The merest hint that the Canadian government is pondering an equity position in an energy project is guaranteed to raise hackles and sends tremors through the oil industry at any time.
When that speculation occurs on the 25th anniversary of the industry’s Day of Infamy, the anxiety level is multiplied many-fold.
It started with a Financial Post story that Ottawa was ready to buy a 20 percent stake in the C$7 billion Mackenzie Gas Project as a way to break the negotiating logjam and answer the growing need for new natural gas supplies.
The proposal was said to have surfaced at a meeting between Deputy Prime Minister Anne McLellan and the consortium of Mackenzie gas owners headed by Imperial Oil who are reported to be seeking a cut in royalties and taxes to offset their upfront costs.
Government ownership of the Mackenzie venture was put on the same footing as the 20 percent interest being sought by the Alaska government in the US$20 billion pipeline from the North Slope, triggering concern within the Canadian government that Alaska could gather enough momentum to shoulder the Mackenzie plans aside.
The Post quoted a senior government source as saying the “question of equity was used inside the umbrella discussions of subsidies,” but Imperial gave an emphatic “no” when a government equity position was mentioned.
McLellan denies proposal to Imperial
McLellan denied the Post story, telling reporters Oct. 26 that “absolutely no proposal has been made to Imperial in any form in relation to any fiscal enhancements.”
“We have talked to Imperial because they came to us with the discussions around fiscal enhancements,” she said.
In fact, there is a long, long, lengthy list of things that could or could not be done.
“It is way too soon to see whether this government will choose to take a serious look at a package that is defined as fiscal enhancements.”
McLellan said the government views the project as a private-sector undertaking in cooperation with aboriginal residents and that Ottawa’s support will be confined to its C$500 million commitment to help aboriginal regions along the Mackenzie Valley deal with social and economic challenges spawned by a pipeline.
However, she also said “we’re all committed to making sure that this project takes place.”
“We know that Imperial has talked about fiscal enhancements,” she said. “We have indicated we’re willing to sit down and talk to them about that, but the suggestion that there has been any proposal at any time from us in relation to this project on the fiscal enhancement side is completely false.”
An Imperial spokesman said government equity participation has never been part of the discussions.
But the talk swirls as a crucial deadline for the Mackenzie project approaches.
Imperial has promised to let Canada’s National Energy Board know by Nov. 18 whether it is ready to embark on public hearings by early 2006.
25th anniversary of National Energy Program
It’s widely assumed that a negative message would effectively put an end to hopes of delivering gas from Canada’s Arctic by 2010.
However, the thought of the government galloping to the rescue is never ruled out by an industry that never allows memories of Oct. 28, 1980, to fade.
That was when a previous Liberal government, in the wake of the second OPEC-induced oil crisis, unveiled the National Energy Program in the name of “security, opportunity and fairness.”
With the Alberta government, then as now, watching its coffers swell with oil money, the government decided to redistribute some of that wealth to other parts of Canada, while regulating prices.
In addition, Canadian-controlled companies were offered 80 cents on every dollar to drill Arctic and East Coast frontier regions; control of the industry would be transferred from foreign (mostly U.S.) companies to Petro-Canada, then a wholly state-owned corporation.
By some estimates, the National Energy Program, before it was dismantled five years later, cost the Alberta government upwards of C$60 billion; U.S.-owned companies beat a retreat across the 49th parallel; thousands of white collar workers and rig hands lost their jobs, with the rig count slumping to 200 from 425; amid mortgage rates of 20 percent, Calgary homes were sold for $1 to buyers willing to pick up the mortgage; and Peter Lougheed, then Alberta’s premier, ordered a cut in oil production until he could negotiate a more reasonable price.
Even if rumors of a government partner in the Mackenzie project are off base, they are never discounted in Alberta.
And there’s enough people still carrying scars from the 1980s to justify their paranoia.
