Ottawa Is Totally Incompetent

The news of Encana’s name change and relocation to the U.S. on Halloween may have spooked Albertans, but the bigger question is whether the developments are enough to finally scare Ottawa into realizing just how precarious the situation unfolding in the oil patch — a sector responsible for 11 per cent of our country’s GDP — really is.

What many forget is that capital is highly mobile and takes the path of least resistance. This means that alongside ROI, risk is one of the most critical factors taken into account when making capital allocation decisions.

Unfortunately, when it comes to investing in our energy sector Canada is now viewed as a very high risk region with a low return. In total, foreign capital divestitures have amounted to more than $30 billion in the past three years. Kinder Morgan, Statoil, ConcocoPhilips, Royal Dutch Shell Plc, Marathon Oil Corp., Devon Energy, Equinor ASA, Koch Oil Sands and Total SA have all either reduced their exposure or have left altogether.

Investors have also hit the sell button with carnage for those who chose to stay put and ride it out as many E&P and Serviceco share prices are now trading at half to one-quarter of their 2014 highs. That said, while investors have the ability to move their positions abroad quite easily it’s a different story for the remaining Canadian energy companies especially for those with domestic operations.

Instead many are now forced to harvest their internal cash flow to either pay down debt, return it to shareholders via dividends or undertake share buybacks which only compounds the contraction of the industry by returning capital instead of putting it in the ground. Maybe this is the outcome certain environmental lobby groups desire but it does come at a huge cost.

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See Also:

(1) The rise of western alienation … again: When it comes to anger in the west, history keeps repeating itself

(2) Witness was offered $10M to change testimony, trial of former SNC-Lavalin executive hears

(3) May Day! Greens without a leader are the Tories next?

(4) Scheer needs to act before others act for him

(5) Andrew Scheer’s future hinges on his cross-country listening tour