It would be easy to write off the oilsands — as many government and investor types are doing — if it weren’t for relentless optimists such as Rick George.
The former chief executive of Suncor Energy Inc., who more than anyone transformed the Alberta oil deposits into an economic force, believes they are due for a rebound.
George, 65, who retired from leading Canada’s largest oil company in 2011 but has continued to be involved in the industry as chairman of junior Osum Oil Sands Corp., blames the extended low-oil-price cycle and government actions for the ongoing investment exodus.
But he is also confident the industry he helped pioneer will outlast those who are in power today by centuries. As someone who has ridden out a few downturns in his quarter century in the oil patch, transforming Suncor from a $1-billion problem-plagued venture into a $50-billion energy giant, he knows more about the oilsands and its place in the world’s energy mix than most will ever learn.
“However well-meaning these governments are, they have not helped the oilsands in the sense of the policies that they put in, the restrictions that they put in,” said George, who is making progress and looking forward to a full life’s experience after recovering from an illness.
In addition to his role at Osum, the Colorado native, engineer and lawyer is chairman of Obsidian Energy Ltd. and a director at Royal Bank of Canada and Anadarko Petroleum Corp.
“We kind of knew that when we got an NDP government (in Alberta), and it’s kind of played out the way that most of us thought it probably would,” he said.
However well-meaning these governments are, they have not helped the oilsandsRick George
But oilsands plants are built to last for the long term, and with technology improving and costs coming down, “we will be producing oilsands for another 300 to 500 years,” he said.
To be sure, the era of really big projects is probably over, George said, but lots of smaller ones will move forward, aided by Canadian-led industry consolidation and continuing innovation.
Canadian players, including Suncor, led the technology push that made the oilsands an outsized contributor to the Canadian economy and will continue to make improvements, George said.
Among the new players is Osum, one of a handful of remaining oilsands juniors. Osum has growing projects near Cold Lake and is piloting heavy oil production from the Grosmont carbonates, a massive undeveloped formation that sits below oilsands deposits.
Such developments could spur new growth in Alberta, which could return it to being a key contributor to Canada’s prosperity.
A Fraser Institute study released this week showed Alberta contributed $221.4 billion more revenue to federal coffers between 2007 and 2015 than it received in federal transfer payments and services — a much larger contribution than any other province.
This (downturn) is interesting in the sense that it’s deeper and it’s longer than we have seenRick George
Without Alberta, Ottawa would have incurred big deficits every year since 2009, the think tank said.
In addition, Alberta between 2004 and 2014 generated more private-sector job growth than any other province, including the more populous Ontario. As Alberta’s economic engine, the oilsands were central to that wealth creation.
Weak oil prices and hostile policies have since sent the province into one of the deepest recessions in its history, but George believes the oil price downturn, now in its third year, will correct itself.
“I have been involved in four or five (downturns) in my career, but this one is interesting in the sense that it’s deeper and it’s longer than we have seen,” he said. “I am also a believer that because the industry has cut back so much capital, sooner or later we will come to a point where supply comes back into balance and we have a more reasonable oil price if not another surge in oil prices.”
That doesn’t mean Canada shouldn’t invest in other energy sources such as wind power, as Suncor did when George was in charge, but he points out limiting production from one of the world’s largest deposits means foreign producers will fill the void as they already are.
The oil price crash followed a surge in production in places such as the U.S. and Canada, which prompted a price war by the Organization of Petroleum Exporting Countries to protect its market share.
George said there was no way for western producers to mitigate the downturn by moving in concert to limit their production, as they would have run afoul of competition laws.
“In North America and in the West, we have a capitalist system where competition is extremely strong,” he said. “That is what makes this industry so viable long term. The industry is self-regulated on the amount of capital that goes in and really by the market. And so what have seen over the last three years is capital being pulled because capital sources have dried out. That takes a while to play out.”
What have seen over the last three years is capital being pulled because capital sources have dried out. That takes a while to play outRick George
George’s optimism, which has always meant confronting challenges rather than running away from them, has helped overcome setbacks far greater than the ones roiling the oilsands today.
Former Husky Energy Inc. chief executive Asim Ghosh, who now lives in Europe, said he and George were kindred spirits who connected from their very first meeting soon after arriving in Calgary in 2010.
“Rick is a leader, with all the qualities that are implied in that word,” Ghosh said. “He is a bulldog who won’t let go of the bone, but big enough to know that if it is a big bone, it needs a team to chew it.”
After working in the conventional oil business George moved to Suncor in 1991, when the industry was in its infancy and experiencing myriad troubles to boot. Its cost of producing oil, which involved separating it from sand, was among the world’s highest. In addition, a major fire and a long labour dispute wrecked its plant in Fort McMurray.
In his 2012 memoir, Sun Rise, George admits: “Optimism is a great asset, but fear is a wonderful motivator.” His fear during those early days at Suncor was to fail in a new and challenging job.
“From the day he took over as president and CEO, Rick guided Suncor from what was thought to be Canada’s unluckiest oil company to the premier company in the Canadian oilsands,” said John Rogers, who worked for George for 18 years as Suncor’s head of investor relations and now holds a similar role at another oilsands company, MEG Energy Corp.
The great thing about democracy is that politicians make their choices, and we, the electorate, get a chance to vote on themRick George
George’s turnaround plan for Suncor was supported by two major changes: innovation, including the phasing out of bucket-wheel excavators and conveyor belts to carry ore that were prone to breaking down in favour of trucks and shovels, and new government policies that supported the industry.
A Conservative government in Alberta led by Ralph Klein, and a Liberal government in Ottawa led by Jean Chretien, agreed to improve fiscal terms — the province reduced royalty rates, and Ottawa allowed a faster writeoff of investment — after a task force that pulled together governments, developers, trade unions and suppliers saw an opportunity for national wealth creation at a time of weak employment and economic growth.
The new deal unleashed waves of investment that continued until oil prices collapsed in 2014.
There were major setbacks in between, of course, including the global financial crisis in 2008 that resulted in widespread project cancellations and worries that the business’s best days were over, but investment returned and new mega projects were built.
Today, a slew of new environmental regulations that are penalizing the oilsands while supporting green energy are contributing to the sour investor mood.
A report made public last week by the Canadian Association of Petroleum Producers (CAPP) estimates the cumulative cost of provincial and federal government policy and regulation changes impacting the oil and gas industry ranges from $450 million to $760 million annually.
The group estimates there are between 40 and 50 different policy and regulatory initiatives underway by provincial and federal governments that have the potential for adverse impacts on the oilsands and conventional production.
Capital spending is already forecast to drop $44 billion in 2017, from $81 billion in 2014, while spending in the U.S. is expected to rise 38 per cent to $120 billion this year, CAPP’s report said.
As in the oilsands’ early days, CAPP has called for the creation of a committee involving both industry and government to find ways to bring those investors back.
It will take improving oil prices and consistent government policies that are competitive worldwide to make that happen, George said, adding that governments will eventually have to face up to the consequences of their actions.
“The great thing about democracy is that politicians make their choices, and we, the electorate, get a chance to vote on them,” he said. What’s needed is “really sensible government that takes a balanced view on how we attract capital in this country. And that is not something that has been present lately.”
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