Calgary Economy Stampedes Ahead

OIL BUST ENDS

CALGARY, Canada's oil town, is making a comeback after the slump of the 1980s. The price of oil is up - at least from its low point in the mid-'80s. That and increased demand for natural gas from the United States are creating an air of optimism in the most important commercial city in the Canadian west. The city was devastated in the past decade by the double blow of a flawed federal energy policy and falling oil and gas prices. In the 1980s, the Province of Alberta saw its share of Canada's economy drop from 14 percent in 1980 to 10.5 percent in 1988.

Ottawa introduced its National Energy Policy (NEP) in November 1982. The government of Pierre Trudeau effectively nationalized parts of foreign-owned oil exploration companies. It created a government-owned firm called PetroCanada by buying the assets first of Belgian-owned Petrofina and then other oil firms.

The NEP was based on the premise that oil prices were going to rise to US$80 a barrel by the end of the 1980s. And the bureaucrats in Ottawa were not the only ones dreaming in technicolor. The oil companies and the banks all bought the theory of constantly rising oil prices.

It was boom to bust, the old story in Canadian resource towns. By the time the smoke cleared in Calgary, oil prices had dropped to below US$10 a barrel by the mid-1980s, oil and gas giants such as Dome Petroleum - Ottawa's favorite private Canadian oil company - had gone bankrupt, and so had dozens of smaller exploration and production companies. Real estate prices took such a nosedive that in 1983 there wasn't a single sale of a commercial property in downtown Calgary.

Look now: For the quarter ended March 31, Calgary's population grew 2 percent over the year-earlier quarter. Unemployment fell from 8 percent to 6.7 percent. Canada's rose to 7.2 percent. Calgary housing sales are up 30 percent and prices 20 percent, while Canada's fell 22 percent and 7 percent, respectively.

``There's a much higher level of optimism in Alberta energy properties than in a number of years,'' says Richard Wyman, an analyst with the Calgary-based stock brokerage Peters & Co.

And Canada is the only supplier of natural gas to the United States market that ships via pipeline. ``It is natural gas that has the bright future. The supply bubble in the United States is about to burst, meaning increased demand at higher prices for Alberta's natural gas,'' Mr. Wyman says.

While Canadian oil reserves are small, its gas reserves are huge. And 85 percent of gas production and 65 percent of reserves are in Alberta.

Large Canadian oil and gas companies have been minding their balance sheets and ignoring their oil reserves, according to a report by Peters & Co. The majors are involved in mergers, reorganizations, and sales of assets. Gulf Canada Resources, for instance, will see its daily production of crude oil fall from 56,700 barrels per day in 1988 to 42,750 b.p.d. by 1991.

``The low levels of competition from majors has created an environment of opportunity that is without precedent,'' Wyman says. ``Cash flows are up, reinvestment is up, and smaller oil and gas producers are more active in exploration and development.'' Small oil and gas companies are contributing Alberta's bulk of new energy activity - the needed spark to Calgary.

Boosters of Calgary claim it has diversified, but of the top 10 companies in Calgary, only two are outside the energy business. And it is the third largest city in number of corporate headquarters, after Toronto and Montreal. Forty-six of the top 500 Canadian firms have their head offices here.

In Calgary the cost of money remains a problem. Both energy and property developers are hampered by a prime rate of more than 14 percent. ``When I can get more than 13 percent on Treasury bills why should I take risks in property?'' asks a successful Calgary developer.