Oilpatch in ‘crisis mode’ as investment suspended

Major Canadian oil companies CALGARY fear an investor exodus as Kinder Morgan Inc. signals there are less risky pipeline projects it can invest in than the troubled $7.4-billion Trans Mountain project through British Columbia.

Kinder Morgan Inc. announced late Sunday it would suspend all non-essential work on the pipeline until the federal government intervenes in the spat that has pit B.C. against Alberta and Saskatchewan. The firm said it needs certainty the project will not face endless delays from B.C. in order to proceed and gave an end-of-May deadline.

The announcement sent shock waves through the domestic oilpatch. “If we don’t understand that we’re in crisis mode now, we’ve got to get there pretty quickly,” Canadian Energy Pipeline Association president and CEO Chris Bloomer said Monday.

Bloomer also repeated warnings from the Royal Bank of Canada last week that capital is fleeing Canada “in real time,” and said reputational damage from this pipeline fight will only exacerbate the situation.

“The bottom line on the energy sector is that it relies on capital. ... These companies need to have shareholders, they need to have lenders,” Bloomer said.

Kinder Morgan Canada Ltd.’s shares fell 13 per cent on the Toronto Stock Exchange on Monday on the news its parent company was pausing spending on the project and threatening to redeploy capital elsewhere. The S&P TSX Capped Energy Index fell 0.3 per cent on the day, taking its year-todate decline to 5.4 per cent.

“We expect to continue investing but it has become clear that this particular investment may become untenable for a private party to undertake,” Kinder Morgan Inc. president and CEO Steve Kean said on a conference call.

Kean said $1.1 billion had been spent on the $7.4-billion project to expand the delivery of crude oil from Alberta to the B.C. coast so far. The firm had previously said it was spending $30 million per month, but will now scale that back. “We’re going into a very high spend. We don’t want to kick the can down the road until we have another $2 billion in the project,” Kean said.

Energy companies and industry groups warned the delays are hurting local companies.

“The project is critical to Canada and the future of its oil and gas industry, which contributes billions of dollars to the national economy each year and is one of the country’s single largest job creators,” Cenovus Energy Inc. president and CEO Alex Pourbaix said in a release.

“If the rule of law is not upheld and this project is allowed to fail, it will have a chilling effect on investment not just in British Columbia, but across the entire country,” he said.

In a bid to help soothe investor worries, Alberta Premier Rachel Notley announced late Sunday that her province would be willing to invest in the pipeline.

Kean said his company welcomed those assurances on Monday’s call and said there would be talks between the province and the company soon.