Thursday, January 29, 2009


Imperial Oil has the right idea

One of the biggest problems with the most recent Alberta oil boom was costs. As oil companies all simultaneously stampeded into northern Alberta, they sucked up labour and materials to the point that there were no idle resources. I write those three words in boldface because when I see them, alarm bells go off in my mind. I remember my economics professor Larry Smith launching into a huge tirade about how an economy cannot expand when there are no idle resources.

Now that we have entered a recession, the stampede has turned to the opposite direction. The slump in demand for oil has made these projects too expensive. Instead of everybody racing to build their oil sands facilities all at once, most companies are now postponing their projects.

Except for Imperial Oil.

Today's Globe and Mail is reporting that Imperial announced a sixty percent increase in its capital budget. While everybody else is slashing their capital budgets, laying people off and cancelling orders for materials, Imperial will be there to utilize these excess resources at a discount. When the stampede returns and once again sucks up all the resources, Imperial's Kearl project will be further ahead than their competitors and will have cost much less thanks to building during a downturn. This is smart economics in the long run and will save Imperial loads of money. It's also better for Alberta's economy.

These other companies either don't have the savvy, lack the cash, or are too concerned about delivering short term results than long term cost savings to shareholders.


Release 7.0; Copyright © 1996-2012 Aaron Klotz. All Rights Reserved.