New Alberta leader's vow to scrap rail plan divides oil patch

Image: Joey Podlubny/JWN

Alberta Premier-Elect Jason Kenney’s vow to cancel his predecessor’s C$3.7 billion ($2.8 billion) plan to increase the province’s crude-by-rail capacity is dividing Canada’s oil industry, with even one of his supporters saying he should keep the program.

Kenney, whose United Conservative Party won a majority of legislative seats in the province’s election on Tuesday, argued on the campaign trail that taxpayer money shouldn’t be spent on the plan to alleviate a lack of pipelines.

That stance is backed Brian Schmidt, the chief executive officer of Alberta oil and gas company Tamarack Valley Energy Ltd. Schmidt said he’s opposed to any government intervention in the oil market and that a widening discount for Canadian heavy crude compared with U.S. prices would spur companies to action.

"As soon as there’s enough differential, the market will build those cars,” Schmidt said in an interview on the sidelines of a Canadian energy conference in Toronto. “I’m not sure it’s necessary to do public funding.”

However, other Albertan oil producers are more supportive of the rail plan, introduced by Premier Rachel Notley last year. MEG Energy Corp. CEO Derek Evans said the investment is “a critical piece of the short-term strategy to solve the egress problem.”

“Do I believe the province should be in the rail business in the long term? No,” Evans said in an interview. “That is a producer responsibility in the long term, but the government is required to act in the best interest of the constituents in the province, and that’s exactly the right thing to be doing at this time.”

Grant Fagerheim, the CEO of Whitecap Resources Inc. and a Kenney supporter, said the premier-elect may maintain the program temporarily because it’s needed in the short term. However, new pipelines should come online before the program is scheduled to end, and keeping it beyond that point may distort the market for Canadian crude, he said.

Whether any of Kenney’s planned changes actually increase investor interest in Canada’s energy industry remains to be seen. ARC Energy Research Institute Senior Director Jackie Forrest said Tuesday before the election results were released that the institutional investors from outside of Canada that she talks to don’t follow the country’s politics too much. She said she gets more questions on pipelines than anything else.

“I don’t know that a change in government is going to really result in more interest in the sector until we can act prove we can move that crude oil, whether it be by rail or by pipe, and we get stability to those differentials,” Forrest said.

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