Boom and Bust in Alberta
An oil boom creates scores of multi-millionaires but then the party ends
“In the 1970s, Alberta was hit by a modern-day gold rush. Oil prices soared and adventurers flooded into the province in a frenzied hunt to strike it rich.
In 1973, a worldwide oil crisis ushered in
an Alberta oil boom. (Canada Science
and Technology Museum, Ottawa)
For geologist Jim Gray, these were the glory days in Alberta when the pioneer spirit was alive and well.
“Lets drill that well. Lets take that land. Lets not talk about this for the rest of the day. And lets not have a bloody committee. And if we fail, well fail big. But if we win, were gonna win big.”
Gray did win big. He and his partner, John Masters, discovered Elmworth Deep Basin, a gas field west of Grande Prairie, Alberta, which turned out to be the second largest in North America.
“It was a great moment of self-satisfaction, especially when you find it where everyone else said not to go,” said Gray, who formed the company Canadian Hunter.
Gray – a devout Mormon from Kirkland Lake, Ontario – quickly joined the wild pace of Calgarys oil world.
“There are over seven hundred oil and gas companies here,” Gray said. “Its heavy competition. Some people cant keep up with it. Weve got a high incidence of social stress. Divorce, drinking, suicide. But theres a lot of us who thrive on it.”
Imperial Oil lay claim to Alberta’s first big oil strike in 1947. But the oil frenzy more than two decades later would be touched off by an event half way around the world.
On October 6, 1973, Egyptian tanks crossed into Israeli-occupied territory and Syrian troops moved towards Jerusalem. Israel, backed by the United States, rebuffed the attack.
On October 16, there was a meeting in Kuwait at which Arab oil producers discussed the prospect of using their oil resources as leverage, hoping to get western nations to back away from their commitment to Israel. They cut production initially by 25 per cent, with plans for further cuts of 5 per cent a month until a Middle Eastern settlement could be reached.
The price of oil quickly soared; it had been selling for $3 (U.S.) a barrel, and it climbed to $15 almost overnight. By the end of the decade, the price was almost $40 a barrel as OPEC, the Organization of Petroleum Exporting Countries, maintained its quotas and Iran, a major oil exporter, erupted in civil war.
In Alberta, the oil boom was creating more multi-millionaires than anytime before in Canadian history. Albertas Bible belt image was replaced by the notion of oil wealth, with all its attendant perks and vices.
For a while, it seems as if money really did grow on trees. And everyone wanted a piece of the action.
During the 1970s, the provinces population increased by a third. Four thousand people a month flood into the province, looking for a share of this modern-day gold rush.
“We would work seven days a week, sixteen, twenty hours a day,” said oil rig worker Dwayne Mather. “I was young) and full of all kinds of ambition and it was great, a great time.”
The Alberta oil industry boomed, transforming the cities of Calgary and Edmonton
At the height of the boom, Calgary issued more than $1 billion worth of construction permits annually, more than Chicago or New York. Apartment vacancy rates approached zero as Ontarians and Maritimers arrived daily in search of high-paying jobs.
The housing market boomed, oil stocks rose, and an entrepreneurial spirit, once exclusive to businessmen, was awakened in professors, lawyers, and dentists, who began speculating in real estate and experimenting with oil ventures.
At Calgary’s Petroleum Club, new Canadian millionaires rubbed shoulders with American oil company presidents. The big players swap tales and make deals. Jim Gray thrived on the competition:
“Everybody wanted to be in a big building. Everybody wanted to have a corporate airplane. Young people with two or three or four years experience were getting together with some other friends and starting their own little oil and gas company.”
But the frenzied greed of the Alberta oil boom would take its toll. By the early 1980s, too rapid expansion and a world-wide economic recession hit the industry hard.
As unpredictably as it began, the Alberta oil boom was over.
In 1982, Dome Petroleum, the country’s largest oil company, avoided collapse with a last-minute bailout package with Ottawa and the banks.
Within two years, mirroring trends elsewhere in the country, unemployment in the province rose from 4 to 10 per cent. For the first time in more than a decade, Alberta had more people leaving the province than coming in. The province led the nation in housing foreclosures, bankruptcies and suicides.
The Calgary Heralds classified section bulged with homes for sale, sometimes including the contents and cars. The city had 2.3 million square metres of vacant office space, and its real estate speculators and oil investors had reverted to their former careers as teachers, dentists, and taxi drivers.
In 1986, Alberta received another economic blow when world oil price declined steeply.
Alberta’s economic woes began to turn around in the late 1980s. The provincial government used enormous royalty revenues generated from oil and gas sales to diversify into the forestry sector. By the mid-1990s, Alberta’s fortunes were on the rise again, thanks to the fiscally responsible Ralph Klein government and higher world prices for oil and natural gas.”
“Canadians love their energy myths. Pierre Trudeau destroyed the Alberta oil industry in the 1980s with the NEP (it had marginal effects — the real cause was a global recession and global crude price collapse). Ontario’s electricity costs are way out of line with our U.S. neighbours (actually, they’re much lower). The oilsands need a pipeline because our oil is so deeply discounted (it isn’t).
The media bears some responsibility for perpetrating these myths by failing to actually analyze the words coming out of our politicians’ mouths. But its the politicians themselves who ought to know better — they have entire government departments devoted to separating fact from fantasy. In the case of the “deep discount” myth we have to do the math ourselves, since governments are so reluctant to share.
The discount on Western Canada Select (the benchmark for oilsands heavy) to West Texas intermediate (WTI) represents a combination of both the quality difference and the transportation cost from Alberta to the trading hub at Cushing Oklahoma. The Gulf Coast heavy/light discount is roughly $8 per barrel today and is a good representation of the quality difference between WCS and WTI. It takes $7 per barrel to move a barrel of heavy from Alberta to Cushing on Keystone. So the discount we should see in Alberta is $15 per barrel based on world prices and transportation costs.
On October 14 the actual market discount in Alberta was only $14, just a dollar under the theoretical discount. So there is no discount to international prices; if anything, there’s a premium. This has been the case for many months, despite the misleading political rhetoric.
We can’t count on our politicians to counter the myths — they don’t want to argue with people’s beliefs, there’s no political upside to telling the truth. Often they find it pays to play up these energy myths, to tell people it really is all Ottawa’s fault.
But independent regulators like the National Energy Board (NEB) should be capable of providing us with unbiased information. That’s what they’re there for. That doesn’t seem to be the case today.
Ask yourself: Why would the NEB choose to warn of 1.2 million barrels a day moving by rail based on an unlikely price scenario?
On September 21, Chairman of the NEB Peter Watson, testifying before the Senate Committee on Transportation, provided two pieces of data in support of pipeline infrastructure that got widely reported. The first is that the NEB reference case forecast shows crude production growing by 56 per cent to 6.1 million barrels per day from 2014 to 2040. The second piece of information is that, in the absence of new pipelines, rail transport of oil will grow to 1.2 million barrels per day by 2040. This is based on the NEB’s “Canada’s Energy Future 2016” (EF2016) published earlier this year.
What Watson didn’t bother mentioning is that the NEB reference case is based on highly unrealistic crude prices — $60 per barrel this year, rising to $75 next year and up over $90 by 2025. Even the price forecast for this year is unrealistic.
In the NEB’s lower price case, the price for this year is $48, rising only to $64 by 2025 — much more in line with expectations based on U.S. fracking setting the ceiling price. Under that scenario, only already-developed oilsands projects proceed and new projects don’t start coming on until the late 2020s when prices have improved enough. That’s realistic.
Watson’s scary scenario — 1.2 million barrels a day of crude moving by rail — is also based on that high-price forecast. The production in the more plausible, low-price scenario posits only small amounts moving by rail until the late 2020’s — and even then it never gets close to the NEB’s numbers.
So ask yourself: Why would the NEB choose to warn of 1.2 million barrels a day moving by rail based on an unlikely price scenario? For one thing, it’s completely inconsistent with statements made by the Trudeau government — and the Harper government — on fossil fuel use in Canada.
Those government targets point to a 30 per cent reduction in fossil fuel consumption by 2030, or even a more realistic number like 15 per cent.
The head of the NEB testified before a Senate committee on the need for pipelines based on prices forecasts that don’t seem plausible, and carbon consumption rates that even the last government wanted to avoid. What conclusions are we supposed to reach from this?
Hopefully we’ll start seeing more of the unbiased, informative work that ought to expect from an independent regulatory authority. Otherwise we should all start questioning the NEB’s impartiality. And if it can’t be unbiased, it can at least be consistent.”
William Munsey, Past President of the Alberta Party, on Encana History: “I will be back to light-hearted punning shortly, but I’ve got to get something off my chest:
In light of its decision to leave Canada, it’s worth knowing Encana’s history. It was essentially a gift of mineral rights to Canadian Pacific Railways. It got it’s start for free, and has a long history of following the easiest money, selling assets… many of which were financed by the initial gift from the Government of Canada.
The following was plucked off Wikipedia. I’ve know the story for years so I knew what I was looking for. Don’t credit me for all the details.
“When the Canadian Pacific Railway was formed, the government of Sir John A. Macdonald compensated it for assuming the risk of developing the railroad with the subsurface rights for a checkerboard pattern of most of Alberta and part of Saskatchewan. These rights were later spun off to Encana’s predecessors.
Like Husky last week, Encana is not about anything but shareholders’ profit and finding it by cutting and selling.
Their move has little to do with any government (look at their history of selling assets). It has everything to do with them recognizing the trend away from investing in harder-to-get-at fossil fuels.
This move is not anti-Alberta or Anti-Trudeau or Anti-Notley. This move is about chasing ever diminishing profits to keep their heads above water. Ignoring that will be fatal for Albertans.
In 1883, Canadian Pacific Railway drilled for water near Medicine Hat, AB and discovered natural gas.
On July 3, 1958, Canadian Pacific created “Canadian Pacific Oil and Gas” to manage its oil and gas properties and its mineral rights.
In 1971, Canadian Pacific Oil and Gas merged with “Central-Del Rio Oils”, creating “Pan Canadian Petroleum Limited”.
In April 2002, PanCanadian Petroleum Ltd was spun out of Canadian Pacific Limited. It subsequently merged with Alberta Energy Corporation to form EnCana. Gwyn Morgan was named President and CEO.
In January 2007, the company sold its assets in Chad to China National Petroleum Corporation for $202.5 million.
In May 2007, the company sold its assets in the delta of the Mackenzie River.
In spring 2008, residents from Pavillion, Wyoming, approached the United States Environmental Protection Agency (EPA) about changes in water quality from their domestic wells. Encana was the primary natural gas producer in the area. In 2009, the EPA announced that it had found hydrocarbon contaminants in residents’ drinking water wells.
In November 2009, EnCana spun off its oil business into Cenovus Energy.
In November 2011, a potential buyer backed out of a $45 million deal to buy the company’s gas field in Pavillion, Wyoming.
In December 2011, the company sold the majority of its natural gas producing assets in the Barnett Shale.
In February 2012, Mitsubishi paid approximately C$2.9 billion for a 40% interest in the Cutbank Ridge Partnership with Encana, which involves 409,000 net acres of Montney Formation natural gas lands in northeast British Columbia. The company also sold its midstream assets in the Cutbank Ridge to Veresen for C$920 million.
In December 2012, Encana announced a US$2.1 billion joint venture with state-owned, Beijing-based PetroChina through which PetroChina received a 49.9% stake in Encana’s Duvernay Formation acreage in Alberta. This was in line with the rules that “favor minority stakes over takeovers” since Prime Minister Stephen Harper’s December 7, 2012 prohibition of purchases by state-owned enterprises seeking to invest in Canadian oil sands.
At the end of 2012, Encana’s staff had increased to 4,169 employees.
In November 2013, the company announced layoffs of 20% of its employees, closure of its office in Plano, Texas, and plans to sell assets and to found a separate company for its mineral rights and royalty interests across southern Alberta. It planned to invest 75% of its 2014 capital budget into 5 projects: Projects in the Montney Formation and the Duvernay Formation in Alberta, the San Juan Basin in New Mexico, Louisiana’s Tuscaloosa Marine Shale, and the Denver-Julesburg Basin (DJ Basin) in northeast Colorado, Wyoming, and Nebraska.
In June 2014, the company sold its Bighorn assets in Alberta to Jupiter Resources for US$1.8 billion.
In November 2014, Encana acquired Athlon Energy for $7.1 billion.
In May 2014, Jonah Energy LLC acquired Encana’s Jonah Field operations in Sublette County, Wyoming.
In June 2014, the company acquired assets in the Eagle Ford Group from Freeport-McMoRan for $3.1 billion.
In August 2015, the company sold its assets in the Haynesville Shale for $850 million to affiliates of GSO Capital Partners and GeoSouthern Energy.
In December 2015, the company significantly cut its dividend and capital expenditures budget after a fall in energy prices.
In July 2016, the company sold its assets in the Denver Basin for $900 million.
In June 2017, the company sold its assets in the Piceance Basin for $735 million.
In May 2018, the company permanently ceased production at Deep Panuke. The Deep Panuke project produced and processed natural gas 250 kilometers offshore southeast of Halifax, Nova Scotia.
In December 2018, the company sold its assets in the San Juan Basin for $480 million.
In February 2019, the company acquired Newfield Exploration.
In October 2019, the company announced its intentions of moving operations from Canada to the U.S.A. and changing its name to Ovintiv.”
With an election approaching this spring, it’s worth asking if we’re all wrong about the province
“The NEP sealed an enmity between Alberta and Ottawa that continues nearly forty years later. The federal Liberals have never made any significant inroads in Alberta electorally since; various conservative parties have been the only ones trusted with the province’s interests. This, again, is more a matter of political myth than fact: Brian Mulroney was actually a great disappointment to the West, and Jean Chrétien was one of the greatest champions of the province’s oil sands.”