Oilpatch feels 'crushed' as it moves one step forward, two steps back
'More frustrated than ever,' mood sags despite federal approval of TMX
Chris Slubicki has made dozens of presentations to people inside and outside the oil and gas industry.
One of his most consistent messages, delivered in a calm and rational manner, is a plea for natural resource-focused companies to be courageous, to push for new projects, to stand up for the industry and get things built.
But Slubicki, who is president and CEO of Calgary-based Modern Resources, was feeling somewhat beaten down last week.
If you haven't been following the industry that closely, that may come as a surprise — since last week included re-approval of the Trans Mountain pipeline expansion project.
But Slubicki was reacting to the passage of bills C-48 and C-69. That federal legislation bars oil tankers from loading at ports on the northern coast of B.C. and overhauls the federal environmental assessment process for major construction projects.
"It's hard to imagine under Bill C-69 any energy project ever moving ahead in this country again," he said. "We're being crushed by regulatory burdens."
The idea that no major energy infrastructure projects will ever again be built in Canada is a decidedly dire prognosis.
Yet, it's also a familiar refrain in the oilpatch, much of which is quick to dismiss apparently positive developments — such as last week's Trans Mountain news, the likelihood that Enbridge's Line 3 will go ahead and the possibility that a major liquefied natural gas facility on the West Coast is just around the corner.
We're being crushed by regulatory burdens.- Chris Slubicki, CEO of Modern Resources
A tendency to accentuate the negative is understandable in light of a multi-year run of struggling commodity prices and widespread job losses for the industry.
Much of that hardship has more to do with the reality of booming oil production from the resurgent Permian Basin in west Texas, an oil play so massive it's changed the course of the entire global oil industry.
Yet, Slubicki, for one, is more inclined to focus on what's happening closer to home.
"We're feeling the impact of lower prices in Canada due to lack of infrastructure and we're feeling the impact of lower natural gas prices because of a lack of pipelines to move gas out of the province," said Slubicki.
While Slubicki does recognize it's not all doom and gloom, his overall mood remains pessimistic.
"Absolutely there's cause for optimism. We're seeing some projects move forward. Most of the ones you referred to are in regard to oil. But we have the same issues on natural gas. And hopefully we'll see some projects move forward there as well," he said.
'All Canadians should be concerned'
Bill C-69 applies to major resource development and infrastructure projects, including pipelines, transmission lines, hydroelectric projects, mines and highways.
"That's why, I think, all Canadians should be concerned about this," said Tristan Goodman, president of the Explorers and Producers Association of Canada.
"I've actually spoken to people in Montreal and in Toronto that have large sums of money to invest across the natural resource sector and they have great concerns," he said.
"I think there's going to be problems developing large infrastructure projects on a go-forward basis."
What we have is a period of price insecurity and that's shaken investor confidence.- Kevin Birn, IHS Markit analyst
Capital expenditures in conventional oil and gas and the oilsands are forecast to continue to fall this year to a combined value of $24.6 billion and then increase slightly over the next decade, according to data posted on the Alberta Energy Regulator's website.
IHS Markit predicts oilsands investment this year will hover around $8 billion, the lowest in 15 years. The Canadian Association of Petroleum Producers predicts 5,500 oil and gas wells will be drilled in Western Canada this year, 600 fewer than 2018.
A crude oil analyst says the lack of pipeline capacity and uncertainty over future projects have rattled investor confidence.
"What we have is a period of price insecurity and that's shaken investor confidence, that if they bring a barrel to market in Western Canada, will it get to market for fair market value?" said Kevin Birn, with IHS Markit.
Birn says that while the approval of the Trans Mountain pipeline expansion is a positive, any celebrations are on hold until construction gets underway. Even then, it'll take two to three years before the bitumen starts flowing. In the meantime, industry is hoping crude-by-rail can help relieve the pressure.
"I think when you start seeing that [new pipelines], you see rail capacity build out, you might get some additional, incremental investments in the Canadian oilsands and a turning of that trend, an upward trend, but it's unlikely to be like 2014 again," said Birn.
Indeed, 2014 was a banner year that saw $33.9 billion invested in the oilsands, according to data from the AER.
IHS Markit is predicting a more modest growth plan for the oilsands, ramping up production by about 100,000 barrels of oil per day over the next decade, reaching four million barrels per day by 2030.
"If we can resolve the infrastructure issue, the economics of the projects and the resources we have are very attractive, they are very economic, but we have to re-build that confidence in our system, in our pipeline. That takes time, takes time to convince investors it's a safe place to invest," said Birn.
Disappointed and dismayed
"It isn't good," said Grant Fagerheim.
That's how the president and CEO of Calgary-based Whitecap Resources describes the mood in the oilpatch. Whitecap produces 70,000 barrels of oil per day, a 10,000 barrel reduction since the former NDP government mandated production cuts in an effort to reduce the price discount on Western Canada Select bitumen.
"The energy space, which is a principal driver to the Canadian economy, is very disappointed, dismayed and very challenged to understand the direction this [federal] government is going," said Fagerheim.
He says Whitecap will use an extra layer of caution when it comes to committing to larger capital projects. The company will spend $450 million this year, and predicts a slight increase in 2020.
Fagerheim says he supports the more aggressive stance shown by Alberta Premier Jason Kenney and hopes the government moves to challenge the constitutionality of bills C-48 and C-69.
The president and CEO of Calgary-based MEG Energy says he is "massively disappointed" to have gone through the Senate hearing process only to see dozens of amendments proposed by industry and the Conservatives rejected by the Liberal government.
"C-69 ... is disastrous for resource development in Canada," said Derek Evans.
An analyst with ARC Financial is much more tempered in her view of the new bills. While she does predict some uncertainty for the first few projects that go through Ottawa's new environmental assessment process, she doesn't see the situation as dire.
"I don't think it's perfect but maybe over time there can be amendments to this bill to improve the process. So, you know, I think it's better than it could have been," said Jackie Forrest.
She says the TMX decision was a positive move by government as it gives "a line of sight" to the eventual completion of the controversial project.
Despite all of his frustrations, Slubicki is not ready to change his pitch.
"Canada and the world continue to need energy, no one is better at providing that energy on the planet than Canada," he said.
"We are part of the solution, we're not part of the problem."
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