Oilpatch hiring again - By Harley Richards - Red Deer Advocate - Published: August 27, 2010 6:43 AM

A year ago, the prospects were pretty bleak for oilpatch workers with a resume in their hand.  No more.   Drilling and service companies are beating the bushes for skilled and even unskilled people as their industry recovers from the economic downturn.   Bonnie Snair, human resources manager at Red Deer’s High Arctic Energy Services, said her company has hired 74 workers over the past two and a half months.  “I anticipate that we’ll be hiring another 50 before the end of the year,” she said.  One of the most popular places for oilpatch companies to seek staff has been the newspaper classifieds. And after a period of absence, corporate logos have returned to that section of the Advocate, said Richard Smalley, the newspaper’s retail advertising manager.

“You’ve just got to open up a paper and you’ll see all the oil and gas ads that are running in there.”   Year-over-year, said Smalley, the Advocate’s classified display linage — which consist primarily of employment ads, particularly for the oilpatch — is up 43 per cent.  “That’s a huge jump.”  Charles Strachey, a regional communications manager with Alberta Employment and Immigration, has also observed an increase in job postings at his department’s Labour Market Information Centre in Red Deer.   “There’s been a significant jump in the number of oilfield jobs,” he said, adding that construction has also seen renewed hiring.

“Basically, there was almost zero jobs for the oilpatch on the job board last summer.”  As might be expected, this increase in the male-dominated sectors has impacted the ratio of job-seekers visiting the local Labour Market Information Centre.   Six months ago, 75 to 80 per cent were men, said Strachey; now the male-female split is about 50-50.  He added that his department is also now getting more requests for the specialized training typically required for oilpatch jobs.

Shane Goacher, operations manager with Bravo Oilfield Safety Services Inc. (B.O.S.S.), said the Grande Prairie-based company’s ads have generated quantity but not quality.  “A lot of people are available but nobody has the experience.”   When the oil and gas sector plummeted, he said, many skilled workers disappeared.  “Some of them ended up going to school, some of them ended up getting (other) jobs.”

Nancy Malone, economic analysis manager with the Canadian Association of Oilwell Drilling Contractors, said senior staff on drilling rigs tend to ride out the slow periods.  “They understand the industry, they understand the ups and downs and they work appropriately.”

Roger Soucy, president of the Petroleum Services Association of Canada, said the labour crunch is likely hitting some companies harder than others. Those active in horizontal drilling and multi-stage fracturing — increasingly popular methods for pursuing oil and gas — are probably busier than other firms.

He and Malone agreed that the situation is not as dire as it was during the boom period several years ago. But if rig activity is high this winter, manpower could become a concern.  “We lost so many people who generally don’t come back to the industry once they’ve left it,” said Soucy.

The companies vying for people are already turning to new strategies.  High Arctic has been promoting a snubbing boot camp to entice prospective employees to give the industry a try. Snair said it’s helped her company hire many of its new people.  B.O.S.S. offers employees a travel voucher that they can use for a vacation after working for a period of time. Goacher said such enticements have become commonplace in the industry.

Both businesses are tapping into new search methods — High Arctic has turned to Facebook and B.O.S.S. to Kijiji — in their efforts to connect with young prospects.  “I think people just have to get really creative and step out of the box,” said Snair.

Market Update – We have been through a slow spot in the housing market over the past 3 months.  Lots of people are asking why.  There are a few explanations:

Mortgages - activity in our market peaked in April.  It’s no coincidence that is when the government tightened up lending rules and made it more difficult for first time buyers to get into their own homes.

Spring break-up – our local economy is still heavily reliant on the energy sector for employment and economic activity.  Our wet spring conspired to keep the oil and gas sector at home and is still making life difficult.

Low natural gas prices – the majority of central Alberta’s energy activity involves natural gas.  The discovery of effective extraction methods from huge reserves of natural gas locked in shale formations in the US and Canada has drastically increased the supply of natural gas, effectively driving down the price and creating less need for exploration, drilling and extraction.

Population growth – all of the above has contributed to fewer jobs and fewer people moving to central Alberta.  Lower population growth means less demand for housing.

World economic woes – the world economy has been languishing in the last few months as it runs out of the massive amounts of stimulus monies injected by governments and there is uncertainty about future prospects.  Consumer confidence doesn’t do well under a barrage of bad news, but consumer confidence is exactly what we need to get the economy moving again.

THE GOOD NEWS!  We have noticed an increased level of activity in the energy sector lately where it counts – on the roads.  We are hearing numerous stories that oil and gas companies are busy and have work for a year or more.  We are also hearing that they are having trouble finding qualified workers, which means they are probably looking beyond Alberta.  That quite likely means that people will start looking at moving back to Alberta from the other provinces which means population growth and demand for housing.

It won’t happen overnight and we aren’t forecasting a housing boom, but Alberta has always led the way out of Canada’s recessions and we’re likely to do it again.

We think there is the possibility that activity could increase in the fall, helping to stabilize the current supply and demand imbalance.  Interest rates still very low and are not predicted to go up much this fall.

The current environment of great supply, low prices and low interest rates makes buying a home now a very attractive proposition and we believe there is some pent up demand out there just waiting for some encouragement.

More Jobs in July - By Todd Hirsch, Senior Economist – Alberta Treasury Branch

Few economic indicators mean as much to individuals personally as employment data. Job seekers in Alberta got a bit of good news this morning.

Alberta’s economy added another 8,800 net jobs in July (seasonally adjusted), making it the fourth consecutive month of employment gains for the province. The unemployment rate fell from 6.7% in June to 6.3% in July, the lowest unemployment rate for the province since April of 2009.

Nationally, Canada lost a net 9,300 jobs, and the unemployment rate ticked up a 1/10th of a percentage point to 8.0%.

While Alberta did buck the national trend, the quality of jobs created is questionable. During the month, there was a loss of 13,000 full-time jobs, which was more than offset by a gain of 21,700 part-time jobs.

Construction jobs were the big surprise. Despite the fact that other indicators of the economy are suggesting construction activity is faltering in Alberta, this sector accounted for the largest gain (+6,800) in jobs. Finance, insurance and real estate (+3,900) and public administration (+2,700) also posted gains. Wholesale and retail trade saw fewer net jobs (-8,900) in July.

Earlier this year, Alberta was lagging the rest of the country in job creation. But that trend may be starting to reverse itself. With the provincial economy showing more signs of strength over the summer, it’s not too surprising to see the employment picture picking up.

Stronger oil prices may provide a bit more upside to employment growth in the second half of 2010, but the pace of job creation may moderate.

CFIB Business Barometer - The Canadian Federation of Independent Business (CFIB) released the June-July 2010 results of its business barometer survey this week.

Overall, businesses in Alberta indicated being slightly more optimistic than the Canadian average, reporting an index score of 67.2 versus 65.7 nationally, with a score of 50 indicating an equal balance between positive and negative expectations.

Some of the other results were:

• 51% of respondents indicated that the main business constraint was lack of domestic demand;

• When asked about the overall state of business, 31% responded that it was good, 18% bad and 51% satisfactory;

• The most important cost concern was tax and regulatory costs, at 65% of respondents;

• Hiring expectations appeared balanced, with 15% of full time employers expecting to hire versus 14% expecting to lay people off; and

• The majority of respondents, 53%, indicated having enough credit available.

(from ATB Weekly Bulletin)

Market Update - The article below indicates that Consumer Confidence in Canada is low right now which nicely explains why the housing market is a little slow.  “Consumers are sitting on their wallets” is the term used.

The article says that Canadians are worried about the future but really doesn’t say why, except that we have been hearing an undercurrent of bad news in the media.  We shouldn’t be surprised that the media is full of negativity.  That’s nothing new.

There’s an old adage that says that 90% of what we worry about never happens.  We all know that the smart investors are the ones who do the opposite of everyone else.  They buy when the market is down and sell when it’s up.

Smart homeowners should pay attention!  The real estate market is down and opportunity abounds.  There has never been a larger selection of homes available to choose from.  Prices are the lowest they’ve been in three years and interest rates are unbelievably low relative to the past 30 years – five year mortgage money is available for about 4%!

Ask anyone and they will tell you the slow economy won’t last forever.  When it turns the corner, the opportunities will very quickly disappear.  Why is it we have to wait until it’s too late?

Financial Post · Friday, Jul. 16, 2010  - OTTAWA — Lingering concerns over Canada’s long-term economic performance are stifling chances of a sustained consumer-led recovery, according to a monthly national survey released Friday.

“Canadians are worried and wary when it comes to Canada’s economic future,” said Michael Antecol, vice-president of TNS Canadian Facts, a marketing and research group. “Indeed, worries about the future have only intensified in the last month. . . . The question has to be: is it eventually going to sink the recovery?”

TNS said its overall consumer confidence index dropped 4.5 points in July from 98.9 the previous month.

The group’s expectations index — a measure of how consumers see the economy, household income and employment in six months —declined for the fourth straight month. It lost 1.6 points in July, falling to 104.2 —the lowest level since July 2009.

The buy index, which monitors views on whether now is a good time to make major purchases, dropped 9.3 points to 87.7 —the lowest point since January 2009.

Also down in July was TSN’s present situation index, which tracks sentiment about the overall state of the economy and the labour market. It fell 3.2 points to 92.1, reversing recent monthly increases.

“Its not that there hasn’t been good short-term economic news lately. But there is also an undercurrent of bad news filtering through the media,” said Antecol.

“All this negative news is acting like an undertow, pulling down consumers’ economic confidence. Until those positive short-term developments inspire future-oriented confidence, the chances of a sustained economic recovery will keep receding into the horizon.”

Antecol added: “Consumers will simply keep sitting on their wallets.”

TNS said it polled 1,015 Canadians between July 5 and 8. The survey’s margin of error is plus or minus 3.1 percentage points, 19 times out of 20.

The Exchange Rate and Inflation - The fear of deflation in the US appears to be on the rise once again. It’s rooted in the fear that private spending hasn’t yet strengthened sufficiently to offset a substantial reduction in stimulus spending (support for which is waning). At the same time there’s rising concern over the trade imbalance between China and the US. The link between the two, however, hasn’t really been discussed.

Deflation fears are rooted in the fear that reduced spending will further decrease capacity utilization (i.e., more factories will be idled more often). The increase in hungry firms, combined with a paucity of buyers, results in a possibility of general price declines. In isolated North Korea, this would be the end of the story, but for countries that are open to trade then consumer prices depend on another factor: the price of imported goods.

This channel of inflation is known as the exchange rate pass through. Its name reflects the fact that imported goods and services need to be purchased in a foreign currency, making the exchange rate vitally important. If the price of the foreign currency increases then so does the price of the goods and services that country produces, relative to the importing country, all else equal.

For instance, in the early 90s another North American country had a severe trade imbalance: Mexico. The Mexican central bank was maintaining the value of its currency artificially high vis-à-vis the US dollar. It simply wasn’t sustainable and devaluation followed.

Notwithstanding the fact that the local economy was in shambles, inflation soared from about 7% to 35% between 1994 and 1995. Why? One reason was due to the fact that imported goods became incredibly expensive overnight when their currency collapsed. This, of course, is an extreme example, but it illustrates the point.

Earlier this decade, between 2000 and 2005, the exchange rate pass through to inflation was a topic high on the radar screen for researchers at the US Federal Reserve Board and the Bank of Canada. Researchers were finding that this channel was becoming very weak. That is to say, exchange rate movements weren’t impacting import prices to the same extent that they were in the ‘80s.

What was the general consensus explaining the reduction? One explanation given was related to the change in the mid-‘90s by developed countries to implement a fixed inflation target. According to Professor John Taylor at Stanford, this change lowered the relative power of sellers relative to consumers, lowering their ability to pass increased costs on to customers. Another explanation, associated with Mario Marazzi work at the Federal Reserve, was that there was a fundamental shift that occurred in the economy, with the share of goods and services that are less sensitive to exchange rate changes dramatically increasing their share of imports.

A final rationale, also from Mario Marazzi body of work, highlights the important impact of China and its decision to peg its currency to the US dollar. Chinese exporters are effectively shielded from any exchange rate movement. Exporters from other foreign countries are cognizant of this fact and must compete for access with the US market with China, making them less likely to change their prices in response to exchange rate fluctuations.

The timing is fairly good for the US for it to fix its trade imbalance. Efforts to fix the US trade deficit with China will no doubt revolve around the latter’s policy of fixing its exchange rate with that of the $US and making Chinese imports more expensive, while at the same time making US exports cheaper.

The US economy could sure use the boost in demand and at the same time could easily handle any related price inflation (we’d expect that the exchange rate pass through channel will strengthen the larger the movement in the currency). The trick will be in making sure the shift is controlled and not a stampede, the risk of which is pretty low given the Chinese inherent preference for stability.

·         ATB Financial – Weekly Bulletin – July 10 - Residential developers in Alberta started construction on 24,900 homes in June 2010, a drop of 1,800 compared to the month previous but well ahead of the pace one year ago when builders started only 17,800 homes. All figures have been seasonally adjusted and annualized, which means it is the number of homes that would be built during the year if construction continued as it did for the month. This was the second consecutive month of declining housing starts in Alberta, confirming that the mood has cooled in the residential construction sector after a fairly strong period in late 2009 and early 2010.

Drilling down by region, it appears that multi-family construction (includes condominiums, duplexes and town houses) in Edmonton bore the brunt of the provincial drop in housing starts. However, housing starts have been much stronger in Edmonton than Calgary over the last few months, so even though starts in Edmonton slipped from the month before they are still higher than in Calgary.

Moving forward, it is very likely that housing starts will continue to stay subdued compared to the beginning of the year. So far in 2010, housing starts have averaged 26,700 units, which is much stronger than during 2009 which saw fewer than 20,000 new home starts.  However, it’s still well below the pace of 2006 and 2007 when over 40,000 new homes were started.

·         Local Market Comment – The central Alberta market is a reflection of what is happening in the rest of the province.  The reason new housing starts are slowing is because we haven’t had the population growth to sustain the pace we were on.

The reason we haven’t had population growth is because we had negative job growth in the last two quarters of 2009 and only a very small net gain in the first quarter of 2010.  There were a lot of jobs created in Canada in the last quarter but almost all of them were in Ontario and Quebec.  For the first time in years, Alberta has been lagging behind the rest of the country when it comes to job growth.

The reason we haven’t had job growth here is because there has been low demand for commodities in the world wide economic slowdown we have been experiencing for the past two years.  It’s never quite that simple though.  There are other factors that have had an effect on our local economy.  As an example, the Alberta Provincial Royalty review and subsequent changes to the oil and natural gas royalty structure caused jobs and workers to move to Saskatchewan and B.C.

There are some positive signs that job creation in Alberta may be on the upswing. Well licences are up over last year, oil and gas land lease sales are up over last year, there are more drilling rigs working than at this time last year and well completions are up over last year.  All very positive signs of recovery in the energy sector and when the energy sector recovers in Alberta, everything else follows behind.

Central Alberta Market Update

Canada’s Economy Stalls in April - Dan Sumner - Economist, ATB Financial - June 30, 2010

The Canadian economy has been the golden child of developed nations during the last half year or so, but according to a Statistics Canada report released this morning, Canadian economic output stagnated in April.

Following seven consecutive months of very strong growth, Canadian gross domestic product (GDP) was unchanged in April 2010. GDP is a measurement of how much goods and services an economy produces, from the extraction of oil from Alberta’s oilsands to legal advice provided by a lawyer, the more stuff that an economy produces the richer a country is considered to be.

After the 2008/09 recession, Canada’s GDP rebounded very strongly, driven partly by strong gains in consumer spending which propped up GDP in areas like retail sales and the housing market. However, recently consumers have stopped to catch their breath and this is weighing on Canada’s overall economic growth.

Despite the stagnation in total Canadian GDP, output in Canada’s mining and oil and gas extraction sector, which is concentrated in Alberta, advanced by 0.5% in April. Statistics Canada noted that this was due to increased production of oil and oil services, while GDP from natural gas extraction shrank during the month.

The weak reading on Canadian GDP rounds out a host of other indicators which all show that Canada’s economy stalled during the second quarter, including manufacturing shipments, retail sales and housing market indicators.

Although Canada’s economy was largely expected to cool in the second half of the year it seems to be happening faster than many economists anticipated. While it is still far too early to say that the recent weakness is the beginning of a trend, economists will be closely watching these economic indicators moving forward.

Last week we said that in order to see a change in our housing market, we need population growth.  In order to have population growth we need jobs and the place we’re currently lacking jobs is the energy sector.  According to this news article, the jobs will soon appear.

Energy sector short 24,000 workers by 2014 - By: Lauren Krugel - Winnipeg Free Press

CALGARY — Energy firms should build talent within their own ranks before the next labour crunch hits rather than look outside when they’re in the midst of a shortage, a human resources consultant said in a report Monday.

Many in Alberta’s oilpatch adopted a “buy talent” strategy during the boom times between 2006 and 2007, scrambling to fill jobs with workers from across Canada and abroad. Salaries and wages spiralled out of control as energy firms vied against one another for labour.

“I think if you talk to HR executives in the energy sector, they’ll tell you they don’t want to go back to that,” said Stephen Doitte, Mercer’s talent management consulting leader for Canada.

Assuming employment demand grows by four per cent annually, Mercer predicts the energy sector will be short some 24,000 workers by 2014.

The survey of 135 oil, natural gas and utility companies included permanent jobs across all job types, from tradespeople to engineers.

A study by the Petroleum Human Resources Council of Canada found the sector would need 100,000 workers by 2020 to support oil and gas activity.

Demographics are not working in the energy sector’s favour, Mercer said.  The bulk of the workforce consists of baby boomers, many of whom are nearing retirement. Another large chunk includes workers in their 20s and early 30s, known as Gen Y.

“The energy and resources sector in Canada basically skipped a generation,” Diotte said. “As the baby boomers retire, there’s a big gap in knowledge and skill and experience between those that are leaving and the ones that are coming in behind.”

That means companies should tailor their programs to suit the needs of each group, rather than adopting a one-size-fits-all approach.  – The Canadian Press

Market Update - There are conflicting stories floating around out there relative to the state of the market.  Apparently some folks are putting a rosy glow on things and while I think it is important to be optimistic, we must also be honest and believable.

It’s very difficult to explain to our sellers why their houses aren’t selling when while making public statements that the market is taking off when that is not quite yet obvious.  Red Deer sales to April 15^th are almost 25% under where they were last April at this time (and last April was not a great month).  Listings are up 5% over last year and we don’t see signs of a booming market anywhere.

We have been hearing plenty about the hot real estate market in Canada lately.  It hasn’t arrived here yet because the energy sector that we are involved in locally is not fully back on its feet, but there are definitely signs that things will change over the next year.

First, Ft. McMurray is booming which is probably why the market in Calgary is getting better (head office city).  The expected economic benefit for all of Alberta is massive.

Second, the world economy is slowing improving - the stock markets being the best barometer.

Third, there is a new oil boom happening in the foothills of Alberta in the 50 year old Pembina field.  It seems the same shale recovery technology that has driven our gas prices down can be used to recover an additional 5 billion (or so) barrels of sweet light crude from shale formations right here in Alberta.   A huge boon for our local drilling and service companies.

There is no question that Alberta will again some day be a world leader in every way.  The fundamentals haven’t changed.  We still have all that oil and gas.

So, when will the market improve?  I don’t believe we will experience a strong real estate market for at least a year.  Why?  Well, when some of those employed in the energy sector do get back to work, it will take a little time for them to catch up and feel comfortable enough to spend on the large ticket items.

The world economy is still fragile.  The American economy is even more fragile and the US is still our largest trading partner.  Our dollar is at par which makes American demand for our goods weaker.  The US housing market is still in a shambles and billions of dollars that would normally get spent in our local markets are heading south to take advantage of those bargains.

Interest rates are rising.  An interest rate increase is the same as a price increase, except it’s the banks profiting instead of homeowners.

Our prices are off only about 10 - 15% from the peak in 2007.  There isn’t a lot of room for inflation before houses become less unaffordable again.

The best housing market is one that is balanced, with inflation that matches the annual inflation rate, where there are enough homes to choose from and adequate buyers for the available inventory.  And that’s what I’m hoping for in 2010.

Banks bump up mortgage rates - Other banks expected to follow suit - Monday, March 29, 2010 | 10:05 PM ET - CBC News

Mortgage rates have begun to rise from their record lows, with news Monday that several Canadian banks are increasing several fixed mortgage rates by up to 6/10ths of a percentage point.  The biggest jump is attached to the popular five-year fixed closed rate, which moves from 5.25 per cent to 5.85 per cent at Royal Bank, TD Canada Trust, and Laurentian Bank. That’s the posted rate, which is routinely discounted by the big banks.

RBC’s new discounted rate for the five-year term also rises 6/10ths of a percentage point to 4.59 per cent. TD’s rises the same amount to 4.55 per cent. The discounted rate at Laurentian moves up to 4.54 per cent.  How much difference will that make? A $200,000 mortgage amortized over 25 years costs $1,051 a month at a rate of 3.99 per cent. At 4.59 per cent, that jumps $66 a month to $1,117.

P.O.V.:  Mortgage rate increase: Is it time to lock in?  The banks also raised their three-year and four-year fixed closed rates. The posted three-year rate at Royal Bank and Laurentian climbs one-fifth of a percentage point to 4.35 per cent, while the posted rate at TD jumps 4/10ths of a point to 4.70 per cent.

The posted four-year rate at all three banks jumps 4/10ths of a percentage point to 5.34 per cent.  Other banks are expected to follow suit. The new rates, effective Tuesday, represent the first hike in Canadian mortgage rates since last October. The posted five-year rate is now back to where it was for much of last summer.

New mortgage rules that go into effect next month require borrowers to qualify at the five-year rate, rather than the old three-year standard, even if they are applying for a variable rate mortgage.

Variable rates expected to rise soon - Variable mortgage rates, which rise in tandem with the Bank of Canada’s key overnight lending rate, are not affected by Monday’s announcement. But they are likely to be heading up soon too.  Bank of Canada governor Mark Carney warned last week that inflation was higher than expected. That had some market watchers forecasting that the central bank could move to raise its key lending rate as early as June. The possibility of an earlier rate hike sent bond yields up, and that appears to have prompted Monday’s mortgage increase. Fixed mortgage rates tend to move higher when long-term bond yields rise.

The key rate has been at a rock-bottom 0.25 per cent since April 2009 to help the economy recover.

A report out Monday from CIBC World Markets said rising rates shouldn’t be enough to derail the stock market rally — pointing out that the market is historically strong six months before and after rate increases.  A survey released last week by RBC found almost two-thirds of respondents expected the cost of servicing a mortgage to rise this year.