Saturday, December 8, 2012

Foreign Investment and Alberta's Energy Sector

Photo Credit ~ Peter Jalkotzy
The news last night and this morning is filled with the announcement of the CNOOC and Petronas deals being green lighted.  The response by business and the public is varied. I view the circumstances as a debate of values and what everyone's expectations are.  Below is an excerpt from this morning commentary reciting the Minister's address to Calgary's oil and gas audience at the Petroleum Club.
Let’s remember that it was only one week ago Friday that Natural Resources Minister Joe Oliver addressed a packed room at The Petroleum Club downtown, remarking at one point that Canada’s energy resources would need $650 billion over the next 10 years. Oliver also said that if all the energy projects were to be developed over the next 25 years, they would generate $4 trillion in economic growth and one million jobs.
Well, here’s the question we all have to be asking Minister Oliver: Where is all that money going to come from now?
Source - Calgary Herald story (8-12-2012)

This is a very important aspect of the debate.  $650B in the next ten years.  To date, without CNOOC and Petronas, the value of deals is in the neighbourhood of $20-25B.  Over the last several years.  And we are now talking about $65B PER YEAR for ten years of necessary investment.

The emphasis on necessary is to highlight that it is only necessary when it has been assigned the highest value in achieving the intended objectives and goals of the process.  I do not believe that the current growth rate in oil sands activity was originally contemplated 50+ yrs ago.  I believe the business is driven by the economic opportunities that represent shareholder and capital growth expectations.  That is where it starts.

Investment in the oilsands begins with securing an interest in the land.  Some entity participates in a land sale, with significant research behind them to guide their choices, and the amount they will pay.  The amount they will pay is derived from a production expectation within a defined time frame and the anticipated cash requirements to make that happen.  From there it is all about time and resources to first production.  And what are the growth expectations in production and earnings and over what time period?  And what does that look like on the physical, economic and social landscape?  How is civil functionality maintained?  Remember this is $65B per year for ten years ~ we seem to be able to let billions roll off our tongues with little fan fare these days.  I'm not sure that has been well examined or communicated.  We're all too busy getting the job done.

Capitalism is growth.  Or vice versa.  We, the globe, have growing populations.  We, the globe, have growing expectations of standards of living.  We, the globe, have an ever growing energy demand to fuel ... well really everything.  But I also hold the view that  everything, absolutely everything is a choice.  A choice of a value and where it fits in the hierarchy of the rest of the world.

So IF we believe that $65B per year is a suitable path to follow ~ then we must also acknowledge that foreign investment is absolute in its value to the continued growth ~ there simply is not enough domestic capital to fuel that level of growth.

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