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Alberta bets on oil production cuts but industry remains divided on market intervention

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Premier Rachel Notley said it would be one of the toughest decisions that Albertans would make as a province.

And now she’s made it.

Beginning January, Alberta will impose mandatory production cuts on the energy sector for the first time in decades — a measure aimed at reducing an oil glut that’s punished the price of Canadian crude.

“In Alberta, we believe that markets are the best way to set prices,” Notley said Sunday night. 

“But when markets aren’t working, when companies are forced to sell our resources for pennies on the dollar, then we have a responsibility to act.”

Watch Notley explain why she believes production cuts are necessary:

Alberta Premier Rachel Notley answers questions from reporters following announcement of a temporary oil production cut in the province. 1:11

It’s an extraordinary intervention, a step taken with the encouragement of some — not all — oil producers. 

The hope is it will be temporary, short and effective — improving company cash flows, bolstering government revenues and staving off further layoffs.

‘Winners and losers’

It’s an imperfect solution, one that continues to divide the oilpatch and still appears to pose risks, including potential trade issues and negative impacts on future investment in the province.

“The government has, in its mind, the justification,” said Richard Masson, an executive fellow at the University of Calgary School of Public Policy.

“But to have a government intervene in a free market, which will create winners and losers, is just such a big step from the past 30 years of a deregulated marketplace.” 

Much of Alberta’s oil sector has been hit hard by steep discounts on Canadian crude. (Larry MacDougal/Canadian Press)

No question, the province is under significant pressure to find a quick fix.

Production growth and pipeline bottlenecks have contributed to an oil glut that’s weighed mightily on Alberta crude prices, cut into company cash flows and stung the province’s finances.

It led some producers — like Cenovus and Canadian Natural Resources — to call for mandatory production cuts.

Watch Notley’s oil production cut announcement:

Alberta Premier Rachel Notley has announced a temporary 8.7 per cent oil production cut, or decrease of 325,000 barrels a day, starting Jan. 1, 2019. 1:37

On Sunday, Cenovus CEO Alex Pourbaix commended the premier for making “the difficult but necessary decision,” while Canadian Natural Resources called the action “swift and bold.”

In contrast, companies with their own refineries and retail operations — Suncor, Husky Energy and Imperial Oil — maintain the market is working, pointing to the fact some companies were already reducing production.

“Our view remains that free markets work and intervention carries trade risks and sends a negative message to investors about doing business in Alberta and Canada,” Imperial Oil CEO Rich Kruger said in a statement Sunday. 

But with warnings about big job losses and a ballooning impact on the provincial treasury, the premier clearly felt she had to do something fast.

A production cut of 325,000 barrels a day is a major step that will affect 25 larger bitumen and conventional producers.

If it works, bloated inventories will shrink and discounts will return to more normal levels over the coming months. 

How will the market respond?

But this move comes with some considerable challenges, questions and, as some critics have said, the potential for unintended consequences.

For one, there are potential technical and operational issues that will need to be addressed. For example: If companies have commitments on pipelines, how do they meet those obligations if they’re also cutting production?  

Hundreds of people gathered to protest federal Finance Minister Bill Morneau’s appearance in Calgary last Tuesday. (Dave Gilson/CBC)

Government officials said they have provided latitude for producers to manage the cuts by assigning them on a per-operator basis, rather than on individual wells or projects.

But there are also questions of how the market will respond — not only to what happens to oil prices but, more broadly, how investors or companies will respond to such government intervention.

Both Husky and Imperial said they would comply with the regulation but continued to warn of the impact Sunday evening.

Imperial’s Kruger said the province’s intervention doesn’t appear to recognize the investment decisions companies have made to access higher-value markets.

“We regularly manage a wide range of risks associated with technical, operational and market considerations,” he said.

“Now, government has introduced a new risk which will unfortunately need to be considered as it relates to future investments.”

Still, some analysis has suggested mandatory cuts could send a positive message to the market.

“This policy option could bolster the government’s flexibility in responding to other sudden disruptive events,” said a Scotiabank Economics report last month.

“The flexibility to respond to unforeseen events and keep the industry on steady footing would also signal to the market that the distressed discount situation is under some degree of control.”

Yet others worry it could set a precedent for government intervention that the oilpatch might later regret.

‘The devil will be in the details’

Husky Energy also raised the prospect of potential trade issues with the government’s move.

“We believe the market is working and view government-ordered curtailment or other interventions as possibly having serious negative investment, economic and trade consequences,” said Husky spokesman Mel Duvall in a statement.

“The devil will be in the details.” 

Prime Minister Justin Trudeau and Minister of Natural Resources Amarjeet Sohi have both said they are listening to the energy industry, but critics say they aren’t doing enough to help the sector. (The Canadian Press)

Indeed, it will be interesting to see how U.S. refiners — who have benefited significantly from the discounts — will respond to Alberta’s decision.

As significant as Sunday’s news was in Alberta, it’s unlikely to reduce calls on Ottawa to help build new pipelines and stop legislation that might make them more onerous to construct, namely Bill C-69.

“The problem is that we don’t have enough pipeline capacity,” said Martha Hall Findlay, president of the Canada West Foundation. “The problem is how did we get here in the first place?”

For many Albertans, the big question will be what happens next.

With a month to go before the regulations take effect, the response of the market, energy companies, investors and U.S. refiners in the coming weeks will be telling. There will also be hope that job cuts don’t come.

The premier will hope she’s found an answer to Alberta’s crude problems, but many challenges still lie ahead. 

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Real Estate

Window repair or replacement is the responsibility of the condo corporation

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If the windows in your condo are hazy, drafty, or have rotting frames, it’s an indicator that they need repairs or outright replacement.

However, under the Condominium Act, it is the responsibility of the condo’s board to carry out such changes as a replaced window is a common element.

“Under the Condominium Act, a declaration may alter the maintenance or repair obligations of unit owners and the corporation but cannot make unit owners responsible for repairs to the common elements,” said Gerry Hyman is a former president of the Canadian Condominium Institute and contributor for the Star.

“A declaration for a high-rise condominium invariably provides that the unit boundary is the interior surface of windows. That means that the entire window — whether it is a single pane or a double pane — is a common element. Necessary repairs or replacement of a broken pane is the obligation of the corporation.”

According to Consumer Reports, selecting an installing windows replacement can be very overwhelming for homeowners. Therefore, if you aren’t covered by your condo’s corporation, it would be necessary to hire professional hands.

Wood, vinyl and composite windows need to be tested on how they can withstand various natural elements. For wind resistance, a window can be very tight when it’s warm but get quite cold too—especially when it begins to leak a lot.

Whatever the case may be, the bottom line remains that replacement windows can save you heating and cooling costs, but it’s best not to expect drastic savings.

Additionally, while getting a new window might help you save on your electric and gas bills, due to their expensive cost, it may take a long time to offset their cost.

Mid-last-year, the government withdraw a $377 million Green Ontario program that provided subsidy on windows to installers and repairers. Window companies had to install energy-efficient windows in order to qualify for the government subsidy that pays for up to $500 of a $1,000 to $1,500 window.

Due to the largely generous subsidies from the government under the Green Ontario program, a lot of window dealers were fully booked for months—even after the program had ended.

“We’re fine with the program ending, we just need more time to satisfy consumers,” said Jason Neal, the executive director of the Siding and Window Dealer Association of Canada, the industry group representing window dealers in a report.

According to Neal, the Progressive Conservatives acted hastily, making massive changes with no prior notice.

“No notification was given to us by anyone,” he said, noting he learned about the change through one of his dealers.

“It’s created a ripple effect.If they had just given us notice we would have pushed that down the line from the manufacturer right into the dealer right down to the consumer.”

Neal noted that he wasn’t particularly sad to see the Green Ontario program end, as it was “the worst rebate program in the history of the window industry.”

“It’s been horrible,” he said. “$500 a window has created such hysteria.”

However, despite the program ending about a year ago, numerous homeowners have been contacting window dealers consistently with concerns that they might not be able to afford replacement windows without the government’s subsidy.

“I understand their concern,” said window dealer Chris George. “I would suggest they reach out to their local representative of the government in their riding and let them know about their concerns.”

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7 Vancouver Real Estate Buying Tips

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The real estate market in Vancouver is turning around for good for everyone looking to purchase a home.

Previously soaring prices are now beginning to ease up, making it a perfect time for buyers—with real estate agents already getting ready for a very busy spring and summer season.

However, before splashing cash on a new property, there are some very important tips you need to know to ensure you make the most of the buyer’s market.

Here are some few expert tips that would guide you when purchasing a home in the sometimes frustration Vancouver seller’s market.

  1. Get adequate financing

It is very important that before you make the move to purchase a property, you put into careful consideration your credit score.

Normally, home buyers with lower scores use the secondary mortgage market to finance their purchase, as they’re more likely to pay a higher interest rate.However, it is advisable to get loan approval long before purchasing the house. This way, you are fully aware of how much you are able to spend—but never be tempted to borrow the maximum amount of money available.

“What’s your mortgage payment that you’re comfortable with? And take into the fact the taxes you’re going to have to pay, if it’s a strata – what the maintenance fees are, if it’s a home what type of maintenance are you going to have to pay in the future?” said Phil Moore, president of the Real Estate Board of Greater Vancouver in a report.

Always be careful of the type of loan you secure and ensure that you can comfortably afford it over a long period of time.

  1. Get a real estate agent

Buying a property without professional help is a very risky move and can be likened to choosing to represent yourself in court without a lawyer. While you might trust your negotiation skills, only realtors are permitted to present offers directly.

Therefore, it is necessary to get a professional real estate agent in the area to represent you. So, screen a few agents and select the best one who has in-depth knowledge of the markets and has a great reputation.

“They’re there to protect you. They’re there to walk you through each step of the process,” Moore said.

  1. Sign up for automated alerts

Most—if not all—realtors have access to the Vancouver real estate board’s database which is updated approximately two days before the public MLS website.

Therefore, you can request from your realtor to sign you up for automatic real-time alerts of all new listings. Doing this gives you an edge as you’re among the very first to know about new properties.

  1. Do a thorough inspection

After receiving an alert for a new listing, it is necessary to push almost immediately for an inspection from your realtor. In this current market, buyers now have time to make an inspection.

Making a quick inspection eliminates any surprises—as there could be major maintenance or repair issues that could spring up. Therefore, you can now table your offer based on the outcome of the inspection, with clauses about claiming your damage deposit back if everything isn’t as was advertised.

Additionally, if you notice that renovations were done, you need to be sure that it was permitted work and carried out appropriately. Failing to do this would ultimately lead to further cost down the line and simultaneously affect the resale value.

  1. Have a back-up plan

There’s always the possibility that everything may not go as smoothly as you’d want. From the inspection being a failureto the property not living up to your expectations—or not being able to agree on the closing date that matches with your needs.

However, a professional real estate agent will definitely help you get past all of these things. If you plan on selling the property as you buy, you can table that and make it part of the deal.

“You’ve got an option, especially in a buyer’s market: you can put in an offer subject to selling your place. So maybe you want to have a place lined up,” Moore added.

Additionally, building contingencies into your buying plan is necessary. Things such as unexpected delays in closing the deal, closing cost and moving costs that could result in added living expenses if that’s your permanent home.

  1. Don’t fall for the buyer frenzy

The Vancouver market buying frenzy that caused a serious climb in the prices a couple of years ago has ended. Thus, it is important not to get caught up in bidding wars with properties that have been deliberately under-priced—with the hope of initiating multiple offers.

“Some of the sellers have been on the market for over a year and they’re eager to sell. So what I’m saying to consumers is: you have a lot of choices, you’re in the driver’s seat, let’s go out and take a look at what’s available,” said Moore.

  1. Never be wary of multiple offers

When purchasing a property, don’t be afraid of multiple offers as you have the same opportunity as anybody else.

Typically, there are just a few offers below the asking price: a couple priced fully, and two or three above the asking price—depending on how close the fair market value is from the asking price.

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Do you know what kind of condo you’re buying?

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(NC) Condominiums can come in all shapes and sizes. But it’s important to know that not all condos are created equal when it comes to warranty coverage.

Whether you’re buying a condominium townhouse, loft-style two-bedroom or a high-rise studio, they are all classified as condominiums if you own your unit while at the same time share access (and the associated fees) for facilities ranging from pools and parking garages to elevators and driveways, otherwise known as common elements.

The most common types of condos are standard condominiums and common elements condominiums. The determination of how a condominium project is designated happens during the planning stage when the builder proposes the project and the municipality approves it.

When you’re in the market to buy, you need to know how your chosen condo is classified because it affects the warranty coverage under the Ontario New Home Warranties Plan Act. Standard condominiums have warranty coverage for units and common elements, but common elements condominiums only have unit coverage.

How could this affect you as the owner? If your condo complex has underground parking and, for example, there are problems with leaks or a faulty door, the condo designation will determine whether there’s warranty coverage.

If your unit is a standard condominium development, then the common elements warranty may cover the repairs. If it’s a common element condominium development, then repairs might have to be covered by the condo corporation’s insurance, which could impact your condo fees or require a special assessment on all the owners.

To avoid surprises, you should have a real estate lawyer review the Declaration and Description attached to your purchase agreement to be sure that you know the designation and boundaries of the unit you’re looking to purchase. Find more information on the types of condos and their coverage at tarion.com.

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