Read between EnCana’s lines by Ricardo Acuna, October 8, 2012, The Calgary Herald
In the weeks following the release of the recommendations of Alberta’s Royalty Review Panel, energy giant EnCana has been one of the loudest opponents of any moves that might increase the direct benefits Albertans receive from their natural resources — going as far as publicly threatening to cancel a billion dollars worth of investment if the panel’s recommendations are implemented.
The irony of these threats and the desire to see Albertans get less than full value for their oil and gas will not be lost on those who remember EnCana’s history. EnCana was born in 2002 out of a merger between energy giants PanCanadian and Alberta Energy Company (AEC). It is the history of AEC in particular which holds clear lessons for Albertans in light of EnCana’s recent threats.
The Alberta Energy Co. was set up in 1975 by the Lougheed government. The idea was that it would provide a way for average Albertans to invest in and benefit from Alberta’s natural resource wealth. By selling AEC shares to Albertans, the government insured that the direct benefits and profits generated by the company would stay within the province. By maintaining a controlling interest for itself, the Lougheed government made sure it would have an active presence in an oilpatch dominated by foreign multinationals. Like much of Lougheed’s energy policy, the creation of AEC was a strategic, insightful and visionary move. The company’s share value increased by leaps and bounds, was able to purchase equity in energy ventures throughout Alberta and Canada, and enabled Alberta to play a determining role in the development of its own oil and gas.
This strategy of local ownership and government equity participation has since been adopted by jurisdictions around the world. More than 80 per cent of the world’s oil is exclusively in the hands of national oil companies, and is off limits to private for-profit oil companies. Most of the remaining 20 per cent is extracted and processed in joint partnerships between national companies and private companies, or by equity purchase arrangements by the local government. This is even the case in Canada, where Newfoundland and Labrador Premier Danny Williams has recently signed an agreement with the multinationals developing the Hebron oilfield which would ensure the province a 4.9 per cent equity stake in the project.
Like much of Lougheed’s legacy, however, the benefits of AEC for Alberta were short-lived once Ralph Klein became premier. In an effort to make the government’s books look good for his first budget as premier, in 1993 the province sold its remaining 25 million shares in AEC at the bargain basement price of $19 a piece. No assessment was made of the true value of infrastructure, land leases and equipment (which had all been paid for by Albertans) controlled by AEC at the time. The extent of the giveaway became crystal clear as the share price more than doubled over the next five years.
By the time of the merger with PanCanadian, AEC shares were trading at close to $62 each–more than triple what Albertans received for them.
The fact that AEC’s successor, EnCana, is today doing everything in its power to minimize the benefits Albertans receive from their resources is a clear endorsement of the wisdom of Lougheed’s strategy.
There is nobody in Alberta’s energy sector today who is looking out for the well-being of Alberta or Albertans. Albertans have no direct participation in the industry, and the only benefit we derive are from the meagre royalties we charge for those resources. Moreover, people in countries such as Norway and China stand to benefit more directly from our own resources than we do, as their state-owned companies begin buying up equity in oilsands ventures.
Alberta needs a publicly owned energy company, not only to maximize the benefits we get from our oil and gas, but also to ensure we have a direct presence and say in an industry that is still almost entirely controlled by foreign multinationals. Had we kept our controlling interest in AEC, they would not be spending millions today to convince us that what we need to do is give away our oil and gas for next to nothing.
It is difficult to fathom how a company making record profits off of capital and infrastructure originally paid for by Albertans can think it is justified in issuing these kinds of threats. Thank you, EnCana, for so clearly articulating the benefits of a publicly owned energy sector.
EnCana in $1B royalties threat, EnCana Corp. has served notice that it will cut its capital investment in Alberta by $1 billion next year if the province raises oil and gas royalties as much as proposed by Toronto Star, September 28, 2007
EnCana Corp. (TSX: ECA) has served notice that it will cut its capital investment in Alberta by $1 billion next year if the province raises oil and gas royalties as much as proposed. This would be a reduction of 30 to 40 per cent of the $2.5 billion to $3 billion that North America’s largest natural gas producer says it has been planning for Alberta-based activity in 2008. “If adopted in full, the royalty changes will negatively impact EnCana’s future investments and operations in Alberta and will have a widespread impact on economic activity across the province,” the company said today in response to last week’s report from the Alberta royalty review panel. “Most of the reductions would be to EnCana’s natural gas activity in areas where the proposed royalty scheme makes those activities uneconomic or uncompetitive in its portfolio,” EnCana said. It would “reallocate capital to investments outside Alberta,” to other areas of Canada and the United States.
If the government adopts the panel’s “fair share” proposal for a 20 per cent increase in the province’s overall resource revenue take, “many of Alberta’s new and emerging resource plays will simply not be economically viable,” declared EnCana CEO Randy Eresman. [Where did Randy go?]
“These new plays would have formed the foundation for the future of Alberta’s natural gas production.” Warning that this would cause a continuing production decline, Eresman added: “We are open to changes to Alberta’s royalties – changes that reflect the economic realities of volatile commodity prices, higher costs and the appropriate risks and rewards of long-term capital investments.” But the proposed changes “will have immediate and long-term impacts on working Albertans,” EnCana cautioned, saying the investment cutback would ripple through the whole provincial economy. “We would greatly regret seeing these job opportunities evaporate.” It added that projects in British Columbia, Saskatchewan, Colorado, Wyoming and Texas “offer continued growth potential and strong returns for our shareholders.”