Oilpatch support for Notley climate deal running on fumes as CEOs depart

Claudia Cattaneo
Claudia Cattaneo

International operators have already voted with their feet and taken their business elsewhere

With Brian Ferguson leaving as CEO of Cenovus Energy Inc. following a disastrous oilsands acquisition, only one of the four top oilsands leaders who made a secret deal with Canada NDP Premier Rachel Notley to support her climate change agenda — including a hard cap on oilsands emissions of 100 megatonnes a year — is still around to defend it.

Of the four executives on the stage with Notley during the announcement 18 months ago, Lorraine Mitchelmore left as president of Shell Canada and was replaced by Michael Crothers, who sold Shell’s oilsands business to Canadian Natural Resources Ltd. Murray Edwards, the billionaire oil investor and top shareholder of Canadian Natural, moved to the U.K. and has become disengaged from the Canadian oilpatch, though he remains the company’s chairman.

Cenovus announced Tuesday that Ferguson will retire Oct. 31 and that it will search for a new leader. With its stock price shattered by the US$13.3-billion acquisition of ConocoPhillips’ oilsands assets, Cenovus is now vulnerable to being taken over at a bargain-basement price — if there’s still appetite for oilsands companies given Notley’s punishing carbon reduction regime.

The lone man still standing is Steve Williams, the CEO of Suncor Energy Inc., who has managed to grow his company both organically and through acquisitions in the new environment without going out too much on limb – so far.

Perhaps the turnover is indicative of the tough times experienced by the Canada-based sector after more than two years of soft oil prices, or of normal succession plans.

But it didn’t help that the CEOs made a bad deal to mitigate damage from a hostile provincial government that has undermined their industry’s attractiveness and caused deep divisions between those who were at the table and those who weren’t.

Meanwhile, the deal has yet to achieve the promised peace with environmentalists or got them the market access they needed. The B.C. election, which resulted in an NDP/Green coalition that wants to kill the Trans Mountain pipeline expansion, provides further proof that Canada gets no credit for its tough climate change program.

Undaunted, the Canada government intends to develop regulations to implement the oilsands emissions cap by early next year, after a panel made public Friday its recommendations on how to divide the remaining 30-megatonne annual carbon budget.

They include stopping construction of new projects and constraining carbon from existing projects when carbon space runs out in the next decade. Furthermore, the 100-megatonne limit would be a peak that would be ratcheted back to enable Canada to achieve its de-carbonization goals. The province is seeking feedback on the proposals and intends to implement regulations in early 2018.

Ryan Jackson / Postmedia News

“It’s going to be harder for anyone to rationalize incremental investment,” said Dennis McConaghy, a retired TransCanada Corp. senior executive who recently wrote a book about pipeline politics entitled Dysfunction.

“If I was an unemployed engineer today, this … report is frankly very crucifying, because it makes the prospect of a revival of capital investment that much more difficult,” he said.

The plan would be unthinkable in other sectors. Imagine, for example, grounding the airline industry, or the auto manufacturing industry, or the shipping industry, because they have used up their emissions allocation.

It’s all coming home to roost for Ferguson, who paid up to double his oilsands exposure while misreading that the market wanted none of it — the low oil prices, the Canadian pipeline mess, the climate change policies, the continuing environmental movement demands.

“This guy obviously learned a lot from standing behind Notley two years ago and saying that the oilpatch is behind her policy, which we are not,” Rafi Tahmazian, senior portfolio manager and director at Calgary-based Canoe Financial, said on BNN.

“This is a time to explain what you might have done wrong, how your board and management understand that they have been listening to the market … not everything is fine and rosy.”

Ferguson blamed external factors like tanking oil prices for his stock’s poor performance, while failing to acknowledge the lack of support for such a large deal given “there is no demand for our industry, there is no outside investment in our country … there is no support underneath it,” Tahmazian said.

It’s time for a reality check about the oilsands’ ability to carry the load of Canada’s and Canada’s carbon reduction commitments. International operators have already voted with their feet and taken their business elsewhere.

Now it’s a Canadian company, Cenovus, that is stumbling, despite its CEO’s belief it could do well for itself in a carbon-restricted world.

Financial Post




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