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Canada is poised to lose energy companies as the industry faces the “new normal” of lower and more volatile oil prices along with tougher climate and regulatory policies, billionaire investor Murray Edwards warned Friday.
The chairman of the nation’s largest heavy-oil producer, Canadian Natural Resources Ltd., likened the oil industry to a horse race in which western Canadian producers are struggling to compete with developers of light crude from U.S. shale. While cost cuts and innovation are allowing some oil-sands developers to stay in the game, parts of the Canadian industry will go by the wayside, Edwards said at a conference hosted by Bennett Jones LLP in the mountain community of Lake Louise, Alberta.
“We have a lot of wind blowing in our face right now, a lot of challenges before us,” Edwards told reporters after delivering remarks to a crowd of more than 300 at a ski resort hotel. “Only those that are going to be top in class on execution are going to be able to survive in that environment.”
Snow-covered peaks in the background at the conference offered an uplifting contrast to the pall cast over Calgary. Office buildings in the center of the nation’s oil patch are emptying with a persistent price slump that began in June 2014, which has led to 40,000 lost jobs across the Canadian industry and 100,000 cumulatively with the spillover to other industries, according to the latest figures Friday from the Canadian Association of Petroleum Producers. U.S. crude is down about 60 percent since its high last year, hovering just above $40 a barrel.
Oil companies in Alberta are facing higher levies, with a new climate policy this month including a rising carbon tax, and await the results of a policy review to finish later this year on the royalties the provincial government collects on their production. Some parts of the industry won’t outlive the new regime, said Peter Tertzakian, chief energy economist at ARC Financial Corp. and a member of the royalty review panel.
“I am confident that segments of the industry will remain competitive,” Tertzakian told reporters. In an earlier presentation, he outlined a “new world” facing oil companies since the Organization of Petroleum Exporting Countries last year decided to maintain output amid a supply glut, boosting competition, complicated by rising use of renewable energy that’s damping demand for crude. “We are in the mother of all market share battles.”
Canada is one of the most expensive places to extract crude, yet some of its largest energy companies publicly embraced the province’s new climate policy even if it means that only oil-sands projects with the lowest carbon footprint get developed in the future, Edwards said. Producers are seeking to “change the conversation,” he said, after years of environmental opposition that has held back the development of export pipelines, including Keystone XL to the U.S. and Northern Gateway to Canada’s Pacific Coast.
Edwards, who joined environmentalists on stage Nov. 22 to announce the policy, challenged the U.S. and other countries to tax the emissions from their oil and natural gas production to level the playing field.
“I hope that Canadians are taking a leadership role on this one and that others will start to follow,” Edwards said. “It’s going to lead to a more positive discussion, rather than the adversarial discussion we’ve had in the past.”