroleum products, should not be leaving our shores, but here is the kicker people to do these jobs are in short supply, and "most" do not usually want to move to areas were there are good jobs.
Besides the chines coal miners being brought in, there are job fairs in the US trying to get temporary construction workers up here for the bigger projects.
Gold and silver mineral rights always remain property of the Crown, however that is not the case with petroleum rights
Oil and Gas under privately owned land is the property of the land owner
... unless those petroleum rights have already been leased to a third party
Not quite. About 8% of Alberta has "freehold rights" where the landowner owns the mineral rights (which includes oil and gas). Mineral rights in the remainder of Alberta are held by the Crown (the bulk of Alberta), the Federal government (such as National Parks), or by First Nations. You're correct about the gold and silver.
Fracking is changing the face of hydrocarbon production, and eventually consumption in NA. but even there, Canada has huge reserves (http://www.reuters.com/article/2012/06/15/us-apache-shale-idUSBRE85E15S20120615) So any production dislocation from tar sands will eventually be compensated by production of shale gas here in Canada. The basis point of the argument is that Canada is so rich in natural resources, especially energy resources, that there is no doubt in my mind that Canada will always enjoy a competitive advantage in either exploitation of those resources for export, or, if we get out industrial policy sorted out, transforming those resources into finished products for export. We have the resources, the richest market in the world on our doorstep, a qualified workforce, and access to capital. Even our politicians can't screw that up. Canada and Canadians will continue to enjoy a comparative advantage over other countries who would kill (and maybe go to war) to have our resources.
Maybe if I thought that the world was weaning itself off hydrocarbons, I might have worries about the Canadian oil and gas industry, but look at the lengths that Japan and Europe will go to in order to import energy in ANY form, (coal, LNG, crude, refined product). It is a sellers market, although a world market. All we need to do is pick a customer, build the delivery infrastructure (pipelines,refineries, LNG plants, ports, Electric transmission lines, or whatever else your energy plan calls for), and count the returns. You'd have to be pretty dense to not make money in that environment.
Agree on your points.
Given the current population environment in Canada, and the financial incompetance of graduating students out of pre and post secondary schools, coupled with certain strengthening political ideaologies which are against all manner of natural resource use,,,,,,I see a struggle coming up quickly. This resistance could very easily send companies going somewhere else. Look at Argentina right now, with their recent socialist government plying huge tarrifs on businesses doing work there,,,,they've all left.