Changing the Narrative on Canadian Oil and Gas
Changing the Narrative on Canadian Oil and Gas
Oil & Gas Producers Analyst BMO Nesbitt Burns Inc.
Randy leads BMO Capital Markets’ coverage of the North American oil and gas industry, covering the Canadian integrateds, large cap oil & gas producers and…
Randy leads BMO Capital Markets’ coverage of the North American oil and gas industry, covering the Canadian integrateds, large cap oil & gas producers and…
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BMO’s second annual ESG conference featured a Governance Panel on how the Canadian Oil and Gas sector is addressing a flight of foreign capital from the oil sands amid environmental concerns.
Some foreign investors, including banks and pension funds, have cut financing to Canada’s oil sands as they pledge to divest from fossil fuels. At BMO’s 2020 ESG conference, producers said the reasoning behind that decision is out of date by at least a decade, and fails to take the sector’s ESG work into account.
“I think the industry is still living with a ten-year-old story, and I think we have to start talking much more about what we’ve achieved over the last decade,” Lorraine Mitchelmore, Corporate Director, Bank of Montreal & Director, Suncor Energy, told the panel. Mitchelmore was joined by Hal Kvisle, Chairman, ARC Resources & Director, Cenovus Energy, and moderator Randy Ollenberger, MD, Oil & Gas Equity Research, BMO Capital Markets.
Panelists said that the industry has led many of its peers in mitigating greenhouse gas emissions and has long championed the communities in which it operates.
“At the oil sands in particular, our companies have made great progress in employing Indigenous people and helping those communities elevate themselves,” said Kvisle. “Companies recognize ESG as a potential competitive advantage for Canada.”
In Europe, management compensation is starting to include incentives for good ‘S’ and ‘G’ performance, but this still has a long way to go in North America, panelists said. As more projects are being shelved for ESG risk and not just technical risk, companies are looking at ways to improve their score, such as in board diversity.
Mitchelmore and Kvisle said the Canadian oil sands have moved from a high growth phase to a focus on operations that have driven breakeven costs down to par with the global industry. They say the next phase for the sector will be characterized by a technological edge, and integrating digital and AI.
“The companies that perform to a high standard according to those ESG numbers are going to be the ones that have satisfied more institutions and are more successful over time,” said Kvisle. “Canadian companies are at the forefront of these numbers.”
But Canada and its fossil fuel producers need to do a better job of communicating those achievements, and panelists called on industry and government to work together and change the narrative around Canadian oil sands.
“We have to work with governments to lower that risk, to actually have a partnership to create the right policies which continuously reduce the risk for Canadian oil and gas. I think we have a tremendous amount to offer the world when it comes to the energy transition and the energy portfolio globally. I think that we are starting to move there, and that ten-year-old story will start to go away,” said Mitchelmore. “We have to focus on being the lowest cost, lowest carbon, and lowest risk. We have to be the best we can be and the capital will come.”
Opportunity in Pandemic
To be sure, while there is risk in investing in the sector as the world transitions to a lower-carbon economy, panelists said there is also opportunity.
Mitchelmore, who is on the Bank of Montreal board of directors, and Kvisle, a former board member, are keenly aware of that opportunity. “I think sustainable finance for a bank is an opportunity, and it’s also an opportunity for cost of capital for companies that are really considering ESG factors and long-term sustainability,” said Mitchelmore. “I think that we are migrating into a new world where when you consider all of these risks, and it’s a risk/return equation where, as you start thinking about ESG and bringing that into play, you will find its to your advantage.”
Panelists agreed that while COVID-19 has hit the global oil and gas industry hard, it has also driven greater communication and collaboration between government and private sector players around the world, and Canada has been no exception.
Mitchelmore and Kvisle said Canada and its oil sands are facing a unique opportunity to position Canada in a world that will continue to need fossil fuels for decades to come.
“This is a great opportunity for our country to bring that together and the government has the information to be able to act on what policies we need to become more competitive.”
Read Randy Ollenberger’s latest report about technological advances in the Canadian oil sands: The 400 Billion Barrel Opportunity for Friendly Oil, and Canada’s Evolving Role
