Ottawa's changes lift Canadian oil industry
Red Deer, Alberta
Even though world oil prices are weak -- and may get weaker -- Canada's oil patch is doing well enough to have perked up Alberta's economy. Alberta is this country's big oil and gas production region. The western Canadian province has been booming since oil was discovered at Leduc, outside the provincial capital of Edmonton, in 1947. But falling crude prices and a difficult federal oil policy have meant there has been no real growth in Alberta for the past three years.Skip to next paragraph
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It is easy to see that this is changing. Red Deer, halfway between the two big cities of Edmonton and Calgary, is prospering. Oil rigs are going up inside the city limits. Out to the west of the city, the metal donkeys bounce up and down, pumping oil and gas into pipelines that crisscross the farmland.
``The economics of drilling for oil and gas in Alberta have never been better,'' says Robert Price, an analyst with Peters & Co., a Calgary-based brokerage house that specializes in energy stocks.
Dome Petroleum is one of the big operators around the small town of Eckville, about 20 miles west of Red Deer. This is bread-and-butter country for Dome. The oil and gas are easy to get and close to pipelines and markets in the United States and Canada.
One is also reminded, however, that this is the scene of Dome's recent problems. The company, which now seems to have recovered, almost went under when it bought the properties of Hudson's Bay Oil & Gas, many of which are in this area.
In the fall of 1980, Ottawa brought out its National Energy Policy, a nationalistic dream wrapped in flowery rhetoric that was to ``Canadianize'' the oil and gas business.
It was a flop. But it encouraged Canadian companies such as Dome to go on a buying spree. Falling oil prices and rising interest rates caused the dreams of the energy policy, and of western oilmen, to go sour.
But the new Conservative government in Ottawa rewrote the rules of the oil game this year, including lifting the 12 percent petroleum and gas revenue tax. It is also easier for foreigners to invest in Canadian oil and and gas ventures, and it lifts restrictions on exporting oil to the United States.
Crude oil producers will be able to increase their exports to the US. Natural gas exports may follow. Ottawa put controls on oil exports in 1974 when it worried that supplies of relatively cheap Alberta oil were running out.
Other key measures, according to Mr. Price, are the move to world oil prices and a one-year tax holiday on Alberta royalties on new discoveries. ``Even with oil at $20 a barrel, the prospects here are still attractive,'' the Calgary analyst says.
All of that has the industry moving again. The Canadian Petroleum Association estimates that oil companies will spend 20 percent more than they did last year. And in 1984 that was a record $7.2 billion (Canadian, approximately US$5.3 billion).
Blue trucks with the white lettering of Dome Petroleum on the door churn up dust on the back roads of oil country, servicing the pumps. One task during the short, hot Alberta summer is to paint pumping equipment.
Gary Tink is a student who is spending the summer painting wellheads for Dome. He welcomes the job and the money, even if the work is tough under the hot western sun.
But that same sun worries both big- and small-time farmers. Gary's father raises cattle and horses on a small farm outside Eckville, and the cost of keeping them is high.
``The cost of hay is at least C$7 a bale,'' says Gary, standing beside a scorched pasture already overgrazed because of lack of rain. (Hay in southern Ontario in west central Canada goes for C$1 a bale).
The high feed costs come at a time when cattle prices are dropping because of competition from cheap pork -- brought on by higher US tariffs on Canadian pigs and the aversion of many in the Yuppie generation to red meat.
There has been some rain recently, but it has come too late for many western Canadian farmers who have plowed under their stunted crops and will wait to plant next year.
Unemployment in Alberta has fallen from 12 percent to 10 percent. But that is still not good, compared with the days when this province had virtually full employment.
Construction here is down because of the glut of housing and commercial property on the market from the boom times of the late '70s and 1980. An ensuing real estate crash ruined many families and companies.
But the activity on the drilling fields of Alberta has left people with an optimism that has not been seen in four years.
``Oil activity is just below the record rates of 1980,'' says Robert Price, ``and I predict we could break that record this year.''