Canadian oil industry basks in profits, and tax cuts

Crude oil prices are at record highs, and showing no signs of declining. Most of its current production is either conventional or from the oilsands, both at historic costs that are far below current price levels. Profits are fattening balance sheets and individual bank accounts at a rate that would make one of the legendary robber barons of the late 19th century blush. Oil and gas industry profits now threaten the banks for top-of-the-heap bragging rights as the most profitable industrial sector in the country.

The one dark cloud on the industry's horizon was in Alberta, of all places, where the provincial government finally found that it could no longer resist political pressure to get a fair share for the public of Alberta's burgeoning oil and gas wealth. First, the government was forced to appoint a panel of experts to study Alberta's royalties and to compare those royalties with those collected in other jurisdictions. And while increases rising to $1.4 billion a year in higher royalty payments fell short of the $2 billion a year recommended by the panel, newly selected Premier Ed Stelmach ruined the industry's day in mid-October with an announcement of significant royalty increases. But before the industry hotshots had time to consider the implications of these changes for their plans for a third or fourth home in London and their position on the waiting list for that new Ferrari or Porsche, their old buddy Jim Flaherty came riding to the rescue, and gave it all back, and more.

Just looking at the newly announced corporate tax cuts - not counting the ones that were announced previously but haven't yet taken effect - Flaherty is planning to reduce corporate tax rates across the board by 3.5% cent by the time we get to 2012. Oil, gas and coal extraction alone accounts for roughly 20% of the federal government's corporate tax revenue, or more than $8 billion in corporate tax revenue in 2007. That means that the new 22.5% tax cut will save the industry about $1.8 billion, nicely above the additional $1.4 billion that Alberta is asking them to pay.

- I'd suppose the Canadian oil & gas industry wasn't quite going to let government get in the way of their enormous profits. One of the tar sands companies, Suncor, was threatening to pull out of a $1 billion additional investment which would have created more jobs, and more importantly, more tax revenue, if the government had gone ahead and really made an impact on their profits.

(2007-11-06 12:49:13 SGT) [Energy] Permalink

US Air Force grounds entire F-15 fighter-bomber fleet on safety concerns

bloomberg.com :

The U.S. Air Force temporarily grounded its fleet of Boeing Co. F-15 fighter-bombers, including those flying missions in Afghanistan, the service said, citing "airworthiness concerns." The grounding of more than 700 aircraft, which includes F-15E fighter-bombers that carry the largest U.S. precision guided weapons, took place after the crash of a Missouri Air National Guard F-15C fighter on Nov. 2. "All F-15 aircraft have been grounded, not just non-mission critical flight ops," the Air Force said. "The grounding will remain in effect until conclusions are made" by the safety investigation, the service said. Aircraft assigned to Afghanistan and patrols over U.S. airspace will be on ground alert in case of a major emergency, the service said.

The F-15, introduced in 1975, is no longer in production. The plane is the primary U.S. air-to-air fighter, and the "E" model is capable of carrying the largest laser-guided bombs. The aircraft are part of the aerial arsenal of F-16 fighters, A-10 ground-attack aircraft, B-1B bombers, aircraft-carrier based F-18 fighters and drones supporting ground troops in Iraq and Afghanistan.

"When they say all the F-15s are grounded that means America's top-of-the-line fighter is not flying," said Loren Thompson, a defense analyst with the Arlington, Virginia-based Lexington Institute. "The F-15 is getting so old that we could endanger our global air superiority" because of advances in Russian and Chinese fighter planes, Thompson said.

The U.S. is phasing out the F-15 with the new Lockheed Martin Corp. F-22 fighter. The Pentagon has limited the Air Force to buying 183 of the new aircraft instead of the more than 300 the service says it needs. The F-15 groundings and focus on the extent of its aging may buttress the case for more F-22s, Thompson said. "This is going to force the Pentagon to rethink how many F-22s it wants to replace the F-15," Thompson said.

- Guess that would mean more orders for the Lockheed Martin F-22. You know, each of these costs up to $200 million by some accounts, and $84 million by other accounts (perhaps if it were to be ordered in bulk, say in lots of 300). Not that I'm complaining. I never forget who I'm working for.

You know, one of the things one needs to do as a fund manager is to look for possible trends and correlations. Just about a month ago, they were talking about ordering twice the jet fighters compared to what was proposed earlier. Jim Puplava was talking about fiscal stimulus being where some of the additional money supply would be ending up. Put them together. Bingo.

If you were a fund manager, what would you do. Would you make a call to buy Lockheed? :)