OIL SANDS BOOM DRIES UP IN ALBERTA, TAKING THOUSANDS OF JOBS WITH IT

Original Story: nytimes.com

FORT McMURRAY, Alberta — At a camp for oil workers here, a collection of 16 three-story buildings that once housed 2,000 workers sits empty. A parking lot at a neighboring camp is now dotted with abandoned cars. With oil prices falling precipitously, capital-intensive projects rooted in the heavy crude mined from Alberta’s oil sands are losing money, contributing to the loss of about 35,000 energy industry jobs across the province. A Tulsa mineral rights lawyer is following this story closely.

Yet Alberta Highway 63, the major artery connecting Northern Alberta’s oil sands with the rest of the country, still buzzes with traffic. Tractor-trailers hauling loads that resemble rolling petrochemical plants parade past fleets of buses used to shuttle workers. Most vehicles carry “buggy whips” — bright orange pennants attached to tall spring-loaded wands — to help prevent them from being run over by the 1.6-million-pound dump trucks used in the oil sands mines.

Despite a severe economic downturn in a region whose growth once seemed limitless, many energy companies have too much invested in the oil sands to slow down or turn off the taps. In addition to the continued operation of existing plants, construction persists on projects that began before the price fell, largely because billions of dollars have already been spent on them. Oil sands projects are based on 40-year investment time frames, so their owners are being forced to wait out slumps. A Tulsa oil and gas lawyer represents gas and oil clients in federal and state matters and in federal and state courts.

“It really is tough right now,” said Greg Stringham, the vice president for markets and oil sands at the Canadian Association of Petroleum Producers, a trade group that generally speaks for the industry in Alberta. “We see kind of a lot of volatility over the next four or five years.”

After an extraordinary boom that attracted many of the world’s largest energy companies and about $200 billion worth of investments to oil sands development over the last 15 years, the industry is in a state of financial stasis, and navigating the decline has proved challenging. Pipeline plans that would create new export markets, including Keystone XL, have been hampered by environmental concerns and political opposition. The hazy outlook is creating turmoil in a province and a country that has become dependent on the energy business.

Canada is now dealing with the economic fallout, having slipped into a mild recession earlier this year. And Alberta, which relies most heavily on oil royalties, now expects to post a deficit of 6 billion Canadian dollars, or about $4.5 billion. The political landscape has also shifted.

Last spring, a left-of-center government ended four decades of Conservative rule in Alberta. Federally, polls suggest that the Conservative party — which championed Keystone XL and repeatedly resisted calls for stricter greenhouse gas emission controls in the oil sands — is struggling to get re-elected in October. A Tulsa oil and gas attorney is reviewing the details of this story.

“The pendulum has swung,” said Stephen Ross, the president of Devonian Properties, an Alberta development company that has built several residential and commercial properties in Fort McMurray.

Since the end of the World War ll, oil has made Alberta wealthy. The increase in oil sands development since the early 2000s had only intensified the province’s good fortune and turned obscure Fort McMurray into a boomtown and an outsize contributor to the entire Canadian economy.

When Mr. Ross first bought development land here in 2000, he paid about 27,000 Canadian dollars an acre. He stopped buying land long before it hit one million Canadian dollars an acre.

“The town has had huge growing pains,” Mr. Ross said. “It’s like something you’ve never seen.”

Operating oil sands plants quickly decreased budgets and cut services, like equipment cleaning, which were deemed optional. And as portions of construction projects are finished, construction workers are sent packing. The halt on new projects has left order books increasingly blank at a variety of suppliers, like engineering firms.

Since the price collapse, Teck Resources has delayed the start of its oil sands project by five years to 2026. Cenovus Energy substantially reduced budgets for its long-term developments. And Osum Oil Sands has set aside some of the expansion planned for a project it purchased from Shell last year. The Chinese-owned company Nexen, which had its oil sands production curtailed by regulators for about a month in August because of a pipeline leak, has deferred plans to build another upgrader facility, where tar-like bitumen of the oil sands is converted into synthetic crude oil, until the end of 2020.

These projects, and others that have begun over the last 15 years, have largely been built and operated by an itinerant work force. These workers fly into Fort McMurray’s new airport terminal and are bused to work camps up to two hours away. Their lives are a cycle of three straight weeks of long shifts interrupted by 10-day trips home.

That transient population has little or no connection to the city when working. When laid off, they become unemployment statistics, not in Alberta, but in the provinces of their hometowns. It’s also in those regions, more than Alberta, where the loss of once-large paychecks is most felt, having a ripple effect across the country. A Tulsa environmental lawyer provides professional legal counsel and extensive experience in many aspects of environmental law.

For Canadian oil executives, the significant shift in the province’s politics is of great concern. Rachel Notley, the new premier and leader of the New Democratic Party, has said that she would prefer more refining to take place in Alberta instead of shipping more oil sands production to the United States via Keystone XL. And speaking to the Alberta Chamber of Commerce last month, Ms. Notley told the energy industry that it must “clean up its environmental act.”

One executive and investor, who did not want to be named while the province is reviewing his industry, said growing sentiment that the industry does not pay Alberta enough in royalties and lags on environmental protections will kill new investments, even if prices start to rise.

“There’s never been a time when I’ve been less optimistic,” he said. “The general public doesn’t know how bad it is. It just hasn’t hit yet.”

He did, however, acknowledge that environmentalists had won the debate on Keystone XL as well as various other pipeline plans.

“I don’t know how the issue got away, but it’s obvious now that it did,” he said.

And the workers who have benefited from the boom are now realizing that their stretch of good luck might be over, permanently.

Réjean Godin, a truck driver and heavy equipment operator, began the long-distance commute from the Atlantic province of New Brunswick 13 years ago. Since then, he’s earned wages four or five times the rate of those back home, an area of high unemployment.

Standing near his well-worn Toyota RAV4 that still bears New Brunswick license plates, Mr. Godin, who lives in a work camp, recited all of the different projects in which hundreds of workers had been laid off — layoffs that he’d learned about over the previous few days. He fears that the days of high pay for delivering water to work camps and hauling their sewage away may be over for both himself and his 30-year-old son, who joined him in Alberta.

“I’m not sure if we’re going to come next year,” Mr. Godin said in the dusty yard of a trucking company in Fort MacKay, Alberta, a town down the Athabasca River from Fort McMurray. “What you hear everywhere is the price is low so we’ve got to cut this, we’ve got to shut that down a little bit. We go day by day because we never know.”

Manufacturing Feeds the Recovery, but Can It Persist?‏

CNBC

As the U.S. economy began to show signs of life late last year, it was carried largely by an unusual leader: manufacturing. In terms of both output and new jobs created, U.S. manufacturers have posted strong numbers for several months running.

Yet with the mixed results of two regional manufacturing reports this week—the New York Federal Reserve's Empire State Manufacturing Survey and the Philadelphia Federal Reserve's Business Outlook Survey—it remains to be seen if the short burst manufacturing received from U.S. businesses cautiously re-entering the economy this spring will extend much longer.

"People had to restock shelves at some point," says Cliff Waldman, an economist for Arlington, Va.-based Manufacturers Alliance, (MAPI). "What has to happen now is real demand has to enter."

But Thursday's Philadelphia Fed survey, which covers factories in eastern Pennsylvania, southern New Jersey and Delaware, suggested that business demand remains tepid. Despite a slight increase in the survey's diffusion index of current activity—its most comprehensive measure of manufacturing conditions—certain line elements dipped, including an eight point drop in new orders.

"Domestic demand, while recovering, is not exactly a barnburner," says Waldman.

The Philadelphia Fed survey also revealed a softer-than-anticipated outlook on factory hiring. Manufacturing employment has been a bright spot in an otherwise bleak job market, adding 101,000 jobs since December 2009, according to the U.S. Bureau of Labor Statistics. While both the Philadelphia Fed and the Empire State survey, released Monday, recorded positive readings for May hiring, they also found future employment outlooks tied heavily to business demand. Forty-three percent of the Philadelphia-region factories who reported no present intention to hire further employees indicated uncertainty over product demand as the "most important" reason why they were keeping ranks trim.

As a sector whose share of the economy has only shrunk with each passing decade—manufacturing accounted for 11.5 percent of total GDP in 2008, versus 21.3 percent in 1978—its current performance is hard to appreciate when speaking in relative terms. Still, U.S. manufacturing remains a positive indicator for economists analyzing a nascent economic recovery.

Omair Sharif, an economist for RBS Securities, remains unfazed by any recent pullback in manufacturing's strong run for 2010.

"Philly and Empire reports still point to very healthy growth in the manufacturing sector," says Sharif. "[Both] show continued growth in factory activity in May, even if it is somewhat slower than it was in April. Because the reports run through the first half of each month, my sense is that some of the slowdown may have had to do with caution on the part of firms due to the escalation of the European debt crisis."

Global markets stretched and shaken by a historic economic downturn will likely continue to impact the fate of U.S. manufacturing. An Asian-led export rebound has had strongly positive implications for the sector, as booming Asian economies have stepped up their demand for American goods. Yet with shaky European markets threatening to unsettle business operations worldwide, manufacturing could take fresh hits just as quickly as it gains, leaving its progress caught in a murky middle.

"It's an uneven global recovery to say the least," says Waldman. "My best guess in manufacturing output growth is moderation."
 

Downturn Spares Few Areas of U.S.

As posted by: Wall Street Journal

Economic activity is weakening across the U.S., a new Federal Reserve survey shows, with few sectors or regions spared from the deepening downturn.

Through late last month, nearly every area of the U.S. reported tighter lending, declining sales and manufacturing, and softening labor and real-estate markets, according to the Fed's Beige Book survey of regional economic activity. Sectors such as agriculture and energy, which until recently were bright spots, began to dim as commodity prices declined.

The central bank's report Wednesday follows other signs that employers are shedding jobs at a quickening pace.

The Institute for Supply Management's service-sector index fell 7.1 points to 37.3, a new low for the 11-year-old index. The most troubling signal from the survey of executives came in a measure of employment, which plummeted to 31.3 from 41.5. Index readings below 50 indicate contraction.

"It's ugly out there," said Anthony Nieves, chairman of the ISM survey committee and a senior vice president for supply management at Hilton Hotels Corp. "It's not about doing away with the activities that were nice to have," Mr. Nieves said. "This is, how do we limp along until things get better? It looks like everyone is looking at all of 2009 as being this type of dismal economy."

A separate report prepared by payroll firm Automatic Data Processing Inc. and forecasting firm Macroeconomic Advisers estimated that nonfarm payrolls, excluding government jobs, declined by 250,000 in November. Thus far this year, ADP has shown smaller payroll losses than the Labor Department, raising worries about the official government number due Friday.

Many forecasters had projected the U.S. employment report for November will show a decline of far more than 300,000 jobs. Goldman Sachs economists yesterday downgraded their projections to a monthly drop of 400,000, from the previous estimate of 350,000, with the unemployment rate rising to 6.8% from 6.5%.

The Fed Beige Book found some employers reporting difficulty hiring certain skilled workers. But just about all others, including temporary-help firms, factories or retailers seeking seasonal workers, scaled back hiring. "Wage pressures were largely subdued," the report said.

Federal Reserve Bank of Richmond President Jeffrey Lacker said that "uncertainty about the outlook is greater than usual," but that the economy is still expected to "regain positive momentum sometime in 2009."

Since September, reports have indicated that "many households and firms are taking a 'wait and see' attitude, reducing or postponing nonessential outlays in response to a general sense of uncertainty about the potential meaning of these dramatic events for their own economic circumstances," Mr. Lacker said in remarks Wednesday to the Charlotte, N.C., Chamber of Commerce.

Stimulative monetary policy from the Fed, lower commodity prices and a lessening drag from the housing sector should return the economy to growth, he said.

Also on Wednesday, the Labor Department revised its estimate of third-quarter productivity growth slightly to 2.1% from a year earlier, up from its earlier 2% estimate, as the number of hours worked declined more sharply than previously estimated. On an annualized basis, productivity increased at a 1.3% rate in the third quarter from the second quarter, higher than the earlier 1.1% figure.

The report showed lower growth in labor costs as the job market weakened. Costs per unit of labor rose 1.4% in the third quarter from a year earlier, below the previous estimate of 2.3%.

"With the labor market weakening, this driver of inflation is likely to be even weaker over the next year or two," Goldman Sachs economists said in a note to clients.