Alberta Trades Jobs Work Careers Edmonton Calgary

Last update: 10:19 a.m. EST Dec. 4, 2008

By Joe Carroll

Dec. 2 (Bloomberg) — Nexen Inc. rose more than 9 percent after the FT Alphaville Web site reported that Total SA, Europe’s third-largest oil company, is preparing a C$19.7 billion ($15.8 billion) bid for the Canadian energy producer.

Nexen jumped C$2.03, or 9.3 percent, to C$23.88 on the Toronto Stock Exchange after rising as much as 33 percent during the session. Before today, the Calgary-based company had fallen 32 percent this year. Total rose 2.9 percent to 39.31 euros in Paris trading.

Nexen’s most attractive assets include the C$6.1 billion Long Lake oil-sands project in Alberta, the Buzzard oil field in the North Sea, natural-gas projects in British Columbia and a stake in Syncrude Canada Ltd., the world’s biggest oil-sands miner, said Randy Ollenberger, an analyst at BMO Capital Markets in Calgary.

“They’re one of the few companies with projects large enough to be of interest to the large supermajor international producers,” Ollenberger said in a telephone interview. Total is familiar with Nexen’s operating culture because the companies are partners in offshore projects in Nigeria, said Ollenberger, who rates Nexen shares at “outperform” and owns none.

Total may pay C$38 a share for Nexen, the Web site said without reporting where it got the information. That would be about double the stock’s average trading price during the past month.

Falling Oil Prices

Nexen shares haven’t traded for C$38 since early July, when New York oil futures were heading for a record $147.27 a barrel. The futures settled today at $46.96 at 2:41 p.m., more than $100 below the July 11 high.

Paris-based Total has raised 7.5 billion euros ($9.6 billion) from five banks, the report said. The company had cash and cash equivalents of 13.2 billion euros at the end of September, according to data compiled by Bloomberg.

Nexen, in a statement issued at the request of the Toronto Exchange, said it was unaware of any corporate developments to account for jump in its shares.

“Nexen is not for sale,” spokesman Michael Harris said in a telephone interview. “We would like to increase the company’s value through developing our assets.”

Paul Floren, a spokesman for Total, said it’s against company policy to comment on rumors. Total spent C$1.69 billion in the past three years amassing Canadian oil-sands assets, most recently with the purchase of Synenco Energy Inc. in August.

Shares Battered

Shares of Nexen and other oil producers have been battered as recessions in the world’s largest economies crimped demand for gasoline, diesel and other petroleum-based fuels. The 68-company index of energy producers traded in Toronto has tumbled 37 percent this year.

“Nexen’s been trading at a big, big discount,” Ollenberger said. “It’s trading at about 50 percent below its underlying asset value.”

Nexen is an oil, natural-gas and chemical producer with a market value of about C$13.9 billion and operations extending from Indonesia to Brazil. The company pumped the equivalent of about 207,000 barrels of crude a day in 2007, about one-twelfth of Total’s output. Acquiring Nexen would boost Total’s proved reserves by about 6 percent.

Nexen’s expansion plans have been frustrated by shortages of deepwater drilling prospects in the Gulf of Mexico, tax increases in Alberta and project delays in the North Sea.

Chief Executive Officer Charlie Fischer failed to meet his production growth target of 50 percent last year. Some Gulf of Mexico wells shut by Hurricanes Gustav and Ike in September remain out of service. Fischer, 58, is scheduled to retire at the end of this month.

To contact the reporter on this story: Joe Carroll in Chicago at jcarroll8@bloomberg.net

Last Updated: December 2, 2008 16:26 EST

Producers consider an increase in drilling, but say new ‘transitional’ royalty rate won’t halt sector slowdown

CALGARY — Energy producers are tentatively looking at boosting exploration in Alberta again after a government shift on royalties, but not by enough to rescue the province from a drilling slowdown in 2009, oil patch companies say.

In an attempt to reduce the impact of plunging commodity prices and tight credit on its energy sector, Alberta introduced a “transitional” royalty rate for new oil and gas wells that would ease the cost burden on explorers, shoring up drilling activity and jobs.

The moves are a step in the right direction for an industry poised for a dramatic pullback in drilling next year, producers said yesterday, responding to the province’s move late Wednesday.

But there was also widespread confusion yesterday over just how much the new rates will mean because Alberta Energy published incorrect formulas with misleading royalties for new oil wells.

“Alberta is poorly handling its biggest resource,” said Max Lof, chief financial officer of Calgary-based junior Breaker Energy Ltd.

“The changes marginally help producers,” Mr. Lof said. “Rather than a collapse in 2009, there will be some activity. But they’re not big enough to be a huge capital stimulus.”

Even though the transitional royalties are seen as a positive step for the sector, energy company stocks nosedived yesterday as oil prices hit three-year lows. The S&P/TSX capped energy index fell 14.5 per cent as the share prices of major producers like Canadian Natural Resources Ltd. and Talisman Energy Ltd. fell to levels not seen since 2005.

Alberta will introduce its New Royalty Framework (NRF) on Jan. 1, charging companies higher royalties as commodity prices rise. It is intended to increase the province’s take from its energy industry by $1.8-billion a year, but the changes announced late Wednesday reduce that take by $1.8-billion over five years.

However, producers attacked the system, saying it would make Alberta uncompetitive and take away too much of the potential upside of commodity price swings. Major companies said they would divert spending to other provinces or the United States, while smaller firms planned to slash exploration because of lower commodity prices and tighter credit.

As a result, the government said that while old wells will still become subject to the new regime, companies can, until 2014, choose to pay a transitional rate on conventional oil and gas wells drilled after Jan. 1 at a depth between 1,000 and 3,500 metres.

Under that rate, companies would pay a royalty of about 30 per cent of net revenue from new gas wells – an amount almost identical to that of Alberta’s previous royalty system.

“It’s a positive step that brings forward incremental activity back to the province of Alberta,” said John Zahary, chief executive officer of Harvest Energy Trust, an old and gas producer. Harvest had anticipated spending most of its $260-million budget for 2009 on operations in British Columbia and Saskatchewan, but “with this change [Alberta] becomes more interesting to us.”

The picture is clouded for oil production. Alberta Energy published incorrect rate formulas that indicated oil companies would have to pay more under the transitional rate. While the mistake is being corrected, conventional oil producers don’t yet know how their wells might be affected.

For junior oil producers like West Energy Ltd., one of the firms that would be most affected by the NRF, the lack of clarity on oil revenues is a disappointment, CEO Ken McCagherty said.

“I’m glad to see that the government has recognized that it is a very difficult time [for juniors] … but there’s a level of complexity to the [royalty system] that’s almost comical,” he said.

Companies are also unhappy that old wells won’t be subject to the transitional rates, as that doesn’t free up capital to chase new exploration. Several explorers said they could now delay drilling planned for December into January, so that new wells would take advantage of the improved royalties.

In addition to the error, some analysts had difficulty hearing what was said at the beginning of a conference call explaining the transitional royalties.

“For the capital markets, the process of the delivery of the announcement was a further erosion of faith in the idea of investing in Alberta,” said FirstEnergy Capital Corp. analyst Robert Fitzmartyn.

http://www.theglobeandmail.com/servlet/story/LAC.20081121.RROYALTIES21/TPStory/Business

OTTAWA -(Dow Jones)- Syncrude Canada Ltd. has finally agreed to pay higher royalties under Alberta’s new oil and gas royalty regime, but only from 2015, Canada’s biggest oil sands producer said Tuesday.

When the new regime kicks off in January, there will be some changes to how Syncrude’s royalties are calculated, and the consortium will pay an additional C$975 million between 2010 and 2015.

The deal allows Syncrude to “proceed with increased confidence in its operations and expansions now that the royalty terms are clear and stable,” said Marcel Coutu, chief executive of Syncrude’s biggest shareholder, Canadian Oil Sands Trust (COS.UN.T).

Sycrude has been locked in negotiations with Alberta since October, when the provincial government announced it was hiking oil and gas revenues by C$1.4 billion, with the new terms replacing any pre-existing deals. Alberta’s two oldest oil sands developers, Suncor Energy Inc. (SU) and Syncrude, already had arrangements running to 2016, and the government opened negotiations to transition them to the higher rates.

Suncor reached a deal with the province in January, agreeing to pay up to 20% more starting in 2010.

From January, Syncrude will pay royalties based on bitumen, the tarry, low- grade raw material from the oil sands, less operating and capital costs, rather than on upgraded bitumen, which has been processed into a lighter more valuable crude.

From 2010 through 2015, Syncrude will pay base royalty rates of 25% of net bitumen-based revenues or 1% of gross revenues, whichever is greater, as well as the additional C$975 million over six installments. It will then shift fully to Alberta’s new scheme in 2016.

The new deal will generate an extra C$1.25 billion in royalties over the next 25 years.

Syncrude’s other partners are Imperial Oil Ltd. (IMO), Petro-Canada (PCZ), ConocoPhillips (COP), Nexen Inc. (NXY), Mocal Energy Ltd. and Murphy Oil Corp. ( MUR).

China leads: Canada, US, Alberta must heed

Posted: November 11, 2008, 5:18 PM by Diane Francis

The credit crisis threatens rich countries with bankruptcies, but it threatens poor countries with the possibility of revolutions.
That is why the world has had to come together to try and fix problems and regain global economic stability. And so far so good. A spirit of cooperation has become the most positive result of the current crisis. There will be more too. This weekend’s G20 conference in Washington will force a reluctant Canada to join the world’s other large economies in forking out more bailouts, stimulus packages and tax cuts.
Britain’s Gordon Brown is calling for a round of deep, simultaneous tax cuts as part of a new order to fix the world’s economic mess. This would be a good idea.
Alberta in particular: take note.
Increases last fall in royalty rates were predicated on higher energy prices never ending and now royalties must be rolled back. Elsewhere in Canada, taxes on businesses and individuals must drop as part of a concerted rescue plan.

“There is a sense that we need to act to avoid a retreat into protectionism,” Prime Minister Brown told the Times of London yesterday. “I believe there is an interest for America and for the developing world and for all emerging markets, that we send a signal through a world trade deal that protectionism can be avoided.”
Fear of protectionism has helped countries and leaders agree to move in lockstep, and in good faith, to bailout their financial institutions and to announce mass stimulus packages. Canada and its governments will eventually pony up hundreds of billions of dollars to shore up our economy and reluctance to date on the part of Ottawa must change. Everything from auto jobs to oil sands projects plus infrastructure will have to be backstopped, financed and encouraged in order to prevent the real economy from imploding as has Wall Street and the financial economy.
China gets it
Most meaningful is the fact that China stepped up to the world plate yesterday as the economic powerhouse it has become with its stimulus package of US$600 billion. This is nearly the size of the Congressional bailout and doubly dramatic considering that China, in purchase power parity GDP, has an economy less than half the size of America’s.
China’s full-fledged participation is both necessary and welcome. It is the world’s most successful emerging economy. Its cooperative announcement is also an indication that the world’s political and economic systems are intersecting into more a homogeneous and stable, regulated, mixed global economy.
China, one of the best run countries in the world, was quick off the mark after Wall Street disappeared with an announcement of Taiwan-style land reform. The country’s farmers will be able to trade and mortgage their land rights. When enacted in Taiwan in the 1970s and 1980s, turning the countryside into capitalism led to an explosion in consumption. If that happens in China, the Chinese consumers will consume the over-capacity of production that’s been, and going to be, idled by the drop in exports to the U.S. and Europe.

More woe around the corner
Besides a drop in export income these countries will experience reductions in foreign direct investment and capital flows.
And emerging stock markets collapsed in value after a run-up last year as portfolio managers around the world began to pull in their horns and abandon proportionate investing around the world as a hedge.
Countries with debts earmarked in the rising U.S. dollar will be especially hard hit. Those in trouble, and offered Fed Reserve aid so far, are Mexico, Brazil, South Korea, Singapore, Hungary and Ukraine.
More surprises await the world as this crisis plays out. Clearly, the U.S., Canada, our provinces and Europeans will have to do much more. China has clearly become a global super power and, unlike Russia, realized that with this role comes responsibilities. This is indeed a welcome, historical developMENT.

http://network.nationalpost.com/np/blogs/francis/archive/2008/11/11/china-steps-up-thank-heavens.aspx