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Brad Wall: If curtailment is where we are, improvements should be on the table


Canoe Financial is the proud presenting partner for Brad Wall’s Column

 

I could not stop looking at the photographs in his Calgary office.

Captured therein were some of the most important moments and players in the recent history of our confederation. Trudeau, Levesque, Davis, Blakeney and there too, my host, featured in iconic photos. Peter Lougheed, one of Canada’s great leaders if not its finest provincial Premier was so very generous to me as a rookie Saskatchewan Opposition leader, full of questions.

I sought his counsel and his input for our economic strategies that would serve as the foundation for our election platform and later for our government’s growth plan.

It was during our first meeting in that Bennett Jones office where he asked me the rhetorical question: ‘who owns the resources Brad?’ “The people own them,” I replied. “Remember that then as you develop your natural resource development policy” he added. He would ask me this same question on the occasion of our second similar visit and again when he accepted my request that he meet with our economic advisory shortly after we were honoured with our first majority.

When I called and asked him if he would come to Regina for such a session he asked me a different question. “Can you afford my fee?” “I don’t know Premier, I’m a little thrifty – some even say cheap” I replied. “How much?’

“A plane ticket and a steak sandwich.” I was picturing the twinkle in his eye.

He asked me that same rhetorical question one last time when I called him shortly after the news of the attempted takeover by BHP of Potash Corp was made public. And I gave the same answer: “the people own the resource, Premier.”  To which he tendered, “act like it then, and Saskatchewan will be just fine.”

It would seem that Lougheed’s rhetorical question may have some utility today as we consider the curtailment issue. Implied in his question is the very basic “are the people getting the best possible rent for this resource” and also “what are the long term implications for the owners of the resource of any related policy decision.

In the consideration of that simple question there is a demand to think more strategically and long term. There is a demand for responsible stewardship.

When a last resort policy like curtailment has been chosen it should come with constant evaluation, measure and review with that simple rhetorical question in mind.

Given the fiercely independent nature of Canada’s energy sector it should not surprise that facing an historic crisis precipitated by stubborn and yawning differentials, a sizeable consensus of sector leaders formed around the notion of production curtailment. It is truly hard to conceive of any other sector of our Canadian economy calling for such a measure rather than..say..a good old fashion Canadian bail out. We don’t need to name specific company examples here but think Seadoos and Silverados.

Desperate times and the measures for which they call help to explain how Premier Rachel Notley, in response to many industry leaders and no less significantly Opposition Leader Jason Kenney, came to this difficult decision. Effective early this month, the 325,000 bpd cut in production that may actually be closer to 360,000 bpd according to a Peters & Co estimate, came into effect

There is no denying how serious the matter is. The rest of the country, even as they become increasingly aware of the gravity of the differential situation are still, in the main, unaware of negative net-backs. The spectre of oil producers paying to have their oil hauled away when things were at their worst late last fall is not widely known.

Something needed to be done. The prompt reduction in the differential would seem to commend the decision in hindsight – at least on the surface. Given the genesis of the policy and the wide support from industry it is likely to be a fact for at least the notional timeline that was alluded to when the Premier announced it or until some unforeseen externality expedites its end.

But what of Lougheed’s question? Would it demand of curtailment policy – on-going vigilance?

Curtailment is the bluntest of instruments. It is my experience in those public policy circumstances that sometimes the blunt instruments, even when hesitantly wielded with care need be constantly re-evaluated, and probed and measured as to results both intended and inadvertent. Adjustments to the policy to mitigate damage that a blunt force can cause and negative signals it can send should always be on the table.

While they may be in the minority it is hard to ignore the case made by companies who have made the kinds of long term infrastructure and downstream investments in our country whose effect is salutary in these extraordinary circumstances.

Could there be some recognition of those barrels that were being accommodated by these large investments but removing them from the curtailment? And if that would leave too much to bear for companies without such barrels could government set a cap on the quantum of these exempted barrels that could qualify for the accommodation?

There is, too, the question of 10,000 barrel production exemption per operator. Would it not be fair to permit operators whose assets or projects are distinct from one another to be all treated fairly?

What of the potentiality that declining rail capacity as it shifts away from lower producing Alberta will result in higher inventory levels than government anticipates, undermining the understandable intent to pull inventories down?

Could the provincial government accommodate a transparent way for production above the quotas to be moved by rail so this unintended consequence can be addressed? Could incentivizing robust rail growth in the midst of the narrowing differential help address the surplus issues while delivering higher royalties?

The case for curtailment was well proffered by many industry leaders. So too have been the questions and concerns from large integrated companies. They compellingly point out that they are being penalized for having made the very investments in downstream and transportation infrastructure that Canadian politicians exhorted them to make just like yours truly used to do.

Those exhortations were made with Lougheed’s question in mind. Remembering who own’s the resource demands that sort of long term thinking and vigilance whose objective is to foster not only a healthy investment and operating climate for production but surely for downstream and transportation infrastructure investments too.

Looking back, there were few investments that paid off as well as Mr. Lougheeds steak-sandwich retainer. As with all great counsel though it’s only as good as it is well heeded.

Brad Wall served as the 14th Premier of Saskatchewan from 2007 to 2018 and is currently a special advisor to Osler, Hoskin & Harcourt LLP.



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