If it’s a war Kevin O’Leary wants, it’s a (facts and data) war he shall get

Kevin O'Leary
Kevin O’Leary, reality TV star, oil business neophyte.

Alberta oil patch busy doing huge deals, attracting international capital, expanding production

So, Kevin O’Leary wants to “go to war” with Premier Rachel Notley over the Alberta carbon tax because he thinks it scares away capital. Fortunately, the boastful TV capitalist’s claim can be tested.

Alberta Premier Rachel Notley. Photo: Nicholas Godin.

The same day that O’Leary was headlining a town hall meeting in Calgary organized by the Alberta Prosperity Fund, a conservative political action committee, one of the largest oil sands transactions in recent memory was announced.

Canadian Natural Resources Ltd., which is led by Canadian billionaire Murray Edwards, paid a total of $12.74 billion for oil sands assets of Shell Canada and Marathon Oil. Read the North American Energy News stories on these transactions here and here.

The sale was financed with $5.4 billion in cash, around 98 million Canadian Natural shares currently valued at $3.1 billion, and “fully committed acquisition financing of $9 billion” ($3 billion term loan, up to $6 billion in bridge facility to bonds in US and Canadian debt capital markets) provided by JP Morgan Chase, TD Securities, and the Bank of Nova Scotia, according to the CNRL press release.

CNRL CEO Murray Edwards at the podium, flanked on his right by Premier Rachel Notley.

“It is a rare opportunity to be able to acquire a World Class Oil Sands mining and upgrading asset like the “Athabasca Oil Sands Project,” said Corey Bieber, CNRL’s CFO.

“Unlike a greenfield development, there is no execution and construction risk or delays – this transaction is immediately cash flow and earnings accretive to Canadian Natural shareholders.”

The CNRL purchase flies in the face of O’Leary’s overheated bluster: “It’s going to be nasty. I have to get her [Notley] back off this carbon tax because we just can’t attract capital … I’ll go to war with her, trust me.”

The Shark Tank reality star needs better handlers. When a major financial deal goes down hours before his speech that essentially negates his argument, he shouldn’t ignore it.

Or maybe in this post-truth, alternative facts, fake news universe O’Leary – like his idol south of the border, Donald Trump – doesn’t feel the need to be constrained by data.

Let’s take a look at some other data he conveniently ignores.

Trevor Tombe, economics professor, University of Calgary.

According to Trevor Tombe, an economist and assistant professor at the University of Calgary, the global decline in oil and gas investment after the price rout that started in 2014 was about 35 per cent, but 50 per cent in Alberta, largely because production costs are higher.

“I’d say it’s not at all obvious that policy uncertainty is driving the reduction in oil and gas investment,” he said in an interview. “It’s more than likely, the bulk of it, due to the drop in oil prices.”

Statscan data shows that Alberta oil and gas investment peaked at $58.065 billion in 2014, just as Saudi Arabia abandoned its role as swing producer, maintained output, and allowed prices to drop to below $30/b.

Now that prices are recovering and hovering between $50 and $55, Kevin Birn of IHS Markit doesn’t expect oil sands capital expenditures to increase. They were $24.699 billion in 2016 and Statscan forecasts $25.282 billion this year.

Alberta oil and gas extraction capital expenditures 2006 to 2017. Source: Statistics Canada.

“We expect oil sands producers to focus future investments in the coming years onto their most economic projects—which we expect to be expansions of existing facilities,” he said.

“Expansions of existing facilities are better understood, quicker to first oil, and lower cost to construct. It is less risk at a lower cost.”

This supposedly more conservative approach will still add 1.5 million b/d of bitumen production from the Alberta oil sands by 2030, a 28 per cent increase over 15 years, according to the 2016 annual oil forecast from the Canadian Assoc. of Petroleum Producers.

Let’s recap the facts for Mr. O’Leary:

  • He claims the Alberta carbon tax is Kryptonite to investors and promises he will hold back federal funding, including healthcare dollars if necessary, if he is elected prime minister.
  • A huge oil sands deal with $9 billion of debt financing the morning of his speech, but he appears oblivious of its existence. This is just the biggest, certainly not the only one. Later in the day Calgary-based Western Energy Services announces it is acquiring Savanna Energy, a deal that also includes hundreds of millions in debt financing.
  • Statscan data shows Alberta oil and gas investment fell following the 2014 drop in oil prices, but will stabilize around $25 billion a year for the foreseeable future.
  • CAPP forecasts a 28% rise in oil sands production by 2030, which will obviously require considerable sums of capital, the same capital O’Leary says is fleeing Alberta.

Why would CNRL spend over $12 billion buying oil sands assets if management though the carbon tax would make them uneconomic? And why would CAPP forecast a huge increase in oil sands production if the Climate Leadership Plan would pose such a significant impediment to its members?

The answers are self-evident to Albertans, just not to Kevin O’Leary. Just like the facts of pipeline review and approval weren’t apparent to him back in Sept. when he released his goofy proposal for a Canada-wide referendum on oil pipelines.

For a man who wants to be Prime Minister and is pimping for votes in the heart of the Canadian oil patch, he knows remarkably little about the business or Alberta government policy.

Instead of Pipeline 101, we should send him to Remedial Energy Economics because clearly, based on his performance thus far, he’s just not ready.

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