Wednesday 24 February 2016

Canada's collapsing oil industry

Canadian Oil Companies Have Stopped Paying The Rent

23 February, 2016

Where possible, we try not to beat dead horses but when it comes to the death of the so called “Alberta dream,” it’s rather difficult to ignore the pace at which conditions continue to deteriorate in Canada’s beleaguered oil patch.

We’ve covered Alberta’s demise extensively over the past twelve months, documenting everything from soaring food bank usage to the alarming spike in property crime in Calgary where vacant office space sits collecting dust and condos go unsold even as housing prices soar in British Columbia and Ontario.

Last year, Alberta logged the most job losses the province has seen in 34 years, as the unemployment rate spiked to 7.1% from just 4.8% at the end of 2014. 2015 turned out to be worse for provincial job losses than 2009.

Now, in the latest sign that the seemingly inexorable decline in crude will continue to weigh on Alberta's flagging economy, we learn that O&G companies have simply stopped paying rent for surface access to private property

"For the past five years, regular as clockwork, an oil and gas company’s cheque for $4,097 has arrived in Allison Shelstad’s mailbox sometime in January, rent paid for surface access to a natural gas well on the farmland southeast of Calgary her family has owned for more than 50 years," The Calgary Herald reports

This year, the check didn't show up. And neither did checks for 765 landowners who have now appealed to the Alberta Surface Rights Board for relief. That's the highest number of appellees in at least 12 years. 

In total, the board is demanding that O&G producers fork over $1.7 million in lease payments, more than double 2014's court-ordered back payments. As The Herald goes on to note, this dwarfs the figures from 2008-09: "During the downturn of 2008-09, only 268 and 241 landowners, owed $

490,000 and $730,000, respectively, took their complaints to the board."
I think (the oil industry) thought the big revenues were going to go on forever. 

They gave a lot of money away to the shareholders, and they kept quite a bit for themselves, probably the biggest part,” says 69-year-old Perry Nelson, who has 30 well leases and who has made his first ever application to the Surface Rights Board. “I don’t know how they went from windfall profits to where they are today.” 

, they went from windfall profits to "where they are today" because crude prices collapsed by 60%. We're not defending the industry but it's not exactly like this is a mystery. North American production threatened Riyadh's market share and the Saudis simply bankrupted the space. That's all there is to it. 

The problem for the Perry Nelsons and Allison Shelstads of the world is that while the government can demand that the companies pay, it cannot extract money that isn't there to extract. In other words, if companies simply don't have the money, provincial authorities are forced to foot the bill. And yes, that means landowners are effectively paying themselves for the rights to use the land they themselves own.

Welcome to "lower for longer" Alberta. Blame Ali Al-Naimi.

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