Tuesday, November 27, 2018

Financial Planning allows me a boom-bust career

I love geology and working in the oil-patch. I think we are completely underappreciated in society and blamed for all that is wrong in the world.  Yet, our society would be impossible without oil and gas. In Canada, working in the oil patch is nearly a calling. The boom-bust in the oil-patch is unnerving. It is a harsh career where the industry eats you alive and then, at inopportune times, spits you out. Not many survive a career until retirement.

In the 1980s, I lucked out with a 13-year long position at what is now Encana and then a part of the Canadian Pacific conglomerate known as PanCanadian. There were shake-ups in management but hardly ever a lay-off like in the rest of the industry. But it also felt like working in a high-school. At one management shake-up, some people were literally skipping across the office floors for excitement. It motivated me to leave corporate bureaucracy and become a consultant. Also, I together with my spouse had saved enough, to ‘afford’ the life of a geological consultant. If you think that oil & gas is ‘up and down’ try life as a consultant. But I had enough of managements and arrogant blowhards who didn’t understand that all the ‘power’ a position in management brings is ‘fake’, that you are just a messenger boy from senior management. The latter often lacks vision and are the bell-hops of the stock market and its financial ‘gurus’.  The average senior manager doesn’t hold on to his/her job more than five years.

The existence of many small cap oil companies is often not much longer than that; after PanCanadian, I never held a staff job longer than 5 years. The best staff position I ever had was at Canadian Natural Resources Ltd. (CNRL), but personal circumstances forced me to ‘retire’ in 2006.  In 2012 I joined then Penn West, the worst management and job I ever held in the oil patch. Yet, I made many personal friends at that company, many of whom went through the same bad experience or worse. If I ever learned the disease of poor corporate debt and the effect stock markets have on weak management, then I learned it first hand at that company.  Penn West owned fabulous oil and gas assets, but it was arrogant and thought it could run an oil & gas company based only on corporate ratios and ignore technical expertise. In many ways it was very similar to old Renaissance. These companies allways seem to hit a wall and their corporate ratios turn into the nails in their coffin. 

Many oil and gas professionals live in Calgary. They love the adjacent Rocky Mountains and also the prairies on the other side of the city. Many are avid outdoor people. That is nearly a must since the outdoors is also the outlet of their daily stress. Hiking and skiing are very popular. Then there are the winter vacations to Mexico and Hawaii or Florida!  To say that oil & gas people don’t care for the environment shows enormous misunderstanding of this Canadian industry sector.

The oil and gas industry supplies society with most of the energy it needs for today’s lifestyle. Many young people do not appreciate how cushy today’s life is and that it nearly all depends on affordable energy – oil and natural gas. It is taken for granted. Yet oil and gas production are a financially very risky and technically challenging endeavor. 
In Calgary there was a boom on and off, in the 1970s with the OPEC oil shocks. Overall Calgary grew like a sprout. I arrived in 1979. I heard about the terrible recession in 1974 but I was about to experience an even more terrifying down turn in 1982 when the oil price crashed and kept on crashing (to $10 per barrel in 1986). Many oil patch people, including geologists, lost their jobs. In 1982, real estate prices in some parts of Calgary crashed by 50% in a matter of months. From then on until well into the 1990’s it was not uncommon that 98% of a ‘year of graduating geology students’ could not find work. There were many small upturns, but whenever my consulting company reached 3 subcontractors, I could predict an oil-price crash within the coming months. I am still proud that I never layed off anyone. However, if there was no work, my subcontractors did not make money and so they gave up on there own or they lucked out and got a staff job at a client. 
There were years that my take home was around $30,000 annually while being father of 2 young children and married to an engineer who claimed that ‘engineering was a respectable profession to leave’. That is why those first years at PanCanadian were so important in establishing the finances that ‘allowed me the life of a consultant’.  Around 2000, I had enough of this marginal but very adventurous life as a consultant with overseas stints in Indonesia and Egypt. I went on staff with CNRL. The stock options helped supplement our savings until I was too busy with other things in 2006 (teenage kids) to have a full-time job in the oil patch.  I ‘retired’. I always liked saving – living below your means - and investing. Over the years, in spite of many ups and downs, our portfolios had done very well. The 1982-2000 secular bull market had helped a lot. So, did investing in commodities although to this day, I have trouble understanding it fully. Probably I never will. Profit taking is very important – it definitely is NOT ‘buy and hold’ I learned to my chagrin.  However, buy and hold in banks, at least since the early 1980s has worked fabulously. But it took a while for me to learn that too. Then in 2008, I learned that no investment strategy is ‘forever’.  Thank ‘you know who’ that I owned only Canadian Banks. 
I liked teaching geology and did a few short-term contracts in the oil patch during my ‘retirement’; but with the kids grown up and after experiencing the 2008 stock market while looking through my home-office window in my ‘retirement years’, I got bored and got a realtor’s license. Part of learning investing in real estate. My daughter had always worked hard at high school and graduated as a geologist in June 2008. She worked as a petrographer in a rock laboratorium for wages a Calgary Coop grocery store employee would look down on. Then the gas price collapsed and so did the oil price. She never got a job at an oil company. Many top-grade students were hired direct from university but if you were not immediately in that crop, you have a hard time finding work in the oil industry. The oil patch eats you alive and many juniors thought that the party would never end. That was until 2012 or 2013 for Penn West and later, especially in 2014-2015 when oil prices crashed back to $26. Many of the bright students turned junior and intermediate oil and gas professional learned that the industry also spits you out as ‘garbage’. Many were forced to choose another career. Some of my peers haven’t worked in 3 or 4 years. Many baby-boomers have retired from the oil patch in disgust. 
This latest downturn is worse than 1982 when Pierre Trudeau made matters even worse with his NEP. No wonder the Liberals are so hated in Alberta.  Today, his son Justin is even worse. Worse than worse 😊. It will virtually guarantee that the Liberals will not get a foothold here for the next 40 years or so. Probably neither the NDP, although Rachel Notley’s eyes have finally turned away from the green dreams and learned about energy in the real world. I have written about this repeatedly on this blog and maybe with my career story as back ground you may better understand why Albertans hate those ‘lefties’ in their ivory towers so much.
Life in the oil-patch is entrepreneurial and many start-up oil and gas producers have bitten the dust over the years. You may have grandiose visions of ‘Big Oil’ but nothing is farther from the truth. It is ‘Mom and Pop’ oil and gas; we are price-takers. Victims of fantasy stories and manipulations in the stock and commodity markets with their ‘gurus’. Gurus who always change their stories and math. Just look at the current estimates of supply and demand.
But we’re coming out of the current bust, in spite of yet another Trudeau. Yes, not all the pain is because of Notley and Trudeau. But they certainly don’t help – as has always been the case with Saskatchewan and Alberta. We may have a large economic impact on this country, but we are only 4 or 5 million people. Politically we have nothing to say and we always seem to be envied or looked down upon (Red Neck, Cow-Town). No wonder that every once in a while, although being proud Canadians, this part of the country including Stephen Harper, dreams of getting out of Canada. We seem to be good for paying in the good times, but better shut-up and keep on paying during the bad. And then we see how sycophant provinces such as Quebec either whine and extort more money from the rest of Canada or it flaunts its great economy thanks to Alberta’s transfer payments. Is it any wonder Alberta today is steaming and can’t wait to get rid of the ‘lefties’? 
The current down-turn is the worst of my entire career. I have seen many friends leave the oil patch. Retired or gone to another career. The lost expertise is tremendous and those left behind or about to come in because they are ‘cheap’ do often not ‘know what they don’t know’. The same mistakes will be made over and over. The lack of political will and the drying up of investment funds lay the foundation for another tremendous oil and gas boom. This in spite of the green dreamers who think we can run this world on sol, wind and a bit of water. Wow how naïve we Canadians and many others in the world are. Just wait when those greens wake up learning they can no longer fly around the world because of the high price of energy. Just wait until they once again will blame the oil and gas industry rather than their own actions. Somethings will never change.
It is hard to see my friends experience the financial difficulties of being basically out of work for 3 or 4 years. My daughter found finally a good job at an educational institution in Calgary after 3 years of studying for an accounting degree for which there also are no jobs here. One of my closer colleagues immigrated here a decade or so ago. Now he is running out of money with having to finance his son’s university career. We really can’t wait for the new boom and Justin just invented bill 69. Our government is truly one of our worst enemies.  
But the worse it gets, the higher the bill for the rest of Canada in the coming years and here in Alberta we will not feel for your pain. Rather, many will think ‘Sweet’. If I hadn’t done my own financial planning, my sometimes-excessive saving during the ‘good’ times, I would not have been able to take some distance to Alberta’s pain, I would have been as grumpy as my friends if not worse. 
This blog is my financial diary. If you, Eastern Bums, read this I hope you better understand what it takes to make a good living in Alberta. It is not easy but doable and even for you with your defined benefit pension plans, you may also have learned how powerful and important it is to live with a financial plan and a bit of investing knowledge. Maybe it is a must to be financially independent in Alberta, but even in the pampered East you would like to say from time-to-time to your boss: “Screw you!”. You can only do that as a financial adult, i.e. working towards financial independence. 

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