How can ‘profit’ be a dirty word in the insurance industry and not in the oilpatch?
Some consumers and independent business groups are screaming highway robbery over rising insurance premiums because Canada’s insurance industry posted an all-time record net profit of $2.63 billion in 2003. That’s almost 700-per-cent higher than the profit figure in 2002.
Well, welcome to Alberta’s Billion-Dollar Oilpatch Club. Six home-grown oil and gas companies reported unprecedented 2003 profits that together racked up $8.8 billion – more than three times higher than the 207 insurance firms operating in Canada combined.
Oil companies earning more than $1 billion each included EnCana Corp., Petro-Canada, Suncor Energy Inc., Husky Energy Inc., Talisman Energy Inc. and Canadian Natural Resources Ltd.
In comparison, the average insurance firm’s net profit last year was approximately $13 million.
In the oilpatch, EnCana’s earnings alone – up 183 per cent in 2003 compared to the previous year – amounted to $2.36 billion US.
That’s more than the entire Canadian insurance industry, which had a rate of return of 11.3 per cent last year. That rate of return is lower than reasonable profitability targets accepted by government regulators and lower than levels seen in other financial services, the Insurance Bureau of Canada says.
I’m not saying that the oil companies – or the insurance industry – didn’t earn every cent of their respective profits.
But if you’re a consumer who wants to holler about obscene profits, yell at the gasoline pumps next time you fill up your car.
If you’re a small business that wants to hit the roof about insurance premiums, then also raise a ruckus next time you open your heating bill.
Profit is spelled the same way no matter what the industry. And one word doesn’t tell the whole story.
ALBERTA PUMPED WITH PRICES
Alberta’s economy appears headed for another stellar year, especially with crude oil prices hitting a 13-year high as they did last week.
The oil and gas industry will have another highly profitable year, according to a new Conference Board of Canada forecast.
“Following a record year in 2003, profits in the oil and gas industry will remain high by historical standards, coming in at $13 billion this year because of high energy prices and strong production,” says Louis Thériault, associate director of the Conference Board’s new Canadian Industry Outlook service (see www.conferenceboard.ca).
The natural gas and the non-conventional crude oil sectors will drive the expected solid performance of the industry over the medium term, Thériault says. In spite of high oil prices, global energy gobblers can’t get enough of the black gold. Demand in the U.S., China and Japan – the world’s three biggest oil consumers – is rising faster than someone who has just sat on a whoopee cushion.
Gasoline prices are also hitting record highs at the pumps, with the peak summer fuel-demand season still more than two months away.
It’s bad news for vacationers planning a long road trip. But it means a windfall for the Alberta economy and a cash surplus for goodies as the Ralph Klein government heads into an expected election.
TRAPPED GAS IS FUTURE FUEL
Mike Gatens is an ‘unconventional’ kind of guy.
Gatens, chair of the Calgary-based Canadian Society of Unconventional Gas, says the amount of natural gas trapped in coal seams and in geologic formations of organic shale and tight sands – most of it in Alberta – is colossal and represents the country’s energy future.
Canada likely has at least 3,000 trillion cubic feet (tcf) of unconventional gas, with some 225 tcf recoverable with current technology, he says. That’s enough to satisfy Canadian demand for gas for almost 100 years.
In comparison, the country’s remaining proved conventional gas reserves are less than 60 tcf. And production of conventional gas has peaked and will steadily decline.
In the U.S., unconventional gas from 140,000 wells drilled into coalbed methane, tight sands and gas shales already represents 32 per cent of the nation’s total gas production, Gatens says.
Canada’s fledgling unconventional gas industry is tiny in comparison, but it is growing fast.
Companies such as MGV Energy Inc., Nexen Inc., Burlington Resources Canada Ltd., Anadarko Canada Corp., Devon Canada Corp. and others invested about $400 million in 700 to 1,000 coalbed methane (CBM) wells in 2003 – mostly in Alberta. Another 1,000 wells are planned for this year.
Current CBM production of about 40 million cubic feet a day is expected to climb to more than 100 million cubic feet a day by the end of the year. Within 20 years, CBM could account for about 15 to 20 per cent of Canada’s current natural gas production of about 17 billion cubic feet of gas a day, Gatens says.
When it comes to expanding CBM development, Alberta Energy Minister Murray Smith says the government “will listen to Albertans regarding the opportunities and challenges as we continue to develop our resources together.”
So give the government your input at evening information sessions scheduled March 30 - April 15 in Rocky Mountain House, Wetaskiwin, Stettler, Barrhead, Strathmore, Drayton Valley and Pincher Creek. Check it out at www.energy.gov.ab.ca
KYOTO STILL A FEDERAL WORD
Alberta Environment Minister Lorne Taylor likes to read between the lines.
But he would be wise not to read too much into a letter from federal officials promising to co-operate in setting standards for reporting greenhouse gas emissions.
Taylor says the letter gives him optimism that the two governments can work together in drafting an effective plan to reduce emissions.
But Ottawa already has an emissions-reduction plan that’s based on Canada’s ratification of, and reduction target within, the international Kyoto accord.
Alberta has its own very different plan not based on Kyoto at all, which is referred to as that offensive “K word” by senior ministers responsible for the province’s plan.
A promise by federal bureaucrats to co-operate in setting standards for reporting emissions is a world removed from an offer from Prime Minister Paul Martin, who voted in favour of Kyoto’s ratification, to somehow merge the two distinct plans.
Last week, the federal government announced, with a notice in the Canada Gazette, the start of mandatory reporting of greenhouse gas emissions by Canada’s major emitters (industrial facilities emitting more than 100,000 tonnes of greenhouse gases a year into the atmosphere).
Environment Minister David Anderson says that in keeping with the desire expressed by the provinces, industry and other stakeholders, the federal, provincial and territorial governments will continue to collaborate in developing a harmonized, “single window” mandatory reporting system for the country.
That’s what the letter to Taylor was all about.
It wasn’t about fitting a plan that’s a square-peg plan into one that’s a round hole.
NQL Drilling Tools of Nisku, just south of Edmonton, has a huge financial blowout that it’s trying to wrestle under control.
The oilfield services company, which lost $59.1 million in 2003, says it’s focusing on a restructuring of operations and looking to sell or close non-core operations.
NQL lost $1.87 per share last year, compared with a loss of $5.9 million or 24 cents per share in 2002. Revenue totalled $110.5 million in 2003, up from $89.2 million.
But that good result was offset by $32 million in writedowns of goodwill.
The company says it has formed a special committee of the board to consider various options, and has hired Simmons & Co. International, a Houston-based investment banking firm specializing in the energy industry, to help evaluate the alternatives.
Now if only they made a drilling tool that would staunch a loss of cash flow!