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Kenney cracks the whip With cash flooding in, Alberta premier says it’s time for industry to hire, spend Gary Park for Petroleum News
It’s a damned-if-you-do, damned-if-you-don’t world in Canada’s upstream petroleum sector these days.
Although the industry is awash in cash comparable to the almost forgotten pre-2014 age, producers, rig hands and investors seem unwilling to believe that the party has any staying power.
One of the biggest challenges facing the resource-rich Alberta government is how to coax exploration and production companies to open their wallets and create jobs.
The conundrum has prompted Alberta Premier Jason Kenney to meet in mid-July with the top executives of oil sands players and conventional oil and natural gas operators, putting the squeeze on them to divert their profits from share buybacks to sweeping capital spending increases.
“We hope the energy industry will do its part because my message to them was that the resources they develop belong to the people of Alberta,” he said later. “The people of Alberta have got to see some benefit.”
Quoting a long-ago prime minister of Canada, Kenney said “right now we are using the sunny ways of persuasion.”
He carefully avoided issuing any threats that if his current strategy fails, he is ready to take a tougher stand. But the hint was unmistakable.
Kenney said the consensus from the oilpatch leaders was that they expect “a gradual ramp up in employment as opposed to a sharp rise.”
What is understood by all parties is that Kenney lacks the levers other than negotiation and diplomacy to force public companies to loosen their purse strings, even with oil prices holding steady at close to US$70 a barrel for West Texas Intermediate and C$4 per thousand cubic feet at Alberta’s natural gas trading hub.
Shareholders demands Offsetting Kenney’s public pitch, shareholders are demanding continued financial prudence and a return on their investments after years of riding out tough times.
The Toronto Stock Exchange energy index has climbed by more than a third this year, but still lags 40% behind its performance over the past three years.
Eric Nuttall, a respected senior portfolio manager with Ninepoint Partners, told the Calgary Herald that investors do not want to “repeat the sins of the past. We must not chase growth and chase a higher oil price.”
“My hope is energy investors carry a bigger stick (than government) because energy stocks have been stuck in purgatory for what feels like an eternity.”
Rafi Tahmazian, a senior portfolio manager at Canoe Financial, had a similar message in response to spending pressures, insisting “the market is violently against” a spending spree.
Athabasca Oil Chief Executive Officer Ron Broen said smaller and mid-sized companies that are unable to access capital have turned their attention instead to liquidity and balance sheets.
Some companies are more focused on initiatives to reduce their greenhouse gas emissions and meeting ESG (environmental, social and governance issues) to satisfy their critics.
Oil sands giant Suncor Energy has opted to press ahead with a C$1.4 billion cogenerated power project at its base oil sands plant, accounting for at least one-third of its capital budget.
Although modest, Canadian Natural Resources, the biggest combined producer of oil and gas, has boosted its capital budget by C$275 million to C$3.5 billion, including C$120 million to drill an additional 78 wells.
Two of its peers, Suncor and Cenovus Energy, are resisting any thoughts for now of hiking their upstream spending.
Rig count now at 150 A year ago, a mere 39 rigs were drilling in Western Canada creating about 7,000 direct and indirect jobs, said the Canadian Association of Energy Contractors. Those numbers have surged to 150 rigs at work, generating about 30,000 jobs.
Precision Drilling Chief Executive Officer Kevin Neveu told the Calgary Herald he has seen a “pretty meaningful rebound in customer demand for drilling and well servicing” prompted by higher commodity prices.
Precision has about 1,000 more rig hands at work in Canada, but that puts the spotlight on one of the toughest struggles faced by the industry.
Oilfield service companies say workers are reluctant to return to the sector because of their experience with employment volatility over the past five years that has seen tens of thousands of workers laid off.
“It’s difficult to get enough resumes in the door, let alone enticing trained and ticketed employees” to meet the requirement for those with specialized skills, said Gurpreet Lail, president of the Petroleum Services Association of Canada.
Unemployment in the services sector was down to 5.4% in June from 23.5% a year earlier, but that also reflects decisions by thousands to simply abandon the industry.
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