Canadian Oil Companies Have Reasons to Love a Liberal Government

  • Liberal leader seen resetting oil-sands pipeline dialogue
  • Energy investors avoid left-leaning New Democratic Party

The Canadian energy industry’s second choice for prime minister is looking like the safest bet to revive its appeal to investors.

While Liberal Justin Trudeau is supportive of environmental policies some energy producers may not like, his Monday victory puts into power a moderate government that stands between Conservatives who haven’t been able to advance key parts of the industry’s agenda and a more left-leaning party that’s seen as a strident foe.

Trudeau is pledging to support new pipelines, help open markets for Canada’s oil and lure investment into the industry, while attempting to appease oil-sands opponents with more stringent curbs on pollution. His approach contrasts with the touting of projects by Stephen Harper, the outgoing leader whose repeated calls for approval of Keystone XL strained relations with U.S. President Barack Obama.

“Trudeau has said nothing but positive things about Alberta’s energy industry,” said Stephen Carter, a Calgary-based non-partisan political strategist who helped elect the city’s mayor and Alberta’s former premier. “There’s the saying that only Nixon can go to China. Well, maybe only a Liberal government can get Alberta bitumen to China.”

Investor Concerns

The Liberal campaign got investors jittery about proposals to raise taxes on the highest income earners, run budget deficits to stimulate the economy with more spending and limit greenhouse-gas emissions. But one of the biggest concerns was that Trudeau would only win a minority of seats in Parliament and would have to negotiate legislation with the pro-labor New Democratic Party of Tom Mulcair. A landslide win that gave him a clear majority is allaying those fears.

Trudeau has also sought to make amends with Alberta’s oil-sands industry for interventionist policies and higher taxes on energy producers introduced in 1980 by his father, Pierre Trudeau. He’s open to three of four big pipeline projects, including Keystone, and has criticized Harper for not appreciating “the only way to get energy projects built now is to understand you cannot separate environment and energy.”

Harper’s Legacy

Stephen Harper’s streamlining of regulations and energy industry advocacy won him favor with oil executives and investors, but it also helped stoke oil-sands opposition, and he didn’t succeed in getting Keystone XL built under his decade of rule. In 2012, he banned future acquisitions of oil-sands businesses by state-owned companies, eliminating a group of buyers for Canadian upstarts, barring exceptional circumstances.

His changes to project reviews weakened protections for freshwater and fish, raising the ire of environmental groups. He also removed tax breaks for producers structured as income trusts in October 2006, resulting in the so-called Halloween Massacre that saw their valuations plummet.

Mulcair, who started off leading the polls, stirred concern that he would impose stricter climate policies than the other two candidates and block pipelines, discouraging investment.

For Trudeau, Harper saying he wouldn’t “take no for an answer” from Obama did more to harm than help the Keystone XL pipeline cause. Instead, he’s proposing Canada’s relationship with the U.S. be “broader” than Keystone.

“One of the things that has been a challenge within the relationship between Canada and the U.S. is it has in many cases been focused on a single point of disagreement, a single pipeline,” Trudeau said Tuesday, citing a phone conversation with Obama.

‘Same Priorities’

The industry is prepared to work with any government, Tim McMillan, president and chief executive officer of the Canadian Association of Petroleum Producers, said in a phone interview.

“Our priorities are largely the same: market access and ensuring that we’re competitive and attracting investments,” McMillan said.

As energy producers endure an oil price slump, fund managers have been particularly wary of Canadian investments. That’s because of reviews under way on climate policy and levies started by the left-of-center provincial government that took power in May in Alberta, home to the oil sands.

Oil is now worth less than half its peak value in June of last year. Futures rose 1.5 percent to $45.87 a barrel on the New York Mercantile Exchange at 12:27 p.m. London time Thursday.

Trudeau’s general support of the industry should inspire optimism, according to Tim Pickering, chief investment officer of Auspice Capital Advisors Ltd. in Calgary.

Climate Impact

Harper’s inaction on promised new emissions regulations also attracted international criticism for the climate impact of the oil sands. Energy leaders including Suncor Energy Inc. Chief Executive Officer Steve Williams are calling for new carbon rules to help reduce uncertainty for investors.

Trudeau has a chance to reset the dialogue, said Jamie Bonham, manager of extractives research and engagement at NEI Investments in Vancouver, which oversees C$6 billion ($4.6 billion).

“His words are suggesting that he’ll take the time to talk to industry and provide policy certainty and give Canada credibility within and outside our borders,” Bonham said. “That’s the kind of thing the previous government was allergic to.”

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