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Is the present just a glimpse into the past? Not quite.

Is the present just a glimpse into the past? Not quite.

Posted on: March 03, 2016
Author: Bruce Edgelow, VP, Special Initiatives, ATB Corporate Financial Services

In the face of current economic challenges, we inevitably look to our history to try to find some answers, or perhaps, some hope. And while hope is clearly not a strategy, it can help shape perspective and inform us about the tough decisions ahead.

We all know we live in a province that is linked to the boom/bust cycle of our commodity-driven GDP. But I have to admit, I was actually surprised when I looked back over the past 36 years and realized that we are now in our seventh downturn. Based on the statistics, over this time frame we have been in a downturn roughly every five to six years, each of which has typically lasted less than a year. However, I think it is quite clear to everyone now that this is not a typical downturn and it is being compared to the historic 1980s crisis brought on by the National Energy Program in 1980.

In the following chart we’ve compared our current situation to the last extended supply-induced drop in commodity prices, which occurred back in the 1980s and took us more than five years to recover from.

What's the same, Infographic

There are definitely a number of similarities between these two cycles such as unemployment rates, major cuts to capital expenditures and a prolonged period of economic slowdown. However, despite these commonalities, there are also some key differences that are worth exploring, both positive and negative.

Back in 1982, capital for development was significantly restricted, hyper-inflation was a reality and double digit interest rates were the norm. Today, capital continues to be available for the right teams and projects with an estimated $10 billion in funding waiting in the wings. We’ve also been operating in an environment of persistently low inflation (although we’re faced with global deflation concerns) and historically low interest rates.

Finally, we have seen a significant transformation in the regulatory environment over the past four decades. Of course, we must be conscious of the impact of these changes but it is also time for us to move forward in a more collaborative way in order to maximize success for the industry.

What's different? Infographic

So what does it all mean? Given my 30+ years in the energy finance realm I have learned—sometimes the hard way—that access to capital is one of the most critical success factors, regardless of where we find ourselves in the demand/supply equation. Eventually the capital will start to be deployed and transactions will re-emerge. Once that happens, things could really start to get interesting.

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