Oilpatch frustration grows as Liberal minority win keeps energy issues on back burner
The Canadian oilpatch had a lot on the line heading in the federal election.
Many industry players saw it as a decisive moment to regain some momentum for a sector that’s been stuck in neutral this year, frustrated by a lack of pipeline capacity and largely ignored by investors.
Company executives spoke out, penned an open letter to Canadians, created advertisements to profile their workers, and raised concerns about the sector’s future.
The Canadian Association of Petroleum Producers (CAPP) even registered as a third party advertiser, trying to promote its issues and push for more LNG projects and pipelines to be built.
The victory of the Liberal party in Monday’s election — returning with a minority government — means many of the biggest issues for the sector haven’t really changed.
And frustration in the oil and gas industry is building.
“For the energy sector, this is a massive impact. There will be discussion upon discussions. Many are not only disenchanted with our current federal (Liberal) government and not trusting them, but understandably frustrated and outright angry,” said Grant Fagerheim, CEO of Whitecap Resources.
“Companies have to be more cautious and pull back and be more restrictive on spending … We have to make sure that we get our products to market.”
Bob Geddes, president of Ensign Energy Services Inc., said the election outcome will continue the diminishment of the Canadian oil and gas sector and likely lead to less spending and drilling activity going forward if pipelines aren’t built and the sector can’t grow.
“There is an oilfield service company going bankrupt every week, so I don’t think it’s going to change,” he said.
Anger in the sector has been bubbling as the industry has grappled with multiple issues in recent years, particularly problems getting new pipelines built.
It’s been a tough period since oil prices collapsed in 2014, and many fear the future could be even more difficult in the years ahead, depending if the Trans Mountain expansion is built — and how much help a Liberal minority government needs from the NDP, Bloc Quebecois or Green party to govern in the months ahead as the project is being built.
While the Liberals have vowed to continue with the expansion, some in the industry and the Alberta government are concerned about its fate, as well as Bill C-69, which overhauls how major pipeline projects will be environmentally assessed in the future.
For the Canadian oil and gas sector, and the Alberta government, the election campaign was seen as a pivotal period to raise concerns about the impact of these policies on jobs, the economy and the ability to attract capital into the industry.
“For us in Alberta, our main objective is to get market access,” Energy Minister Sonya Savage said Monday evening, before the results were counted.
“We are tired of being a punching bag. All we want is to get our resources to market. We have a constitutional right to develop them.”
Savage also raised concerns a minority government could threaten the future of the Trans Mountain expansion, which would nearly triple the amount of oil moving from Alberta to the west coast.
“I think we have a pipeline in peril if we have a minority government,” she added.
While much of the debate in the election focused on climate issues, and throttling back fossil fuel production, the energy sector accounts more than 11 per cent of GDP in the country and more than 550,000 direct and indirect jobs.
The industry is navigating through a demanding period, with growing pressure to become more cost competitive, address ESG (environmental, social and governance) issues from investors, and reduce greenhouse gas emissions.
Benchmark crude oil prices have fallen by almost 23 per cent in the past year, reflecting broader global concerns about excess supplies and falling demand. Meanwhile, the S&P/TSX Capped Energy Index is down eight per cent this year.
Due to weak commodity prices and a lack of sufficient pipeline access, capital spending in the sector is expected to fall by another seven per cent this year to $36 billion.
“We are already in a terrible spot as far as global investment goes,” said CAPP head Tim McMillan. “A minority government doesn’t send a clear signal to the market, to global investors, that we’re getting a shift in direction that would change their view of us.”
With less spending, the number of wells drilled this year is projected to drop 18 per cent to 5,000 wells, according to CAPP.
And that means fewer jobs.
Rafi Tahmazian, a senior portfolio manager at Canoe Financial, said a minority government means Canadian energy stocks will remain stuck with “dirt cheap valuations today, and we will bounce along the bottom for an extended period of time.”
“Four years ago, we were a turtle walking around with our heads out,” he said.
“Today, we are completely just retrenched into our shell. That’s what the industry is today. We can’t move. We are paralyzed.”