National Post (National Edition)
Bridges to build for the oilpatch
‘The longer there is no clarity, the worse things will become'
Shock and disappointment gave way to efforts to deal with the damage in Alberta’s oil community Wednesday, when Canada’s top producing province woke up to an NDP majority government whose plans and ideology could further sideline energy investment.
The bad news is that building bridges and finding common ground could take a long time. Oilmen that had long-standing connections with the defeated PCs have to start from scratch with the NDP, which won 53 seats in Tuesday’s vote, up from just four.
Meanwhile, investors started bailing out from Alberta-focused oil stocks, a reaction that is expected to continue until premier-elect Rachel Notley clarifies her plans to squeeze more taxes from corporations and review oil royalties to ensure Albertans get a fair share. During the most recent royalty review in fall of 2007, under the PC government of Ed Stelmach, investment and stock prices collapsed. Eventually the PCs had to backtrack to lure investment back.
“Notley needs to appreciate that the investment community needs some clarity, and the longer there is no clarity, the worse things will become,” said Jeremy McCrea, managing director of institutional research at AltaCorp. Capital in Calgary.
As was the case during the last royalty review, oil companies that have operations across the Western provinces will move their money away from Alberta and target projects in British Columbia and Saskatchewan, where there is no uncertainty around fiscal terms, McCrea said.
“We were back in business here in Alberta,” McCrea added. “In the last couple of weeks things were looking good (thanks to strengthening oil prices). Now this has cast a cloud of uncertainty and the last thing investors want, especially international players who have options worldwide with rebounding crude prices, is to invest in a province with this kind of uncertainty.”
Mike Tims, vice-chairman of private equity firm Matco Investments Ltd., said Wednesday’s two per cent energy stock pullback shows the market doesn’t think the change in government is “disastrous.”
But he said the uncertain environment means delays for energy projects that are not already under development. “I would say the big factor is the prospect of the royalty review, especially if it were to extend over a period of time.”
The oil sands industry, already struggling with low oil prices, could suffer another blow from Notley’s plans to toughen up climate change regulations. An industry push to cut costs to improve competitiveness relative to other oil-producing jurisdictions could find renewed resistance among labour unions strengthened by an ally in the premier’s chair.
Notley’s plan to pick winners and losers among proposed oil pipelines is already backfiring. Notley has said she backs TransCanada Corp.’s Energy East and Kinder Morgan’s TransMountain expansion, but doesn’t support Enbridge Inc.’s Northern Gateway. She also said she would not promote Keystone XL. The Dogwood Initiative, a British Columbia environmental organization opposed to oil pipelines, launched a petition Wednesday to encourage Notley to oppose the TransMountain expansion, too.
“Make no mistake: the government she’s inheriting still depends heavily on oilsands revenues,” the group said. “Notley wants more ‘market access’ for more Alberta bitumen. That’s why she supports Kinder Morgan. Luckily, it’s not up to her. It’s up to the citizens of British Columbia — and the First Nations along the pipeline and tanker route.”
It’s just a matter of time before opponents of other pipelines sense there is potential to influence Alberta’s new government.
But there is some encouraging news, too.
Both Notley and Alberta’s corporate community seem willing to start on the right foot.
Notley said she plans to reassure energy industry leaders that her government won’t make decisions without them.
“They can count on us to work collaboratively with them,” Notley said.
“I’m hopeful that over the next two weeks they will come to realize that things are going to be just A-OK over here in Alberta.”
She also promised to “open markets instead of having a black eye” — an effort already attempted by scores of Canadian political leaders, with mixed success.
Long-time Conservative Brian Felesky, a lawyer and former investment banker, said the business community is already mobilizing to assist Notley and her caucus in any way it can “to make sure that we go forward in the best interest of the province, and particularly in the interest of the energy industry, because it’s important to all for the future, and hopefully by working together we can modify the uncertainty and the sense of devastation that is being felt right now.”
Another oil industry representative pointed to B.C. Premier Christy Clark as an example of a populist, environmentally conscious premier who has worked well with the energy sector and became a champion of LNG development.
The sector’s pragmatic approach reflects a new fear — that Stephen Harper’s federal conservatives, who have been supportive of energy industry growth, are also facing extinction in the coming October election as voters side with political leaders who are more in touch with the people.
Another change that will be welcomed by many: the relentless Alberta-bashing of recent years — a reaction to the province’s economic success, can-do attitude, proudly oildependent economy — may have finally run its course. With a left-wing government in charge supported by so many of the province’s previous bashers, an economically weaker, less brash Alberta will be harder to pick on.