Good News for Alberta Housing Markets – Last week we heard that oil and gas lease sales in Alberta have hit an all time record in 2010 with 5 more land auctions still to come.  That means that oil and gas exploration will follow, maybe not this year, but soon.  It also means an inflow of cash into our provincial government coffers.

New oil and gas exploration means new jobs.  New jobs mean population growth.  Population growth means demand for houses.

Demand for houses means economic growth and prosperity since the construction industry is one of the engines that drives our economy.

Our housing markets in central Alberta have just experienced a slow summer, which was to be expected since the local economy has been slow and we have not experienced much job creation or population growth in the past year.

Recent news indicates that net in-migration to Alberta from other provinces increased substantially in the second quarter of 2010 after negative growth in the three previous quarters.  The numbers are not nearly what they were in the boom years, but are a huge improvement.

Alberta has always led the rest of the country out of a slow time.  The demand for our exports in the US is still not what it could be, but recent news suggests they are looking at our oil sands as a safe source of energy.  Economic growth in south-east Asia and China is still relatively strong and there will be new demand for our commodities from there.

We own the second largest proven reserves of oil in the world.   We know that even in a slow economy the world is consuming vast amounts of oil and gas and eventually the demand will outstrip existing reserves.  Ft. McMurray and the oil sands seem a long way removed from central Alberta, but things are booming up there as companies rush to develop more production capacity.

While low natural gas prices have held back much of our energy industry, there are some who are predicting higher prices next year.  That theory would be supported by the sale of those leases previously mentioned.  As an added bonus, a small increase in natural gas prices will have an immediate effect on government revenues which eventually flow into our economy.

Alberta is the land of milk and honey.  We have the lowest taxes, the least amount of debt, the largest oil reserves and the most opportunity!  It is the best place in the world to live and work and I am thankful to be here.

Oilpatch rebounds to record – by Harley Richards – Red Deer Advocate – The word “record” hasn’t been used in connection with Alberta’s oilpatch for some time. But the provincial government was able to dust off the word and insert it into a recent news release reporting on the status of this year’s oil and gas land sales.

As of last Wednesday, it had collected $1.86 billion in revenues from lease and licence sales — surpassing the previous high of $1.83 billion earned in 2005. And with five more sales scheduled before year end, the tally will grow.

“That’s a great sign,” said Brad Rowbotham, general manager of Red Deer’s Roll’n Oilfield Industries Ltd.   “It gives all of us reason to have some optimism that a lot of people could be going back to work.”

Don Herring, president of the Canadian Association of Oilwell Drilling Contractors, said his organization noted improved land sales early this year but hadn’t anticipated that they would be this high after just nine months.   “I think it took us by surprise that they were as good as they are.”

Herring said drilling activity in the third quarter of 2010 — with an average active rig count of 322 — is up more than 80 per cent from the same period last year. The increase would have been greater, he said, if rigs hadn’t been bogged down in wet weather.

“As we go into the fourth quarter, our forecast is calling for a significant increase again over what we saw last year,” he said, predicting an average active rig count of about 400.

“I would think in 2011 we’ll see additional activity, beyond what we’re seeing now, but we haven’t got there yet.”   CAODC members are much more optimistic than they were a year ago, said Herring.   “Their frame of mind is much improved.”

Rick Doré, Nabors Production Services district manager for Sylvan Lake, is among those with a more bullish outlook.  “This year, from probably late spring to early summer, has definitely picked up and been busier than last year.  “As long as oil prices stay where they’re at and gas prices creep up a little bit, I think it’s pretty positive.”

Rowbotham has also observed increased activity and is hopeful more money will be invested in production in 2011.   “You’ve got to figure with those land sales that there are going to be a group of customers who are going to have better budgets next year than this year.”

He thinks the big reason for the improved health of the energy sector is the price of oil. Herring believes production incentives and a more favourable royalty structure announced by the province this spring were also factors.  “Had we not seen those changes, in spite of the fact we have high commodity prices, we wouldn’t see so much activity in Alberta.”

Although much of the drilling fleet remains inactive, many of those rigs were designed for natural gas production, particularly in shallow fields, said Herring.

“The part of the fleet that’s running almost at capacity is that that’s directed at oil and some of these natural gas plays that have horizontal drilling with multi-stage fracs.”

Whereas natural gas accounted for about two thirds of the wells drilled in Canada a few years ago, the low-priced commodity now makes up about 40 per cent of the total, noted Herring.

Rowbotham thinks a spike in natural gas prices several years ago probably attracted more capital to this energy source than Western Canada’s geology warranted.   “They forgot that it’s called the oilpatch for a reason — not the gaspatch.”

He added that the limiting factor if the energy sector continues to prosper will not be drilling and service rigs, but the people to operate them.   “A lot of companies in the industry are really going to have a tough time,” he said, pointing to the loss of manpower during the recent downturn and the considerable training required to prepare new people for the field.

Market Update – We have stated in the past that new home construction is only necessary if we have population growth to fill those new homes.  A healthy residential construction industry is one of the engines that drives an economy.

The negative growth trend of the past 3 quarters was abruptly reversed in the second quarter of this year and while those numbers don’t suggest a return to the heyday, they are very encouraging and may signal the beginning of better times in Alberta.

The effect of this recent growth will most likely be felt in the rental vacancy rates, but when vacancy rates go down, people start to look at moving from rental to ownership and the housing cycle begins.

Of course, this growth must continue in order to see long term benefit and that requires jobs.  Jobs bring people to Alberta and the biggest job generator in Alberta has always been the energy industry.  We suspect that the oil sands are the largest contributor to the recent growth which will not have an immediate impact on central Alberta.  But, energy activity anywhere in Alberta contributes to the overall economic health of the whole province

Migrants Reverse Course – Dan Sumner – Economist, ATB Financial

One of the best measures of the relative economic and social health of a region is whether migrants are moving to or from the region. According to Statistics Canada data released this morning, Alberta just experienced its most solid quarter of interprovincial migration in a year.

2,820 Canadians moved to Alberta from other provinces during the second quarter of 2010, up from only 312 in the first quarter and net-negative migration in the two quarters before that (see graph). In addition to the positive reading on interprovincial migration, Alberta’s total population grew at the fastest rate in Canada, rising by 0.5% to 3.72 million.

The main factor driving Canadians to move between provinces is jobs and job prospects. During the mid-decade unsustainably strong job prospects drove migrants to Alberta from all corners the country, although this trend reversed course quickly during the recession.

Statistics Canada also noted that behind Alberta’s lofty population growth rate was a strong level of natural increase (births minus deaths). This is partly due to demographics as Alberta’s population also has the lowest median age at 35.8 (national average = 39.7), and more young people means more babies.

The strongest reading on interprovincial migration since the recession began is good news for a province that isn’t used to losing residents to other provinces on a net basis. However, considering the jobs market here is unlikely to return to its pre-recession pace for some time, Canadians are unlikely to flock to Alberta at the rates they did during the boom.