3/15/05
Investment in forestry also forecast to jump as province's resource sector spending boom builds, report says
Paul Harris, BIV
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Capital spending in B.C.'s booming oil and gas sector is forecast to reach historic highs of $3 billion during 2005, while investment in the forestry sector will rise a staggering 49 per cent to $220 million.
The four points of the compass all point to increased resource se tar spending on the back of high demand and prices. Beneficial, switches in public policy are also trickling through a variety of sectors.
According to a new report on B.C.'s investment climate, natural gas royalties will reach $1.5 billion for the 2004/2005 fiscal period - eclipsing government revenue from forestry for the second straight year.
"High oil and gas prices, the prospect of discovering massive reserves and growing demand into the medium term future are combining to spur strong capital spending in the oil and gas sector," said Stan Kumagai, capital markets economist with the Investment Dealers Association of Canada, which compiled the report.
Most of the activity will be concentrated in northeastern B.C. A record 1,277 wells were drilled throughout the province last year, up 22 per cent. Over $6 billion in revenue was generated from annual production that hit one trillion cubic feet, the second highest in Canada.
But Kumagi was far less bullish on the mining sector.
He found only "tentative signs" of a pick up in mining capital spending aided by a rise in mineral and base metal prices.
While exploration spending soared to over $130 million last year from $55 million in 2003, the actual dollar outlay on construction, mining and exploration remains just half of what it was in the industry's signature era of the mid 1990s.
The research dovetails with new findings by Vancouver's Fraser Institute, which indicate that B.C. remains scarred by its previously poor reputation globally as a safe harbour in which to dock investment.
"B.C. has lessons for the world," said survey co-ordinator Fred McMahon. "B.C. has made real efforts to reform, but companies need to have confidence that a good policy climate when they start exploration will be in place when the mine enters production many years in the future."
With Vancouver's junior mining sector humming with activity - and a provincial election barely two months away - the institute's findings are prescient. The city's prolific juniors are literally turning over stones on every continent in a quest to find the next big deposit.
B.C. ranked "dead last" on the institute's ranking for mining investment three years ago. Of the 64 jurisdictions surveyed this time around, it has risen to 20th from the bottom - sandwiched between Burkina Faso and Equador.
Alongside Nevada, Ireland, Utah, Spain and Tasmania, five Canadian provinces Manitoba, Saskatchewan, Quebec, Ontario and Alberta were among the top 10 in the list of jurisdictions with policies that are attractive to mining investment. Zimbabwe got the wooden spoon, with Indonesia, Russia and California among the other low rankers.
"Mining executives are becoming increasingly willing to invest their exploration dollars around the globe," said McMahon. "Attractive geology is necessary, but not enough. Governments who want to maintain visible mining industries in their jurisdictions must enact favourable policies to encourage investment."
Within manufacturing - a sector under global pressure from competing low cost producers - capital spending in B.C. is forecast in the IDAC report to rise over 5o per cent in 2005 to $2 billion. The footnote to this growth is that it is largely related to the processing of resource products, said Kumagai.
Investment in the province's food manufacturing sector, meanwhile, is projected to rise 32 per cent, and significant increases were forecast for companies in B.C. manufacturing machinery, transportation equipment and furniture and related products.
The association's overall upbeat assessment is consistent with the views of Canadian chief executives, the majority of whom expect 2005 to bring increased profits in an expanding economy, according to the results of a new survey by TEC International.
But while overall business confidence increased last quarter, it is still below the level of this time last year, said TEC, the world's largest membership organization of chief executives.
The survey focused on the views of 170 CEOs of small to mid size businesses with annual sales between $1 million and $1 billion.
pharris@biv.com
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