Notley’s early hat trick sets a rigorous pace
Hockey season may be over, but Rachel Notley completed a hat trick in the span of a week.
The premier named three respected individuals to serve as stewards of initiatives identified as priorities for her government.
Last Friday, former Bank of Canada governor David Dodge was tapped to advise the government on infrastructure issues. This week, University of Alberta professor Andrew Leach was appointed to lead a panel tasked with formulating a new climate change policy, and on Friday it was Dave Mowat, president and CEO of ATB Financial, who was chosen to take charge of the royalty review.
While Mowat’s appointment was largely hailed as positive, some cautioned it could put him in an awkward position. What happens if the panel arrives at recommendations the industry isn’t happy with? As the head of ATB, Mowat is on the government payroll and that outcome could raise questions about objectivity.
On the other hand, ATB has a healthy energy-based lending practice and any decisions that have an adverse impact on the sector would be felt at the bank.
Despite any reservations some might have, it’s an impressive list by any measure. As former Anderson Exploration chief executive J.C. Anderson liked to say, “These folks haven’t just fallen off of a turnip truck.”
For the energy sector, Mowat’s appointment is encouraging. So, too, is the fact the royalty panel is being cast as advisory rather than prescriptive. A collective sigh of relief hasn’t yet been heard, but that could come when the rest of the panel is named.
Who better than an Albertabased banker — whose lending portfolio was affected by the 2007 royalty review and is feeling the impacts of the current downturn — to be involved in royalty review 2.0.?
ATB is seen as one of the key lenders in the small and midcap space — with a lending book totalling $4 billion — and is therefore acutely aware of the underlying economics of various assets and the outcomes which could arise from changes to the existing royalty structure.
ATB additionally has an investment banking arm, AltaCorp Capital, and thus a window into the world of underwriting and advisory work, which complements its lending and debt-focused activities.
This is light years ahead of what happened in 2007 under former premier Ed Stelmach.
Even the detractors who might point out that Mowat lives in Edmonton should understand ATB has a very strong energy finance team in Calgary — led by Bruce Edgelow — which gives him a window into the industry that William Hunter, chair of the 2007 review, never had.
Those in the investment community and the oilpatch likely remember AltaCorp. president and CEO George Gosbee was at the helm of Tristone during the last royalty review. Tristone took out ads in newspapers across rural Alberta explaining the negative impacts the 2007 royalty recommendations would have on the province’s energy sector, particularly how decreased investment would shrink employment. It all came to fruition. There are sure to be critics who say Mowat’s appointment is biased, since the organization he leads will be directly affected by the outcome of the review — on both the corporate and retail sides of the business. But there is no room for mistakes on this panel, or the one under Leach’s purview.
Mowat understands the need for industry to be competitive and what that entails in the current environment, which is undergoing dramatic structural change.
Some companies in town aren’t generating enough cash flow to sustain themselves and thus can either find financing of put out the ‘for sale’ sign.
In addition, the one million barrels of lost production from investment decisions delayed since January isn’t exactly a harbinger for future economic growth.
Despite what Energy Minister Marg McCuaig-Boyd said Friday — that the government has heard concerns from Albertans about whether the province is getting its fair share under the current royalty structure — the reality is, here isn’t much in terms of additional economic rent to extract, given where prices are and the direction of investment activity.
McCuaig-Boyd also said Friday the royalty structure is an important issue for Albertans. It is, but if the government moves in a direction that compromises the industry’s competitiveness and investment flows, it’ll have a negative impact on job creation.
And having a job is what’s important to all Albertans.
It can be argued that it’s not really about the fair share at all, but about how prior governments have stewarded the finances and the billions in royalties that were not directed into the Heritage Savings and Trust Fund but instead used to subsidize the tax rates of Albertans for decades.
The NDP government has an opportunity to look at existing systems and structures through a new lens, but caution must be exercised and change not made simply for the sake of it.
The government needs to build trust with industry. After a misstep with McCuaig-Boyd’s chief of staff, a turnaround has started with the appointments of Dodge, Leach and Mowat.
The level of trust will be determined from those appointed to serve on the review panels.
Premier Notley had a good week, but one hat trick never makes a season.
The government needs to build trust with industry. The level of trust will be determined from those appointed to serve on the review panels.