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CEO Mary Moran of Calgary Economic Development

Western separatism, pipeline delays weigh on corporate mood at Alberta forum

Ongoing environmental criticism, delays in building oil pipelines and a surge of separatist sentiment following the last federal election are hurting Alberta’s reputation, presenters at a business forum in the Alberta mountain resort town of Lake Louise said Friday.

CEO Mary Moran of Calgary Economic Development

CEO Mary Moran of Calgary Economic Development

The rise of the western Canadian separation movement or “Wexit” cost Calgary an opportunity to attract a major technology head office, said CEO Mary Moran of Calgary Economic Development during a speech at the event.

“We as an organization just lost a 1,000-person company that didn’t come to Calgary, selected another city, because they’re concerned about Wexit,” she said. “So we need to tell a unified story about Calgary.”

The city was high on the unnamed firm’s shortlist of potential hosts until alarms were raised over Wexit, she said in an interview after the speech.

The company was also unhappy about the removal of some tech-friendly tax incentives in the United Conservative government’s recent provincial budget, she said.

The Canadian digital company can’t be identified because it has not yet announced the community that made the winning bid to host its new headquarters, said Moran.

Premier Jason Kenney, who also spoke at the event, said the only concern he’s hearing in meetings with investors in Houston and on Wall Street is about Canada’s inability to build pipelines to transport oil and gas to market.

“The main concern that I hear is about the lack of pipelines and market access for our energy that is the result of the foreign-funded campaign to landlock Alberta energy,” he told reporters.

“Our single greatest strategic interest is to get pipelines built and that will not happen unless we push back.”

Kenney’s government is “doing exactly what Albertans hired us to do,” he said, by launching a “fair deal” panel to look at establishing a provincial revenue agency, withdrawing from the Canada Pension Plan and replacing the RCMP with a provincial police force.

Many Alberta CEOs in agriculture, energy, finance and transportation sectors agree Alberta’s image now is that of a province with a struggling economy, a declining and outdated industry, a lack of innovation and a fascination with separation, said Adam Legge, president of the recently formed Business Council of Alberta.

Those negative impressions are inaccurate, but they are having an effect, he said.

“(The CEOs) all say one thing. It is hard to attract people to Alberta because of its image. Our brand has taken a hit,” he said in a speech.

Albertans need to avoid the temptation to “wallow in uncertainty,” said Ed Sims, CEO of WestJet Airlines Ltd., in a speech that touched on the Calgary-based airline’s problems with competition, the grounding of the Boeing 737 Max planes and passenger rights legislation.

“The more we talk about uncertainty, the more we talk about tough times, the more we manifest that reality and it becomes our new reality,” he said.

 


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B.C. First Nations drop out of court challenge, sign deals with Trans Mountain 

Shutterstock

Shutterstock

Two First Nations in British Columbia’s Interior that had been part of a court challenge against the Trans Mountain pipeline expansion have reversed course and signed deals with the Crown corporation.

The Upper Nicola Band and Stk’emlupsemc te Secwepemc dropped out of the Federal Court of Appeal litigation, leaving four B.C. First Nations to fight the case.

The Upper Nicola says in a joint news release with Trans Mountain on Friday that its deal represents a “significant step forward” toward addressing environmental, archaeological and cultural heritage concerns.

It says the agreement provides resources to support its active involvement in emergency response and monitoring while also helping avoid and mitigate impacts on the band’s interests and stewardship areas.

A news release from Stk’emlupsemc te Secwepemc says its leadership came together and determined an agreement could be a tool used as part of a larger strategy to protect its cultural, spiritual and historical connections to the land.

Trans Mountain spokeswoman Ali Hounsell says the two bands dropped out of the court challenge last week after continued discussions with the corporation.

“The conversations we had, understanding what their concerns were, seeing where we could address them, ultimately led to their decision to withdraw their participation in the Federal Court of Appeal,” she says in an interview.

Upper Nicola Chief Harvey McLeod says in the news release the band’s negotiating team came up with the “best deal” possible under the circumstances.

“The bottom line is that the consultation process needs to change,” he says. “We still have a number of significant issues that must be addressed directly with Canada.”

The band continues to hold Canada to a consent-based approach consistent with the United Nations Declaration on the Rights of Indigenous Peoples, he adds.

The four remaining Indigenous groups involved in the court challenge against Trans Mountain are the Tsleil-Waututh and Squamish Nations in Metro Vancouver, the Coldwater Indian Band in Merritt and a coalition of small First Nations in the Fraser Valley.

The court has ruled that upcoming arguments can only focus on whether the latest round of Indigenous consultation was adequate.

Last week, the Tsleil-Waututh and three environmental groups sought leave to appeal that ruling in the Supreme Court of Canada, claiming the Federal Court was wrong to refuse to hear arguments about the risk of an oil spill or threats to endangered southern killer whales.


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Trans Mountain received $320M in government subsidies in first half 2019: report

Unknown-2The Trans Mountain pipeline received $320 million in subsidies from the Canadian and Alberta governments in the first half of 2019, says a new report by an economic institute that analyzes environmental issues.

The money included $135.8 million in direct subsidies and $183.8 million in indirect subsidies that were not clearly disclosed to taxpayers, says the report by the Institute for Energy Economics and Financial Analysis.

Unknown-3“This is a very large subsidy. It really does require more public discussion and public disclosure,” says Tom Sanzillo, the group’s director of finance.

Sanzillo and the report’s co-author, institute financial analyst Kathy Hipple, analyzed the second-quarter report of the Canada Development Investment Corp., a Crown corporation meant to further the country’s economic development that counts Trans Mountain Corp. among its subsidiaries.

The document is public but presents a consolidated picture of the development corporation’s finances, including revenues from the Canada Hibernia Holding Corp., which operates the Crown’s interest in oil reserves off Newfoundland and Labrador.

This accounting treatment obscures the real financial state of Trans Mountain, Sanzillo says.

“It’s a good form of accounting. I’m not criticizing it. It just shouldn’t be the only mechanism for showing the public how much money is being spent on this,” he says.

The Canadian government gave the development corporation just over $5 billion to finance the acquisition of Trans Mountain, the report says. Trans Mountain Corp. must make regular interest payments to the Canadian government at a rate of 4.7%.

The cash was provided to Trans Mountain in two sections: a $2.8 billion loan and a $2.3 billion equity investment. The interest on the loan must be paid from the pipeline’s business activity, while the interest on the equity investment can be paid from a third-party subsidy, the report says.

The Canada Hibernia Holding Corp. covered the interest on the equity investment for the first half of 2019, representing a direct subsidy of $46.3 million, the report says.

Trans Mountain posted a $10.9 million loss in this reporting period prior to taxes, the report says.

However, the loss is subsidized in the consolidated financial report by the Hibernia corporation’s earnings, amounting to another $10.9-million direct subsidy, the report says.

Sanzillo also says the development corporation uses an “accounting gimmick” to obscure Trans Mountain’s pension liability of $24.4 million. This is one more direct subsidy, he says.

Finally, the Alberta government reduced corporate taxes through a tax credit starting in January 2019. This policy action allowed TransMountain to save $54.1 million in taxes, yet another direct subsidy that the development corporation uses to turn the corporation’s pre-tax loss into a post-tax gain, according to the report.

Sanzillo also identifies what he calls an indirect subsidy; the difference between the interest a private company would have charged TransMountain versus the rate charged by the Canadian government.

Canada’s 4.7% interest rate stands in contrast with the 12 to 15% rate of return used by its former owner, Kinder Morgan, the report says.

Sanzillo used the lower figure, 12%, to calculate that a private company would have charged Trans Mountain $302.1 million in interest in the first half of 2019. The Canadian government, meanwhile, charged it $118.3 million.

That amounts to an indirect subsidy of $183.8 million for the first six months of the year, according to the report.

The report authors acknowledge that the Canadian government does not have to adhere to commercial standards.

“(The report) is about transparency and not meant to be a legal challenge to the right of the Canadian government to subsidize the pipeline project. It is a matter of dollars at risk that the Canadian taxpayer might absorb,” it says.

When the authors added the $46.3-million interest payment and the $24.4-million pension expense back to Trans Mountain’s financials, they concluded the pipeline corporation had a $67.1-million pre-tax loss and a $12.9 million loss after taxes.

The Canadian government plans to ultimately sell the pipeline. If it does so for a lower price than it paid for the infrastructure, it can legally forgive any debt that is left over, Sanzillo adds.

The Canadian Press was unable to reach out to the Department of Finance and Trans Mountain Corp. for reaction until the group’s report was published Tuesday morning.


No pipeline fireworks as Western premiers emerge from annual meeting in Edmonton

There were smiles, handshakes and even a joke or two as Canada’s western premiers emerged from their day-long meeting in Edmonton last Thursday.

There has been friction between the leaders of late over British Columbia’s opposition to the Trans Mountain pipeline expansion, which would carry more Alberta oil to the West Coast.

Both B.C. Premier John Horgan and Alberta Premier Jason Kenney said their positions on the project didn’t change following the talks.

Thursday was the first time the two leaders met face to face and the meeting came a week after the federal government approved the controversial project for a second time.

But there were no fireworks at the closing news conference like at last year’s meeting, when the pipeline issue led then-Alberta premier Rachel Notley to opt out of signing a final statement for reporters.

Instead, the premiers found common ground on issues such as trade corridors and recognizing professional credentials from province to province.

“We spent a lot of time working together on a statement that finds common ground,” Kenney said. “It frankly meant that we didn’t all get what we would like. Premier Horgan wasn’t going to agree to endorse the TMX expansion, for example.

“So, obviously there were some differences.”

Kenney restated that Alberta is prepared to use provincial legislation to limit oil and gas exports to any province he sees as standing in the way of pipelines – a so-called turn-off-the-taps law.

Horgan said his government will push ahead with a legal challenge of that law, as well as a reference to the Supreme Court on whether the federal government had the constitutional jurisdiction to approve the pipeline expansion.

But there were few jabs thrown.

Horgan even made a joke about being the lone New Democrat at the table with Kenney, Saskatchewan’s Scott Moe and Manitoba’s Brian Pallister, all leaders of conservative governments.

“I wore a blue suit so I could blend in,” he said as Kenney laughed.

Pallister went into the meeting hoping his western counterparts would unite against Quebec’s law banning civil servants from wearing religious symbols, but the item did not make it on the formal agenda of the meeting.

Pallister said he wouldn’t give up the fight.

“Manitoba remains very concerned about anything that interferes with our ability to celebrate as a country the diversity that’s a reality here,” he said.

“I’m a farm boy and I don’t like erosion. And I certainly am always concerned about the erosion of rights in our country. So I’ll continue to have that view and I’ll continue to express it.”

 


Regulator seeks opinions on Trans Mountain pipeline process resumption

The National Energy Board has issued a certificate for the Trans Mountain pipeline expansion after it was approved by Ottawa last week, but is seeking input from affected parties and the public on its resumption of regulatory processes.

The federal regulator says it will accept public comments online or via fax or mail until July 5, and has set a deadline for initial company comment of next Friday, with reply comments due on July 9.

It is proposing to continue processes that were underway and to rely on decisions and orders issued before the Federal Court of Appeal struck down federal approval of the project last August, “unless relevant circumstances have materially changed.”

Ian Anderson, CEO of the Crown corporation building the Trans Mountain pipeline expansion, said shovels could be in the ground by September and oil could be flowing in new segments of the pipeline between Edmonton and the West Coast by mid-2022.

But that timeline depends on the NEB being able to reinstate the record from the previous regulatory proceedings so that the project can be brought back to the same state of construction readiness as last summer, he said, a process he expected to take some weeks.

The NEB says it wants to provide clarity on next steps for the project as efficiently as possible.

“Following the comment period, the NEB will decide how the regulatory processes will resume. Until that decision is made, Trans Mountain cannot rely on previously issued decisions and orders to start or resume project construction,” it said in a statement.


Business leaders welcome pipeline approval but fear it may not be completed

Ottawa’s approval of the Trans Mountain pipeline expansion pleased business leaders, but they say they will hold off on popping champagne corks until construction begins on new pipe from Edmonton to the West Coast.

“It was essential to show the world that our country can get major infrastructure projects approved,” said CEO Tim McMillan of the Canadian Association of Petroleum Producers at an afternoon news conference.

“It is now essential we show the world we can get them built.”

The approval of a project that will add about 600,000 barrels per day of potential oil export capacity is a rare bit of good news for the sector, said Jack Mintz, tax policy and economics expert at the University of Calgary’s School of Public Policy, in an interview.

But while it would help clear a glut of oil in Alberta that has depressed local oil prices, it doesn’t create any room for growth, nor is it likely to encourage financial markets to invest in Canadian oil and gas.

“I think the champagne corks will come out if there’s a feeling there won’t be legal challenges that can stop the pipeline from being built,” he said. “There still is some concern about whether it will actually go ahead.”

In his announcement on June 18, Prime Minister Justin Trudeau said work on the project that was interrupted last summer by a federal court ruling is expected to be restarted during the current construction season.

Numerous industry representatives vowed to hold the government to that timeline, with many expressing doubt that the oft-delayed pipeline first proposed in 2013 can get back on track so quickly.

“It’s too early to celebrate this decision. I will be more optimistic after construction commences and is completed on TMX,” said Gary Mar, CEO of the Petroleum Services Association of Canada, in an interview.

Mark Little, CEO of Suncor Energy Inc, and Tim McKay, president of Canadian Natural Resources Ltd., Canada’s two biggest oil producers, both called on the government to make sure construction starts as soon as possible.

“It is important that construction restart immediately to create and maintain jobs and also ensure that Canada receives full value for its resources,” said McKay in a statement.

The federal government’s promise to ask Indigenous groups affected by the pipeline about selling a stake to First Nation investors won kudos from Little and Chris Bloomer, CEO of the Canadian Energy Pipeline Association, as well as one of the potential bidders.

“Right now, we’re excited. We’re happy with the response,” said Chief Tony Alexis of the Alexis Nakota Sioux Nation near Edmonton, a leader of the Iron Coalition hoping to organize a coalition of Alberta Metis and First Nations to bid for an equity stake in the pipeline.

The Trans Mountain announcement failed to impress Mark Scholz, CEO of the Canadian Association of Oilwell Drilling Contractors, who said in a statement the pipeline approval is “trivial” and will do little to help a suffering western Canadian drilling sector.

Approval doesn’t make up for the federal government’s pursuit of Bills C-69 and C-48, bills reviled by the industry to revamp the regulatory system for resource projects and impose an oil tanker ban on the B.C. coast, he said.

“This industry is on life support. Today’s announcement does little to provide future certainty to drilling and service rig contractors as they continue to exit the Canadian market at an alarming rate.”

 


Alberta oil cuts, close the taps bill are unwelcome interventions: Suncor CEO

Incoming Suncor president and CEO Mark Little addresses shareholders. Photo: Jeff McIntosh Canadian Press

Incoming Suncor president and CEO Mark Little addresses shareholders. Photo: Jeff McIntosh 

 

The new CEO of Suncor Energy Inc. says he doesn’t want the Alberta government to carry through on its threat to cut off shipments of oil and refined products to B.C. if its western neighbour continues to interfere with pipeline growth.

Following the company’s annual meeting in Calgary on May 2, Mark Little said any such action resulting from the proclamation of Bill 12 by the new United Conservative government this week would create a barrier between Suncor’s refinery assets in the Edmonton area and its customers in British Columbia.

He said Suncor is using the Trans Mountain pipeline to the West Coast now to bring gasoline and diesel to the B.C. market and it supports pipeline expansion so that it can grow that market.

“We’re hoping that through the government’s negotiations this can get sorted out, because the last thing we want to do is have an impediment in serving our customers,” he said.

He added he views the Alberta bill as “a fairly significant intervention into a market to try to resolve a dispute.”

Earlier in the day, Little told analysts on a conference call that Suncor remains opposed to another Alberta market intervention, its oil production curtailments, in spite of their “slightly positive” impact on first-quarter financial results.

The results show the value of Suncor’s integrated business model and extensive pipeline contracts at a time of turmoil in the industry, he said.

“In the fourth quarter of 2018, there were low benchmark prices with wide heavy and light crude oil differentials. Whereas, in the first quarter of 2019, there were higher benchmark prices and narrow differentials,” Little said.

“Both quarters, we were able to generate significant funds from operations.”

Little officially took over as chief executive from Steve Williams at the annual meeting in downtown Calgary. Williams was given a standing ovation by shareholders after a speech about the company’s accomplishments during his seven years as CEO.

Alberta’s decision to impose quotas on its biggest oil producers was designed to free up pipeline space and draw down crude storage after price discounts on western Canadian oil spiked last autumn.

The move is supported by oilsands producers like Cenovus Energy Inc., whose CEO pointed out last week the resulting higher prices have helped boost royalties to Alberta’s treasury.

But it’s opposed by rivals such as Imperial Oil Ltd. and Husky Energy Inc. who note that crude-by-rail exports plunged to 131,000 barrels per day in February from an all-time high of 354,000 bpd in December _ which means oil export capacity was actually reduced.

Both points are accurate, said Little, but he added the confusion means Suncor and others are reluctant to spend money on new projects.

The UCP government has supported curtailments brought in by the NDP and favours gradually reducing the cuts over the coming year.

Suncor said its quota strategy involved maximizing highly profitable upgraded synthetic crude oil volumes, while throttling back lower-margin mined raw bitumen, a move that has temporarily increased its operating costs per barrel.

The company said average realized bitumen prices jumped to $62.92 per barrel at Fort Hills in the first quarter, up from $30.57 in the fourth quarter of 2018, as oil price discounts eased.

The Calgary-based oilsands producer and refining giant reported net income for the first three months of the year that beat analyst expectations thanks to higher oil prices, record downstream results, growing oilsands production and a $264-million after-tax insurance gain on its assets in Libya.

Net earnings were $1.47 billion or 93 cents per share in the quarter, up from $789 million or 48 cents in the same period of 2018.

Its operating profit came to $1.2 billion, compared with $985 million in the first quarter of 2018.

It had total oilsands production of 657,000 barrels per day in the first quarter, compared with 572,000 bpd a year earlier, thanks to gains at the expanded Fort Hills oilsands mine and higher contributions from the Syncrude mine and upgrader, in which it has a 58.7 per cent stake.

The company says refining and marketing delivered record operating earnings of $1 billion, up from $789 million in the first quarter of 2018.

Suncor said production from its East Coast offshore Hebron project increased to 18,300 bpd (net to Suncor) and is continuing to grow following the completion of a fifth production well in the first quarter.

It said first oil was achieved ahead of schedule in the quarter at the Oda project offshore Norway, in which it has a 30 per cent stake.