It's Time for Renewal!

From: Callaway, Jeff [mailto:Jeff_Callaway@canaccord.com]
Sent: Friday, September 21, 2007 6:41 PM
To: undisclosed-recipients
Subject: Royalty Review Update: A time for Political Renewal!

Hi Folks,

I want to make you aware of further developments occurring today from beyond yesterday's Royalty Review announcement and some thoughts to consider. Yesterday was basically "How dumb this move was!" and today is about "What can we do now?"

Just a couple comments on these attached notes. If any of you are wondering out there about when Natural Gas prices will return to previous highs the piece from Tristone on LNG will dispel that belief. The point is that there is massive capacity being built to import Natural Gas from around the world in tankers and that has caused North American inventories to reach full levels a full 6 weeks ahead of schedule. When pricing returns, we will see further Natural Gas imports come in to capture that higher price and that means that going forward there will be no price spike as consumers/buyers realize there is no shortage of supply. The amount of potential import capacity by the end of next year is about 14.3 bcf/d. This is equivalent to about 4x EnCana's daily gas production. Massive multi-TCF fields offshore Norway, Australia, West Africa, Brazil, the Caribbean, Oman and the rest of the middle East are now in production or are being constructed. The cost to deliver gas to the US all-in is about $4/mcf. Production costs in Canada for typical gas wells are often in the $6/mcf range. This means that spending, already lowered dramatically from last year, will continue to fall off. This Royalty Review proposal just makes it worse.

Anecdotally, I spoke with one individual today who owned a 700mcf/d gas well, (about 115 barrels/day oil equivalent). He had a 3 year payback at $7/mcf. Today, gas prices are about $4.90 for Alberta prices on the spot market. If this Royalty Review goes through, this well generates no cash flow and he will have to shut it in. Multiply this a few thousand times over and the government, instead of earning a couple billion dollars, will actually lose a couple billion dollars as there will be no production to earn royalties from!

From a personal perspective, I have a family member who ranches. Ranching has been very hard to make work over the past number of years, (and I tell people it's one of the reasons why I now do what I do instead of farming!). However, he was able to get a job in the oil patch driving truck and that was able to give him a good wage and support his family whereas he was looking at having to sell the ranch and cattle. Further, due to the growth of the local economy and a growing population, his land started to become more attractive to sub-divide off a couple acreages. This also provided some financial relief from a precarious position. If this goes through, the potential of that job is lost and the buyers for that acreage will go away. His land will go down in value and he will go bankrupt if the ranching business does not turn. Seeing as how that put him in the tough spot to start with that's not likely to occur.

You can call your MLA and I can provide you with emails, phone numbers, and mailing addresses. For simplicity, here's a Directory where you can find them. Urge them not to adopt this plan. If they do, tell them you will vote them out and that you do have alternatives. You know that the strong economic position Alberta is currently in is due to the strength of the energy industry. We are debt free, we pay our nurses and doctors and teachers more than any other province, we are investing billions in infrastructure, and our government doesn't even know where to put the dollars they take now. They gave a bunch back to us in $400 cheques! That cost us probably $800 for the pleasure of the government processing a cheque just to be returned to us.

http://www.albertapc.ab.ca/public/custom/contacts/default.cfm

I would encourage some of the brighter minds within the PC caucus to strongly consider their ties to the party. I am coming to the conclusion that the current party structure is too bloated and out of touch to respond to and manage the realities of this Province. We need intelligent leadership that understands the integrated nature of our economy and the comments we have heard from the Premier in conjunction with other actions he has taken demonstrate he and his inside team do not. We have a bumper sticker that says "Please Give Me Another Boom, I Promise I Won't Screw It Up This Time!" Mr. Stelmach is doing just that.

I would encourage a few MLA's that do understand the realities of this Province to stand-up in Caucus against this Left-wing tax grab. This type of socialistic method has never encouraged growth before and it won't now. There is room for a new party without the baggage of the PC party. There is support for it, (confirmed), and funding for it, (confirmed), waiting to be directed. This is just another cycle in Alberta's political history about to play out. We had the UFA, the Socreds, (with Harry Strom), and now we have the the PC's and Harry Strom re-incarnated leading them. It is time for renewal!



Best Regards,

Jeff Callaway
Investment Advisor
Canaccord Capital

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