Hello, I'm Fred Lang and this is CBC News Business for Thursday, October 25th here are
today's top stories.
Under the new framework, Albertans will get their fair share.
Royalty pain, Alberta's premier bites the bullet and raises royalties.
And investing elsewhere, Encana sinks 700 million into deep canoe.
On a day when oil closed above $90 a barrel for the first time, Alberta hiked the royalties
imposed on oil and gas companies.
Premier Ed Stelmak made the announcement just over an hour ago despite warnings from Alberta's
energy sector.
Our Calgary Business correspondent, Dave Sims, has been in the lockup learning about how
this plan works and he joins us now.
So what did the Premier announce today?
Well Fred, royalties are going up.
Here's what the Premier had to say.
Under the new framework, Albertans will get their fair share.
Approximately $1.4 billion by 2010.
Substantial increase of 20% over royalty projections under the current system.
This is very close to what the controversial citizens panel had recommended and just to
show this to you again by graphic to make sure you got it right.
It will be a 20% increase to $1.4 billion in the year 2010.
And those changes take effect in 14 months.
So how is this going to affect oil companies, the ones our viewers invest in the Alberta
oil business?
Well, the tax take is way up.
I'll show you another board here and that is showing the total tax take from the feds
and the Alberta government including royalties.
In the oil sands area it goes from the present 47% to a range of 56% to 66% on conventional
oil from 44% up to 49% and in natural gas from 58% to 60%.
So in other words, depending on your assumptions, everybody will pay more but the oil sands
will pay even more.
As well, there's a very important point for investors in Syncrude and Suncor.
They have received special treatment under individual contracts that treat them better
than other competitors.
The government has said that they have 90 days to renegotiate that or in its words,
the government will take other measures to ensure a level playing field.
So quickly, what's next?
What's next?
Well, do we get an election?
But certainly over this whole issue.
But I think what we're also going to see is the companies will take a hit tomorrow because
the assets on the ground are worth less than they were.
Costs have gone up and production may even fall.
If high production wells are too expensive in the royalty change, it may have to be slowed
down.
Thanks very much, Dave.
The Canadian oil and gas giant Encana has said that the threat of an increase in royalties
could lead it to invest more of its money outside Alberta.
Today it did just that.
Encana has announced it will go ahead with its $700 million deep Panuk project off the
coast of Nova Scotia.
Paul Withers has more.
Today's low key announcement ends five years of waiting.
Obviously, everyone's excited down here.
It's a great day for Encana, for Halifax and Nova Scotia.
So we're very, very pleased.
After delaying, then downsizing its original plan, Encana's board today formally approved
development of its deep Panuk gas field 175 kilometres off the coast of Nova Scotia.
The plan in 2010 began pumping two to 300 million cubic feet a day of natural gas to
markets in Canada and New England.
This project passed all the thresholds that the company required.
Deep Panuk will be much smaller than Nova Scotia's other offshore development, Exxon's
Sable project.
The two companies were unable to agree on terms to share the existing pipeline, forcing
Encana to build its own.
We should get maybe 200 people here with all sorts of different trades.
The decision to proceed, great news, for dozens of Nova Scotia companies, small and large,
like Laurentian Energy of Sydney, a fabrication yard looking for a piece of the $700 million
Encana will spend developing deep Panuk.
The spinoffs for Cape Breton companies and individuals who may not be working in Cape
Breton right now is tremendous.
In addition to the hundreds of jobs it will create, deep Panuk will generate $400 million
in royalties.
Nova Scotia's premier hopes it will also revive an offshore stalled by years of dry
holes.
A lot of opportunity and it's going to generate again the interest in Nova Scotia's offshore.
Deep Panuk is a lot smaller than when it was first proposed five years ago, but it is a
project and that more than anything else is what Nova Scotia's offshore needs.
Paul Withers, CBC News, Halifax.
We mentioned that oil finished today above $90 a barrel for the first time.
That's partly because of lower oil supplies in the United States and partly because of
new U.S. sanctions against Iran.
Here's the closing number.
Britain's BP oil has been fined $373 million by the U.S. Department of Justice.
It had been accused of fraud and violating environmental laws.
That followed an explosion at a Texas refinery.
15 people were killed, 180 were injured.
The fine is the highest ever levied by the U.S. government for environmental issues.
North American stock markets headed in different directions today with stronger oil prices
pushing up the Toronto exchange.
The TSX main index ended up 36 points.
Potash jumped more than 5% on record earnings.
More on that later.
Canadian natural resources also was stronger with a better than 3% gain.
Research in motion headed the other way down 4%.
The Dow was flat losing just three points.
American International dropped 3%, hurt by recent credit problems.
General Motors also weak, down 2.5%.
The Nasdaq lost 23, almost 24 points.
Comcast plunged 11% on slowing subscription numbers.
Soft drink company Kot reported a $5 million loss for its latest quarter.
It blamed a slump in North America as well as the cost of restructuring.
The Toronto company took $15 million in charges related to the restructuring and sales in
North America fell more than 7%.
Kot CEO Brent Willis says he's disappointed with the results.
Motorola says third quarter profits dropped 94% compared to last year.
The struggling tech company made $60 million.
Sales were sharply lower.
The company is in the midst of a turnaround and believes the worst is now behind it.
It says there are some signs of improvement in its core cell phone business.
Saskatchewan's Potash Corporation hit record profits but it fell short of expectations.
With more on that story and some earnings news, here are today's highlights.
Potash said third quarter earnings soared 67%.
The company said high grain prices have pushed up production, increasing demand for its fertilizer
products.
Still, profits were not as high as analysts predicted.
Maple Leaf Foods posted earnings of $220 million in its third quarter.
Most of that came from a gain on the sale of its livestock feed division.
Maple Leaf says profits would have been even higher if not for rising grain costs and the
higher value of the Canadian dollar.
Toronto-based Barrick Gold is expanding.
The company has bought a gold mine and prospecting licenses for almost 3,000 square kilometres
of land in Papua New Guinea.
The deal is worth $141 million.
The region has one of the world's highest concentrations of gold and copper.
After the break on CBC News Business, our Market Watcher, Julie Brough, gives us a closer
look at the day's trading and later in the program.
Write-downs layoffs on Wall Street foreclosures, are these the ingredients leading to a U.S.
recession?
That's still to come.
Don't forget, you can send Fred and the rest of the team an email.
Call us at businessnews at cbc.ca.
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A senior official of the Securities and Exchange Commission of the United States says insider
trading appears to be rampant on Wall Street.
Linda Thompson, the regulator's enforcement director, says the SEC has formed working
groups to focus on the problem.
In March, U.S. prosecutors charged 13 people with insider trading.
Several were from top Wall Street firms, UBS, Morgan Stanley, and Bear Stearns.
Dollar rose at one point, trading above 104 U.S. cents for the first time since 1974.
It was helped by record oil prices.
However, it did not close above 104.
It fell in late afternoon trading and closed at 103.53 cents, still up more than a third
of a cent on the day.
Slipped just one point against the Euro, closing at 72.
And joining us for her reaction to the Alberta royalty announcement and the rest of the day's
market movers, Julie Breaux, vice president of wealth management for Morgan, me, and Associates.
So what is your reaction to Alberta's announcement?
Well, I think that the market had started to believe that there'd be a fairly comfortable
compromise made between the early suggestions from the committee and what was going to come
out with.
And from a very preliminary view, it looks like the oil companies are probably not going
to be extremely pleased with what is coming out.
The royalties are going to be going up very significantly, particularly on the oil sands
producers, where the base royalty will go from 1% up towards 9%, depending on energy
prices and probably somewhat dependent on time, too.
Those are big increases.
How will it affect the energy stocks and the ones you invest in?
Well, again, I think the oil sands companies are going to be the biggest hit off the top.
That would be the Suncor, Canadian Oil Sands, probably Canadian Natural Resources.
They're just trying to get up to production.
So this is a big change in the terms of what they expected when they started developing
their horizon plan.
And I think it's scheduled to come on next year.
So that will be another one who certainly feels some effect.
And oil, this all happened on the day when oil closed at $90.
So where do you see it heading from here?
Well, I think the story in the short term on oil continues to be bullish.
There's a lot of momentum there, and part of the commodity price is always about momentum.
I think that it's a very rich price.
I don't think we are running out of oil, or there's any great shortage of oil.
There is shortage of refining capacity, but I think we are in an upward trend line.
It will bounce around, but someday we're going to see $100 oil.
Microsoft stock up in after hours trading according to the screen over here, what did
you make of its numbers?
Well, again, on a preliminary look, they seem very good.
The revenue numbers were up, I think, 27%.
Halo was a big winner for them in the quarter.
And Microsoft is a company you don't expect to see big surprises from, and I think the
street was obviously very surprised by how much they were able to drive out of the quarter.
And other technology stocks, Ericsson, Myrtle and Palm are all having problems.
Are they falling behind their competition?
Well, I think that's exactly what you're seeing happening.
They're in very competitive sectors that are also quickly transitioning sectors.
If you look at Motorola, it's all about the new handsets, having the new cool thing.
And if you miss, then you suffer accordingly.
And Palm is clearly losing market share to Research in Motion, who has come to dominate
that space.
And if you have to rejuvenate yourself on a regular basis in that sector, and these
are companies that just haven't been able to have that new thing.
What is going on in Toronto today?
It was just up a few points, but energy stocks were up, I noticed, even though they're ahead
of the announcement.
Well, and I wouldn't be surprised to see a lot of that reverse tomorrow, now that we
have actual numbers, because I think there was some optimism there.
But oil prices were high.
Financial markets were, the financial sectors in Canada and the US were concerned again
about big write downs.
Rumours were flying that AIG was going to have to write down part of their subprime
market holdings.
And it's this tug of war going back and forth.
In Canada, we have strong commodity prices, which is supportive, but there's this underlying
concern that the US economy is slowing down, and every time there's a new story, it's
a drag.
So we're getting these seasawing days.
What about Potash?
It was up again, in spite of its numbers, which some people thought were disappointing.
Well, I was quite comfortable with Potash's numbers, and certainly with their outlook.
And the stock was up quite comfortably at one point in time during the day, about 5%
in response to that.
They continue to tell a good story.
And Canada numbers, what about them?
And Canada was also showing good numbers.
Their oil sands production has been very strong, which has been a driver.
They've been very cost conscious.
On their capital budget, the costs are dropping there for the first time in many years, so
they're getting more done with less money.
And again, people were quite optimistic on that.
Before we go, do you or your firm own any of the stocks we've talked about here?
We own many of the stocks.
We have NK&A, AIG, Suncor, CNQ, all the oil companies that we've talked about.
Well, we'll see what happens tomorrow.
Thanks very much.
After the break on CBC News Business, does talk of a recession spawn a recession?
First, a look at some headlines from around the world.
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I'm Carla Robinson at CBC News World, Canada's news network.
Here are some stories we'll have for you tonight on Around the World.
Winning the battle in California, Neil MacDonald has the latest from the front lines.
And echoes of pre-war Iraq, Henry Champ on Washington's latest confrontation with Iran
that's coming up on Around the World at the Top of the Hour.
Now back to CBC News Business with Fred Langen.
Thanks.
Almost two-thirds of Americans say a recession is likely in the next year.
That from a Bloomberg LA Times survey.
The never-ending litany of falling house prices and mortgage foreclosures leaves many Americans
pessimistic.
Here's a story from Washington on why the average person thinks a recession is coming.
Peter Morici, a business professor from the University of Maryland.
So why are Americans so down?
Well, we've been getting a lot of bad economic news and there's been a lot of bad news in
people's neighborhoods.
Folks can't sell their homes because the mortgage market is not functioning.
Housing prices have been falling.
They read that gas prices are headed north thanks to higher oil prices.
And columnists in the paper have been talking about the specter of recession.
CEOs are cutting back profit estimates for next quarter and for next year.
Overall, this seems to be the shadow of gloom coming over the U.S. population and the economy.
So can popular fear of a recession actually make it happen?
Absolutely.
If everybody decides there's going to be a recession and everyone stops spending money,
then we will have a recession.
You know, for the last couple of quarters, the U.S. economy has continued to grow as
the housing sector has contracted and could continue to do so because folks kept on spending,
as did businesses.
But now everybody seems to be pulling in their horns.
The Federal Reserve's soundings on the economy, the beige book, which comes from the regional
banks, their soundings of businesses throughout the country, seem to indicate that business
activity is simply slowing down.
Well, can't the central bank just keep chopping interest rates and that props up the economy?
Not as much as you think.
For one thing, if it cuts interest rates, it doesn't have much of an effect on long
mortgage rates.
What's more, you can only really get a mortgage conveniently right now if it's for less than
$419,000, you have perfect credit, and a long income track record, a long job record, so
that you can get what's called a conforming loan through one of the federally insured
banks like Fannie Mae.
If you have anything less than a perfect record, it gets very difficult right now.
If you want a jumbo loan, you have to pay a huge premium.
Right now the mortgage market is not functioning because bond buyers don't want to buy mortgage-backed
securities because of the subprime debacle.
Not all mortgage-backed securities are backed by subprime mortgages or bad mortgages.
However, the market is just skittish.
Now a lot of professional economists, obviously not you, but people on Wall Street in particular
seem to take a don't worry, be happy attitude, everything is going to be all right.
Why is that?
Well, I think that folks on Wall Street are very difficult to accept that they have created
such a morass.
One has to remember that the current plight of the U.S. economy has its roots in really
bad financial practices at places like Citigroup, for example, which created a structured investment
vehicle which off the books does things banks should never do, and that is basically make
risky loans and borrow short and lend long.
And so Wall Street is reluctant to admit its own blame in this.
What would take the tip of the American economy into a recession right now?
We may have had it this week.
Merrill Lynch reported huge losses on its mortgage portfolio, 13 percent of its capital.
It's much more likely that it's a bigger share than that.
Countrywide the largest mortgage company in the country is reporting in some of its prime
mortgages are defaulting, the so-called adjustable rate mortgages to prime borrowers.
If the housing market continues to tank the way it did in September, that debt will be
enough.
Next year is an election year in the United States.
Are the Republicans toast or are they going to try and do everything to avoid a recession?
Well, what can the Republicans reasonably do?
They could try to cut taxes.
The Congress won't let them.
Pelosi and the Democrats aren't about to give the President anything he wants next year
because they're salivating at the joy of taking over the White House.
If you look at the policy prescriptions of the leaning candidate, it all comes down to
a very vague promise of national health care, which Americans want.
And the Republicans have the difficulty of defending themselves on top of an unpopular
war.
It's not a good time to be a Republican.
Okay.
Well, that's very interesting.
Thanks very much for talking to us today.
You're welcome.
Thank you.
In late breaking news, the Bank of America is getting out of the wholesale mortgage business.
700 jobs will be cut from its mortgage division.
And spinning off, Tim Hortons has taken a bite out of profits at Wendy's, the fast food
company.
Reported after the close of trading today that third quarter earnings fell 57% compared
to a year ago.
Wendy's shares are down 19% from the highs over the past year.
The pictures from the fires in California are riveting.
Helicopter shots of blazing houses, even pictures of the fire from space.
But perhaps one of the most arresting images was a still that appeared in this morning's
newspaper.
It showed a crescent where a ring of suburban homes once stood.
Almost all of them are just black ash.
But there were three or four still standing.
All of the houses left had tile roofs.
Most of the houses that burned had cedar shingles or shakes, which can't withstand a shower
of hot sparks.
Cedar shingles and new construction were banned in Los Angeles earlier this year.
Now the building inspector for Santa Barbara says the shingles contribute to fires since
many of them, the cedar shingles that is, come from British Columbia.
A change in zoning laws in California could hurt another vital part of VCs forest industry.
And that's this edition of CBC News Business.
I'm Fred Lanken.
I'll be back tomorrow at 630 Eastern.
Hope to see you again.
You can catch a replay of this program on the Maine CBC Network at 3 a.m., 330 in Newfoundland.
Bye for now.