Copyright of the Daily Oil Bulletin 2017
Industry Open-Minded On New B.C. Government
While few people in Alberta’s oil and gas sector are celebrating Tuesday’s investiture of a New Democratic government in British Columbia, recent interviews suggest the event is not being met with the trepidation industry insiders might expect.
On Tuesday, John Horgan was sworn in as B.C. premier, wasting little time in naming a cabinet, including Michelle Mungall as the province’s new minister of energy, mines and petroleum resources (see story).
New B.C. Premier John Horgan is pictured in the foreground, while Green Party leader Andrew Weaver walks behind him after the two inked an agreement in May.
Speaking before the new premier took office, industry executives acknowledged that the B.C. NDP has gained a reputation for being hawkish on the oil and gas sector. Yet, once in office, many believe Horgan will take a more nuanced view, once he realizes the industry’s contribution to provincial coffers through land sales, taxes and oil and gas royalties.
“The job of politicians is to … say what you need to, to get elected,” said Scott Treadwell, vice-president of capital markets at Calfrac Well Services Ltd. “But …once they see the [financial] books, they’ll see more of reality,” he said. “At some point, you have to compromise on the ideological part and just try to drive toward the goal.”
For its part, Shell Canada Limited draws most of its Canadian shale production from the Groundbirch Montney in northeast B.C. (DOB, July 17, 2017), but a Shell executive had few concerns, when canvassed recently about the potential impact a new, left-wing government might have on the industry.
“Shell has been in business for 100 years, working with governments all over the world,” said Philippe Gauthier,” new manager of Shell’s Canadian light, tight oil assets. “We don’t see what’s happening in B.C. as a threat at all. We’re going to work with [the new government] like we worked with the previous government.”
Others were less serene, noting the NDP’s razor-thin edge comes mainly from the deal Horgan struck with Andrew Weaver’s B.C. Green Party earlier this year (see NDP-Green Party accord). Indeed, some warn that the new government might prove short-lived, depending on how events unfold in B.C.’s legislature, which one observer noted, is on Vancouver Island, forcing at least some mainland MLAs to take a ferry to work.
“If you have a single NDP [MLA] who’s stuck in Vancouver, trying to catch the ferry to Victoria, and they don’t make it, and there’s a vote, the government could lose, if the Liberals jump on that,” Ian Archer, natural gas analyst with IHS Markit, told a recent Calgary conference.
In his view, the NDP’s thin hold on power makes the situation tenuous. “It puts a big warning sign — a red flag — on further uncertainty in B.C.,” he said. “I have no idea how the government will play out, but I come back to the idea of a tie [between the Liberals and NDP-Greens] and that the government is … [on Vancouver Island].”
Looking backing on ex-Premier Christy Clark’s reign, others remarked on the Liberals’ apparent affinity for the resource sector. In particular, when Kinder Morgan Canada’s Trans Mountain pipeline proposal was taking flack in the Vancouver area, Clark’s Liberals helped “downplay and mitigate [public] opposition,” according to Kaija Belfry-Munroe, Canadian Studies professor at B.C.’s Quest University.
Under an NDP government, however, few expect similar support of the industry to continue. For companies like Kinder Morgan, in other words, the dynamics are bound to change. “[Companies] can no longer rely on the government to step between them and the people,” she said. From now on, they will have to handle local opposition themselves, which will “make life a lot more challenging.”
Review of fracking
Still unclear is whether or not the NDP will ban fracking, which they promised to review in their campaign platform. Among industry observers that spoke to the Bulletin, there was no consensus on the matter. In three provinces, New Brunswick, Nova Scotia and Quebec, scientific reviews have led to bans. While the accord the NDP and Greens signed is silent on fracking, it provides little comfort to those who think a ban might be in the works.
Those close to the action also have concerns about a provincial fracking review. Fort Nelson, B.C. Mayor Bill Streeper, for example, noted fracking is almost universal in the Montney, northeast B.C.’s biggest play. He believes a review of fracking could be just a pre-cursor to an outright ban. “There’s got to be skepticism, if they’re doing a review,” he said. On that point, however, not everyone agrees.
At the Canadian Association of Petroleum Producers (CAPP), the view was that the NDP has committed only to conducting a scientific review. “[The NDP] platform doesn’t spell out anything like [a moratorium],” Geoff Morrison, CAPP’s B.C. operations manager, told the Bulletin.
“In their platform, they describe a ‘scientific review.’ We think [such] a review, properly scoped, and with proper experts, would result in a better understanding [of fracking],” he said. Yet, Morrison went further, adding that the NDP have been careful to point out there would not be a moratorium associated with a scientific review.
“I’ve heard their leader [Horgan] say quite clearly that hydraulic fracturing has been conducted quite safely in northern B.C. for 60 years,” he added. “But he recognizes there’s a segment of society that’s not familiar with it, and it’s prudent for the party to have a scientific look.”
Tale of two provinces
Northeast B.C. is in a tough spot: it represents most of the province’s oil and gas development, and generates the lion’s share of industry jobs. Yet, B.C.’s provincial election in May revealed a province that’s divided, mainly along geographic lines.
While the NDP, which won 41 of 87 seats in the legislature, is well-represented in Vancouver, the Lower Mainland and Vancouver Island, the party won no seats in northeast B.C., leaving the region unrepresented in the new government. According to Streeper, no Green Party or NDP members were elected in the northeast.
“There’s a very big division [in the province] and it’s existed for quite a while,” he said. “The Lower Mainland and Vancouver Island has never been agreeable, as far as policies go, with the rest of the province.” In large part, he attributes that to a poor understanding of the oil and gas sector in the Lower Mainland, owing mainly to the region’s distance from any active oil and gas development.
Others felt that, while Vancouver and area enjoy the benefits of resource development, local understanding of the connection between those benefits and development is often tenuous, at best. “If you lived in the Lower Mainland, you might think this industry is not important to the functioning of the B.C. economy,” said CAPP’s Morrison.
“The truth is that the [B.C.] upstream industry employs 10,000 people directly and invests $4-to-$5 billion a year cumulatively, which are very big investments in the province, compared to almost any industry. And there is [also] the revenue in fees, levies and royalties that flow to the B.C. government.”
Kinder Morgan’s TMX Challenge
Well before the NDP took office, that party and the Greens agreed on one thing, spelled out in their written accord: that the two parties would “immediately employ every tool available to [them] to stop the expansion of the … [Trans Mountain] pipeline...”
Yet, both Canada’s National Energy Board (NEB) and the Trudeau cabinet approved the Trans Mountain expansion, meaning the project proponent had met every legal requirement necessary to allow construction. As Kinder Morgan Canada president Ian Anderson put it in a written statement, “Trans Mountain has followed every process and met every test put before us.”
Still, the party that is now the B.C. government has promised to stop the project. Within the industry, some have asked whether, in blocking the TMX, the provincial government is not simply denying the NEB’s jurisdiction, if they are not also denying the federal government’s authority to approve national pipelines.
“At the end of the day, I think the response must be that the province cannot veto the pipeline,” said University of Calgary law professor Nigel Bankes. “That’s the bottom line, but clearly, they can make it difficult to construct the pipeline, but I think every measure they take [in that regard] has got to be looked at on its merits.”
Bankes noted that several court cases are pending before Canada’s Federal Court of Appeal, some launched by West Coast municipalities. Sooner or later, he expects the province of B.C. to intervene in these appeals. “One can [also] expect the province, under this new [political] leadership …to support the cities of Vancouver and Burnaby in their appeals.”
While he believes the new B.C. government could not pass a law to stop the pipeline, he said it’s much more likely they would act, either to delay issuing permits or offer support to those municipalities that do so, in effect slowing the whole process. In the end, he believes each legal battle will have to be fought on a case by case basis. “Death by a thousand cuts is not a bad way of putting it,” he said. “That’s the challenge that Kinder Morgan will face.”