Lacey: Crisis mode – It’s time to get ‘er done

Yesterday was an interesting day in that both the NDP and the UCP came out with speaking points as it relates to the current differential crisis in Alberta. Premier Notley announced that Alberta will buy rail cars to move oil, albeit the effect won’t be until a year from now, and Jason Kenney came out and saying that the government needs to implement a temporary, mandatory production curtailment in response to the current differential environment. There has been a mixed response to the various comments, to which I say the following.

The issue is the here and now, and the consequences are significant. Though I am supportive of having longer term solutions to the egress issues that we are currently experiencing, the problem is being felt now and the damages are mounting. With no real fix in place, and assuming the differentials stay where they are, Peters & Co. estimates that the government of Alberta could see a $5 billion reduction in royalty revenues over the next year, just as it pertains to the oil sands, let alone from conventional production, reduced tax revenue, lower employment and reduced general spending in the economy. To put it another way, from what I understand, the Alberta government revenue calculation is roughly $50 billion, and we are running a deficit of approximately $10 billion. Assuming at a minimum the revenue picture declines by $5 billion, it would imply we are likely running a deficit in excess of 25% – this is madness and is not sustainable.

I am no fan of government interference in markets. But the challenge is that you have a bifurcated market where you have one group of integrated producers who say “too bad, so sad – maybe you should have invested in an integrated business model,” and on the other side you have the non-integrated producers. It is important to remember that a significant portion of the employment in this basin is directly related to small and mid-cap producers and the activity they generate, and a material amount of innovation comes from this sector. Furthermore, midstream (export pipelines) – downstream access is often limited to those with material credit availability. I take exception to the integrated argument when that same producer is effectively paying no royalties on an asset that they lease, but which is owned by the citizens of this province. Moreover, the windfall profits that are garnered from the downstream side of the business do not translate back into windfall revenues for the province – much of that actually leaves this country. This is a net-loss proposition.

Though there are likely other solutions to rectify this market over the near and longer term, and need to be heard, it’s time for action now. It is time for government to rectify a situation that should never have been here in the first place, as producers contracted with pipeline companies to build capacity and then went back to their business of building supply. Government obstructionism ultimately resulted in the place we are today. Finally, for those of you that read this far – thank you. Please continue to be vocal, show up at events, forward the presentation by Chris Slubicki and have conversations with friends, neighbours and anyone else who will listen. This industry is the backbone for the many things we love in this country, and we need to speak up to make sure it stays that way.