As oil prices plummeted, many working in Alberta’s black gold industry quickly found themselves out of work – and for brokers, it has meant dealing with a tighter market.
“We’re looking at some compression of the market – to use an oil field term – for the next 12 to 24 months,” says Jeff Cuell, senior account executive with Van Helden Agencies Ltd., in Calgary, Alta. “We will concentrate on conserving what accounts we have, and exploiting whatever cross-selling opportunities there are within those accounts. But certainly in terms of scale of operations, we’re certainly seeing some shrinkage.”
Van Helden’s book of clients largely consists of oil and gas industry clients, so the current state of affairs – although a cause for belt-tightening – isn’t alarming, and really just a part of doing business.
“I’ve been here in Calgary since ’81, and this is the fifth or sixth boom-and-bust cycle I’ve been through,” Cuell told Insurance Business. “It is some temporary, short-term pain on the revenue and commission side. It is never welcome when it happens, but you do expect it. The last significant one was in 2009.”
Oil prices took a nosedive in the last quarter of 2014, when the value of a barrel of oil hit $115 in June, then fell to $55 by the end of the year, recently dropping to $45, and now rebounding to $53.
During the financial crisis of 2008/2009, oil prices combined with a credit crunch forced the Canadian industry to cancel or shelve as much as $90-billion worth of energy expansion plans. At that time, the price of oil sank below $40 a barrel.
For those in the Alberta oil and gas sector, the price of a barrel of oil needs to be higher. A lot higher.
A recent study by BMO Nesbitt Burns estimated the cost of developing an oil-sands mine and operating it at a profit to be $90 a barrel. In fact, the costs at CNOOC Ltd.’s Long Lake project are well over $100 a barrel. (continued.)
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However, established core operations of Suncor and Syncrude Canada Ltd. have costs of less than $50 a barrel
Wayne Greaves, the principal broker at Air-Alta Insurance Ltd. in Airdrie, Alta., doesn’t have many clients in the oil and gas industry, and hasn’t taken the brunt of the drop in oil prices.
“We’ve had a few private contractors cancel their coverage, because they’ve shut down the (oil) projects they were working on,” said Greaves. “But we haven’t seen people cutting coverages. I don’t think it will be that big of a deal – the oil industry is very cyclical, and things should bounce back after about 12 months, in my opinion.”
Perhaps indicative of a recovery in Alberta was the trial balloon floated by that province’s premier Jim Prentice on the possibility of a provincial sales tax.
Prentice quickly popped that balloon in January, stating that he and his cabinet would look for “other solutions” to meet what is expected to be a $7-billion shortfall in the budget.
