EEDC Oilsands Event Recap

This morning, I joined 650 other interested and engaged people at the Shaw Conference Center for the Edmonton Economic Development Corporation’s “Oil Sands: What’s Really Going On?” event.  As you can see from the speaker line-up, it was bound to be an interesting day.  I was lucky enough to attend as a guest of David Kane and EEDC, for which I am grateful. Click below for my recap, with a few links for your reading pleasure.

The day started off with a fantastic talk by Peter Tertzakian.  I am a big fan of Peter’s, and you will see both of his books among my energy must-reads, and his weekly energy column is a must-read as well.  Peter’s talk was based on this report, jointly produced by CAPP and ARC Financial, although the most compelling slides of his presentation for me were not from that document.  Peter showed three slides in a row – US vehicle miles traveled (flat-lined after ’05), US average vehicle size (getting smaller), and US oil consumption (down about 2 million bpd since ’08).  When that’s your only market, and you are sitting on a 2 trillion barrel oil resource, that should send off warning bells, sirens, etc. Peter followed this up by being the first of many speakers to make the case for access to West coast tidewater. The second-most interesting piece for me was Peter’s comment on Canada having a trade-deficit in oil.  That’s right. Given the Brent-WTI differentials, and the fact that some of our exports are in lower-value raw bitumen, Canada actually spends more money today on imported oil into Eastern ports than we receive for our Western exports.  This motivates asking whether there is a strategic advantage to Alberta in building more eastbound capacity in the same way as there is for going west?   I could write about Peter’s talk all day, but I won’t.  Short story – if you get the chance to hear Peter speak, you must attend.

Next up was a panel featuring CAPP’s Janet Annesley (pinch-hitting for Greg Stringham), John Rhind from Shell Canada Albian Sands, and Cal Watson, VP of Thermal Operations from Devon Energy.  I had a couple of take-aways from these presentations; some good and some bad.  My main thought is that I am still not convinced there is any merit in the oil and gas industry presenting itself like a charity that is just trying to help the world out by providing them with energy.  To me, that has all the sincerity of Gordon Ramsey saying he just does what he does because the world needs food. While this was a common theme in many of the presentations, I will borrow a great quote from Janet Annesley’s talk that said, “people won’t believe the science if they don’t trust the people,” to illustrate my point. I firmly believe, although perhaps my marketing colleagues will correct me, that trying to build trust is not advanced by false pretenses. Canadian oil and gas companies are (rightly) in the business to create value for their shareholders, and they hire employees, buy leases, pay royalties, and sell energy commodities in order to do that.  They are not charities creating jobs, contributing taxes, bonus bids, and royalties, and providing energy. In my opinion, people know and expect this, and will be fine with it as long as companies do it right. Try to tell them otherwise, and you are starting the conversation off badly.

Enough with that rant.  The best part of that panel for me, and seemingly for many on Twitter, was Cal Weston pitching Devon as a small energy company with a couple of leases in the oilsands…and then putting it all into context by pointing out that Devon’s enterprise value is larger than Nike’s and equivalent to Facebook’s.  This was a recurring theme through the day – speakers bringing home the size of the oilsands resource, and the magnitude of value-creation, investment, and economic activity with comparisons to other economic indicators with which people in the room would be familiar.  The comparison of oilsands’ value of goods sold as being twice that of the auto sector was compelling for some in the room – I was surprised it was only a factor of 2.

Next up was Minister Liepert, and his landlocked in bitumen address.  I was very interested to hear the Minister speak on this issue, as the media clips don’t tell the whole story.  I am very glad that the Minister sees the threat that a lack of access to markets poses for the value of our resource, but I can’t say that I agree with his approach to solving it.  As many speakers pointed out today, the gap in terms of overall environmental performance between Alberta oilsands crude and the marginal barrel which would otherwise be produced domestically or imported into the US is not that large. As far as Keystone XL goes, the bureaucrats at the State Department realize this, and the EPA comments which followed didn’t actually say much more than that.  We can and need to make the case for market access based on policies which ensure current and future environmental performance…as Peter Tertzakian pointed out, the ability to rely on growing oil demand in the US is gone and may not be coming back.

The next panel featured Ian MacGregor from Northwest Energy, talking about the Bitumen Royalty in Kind (BRIK) program and the agreement to process Crown bitumen.  Ian is an entertaining presenter, but there were some elements of his talk with which I couldn’t agree.  He suggested that Alberta was unique in the fact that we could make money on enhanced oil recovery while sequestering carbon.  Notwithstanding that Cenovus is doing just that in Weyburn Saskatchewan (we haven’t annexed them, have we?), many producers in Texas, Wyoming, and other locations across the US have been doing EOR profitably for years – in fact, they actually drill for CO2 in Wyoming.  This was also another case where I would have liked him to talk about his business like a businessperson. He spent a long time talking about how good a deal the Alberta government was getting on his project. Mr. McGregor strikes me as a smart person, but not as someone who is building a multi-billion upgrader for the social good.

Next up was Kent Cornelius from Enbridge.  I owe a great deal to Kent as he has spoken in my classes for 2 years in a row and his first visit to the U of A was the inspiration for starting a major energy projects course which I now teach.  Kent did a good job of introducing Enbridge, and detailing expansion plans including the controversial Northern Gateway Pipeline.  I would have liked to see a little more discussion of some of the issues facing the pipeline industry in terms of recent spills, since those in the audience not familiar with the industry would certainly have seen the headlines.  I don’t think there is a better case study in environmental crisis response than that of Enbridge’s response to the Line 6b spill in Michigan. The spill gives ammo to oilsands critics, and it would have been nice to hear the story of the response and the lessons learned.  I hope my students will get to hear about both first hand in the Fall.

The next panel was one of the more interesting ones for me because it focused on value-added. We hear a lot about value-added, but I admit that I saw it as kind of a buzz-word that meant whatever you wanted it to mean.  Justin Reimer, ADM at Alberta Finance and Enterprise  (who perhaps learned a small part of what he knows from me in an Alberta School of Business Executive Program class on Friday) and Dave Chapelle from Williams Energy in Canada were fascinating.  Justin already knows he will be invited to speak in my classes in the Fall, and Dave should take this as a warning to duck my phone calls if he doesn’t want to speak.  I really want (my students) to learn more about off-gas processing which sounds like a great business model, and exactly the type of energy investment I want my students to hear about.

Last, but not least, was Rick George from Suncor. I have had the pleasure of hearing Rick speak a few times and there is no question in my mind that he gets it. Suncor’s investment of $1 billion in tailings reduction (TRO), serious investments in renewable energy that go far beyond window dressing, and other progressive actions including support for carbon pricing have defined the path forward, and they continue to lead the pack along with a couple of other operators. I am happy that people not familiar with the oilsands were able to hear him speak on the challenges facing Canada, Alberta, and Suncor with respect to the social license to operate in the oilsands. As both Canada’s largest energy company, and one with an increasingly pure-play oilsands asset base, there is no one who can make that pitch more authoritatively. No other company has more skin in the game.

Well, that ran on longer than I thought.  Long story short, I am glad I attended and hope that you enjoyed the day if you attended as well.  If you didn’t, you missed a great day.

 

 

 

 

 

8 responses to “EEDC Oilsands Event Recap”

  1. Joel Wood

    So that is what happened to Dave Chapelle! He realized there was more money in Alberta than running a sketch comedy on the comedy network.

    sorry for the horrible joke, but I just couldn’t resist.

    Andrew, you raise a great point about how companies shouldn’t be trying to praise and sell themselves by pointing out the social good that occurs coincidentally from their self interested actions. Not to be too cliche, but a quote by Adam Smith is quite apt here: “By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it”. It seems ridiculous for a person or a company to act in self interest and then heap praise on themselves because of the social good that results coincidentally from their actions. This is almost, but not quite, the equivalent of “pulling a Homer” (http://en.wikipedia.org/wiki/Homer_Defined).

    Please correct me if I am wrong, but the employment, royalties, etc. should not even be considered as positive externalities (spillovers); just the employment income above the counterfactual and the efficiency gains from reducing other, more distorting taxes.

    Joel

  2. Graham Hicks

    Thanks for a thorough review of the EEDC oil sands conference and your observations, Andrew. We were happy to link to your coverage from the TEC Edmonton http://www.tecedmonton.com blog “TEC talk.” Graham Hicks

  3. Rundle

    Of course, what wasn’t on the days agenda was someone talking about the state of international carbon markets and how Alberta can mitigate OS GHG emissions cheaply through those mechanisms.

    Indeed, Alberta loves keeping that 200 pound Gorilla that will help them break out of the jail of negative international opinion, well, in jail.

    Poor Gorilla and poor OS Shareholders for having their fiduciaries choose high mitigation cost options over cheaper alternatives.

  4. Robert Bott

    Rundle’s comment above might refer to McKinsey’s carbon-abatement cost curve showing CCS to be among the most expensive options, while many others have lower cost or positive payback. The link can be found under “Carbon Economics” at
    http://www.mckinsey.com/en/Client_Service/Sustainability/Expertise.aspx

    Thanks for the excellent recap of the Edmonton symposium.

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