Suncor cuts shine light on weakness of Alberta gas

CALGARY- Suncor's decision to unwind its natural gas business points to what could be a permanent structural shift that highlights the decreasing competitiveness of Alberta's natural gas patch, observers said Tuesday.

Canada's largest integrated oil company expects to cut about 1,000 positions as it moves to unload about $4 billion worth of natural gas assets in Canada and the United States, the majority of them in Alberta. It formally kicked off the process last week by selling Petro-Canada's former U.S. Rockies division to Noble Energy for $495 million US to focus on oilsands.

"I'm not surprised they're overhauling and downsizing that business," said FirstEnergy Capital analyst Michael Dunn.

"Even before the merger with Petro-Canada, production was declining and they hadn't been investing in that business. The conventional assets hadn't performed particularly well over the past few years."

The development comes a day after Talisman Energy said it will sell "significant" Alberta properties and production to redeploy the proceeds into emerging shale basins in British Columbia and Pennsylvania. As part of its restructuring, Talisman last year slashed about 18 per cent of its North American workforce as it moves away from conventional exploration and production to focus on shale.

The numbers are reflected in Alberta's jobless rate, which fell to 6.7 per cent in December, but remains near decade highs.

Alberta Federation of Labour president Gil McGowan noted that oilpatch jobs are well-paying positions that support families as well as the provincial treasury.

"A thousand jobs is a pretty big hit, especially in an industry that's already lost thousands of jobs in the last six to 12 months," he said.

"It's worth noting that these are not 'McJobs,' these are not jobs we can really afford to lose," said McGowan. "We hear Alberta has turned the corner, but these types of announcements tell a completely different story. We've got a long way to go before we dig ourselves out of this hole the recession has made for us."

Industry observers said the provincial government has to address the growing competitiveness gap between Alberta and other energy hot spots if it wants to maintain a healthy gas sector.

Speaking at the Calgary Chamber of Commerce on Tuesday, Energy Navigator president Boyd Russell insisted Alberta comes dead last when comparing the rate of return of shale gas developments across five major jurisdictions in North America. Policies such as the new royalty framework and the lack of incentives for high-cost, marginal wells are costing the province jobs and investment that are shifting into places like Louisiana, Texas and even B.C.

The Calgary-based engineering firm, which counts big producers such as Talisman among its clients, released a study that shows major shale gas developments in Alberta cost twice as much as similar projects in Texas. Boyd suggested the numbers are a clear indication of why companies like Talisman are selling conventional assets in Alberta and shifting dollars and jobs south of the border.

"Alberta is the only jurisdiction that doesn't have incentives for these types of wells," he said in an interview. "It's not enough to be economic; you also have to be competitive."

To address these and other issues, the Alberta government last year struck a competitiveness review panel that is expected to report on measures to improve the province's position in North America.

In addition to the review, Premier Ed Stelmach is widely expected to announce a cabinet shuffle that could result in the appointment of a new energy minister, news of which could come as early as this week.

Alberta Energy department spokesman Jerry Bellikka said the moves show the government is aware of the problem and taking steps to address the concerns.

"There's no hesitancy on our part to look at it. We know it (shale) is a game changer and that's why we have to look at our competitive position."

Michael Tims, chairman of Calgary-based energy investment bank Peters and Co. Ltd., said he agrees that Alberta needs to take a hard look at ways to strengthen the natural gas industry. "You can judge by their (gas producers') behaviour, they're certainly willing to sell an awful lot of assets."

He's sat in on various meetings and committees related to the review panel and said he thinks the message is finally starting to sink in.

"I think they are looking at all the issues and I think it's very clear to them what the relative economics are. I think we're all expecting there will be positive change," when the report is released later this year.

Calgary Herald, Wed Jan 13 2010
Byline: Shaun Polczer

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