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Gold/Mining/Energy : Canadian Oil & Gas Companies -- Ignore unavailable to you. Want to Upgrade?

To: Slyfox who wrote (4243)	12/2/1997 11:45:00 AM
From: SofaSpud	Respond to of 24931

Slyfox / Greenhouse Gas There are a couple of possible answers to your question. The first is, yes, the measures necessary to acheive the target the feds outlined yesterday would adversely affect your investment in a drilling company. I don't know all the emission numbers exactly, but I do know a bit about economics. In the short run, oil and gas are what an economist would term "price inelastic". That means that a large increase in price leads to only a relatively small decrease in the quantity demanded (all other things equal). Now consider the intellectual depth of the current federal government. I suspect (and would be delighted to be proven wrong) that they are unlikely to attempt anything innovative, such as tradable emission permits. Instead, a bludgeon seems more their style (remember 1980?). That means that if the feds were to try to reduce CO2 emissions below 1990 levels within ten years, they would have to impose remarkably high taxes. As one example, I would think something on the order of 50 cents/litre on gasoline, phased in over the period, would be a reasonable guess. (That would pale in comparison to what they'd have to do to electricity -- which is primarily from coal in Alberta -- but that's not relevant to the discussion of oil and gas.) So yes, if the feds were serious about meeting the targets, oil & gas consumption and production would have to be reduced significantly; producers and the service sector would suffer noticably. You'll notice quite a few 'if's in the above. That leads to the second answer. Which goes something like, "remember Rio?" That's where "1990" became the magic number. Governments agreed to emission targets at the Rio "Earth Summit", and precisely zip was accomplished. A cynic might tell you that zip is what will happen again this time -- that once Kyoto is done and out of the headlines, the emission reduction targets will tend toward the backburner, until say, 2006, when either some new crisis occupies people's minds, or they wring their hands again and say, "OK, we REALLY mean it this time, 1990 levels by 2018." Personally I think the larger threat to an investment in the service sector is the cost pressures facing the industry right now. Drillers, service rigs, and manufacturers are having a bonanza -- a well deserved one for anybody who made it through the mid 1980s, BTW. But that bonanza of high prices is wiping out the profitabilty of the producers, who, in the absence of higher product prices, are going to have to cut back on exploration. It could well be that we've seen the peak in this cycle, and that the service sector could have two or three lean years in its near future -- not '98, but probably '99 and on. JMHO. None of the foregoing touches on global warming. It would be nice if there could be a serious scientific discussion about the effect humans can have / have had on climate.

To: Slyfox who wrote (4243)	12/2/1997 12:08:00 PM
From: Kerm Yerman	Read Replies (1) \| Respond to of 24931

Slyfox / Drilling activity I'll address the rate of drilling question. David Peever covered the effect question quite well. I think 1997 will hold as a record drilling year for some time. As David pointed out, cost is now become a major factor. This, coupled with debt and cash flow will slow the pace of drilling in Canada. I would not be surprised to see drilling cut back by an estimate 10% in 1998. Companies will operate on a lean basis and work within their cash flow. What effect will this have on the drillers and well servicing sector? Not much. The industry is short drilling rigs currently. Even reduction of drilling in 1998 will still allow companies to operate at full capacity - or near full capacity. The coming 12 months should not be disappointing. When looking at the IPO, assure yourself that earnings (EPS) are at a discount compared to peers which are public concerns.