Trican net income fall 15% on reduced demand for natural gas in Canada
http://www.canadianbusiness.com/markets/headline_news/article.jsp?content=b0507127A
In the article above, it talks about the decrease in demand for a natural gas company, Trican. Trican is a company that provides products, equipments and services used for the exploration and development of oil and natural gas reserves. Trican’s main pumping operations are mainly located in Western Canada, with growing operations in Russia and Latin America. Even though their Russian branch is doing extremely well, having a record of 31% increase in revenue and a 56% increase of net income compared to the last quarter. Unfortunately, Trican experienced a decrease of 15% for their net income in Canada. Trican said that the number of wells drilled also decreased by 21%, also the number of customers trimmed their exploration and development programs in the face of a lower natural gas price and reduced cash flow.
This article relates to the aggregate demand section of chapter 6. Aggregate demand measures the goods and services demanded in the economy at a given overall price level and in a given time period. Its formula is AD = C+I+G + (X-M). For this company, Trican, their main reason of their decrease in demand for natural gas is the C (consumption) and I (investment) of aggregate demand. Their number of customers decreased because they wanted to find lower natural gas prices and the cash flow of the country has reduced. When a country’s cash flow has decreased, it usually means that the amount of money that people are saving more money in their banks. This leads to a slower economic activity for the country, causing businesses to also slow down on the production of the goods and services.
I think that the reason why Russia’s branch of Trican had a big increase in their net income is reflected economy in Russia. It also reflects from the consumers and the business’ investment over there. The higher the demand, the higher the supply will be needed. Since the demand in Canada is low, business are not investing as much.
posted by winnie | 7:17 PM
2 Comments:
Low natural gas prices in Canada, are discouraging oil companies from expanding and investing. I agree with you about how a business invests changes in relation to the demand. Overall, if their Russian branch continues to do this well, then this company will probably still be profitable even if their net income has decreased in its Canadian branches. In addition, you mentioned that the high sales in Russia is reflected the Russian economy. I think this is true, since for their sales to increase another company is spending and spending is a factor that affects GDP; in fact it even has a multiplier effect since when Trican receives the money from their customer they‘ll in turn will probably invest it in the company to buy new inventory and the cycle goes on when Trican‘s suppliers receive the money increasing GDP more and more to a certain extent.
Jocelyn Lai
Since the oil prices are so expensive right now, customers are going to look for low natural gas prices. But the oil companies are still in demand in the market, so I think they will still do fine. Yes, more people save money in their bank account because of the increase of interest rates. If my bank account has higher interest rates, I think i won't spend so much too!! haha
Jenny Yeung
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