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Economic cost of Canadian oil price discounts counted in billions of dollars

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Imagine producing a bumper crop of a product in high demand around the globe, only to learn you must settle for a discounted price because there’s no easy way to get your product to market.

Canadian grain farmers experienced that situation in 2013 and again last winter when their harvest outstripped the transport capacity of Canada’s rail companies. Western Canada’s oil companies are now in the same boat thanks to production gains that have not been matched by export pipeline capacity gains.

Like those farmers, oil producers have filled storage to bursting while they wait for a solution to appear. The price discounts or “differentials” that had mainly affected heavy oil have spread to light oil and upgraded synthetic oilsands crude as pipeline space tightens.

Estimates on the cost to the economy vary wildly, but the Canadian Association of Petroleum Producers officially estimates the impact as at least C$13 billion in the first 10 months of 2018.

$50 million cost per day

It estimates the cost at about $50 million Cdn per day in October as discounts for Western Canadian Select bitumen-blend crude oil versus New York-traded West Texas Intermediate peaked at more than $52 US per barrel.

“The differential has blown out to such an extreme level for two reasons, the lack of access to markets and the fact we really have only one customer (the United States),” said Tim McMillan, CEO of CAPP.

Getting an exact number on how much discounts are costing Canada is all but impossible thanks to ingrained sector secrecy about transportation and marketing, he said, adding it’s entirely possible the real costs could be as high as $100 billion per year.

We’re losing hundreds of millions of dollars that’s going to subsidize drivers in the United States.-Tim  McMillan , CEO of  CAPP

Producers’ exposure to WCS prices differ depending on what kind of oil they produce, where they sell it and how they transport it.

Calgary-based Imperial Oil Ltd., for instance, says about one-quarter of its output of 300,000 barrels of bitumen per day is influenced by WCS pricing — the rest is used in its Canadian refineries or shipped by pipe or rail to the U.S. Gulf Coast where it gets close to WTI prices.

The company announced last week it will build a 75,000-bpd oilsands project, going on faith that pipelines will be in place for when production begins in about four years (a prospect that took a hit Thursday when a U.S. judge put TransCanada Corp.’s Keystone XL pipeline on hold until more environmental study is done).

Meanwhile, it is ramping up rail shipments from its co-owned Edmonton terminal as fast as it can.

Other oilsands producers including Canadian Natural Resources Ltd. and Cenovus Energy Inc. are cutting production to avoid selling at current prices.

The industry’s problems receive little sympathy from environmentalists like Keith Stewart of Greenpeace.

“The root of the problem is that companies kept expanding production even when they knew there was no new transport,” he said.

But McMillan pointed out it takes years to plan, win regulatory approval and build projects.

For example, producers would have had no way of knowing ahead of time that the 525,000-barrel-per-day Northern Gateway pipeline project approved in 2014 by a Conservative government would then be rejected by a Liberal government in 2016, he said.

“If Northern Gateway had come on as planned, we wouldn’t be in this situation,” said McMillan.

In a report last February, Scotiabank analysts estimated the differential would shave $15.6 billion Cdn in revenue annually, with a quick ramp up in crude-by-rail expected to shrink the hit to $10.8 billion Cdn by the fall.

At that time, discounts had widened to about $30 US per barrel from an average of around $13 US in the previous two years.

A depot used to store pipes for the planned Keystone XL pipeline is seen in Gascoyne, North Dakota, in 2017. (Terray Sylvester/Reuters)

Crude-by-rail shipments increased to a record 230,000 bpd in August but haven’t reduced the differential.

According to Calgary-based Net Energy, the WCS-WTI differential averaged $45.48 US per barrel in October and has averaged $43.75 US so far in November.

In an analysis last March, Kent Fellows, research associate at the School of Public Policy at the University of Calgary, estimated the differential would translate into a $13-billion economic loss if it persisted for a year — $7.2 billion to the Alberta government, $5.3 billion to industry and $800 million to the federal government.

The differential has gotten much worse, he said in an interview this week, which means the lost opportunity is proportionately worse.

Higher differentials hit provincial governments in the form of lower-than-expected royalties — their cut of every barrel produced from land where mineral rights are Crown owned — while the federal government will see lower corporate income taxes, Fellows said.

“If this keeps up and we start to see either a lack of growth or more shutting in some of this production … you’re losing jobs and even personal income tax as well,” he said.

The Alberta government estimates that every annual average $1 increase in the WCS-WTI differential above $22.40 US per barrel costs its treasury $210 million Cdn.

In Saskatchewan, Western Canada’s other major oil-producing province, each $1 change in the differential is equivalent to about $15 million in revenue, based on an assumed WTI price of $58 US per barrel, the government says.

Finance Minister Donna Harpauer said in an interview that if current discounts continued for a year, the Saskatchewan industry’s lost revenue would be about $7.4 billion Cdn.

Part of the reason WCS discounts were wider in October is that WTI, which opened the year at $60.37 US per barrel, jumped to more than $76 US. Producers exposed to WCS didn’t get the benefit of the higher U.S. oil prices.

McMillan said the differentials are being noticed by potential energy investors — CAPP expects capital investment of $42 billion in the Canadian oilpatch in 2018, down from $81 billion in 2014.

“We’re losing hundreds of millions of dollars that’s going to subsidize drivers in the United States.”

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Real Estate

Couple from Toronto buys dream home in Mushaboom

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MUSHABOOM – A couple who lived and raised a family in downtown Toronto developed a five-year plan in 2015 to purchase their dream home.

In September they moved into the home – located on Malagash Island in Mushaboom on Nova Scotia’s stunning Eastern Shore – that met and exceeded their best dreams for their retirement.

The Camerons, Bruce and Tanya, decided in 2019 they would explore the Maritimes to see what real estate was available to become their potential retirement home. In the spring of 2020, during a global pandemic, the real estate boom hit their city, and they were hearing the same for Nova Scotia. Our province was their first-choice for attaining their desire for an entirely different lifestyle – away from the busyness of the city.

“We had $300,000 to $350,000 as a home value in mind to buy. Our semi-detached located off Danforth in Toronto was priced at $850,000. We wanted to come out ahead, so we would be secure in retirement,” Tanya said.

Their century-old home had prime location near the subway and GO Transit Line for a great 13-minute commute downtown.

“We enjoyed our community,” explains Bruce “… we had great neighbours, young children around and street parties – lots of social activity.”

Bruce says, “Our agent suggested a starting quote of $899,000. We did not do any renovations and only some staging. Fifty couples went through and we received four significant offers. Six days later we sold – with zero conditions – and a price of over a million dollars. We just requested a closing of September 2020 to get the kids off to school – which we got.”

The couple got more than they had anticipated.

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Real Estate

Rabobank Announces Leadership Changes in U.S., Canadian Offices

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NEW YORK, Dec. 16, 2020 /PRNewswire/ — Rabobank, the leading global food and agribusiness bank, has appointed two of its top executives, Tamira Treffers-Herrera and Robert Sinescu, to become Co-Heads of North American Client Coverage, positioning the Bank for future growth in the region.

Treffers-Herrera has also assumed the role of Vice Chairperson and Head of the Atlanta office, where she additionally oversees Rabobank Mexico, which is led by Eduardo Palacios. Sinescu is the Head of the Chicago office, and also oversees Rabobank Canada, led by Marc Drouin, who was recently appointed as Canada’s General Manager.

Treffers-Herrera and Sinescu report to David Bassett, Head of Wholesale Banking North America, the Bank’s corporate and investment banking business for the region based in New York.

“Both Tamira and Robert have a demonstrated history of strong leadership, operational excellence and passion for our clients,” Bassett said. “Their broad experience and deep sector expertise will be invaluable in delivering dynamic results for clients while accelerating our growth trajectory in North America.”

Each office will have an even greater focus on key Food & Agribusiness sectors and clients: The Chicago office will drive growth in sectors including Dairy, Farm Inputs and Grains & Oilseeds, which are also key areas of focus for the Canada office. The Atlanta office will focus heavily on sectors such as Animal Protein, Beverages, Sugar, and Supply Chains, which are important sectors in Mexico as well.

“Rabobank is fully committed to our clients throughout North America, and we believe our new sector-focused coverage will improve our ability to provide knowledge-based, value-added solutions that benefit our clients,” Bassett said.

Treffers-Herrera was most recently based in London as CEO of Rabobank’s European Region from 2016-2020, where she took the organization through Brexit. Prior to that, she worked in the Atlanta office from 2002-2016. During her tenure in Atlanta, Treffers-Herrera served as Global Sector Head – Consumer Food & Beverages, and prior to that she was a senior banker for a portfolio of large beverage and consumer foods clients. She holds a Bachelor of Arts degree from the University of Kentucky, a Master of Arts from the Patterson School of Diplomacy and International Commerce and has studied at The University of Chicago Booth School of Business and Harvard Business School.

Sinescu has been with Rabobank for over 21 years and was previously General Manager of Rabobank Canada, where he oversaw all operations, business development, commercial strategy and relationships with regulators. In addition, he continues to serve as CEO of Rabo Securities Canada Inc. Prior to Canada, he was a senior banker, Head of Corporate Banking, European Sector Head for Sugar, and a member of the Management Team for Rabobank France. He holds a Bachelor of Science in Business from the Bucharest School of Business, a Master of Business Administration & Management and a Master of Science in Banking and Corporate Finance from Sorbonne University in Paris, and has studied at Brown University.

Drouin has worked with Rabobank’s Canadian team for more than nine years and most recently served as a senior banker, Head of Rabobank Canada’s AgVendor Program and a member of Rabobank Canada’s Management Team. He brings extensive wholesale banking experience within the Dairy, G&O, CPG and Supply Chain sectors. Drouin holds a Bachelor of Arts degree from McGill University and a Master of Business Administration in International Finance, Marketing and Management from the Schulich School of Business at York University.

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Real Estate

Greybrook Realty Partners & Marlin Spring Brand Jointly Owned Asset Manager – Greyspring Apartments

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TORONTO, Dec. 14, 2020 (GLOBE NEWSWIRE) — Greybrook Realty Partners and Marlin Spring are pleased to announce the new branding of their jointly owned investment and asset management firm, Greyspring Apartments. With a portfolio of more than 2,000 units and CAD$375 million in assets under management, Greyspring Apartments is focused on the acquisition and repositioning of multi-family assets throughout Canada.

The new name and branding is an important step in Greyspring’s evolution as an independent operating business. Formed in 2018 by long standing-partners Marlin Spring and Greybrook Realty Partners, Greyspring Apartments was established with the goal of building a leading asset management firm with a robust portfolio of residential rental real estate assets in primary and secondary markets across Canada.

Greyspring’s talented team of real estate, asset management and finance professionals is overseen and guided by the Management Board, whose members include Benjamin Bakst, CEO, Marlin Spring; Elliot Kazarnovksy, CFO, Marlin Spring; Sasha Cucuz, CEO, Greybrook Securities Inc.; Peter Politis, CEO, Greybrook Realty Partners; Chris Salapoutis, President & COO, Greybrook Realty Partners; Ashi Mathur, President, Marlin Spring; and Karl Brady. In addition to his role on the Management Board, Karl Brady leads Greyspring Apartments as its President. 

“We are pleased to announce the official name and branding of a business we formed with our partners at Marlin Spring a few years ago,” said Peter Politis, CEO, Greybrook Realty Partners. “Greyspring has been diligently focused on the execution of strategic value-add programs across its portfolio that are improving the quality of housing for tenants and overall asset values. For Greybrook investors, expanding from our core business in real estate development to the value-add space through Greyspring, has allowed us to provide our clients with investment opportunities that diversify their real estate investment portfolios.”

“Marlin Spring and Greybrook have partnered on many residential real estate projects in recent years,” said Benjamin Bakst, CEO and Cofounder, Marlin Spring. “To a great extent, Greyspring illustrates our approach to partnerships. We believe in, and strive for, responsible growth through deepening our relationships with our trusted partners. With Greyspring, we’ve formalized our focus on providing better and more affordable living experiences for Canadians. This vision aligns with our mission to deliver exceptional real estate value to all our stakeholders with an uncompromising adherence to our core values.”

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