Lexpert Magazine

LEXPERT MAGAZINE | MARCH 2016 49 | ENERGY | berta, she says, "I don't see carbon leakage as possible. e world is changing and the world is going to put a price on carbon. So whether you have operations in North Da- kota or Saskatchewan, there's going to be a price on carbon. You are not going to be able to sit in Saskatchewan with your head in the sand, no pun intended, and say we won't go that route. ere will be a price imposed upon you." Alberta, she says, has finally responded to that shi. And Ontario, she adds, is proof a province can quickly switch its energy needs from one source to another. In 2009, Ontario's government passed its highly controversial Green Energy Act, de- signed to support and expand renewable energy development. "ere were a lot of skeptics about whether or not the pri- vate sector would, one, respond, and two, whether that response would be bankable," recalls Powell. "By bankable, I mean would they be able to get the huge amount of fi- nancing they needed from lenders to build out the wind and solar projects they were proposing to do?" Although this was happening in a capi- tal-constrained environment as the world plunged into the global financial crisis, "the investment community was willing to come in," says Powell. ough conced- ing there is still much criticism about how Ontario moved toward renewable energy, Powell says the province proved a massive shi is possible. In Alberta, she predicts, renewables are going to "mushroom" as the province replaces coal power. BRIGHT SPOTS Not every region of Canada's oil and gas industry is whimpering. In the Atlantic provinces' offshore industry, especially in Newfoundland, companies are striving to cut costs, but there have been few job losses due to low oil. Canada's east coast oil play has a number of features distinguishing it from its west- ern counterparts, says Alexander (Sandy) MacDonald, Managing Partner at Cox & Palmer in St. John's, Nfld. ere are no small independent and junior operators in the region at all. ere's less environmen- tal resistance to new projects, and, because tankers, not pipelines, are used to transport crude, no new and politically sensitive in- frastructure needs to be built to access more markets both inside and outside the US. Offshore development, like Alberta's oil sands, is extremely capital-intensive. De- velopment planning entails very long lead times. A conventional drilling program in western Canada can take 18 months from start to finish. An offshore development, excluding the exploration phase, can eas- ily take eight to 10 years. "So no one now is making investment decisions today based on current oil prices," says MacDonald. e majors – companies like BP, Statoil, Husky, Chevron and Exxon – which are develop- ing offshore projects off the east coast, "tend to discount the short-term fluctuations in price," explains MacDonald. Instead, they are basing their development and invest- ment decisions on oil price forecasts three or more years down the road. While oil companies are loath to dis- close the forecasts they're basing new de- velopment on, a successful sale of offshore leases in October by the Newfoundland government led to more than $1.2 billion in work commitments and increased opti- mism in the Atlantic sector. Meanwhile, the picture for liquid natu- ral gas (LNG) development in British Co- lumbia is less rosy. Just two years ago, BC Premier Christy Clark boasted that LNG development would create tens of thou- sands of jobs and lead to a $100-billion prosperity fund for the province's future. But that was when natural gas was fetch- ing a peak of US$18 per million British thermal units (MMBTU) in Asia, while it was worth just two or three dollars (US) in Canada. at spread made LNG devel- opment in Canada attractive. ere are now 20 BC LNG proposals awaiting final investment decisions in the province. But few, if any, are likely to go ahead. As oversupply has come from new de- velopment in countries such as Qatar and Australia, the price of LNG in Asia has fallen to the US$7 range. Forecasts for 2016‒2017 peg it at $4 to $5 MMBTU. By some expert estimates, the break-even point for BC LNG is $12 MMBTU. "You've got to think the risk bias is nega- tive rather than positive," for LNG devel- opment in BC, admits Johnston. "Pricing is so terrible, it will be very difficult for an executive team to push the button on ma- jor [LNG] commitments." Still, Johnston still sees BC LNG being developed in time. "I think eventually that supply comes on, the world needs it. Natu- ral gas is a big way of solving some of the carbon issues for people." His optimistic streak regarding the western Canadian industry surfaces again: He says there are still plenty of profession- ally managed energy investment dollars in private-equity firms and in the Canadian pension fund community looking for entry points to invest in Canadian oil and gas. And while the current crisis has shaken excellent talent out of jobs, many are re- organizing themselves into new start-ups and are looking to raise capital privately or publicly to acquire their own assets. ey might not get the money just now, says Johnston, "but it will come again." In the past two years, as oil and gas prices tanked, "some companies stayed crisp and frosty, but a lot didn't," remarks Johnston. "But this is an opportunity to refresh all of that and create an even stronger industry than we had before." Anthony Davis is a freelance business and investigative writer based in Calgary. DEREK FLAMAN TORYS LLP "IN A NUTSHELL, when commodity prices are low, well-capitalized [private equity] firms, as a general statement, like to take advantage of that environment and acquire quality assets."

• cover
• Masthead
• ProfessionalOpportunities
• People On The Move
• Big