Tuesday, October 16, 2007

Marathon Oil is Buying Into Alberta - What Are They Thinking?

So Marathon Oil is clearly out of it. They are buying into the Alberta Oils Sands when the conventional “wisdom” is that the industry should run away from Alberta investment - at least according to some of the existing Alberta energy “players.”

They have been saying they can’t make a go of it with the second largest oil deposits in the world with oil at a record $86 per barrel and having to suffer with a province that imposes a stable democratic government with a strong currency, a skilled work force and located next to the largest market for fossil fuel energy use on the planet. That has to be a tough scenario in which to do business and make it work. Yes sir!

The “smart money” in the Alberta oil patch that is saying it is leaving Alberta and/or no longer investing because royalties will move from 25% of Net Profit to 33% of Net Profit. Yes that is a royalty based on Net Profits, meaning the dollars subject to royalties are not determined until after the projects have first paid all their operating costs including. They say that is 20% increase – which it is – but it really moves up 8 points and is based on net profits before taxes. Give me a break!

Marathon must be a fly-by-night operation run by a bunch of unsophisticated rubes to be going forward and investing in Alberta’s oil sands now of all times. Check out their website to see just how not true that is!

They operate in 18 countries and are engaged in exploration and production, including integrated gas, marketing and transportation and happen to be the 5th largest refiner in the United States. What are they thinking - coming into Alberta?

They should just ask Encana for advice to see how much of a mistake they are making by coming into the Alberta energy sector. Oh yes Encana has the “Our Fair Share” royalty review recommendation’s figured out all right. They are leading the mythological parade out of Alberta due to the Royalty Review which they say is destined to wrought devastation on the energy sector investment market for all Alberta for all time.

Get this. They said they were pulling out a $1B of capital activity in Alberta because of “uncertainty” caused by the royalty review. Get this too. Two weeks later EnCana said they are going to be investing a cool $1B into an oil sands play. Coincidence…I doubt it. Hypocrisy is more like it.

Investment actions speak louder than political intimidations in my book.

Marathon you better think twice about coming into the Alberta energy sector because of enterprises like Encana is allegedly doing the opposite. And whatever you do – don’t talk to Warren Buffett about investing in Alberta’s oil sands…he just may talk you into it.