A DAY LATER, OILPATCH ‘BORDERING ON DESPAIR’
Some producers worry a Liberal minority will give in to parties opposed to pipeline
Companies across Canada’s oilpatch were coming to grips Tuesday with what a Liberal victory in the federal election will mean for the industry in the coming months.
Some players worry a Liberal minority government will create increased unpredictability for construction of the Trans Mountain pipeline expansion (TMX).
Others expect the situation will lead to less capital spending next year, as petroleum producers become more cautious about the ability of the sector to ratchet up oil output. But it seemed the oilpatch was unanimous in hoping the Trudeau government will unequivocally voice support for developing Canada’s oil and gas resources, as the industry faces challenges with a lack of pipeline capacity that’s stunting growth.
“I am disappointed … we need a federal government that recognizes the contribution that our industry makes to the Canadian economy — and one that does it through actions, and not just words,” said Athabasca Oil CEO Rob Broen.
“It’s very much a mood of resignation, bordering on despair … We know we have so much value in the ground here in the oilsands and Montney (formation), and could be doing so much to create value for Canada,” added oilpatch veteran Hal Kvisle, chairman of ARC Resources.
Monday’s federal election saw the governing Liberal party win a second-consecutive term, albeit with a reduced mandate that leaves it with a minority government.
The Liberals pledged during the campaign to proceed with building the Trans Mountain expansion, which will nearly triple the amount of oil transported from the Edmonton area to Burnaby, B.C.
However, both the opposition NDP and Green party oppose the federally owned project, sparking concerns about its future.
For the sector and the Kenney government, Trans Mountain — along with Enbridge’s
Line 3 replacement project and increased crude-by-rail shipments — is seen as essential to dealing with a glut of oil in the province. Production currently exceeds take-away capacity by an estimated 150,000 barrels per day.
Last fall, faced with a massive discount that hammered Alberta oil prices, the province mandated production quotas to prevent the differential from blowing out again. The province’s temporary curtailment policy has since been extended into 2020, putting the focus squarely on getting new pipelines built.
After a divisive election campaign, a minority government has reignited worries the Liberals may acquiesce to opponents of Trans Mountain.
“I am concerned they are going to bend to other parties’ demands and compromise that whole project,” said Andy Mah, CEO of Advantage Oil & Gas.
Industry analyst Jennifer Rowland of Edward Jones said such fears, along with broader issues facing the energy industry, provide yet another reason for investors to steer clear of Canadian oil and gas companies.
However, others believe the Trans Mountain project is safe, regardless of the election results that saw no Liberals elected in Alberta.
Federal Finance Minister Bill Morneau reiterated Tuesday that the Liberals will push ahead with the Trans Mountain expansion “because we know it is the right thing to do,” he told BNN Bloomberg Television.
In a report released Tuesday, political risk consultancy Eurasia Group said energy and climate issues will take precedence in the aftermath of the election, although it predicted the Liberal government and Premier Jason Kenney would “likely work together” to support Trans Mountain’s expansion.
Eurasia Group’s managing director of global energy, Robert Johnston, believes the federal election result is “neutral” for the pipeline.
The bigger issue is the Liberal campaign pledge to legislate net-zero emissions in the country by 2050, and what that actually means.
Johnston thinks there are opportunities for the industry and Ottawa to co-operate on long-term decarbonization efforts that include oil and gas, such as examining emissions-reduction technologies that some Alberta companies are already working on.
“We have been telling our clients … you have a heavily polarized political environment, but then after the election there would be a possible reset — ‘OK, let’s figure out between Alberta and Ottawa, what do we do going forward here?’” he said in an interview.
“That’s what we will find out in the next week or so.”
These issues are popping up as producers are busy developing capital plans for next year during a period of uncertainty, including another year of curtailment and sluggish commodity prices.
On Tuesday, integrated oil producer Husky Energy confirmed it has laid off staff in Calgary “to better align the organization and workforce with our capital plan and strategy.”
A National Bank of Canada report forecasts oilpatch capital spending will rise by seven per cent next year in Canada, although other industry players aren’t so sure.
“I don’t see any scenario where we invest for growth at this point in time,” said Broen.
For those in the drilling and oilfield services sector, another year of constrained capital spending by producers would equate to another year of limited growth opportunities, and fewer jobs.
“Right now, our view is it’s flat to slightly up next year for capital spending until people get this (pipeline) visibility a little more sorted out,” said Trican Well Service CEO Dale Dusterhoft.
And a minority government doesn’t help the situation, said Duncan Au, chief executive of CWC Energy Services, which operates drilling and service rigs in Canada and the United States.
“People will just be more cautious,” he said. “We will just have to see whether a federal minority government will allow us to build the infrastructure and projects we need in our energy sector to get it back on a growth pattern or not.”
It’s very much a mood of resignation, bordering on despair …